Disparate Impact In Taxation Meets Disparate Impact Jurisprudence: Burdens vs. Barriers

Steven M. Sheffrin (Tulane; Google Scholar), Disparate Impact in Taxation Meets Disparate Impact Jurisprudence: Burdens vs. Barriers, 43 Va. Tax Rev. 331 (2024):

Following years of academic scholarship, the United States Treasury has now embraced disparate racial and ethnic impacts in taxation as an important policy issue. The academic literature highlighted the idea that certain structural features of tax law and the provision of certain benefits through the tax system — tax expenditures — had differential racial or ethnic impacts. This literature focused on the disparate tax burdens on racial and ethnic groups — an analysis of “who gets what” from the tax system.

For an even longer period, the legal system has also tackled issues of disparate racial impacts, but from a different perspective. The question the legal system addressed was under what legal circumstances disparate outcomes could be viewed as equivalent to illegal, intentional discrimination. The U.S. Supreme Court has returned to this issue several times. In their most recent rulings, the Court focused on whether public policies created “barriers” for individuals that fostered continued discrimination. Their focus was on the structure of the policy, not the distribution of benefits per se.

This paper highlights the tension in these two lines of thought — burdens versus barriers. It argues that the legal perspective based on barriers provides a better foundation for public policy than the analysis based on burdens. The argument proceeds in three steps. First, even if there are disparate outcomes from specific tax provisions, the progressivity of the tax system makes it highly likely that the tax system overall benefits racial and ethnic minorities. Moreover, recent research has shown that many of the disparate impacts become insignificant when conditioned on other variables — such as income. Second, most policy proposals to eliminate the remaining disparate impacts of taxation are unlikely to be implemented, undesirable on other policy grounds, or potentially involve remedies that run afoul of constitutional strictures. Third, the barriers approach directly highlights some of the ultimate causes of the differential tax impacts and provides new avenues for pursuing informed public policies.