December 21, 2021
Senior Data Analyst
December 21, 2021
The Treasury Department recently announced that it would begin new research to examine the impact of certain tax policies through a racial equity lens. This is welcome news for researchers and advocates fighting for an equitable and just tax code.
This research is a product of the Biden Administration’s first Executive Order, which outlined his equity agenda and acknowledged the importance of data in achieving it. Among other things, the Order established an inter-agency Equitable Data Working Group to “identify inadequacies in federal data collection” and “expand the data available.” This taskforce is a groundbreaking first step toward data disaggregation with implications for equity and accountability.
One important data inadequacy is the lack of demographic information in tax data. While the IRS data offers rich data on taxpayer income, it does not collect information on important demographic characteristics like race and ethnicity. This presents a challenge for researchers interested in the racialized impacts of the U.S. tax system and has prompted many researchers and organizations to advocate for public-use tax data that is disaggregated by race and ethnicity.
Given these data limitations, ITEP has created its own methodology to analyze tax policy through a racial equity lens. Using secondary sources of demographic information, ITEP imputes race and ethnicity characteristics onto tax data. Our research has shown that without an explicit racial equity lens, tax policy research can perpetuate the dangerous myth that tax policy has the same impact on Black, Hispanic, and Indigenous communities as it does on White communities.
Using this methodology, ITEP has been able to show the importance of progressive state income taxes in achieving racial equity, the impact of tax credits like the CTC and EITC expansions across different race and ethnic groups, and the diverse families who benefit from tax credit reforms in the Build Back Better plan. In 2018, ITEP analyzed the Tax Cuts and Jobs Act of 2017, revealing that on average, white families received a substantially larger tax cut than Black and Hispanic families and the vast majority of the benefit of the tax cuts overall. All these analyses show that tax policy can have significant and sometimes disparate impacts on families of different races and ethnicities. These kinds of data-driven insights are a critical in the fight for tax justice.
We are heartened to see the Treasury acknowledging the importance of this work and we are looking forward to seeing this long-neglected field of study grow in the months and years ahead. The scope of the Treasury’s work will be narrow at first, examining the distribution of the Economic Impact Payments, commonly referred to as stimulus payment, that individuals and households received for COVID relief. The Treasury’s goal, however, is to create a reliable model for imputing race, ethnicity, gender, and other demographic information onto tax data that can be used to analyze a wider range of tax policies. The Treasury has also said that it plans to make much of this data public, allowing outside researchers to examine the equity effects of the tax code more broadly.
This new research initiative represents a commitment to addressing equity data challenges at the highest level of government.