Lily Batchelder (Assistant Secretary for Tax Policy) & Greg Leiserson (Deputy Assistant Secretary for Tax Analysis), Disparities in the Benefits of Tax Expenditures by Race and Ethnicity:
This analysis, the subject of a new Office of Tax Analysis (OTA) working paper [Tax Expenditures by Race and Hispanic
Ethnicity: An Application of the U.S. Treasury Department's Race and Hispanic Ethnicity Imputation], finds disparities in the benefits of some tax expenditures among White, Black, and Hispanic families. Tax expenditures are provisions of federal law that allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability for certain activities. Examples include the preferential rates for capital gains, the home mortgage interest deduction, and the Earned Income Tax Credit. OTA working papers are works in progress intended to generate discussion and critical comment.
Researchers frequently analyze the distributional effects of tax policies across an array of demographic information, including income, family structure, age, and geography. However, it is challenging to perform such analysis by race and ethnicity because there is no single data source with both tax and race/ethnicity information. Tax liability does not depend on race or ethnicity, and this information is not collected on tax returns.
To overcome this challenge, Treasury researchers have developed a method to impute race and ethnicity in tax data. Under this method, researchers estimate the probability that the primary filer—the person listed first on the tax return—is Asian, Black, Hispanic, Native American, White, or multiple race based on other information available in the tax data. These probabilities are then used as weights to construct estimates for different groups. ...
The new working paper on the distribution of tax expenditures, by Julie-Anne Cronin, Portia DeFilippes, and Robin Fisher of OTA, examines eight of the largest individual income tax expenditures. It estimates the distribution of benefits for certain racial and ethnic groups first on an overall per capita basis, and then within income deciles (tenths of the income distribution).
On an overall per capita basis, the paper finds that the preferential rates for capital gains and dividends, deduction for pass-through income, charitable deduction, home mortgage interest deduction, and deduction for employer-provided health insurance disproportionately benefit White families. In contrast, Black and Hispanic families, who make up a disproportionate share of low-wage workers, disproportionately benefit from the Earned Income Tax Credit, which is designed to help low- to moderate-income workers and their families. Hispanic families, who have comparatively low rates of employer-sponsored health insurance, also disproportionately benefit from the Premium Tax Credit, which provides assistance for the purchase of health insurance through the Marketplaces. Finally, Hispanic families disproportionately benefit from the Child Tax Credit. The current analysis focuses on Black, White, and Hispanic people due to high levels of uncertainty in estimates for other groups.
January 25, 2023 in IRS News, Tax, Tax News, Tax Scholarship | Permalink