Tax Policy Center: Itemized Deductions Benefit Whites More Than Blacks And Hispanics

Benjamin R. Page, Tracy Gordon & Aravind Boddupalli (Tax Policy Center), Providing Changemakers The Data They Need To Tackle Racial Inequities In The US Tax Code:

[A]cross all income categories, itemized deductions disproportionately benefit White taxpayers (figure 2). Overall, itemized deductions boost the after-tax incomes of units classified as White by 0.7 percent, whereas those classified as Black gain an average of 0.4 percent, and those classified as Hispanic an average of 0.2 percent. Those differences occur in large part because itemized deductions primarily benefit higher-income households, among whom Black and Hispanic households are underrepresented.

We also found White taxpayers and Black taxpayers benefit relatively more from itemized deductions than Hispanic households, even within the same income categories. For example, among those in the top income quintile (which receives almost 90 percent of the benefits of itemized deductions), itemized deductions raise the after-tax incomes of White taxpayers by an average of 1.1 percent, compared to 1.0 percent for Black taxpayers, and 0.6 percent for Hispanic taxpayers (figure 3).

Surachai Khitatrakun, Gordon B. Mermin, Benjamin R. Page & Jeffrey Rohaly (Tax Policy Center), A New Approach for Estimating the Impact of Tax Policies by Race and Ethnicity:

This working paper describes the method the Tax Policy Center (TPC) has used to enhance its tax microsimulation model to enable analysis of the distributional effects of tax policies by race and ethnicity. It also presents preliminary results using the enhanced model. Like microsimulation models used in the federal government and other research organizations, TPC’s model relies on a sample of individual tax returns as its primary data source. These data lack information on race and ethnicity because the IRS does not collect it from tax filers. TPC therefore developed a method to impute race and ethnicity in its tax data. The method replicates the tax units in the model database, with one copy for each race and ethnicity included in the analysis. Using an algorithm, those copies are then weighted to match aggregate statistics calculated from survey data for variables related to tax liability. TPC’s initial work matches statistics calculated from the Current Population Survey and the Survey of Consumer Finances. TPC’s method has the advantage that it can incorporate data from multiple surveys or other sources, and can be readily adapted to include updated or additional data. Preliminary results using the enhanced model indicate that, across all income categories, itemized deductions benefit tax units classified as White more than those classified as Black or Hispanic. Within the same income categories, tax units classified as Hispanic benefit less than those classified as Black or White.