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February 10, 2021

ABA webinar explores how the tax system plays favorites

As part of a monthlong commemoration of Black History Month, the American Bar Association Section of Civil Rights and Social Justice is holding a series of webinars called “The Challenges that African Americans Face in the 21st Century.”

In the webinar “#BlackTaxpayersMatter: Intersection of Race, Tax Systems, Laws and Enforcement,” tax experts discussed institutional racism in the tax system. They gave a historical overview of racism in international and domestic tax systems and how the systems target Black and Latinx taxpayers.

“We don’t know who is paying taxes by race,” says Donnie Charleston, director of Public Policy & Advocacy for E Pluribus Unum. “It makes no sense, from the standpoint of this is the most  important thing we do as citizens, but we don’t have any insider data with respect to race and the tax code.”

U.S. tax forms do not ask for the taxpayer’s race. “That’s a glaring issue we definitely need to correct if we’re going to really understand and wrestle with the tax code and the inequities within that system,” Charleston said.

Despite specific race data, Charleston said experts can still draw conclusions about race based on other factors. He was able to use institutional knowledge and historical tax laws to come up with “a basic conclusion that there is arguably, even if it’s not by design, de facto discrimination built into the tax code by virtue of the racially differential impacts on different racial groups in America.”

According to Charleston, there is a historical legacy of discrimination in tax policies. “So those policies were not out of thin air and there’s a history there,” he said. 

Charleston said the Internal Revenue Service disproportionately audits African American taxpayers in states such as Alabama, Georgia and Tennessee, which focus on claims around the earned income tax credit. He said underreported income from farms and royalties, which are the largest categories of underreported income in the country, is less targeted.

He equates the disparity to “the idea that taxpayers are a political identity. And it’s a political identity that is being used throughout time, throughout American history to exclude Black Americans. It’s been used to create this othering in America and to demarcate ours versus theirs.”

Charleston added, “It’s something that’s really baked into not just our tax code, but baked into the cultural DNA of America. And the code that the idea of taxpayers is something that’s been weaponized throughout history to carve out this idea of who’s worthy and who is not worthy.”

Francine J. Lipman, law professor at the University of Nevada, Las Vegas William S. Boyd School of Law, suggested that a tax practitioner can help by being an “antiracist tax professional.” She also suggested reading  reports that former National Taxpayer Advocate Nina E. Olson put together for Congress.

Lipman said Olson’s reports to Congress  has a lot of suggestions on how to fix the inequities in the tax system.

Olson’s last report to Congress discusses ways to increase the participation rate of eligible taxpayers  for the Earned Income Tax Credit (EITC) and reduce claims by ineligible taxpayers.

Steven Dean, professor of law at Brooklyn Law School, discussed racism and antiracism in international tax law. Richard Winchester, associate professor of law at Seton Hall University School of Law, served as moderator.

To view this free webinar or register for others in the Black History Month series, “The Challenges that African Americans Face in the 21st Century,” click here.