The IRS Should Collect Racial Data

The U.S. tax collection agency, the Internal Revenue Service (IRS), currently does not ask tax filers to disclose their race or ethnicity. This well-intentioned policy seeks to prevent racial discrimination and racially-motivated enforcement actions. Yet in a recent paper, George Washington University Law Professor Jeremy Bearer-Friend contends that omitting race questions from tax forms is, in fact, perpetuating racial inequality. To bridge racial gaps in economic wellbeing, he argues that the IRS needs to start collecting and make available for analysis racial data.

Omitting racial data makes it harder for the IRS to identify the racial distribution of tax payments and refunds. In 2015, the IRS collected $1.5 trillion from 150 million individual income tax returns—a huge amount of money without detailed information about who is sending and receiving it. Compared to other federal agencies, the IRS is exceptional in its omission of race data. Other federal agencies like the Social Security Administration, Housing and Urban Development, Census Bureau, and the Centers for Medicare and Medicaid Services do collect and publish race and ethnicity data in compliance with Title VI of the Civil Rights Act of 1964.

Bearer-Friend points out that the absence of racial terminology in the tax code is part of the IRS’ attempt to appear racially “neutral.” The IRS assumes “magic word formalism”—race and racism only exist if they are mentioned. While ignorance about race may seem to remove the IRS’ ability to discriminate, lacking demographic information in tax data does not remove racial animus from political process since policymakers resort to stereotypes to fill data gaps on race. For example, there is a general perception that, between racial groups, there is an unequal awareness of tax benefits and as a result unequal claims for those benefits. However, according to Bearer-Friend, we don’t have the necessary data to verify this contention.

Bearer-Fried argues that the risks of not collecting racial tax data significantly outweigh the risks of IRS colorblindness. Simply put, what gets measured gets managed. Without race data, tax analyses will struggle to identify the effects of tax policies on different racial groups. For example, Bearer-Friend cites evidence showing that only 32 percent of Latinx parents know about the Earned Income Tax Credit, and only 18.4 percent claim it. If the IRS had this data on hand, it could present an opportunity to increase take-up of one its own programs through targeted outreach.

While there are alternatives to direct collection by the IRS, they are problematic. The IRS can match relevant tax data with racial microdata provided by other agencies, but they fear an adverse effect on their survey response rates if they provide such data to tax officials, whom many do not trust. IRS tax forms could also be mirrored in non-tax surveys that collect racial data. However, the compliance and veracity of responses may suffer since such documents are not legally binding and consequently do not invoke a penalty of perjury.

Though researchers and other government agencies continue to produce analyses of race data and the tax code through data matching, Bearer-Friend argues that it is imperative that the IRS itself engages in race-related analysis as it has tax expertise, is integrated in the tax policymaking process, and is directly involved in tax administration. To address privacy concerns, responses to questions about race can be withheld from revenue agents responsible for assessment or collection and shared only with Statistics of Income Division of the IRS. Tax forms could include a disclaimer about who would see an answer to a race question and why it is being asked. This data may be used on an aggregate basis only so analysts can view broad distributions rather than individual tax information.

The critical race theory literature has widely pilloried colorblindness as an instrument of white supremacy, and the IRS is no exception. Bearer-Friend argues for the rejection of colorblindness as better tax data can root out misconceptions and biases about who contributes to tax revenues and who is subsidized by them so we can formulate better and transparent tax policy. If the IRS were to adopt Bearer-Friend’s policy recommendations, it must be implemented fully both in letter and in spirit to achieve intended goals and to safeguard against data abuse.

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Bearer-Friend, Jeremy. 2019. “Should the IRS Know Your Race? The Challenge of Colorblind Tax Data.” Tax Law Review 73, no. 1: https://ssrn.com/abstract=3231315.