TaxProf Blog

Lily Batchelder (Assistant Secretary for Fiscal Policy) and Greg Leiserson (Deputy Assistant Secretary for Fiscal Analysis), Disparities in the Benefits of Tax Expenditures by Race and Ethnicity:

This analysis, the subject of a new working document of the Office of Fiscal Analysis (OTA) [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 expenses are provisions of federal law that allow for a special exclusion, exemption, or deduction from gross income or that provide a special credit, preferential tax rate, or deferral of tax liability for certain activities. Examples include the capital gains prime rate, the mortgage interest deduction, and the Earned Income Tax Credit. OTA working papers are works-in-progress intended to generate critical comment and discussion.

Researchers frequently analyze the distributional effects of fiscal policies across a variety of demographic information, including income, family structure, age, and geography. However, it is challenging to perform such an analysis by race and ethnicity because there is no single data source with tax and race/ethnicity information. Tax liability is not based on race or ethnic origin, 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. Using 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 mixed 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 OTA’s Julie-Anne Cronin, Portia DeFilippes and Robin Fisher, 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 prime rates for capital gains and dividends, transfer of income deduction, charitable deduction, mortgage interest deduction, and deduction for employer-provided health insurance disproportionately benefit white families. In contrast, African American and Hispanic families, who make up a disproportionate share of low-wage workers, benefit disproportionately 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 for employer-sponsored health insurance, also benefit disproportionately from the Premium Tax Credit, which provides assistance in purchasing health insurance through the Marketplaces. Finally, Hispanic families benefit disproportionately from the Child Tax Credit. The current analysis focuses on black, white, and Hispanic people because of the high levels of uncertainty in the estimates for other groups.

The analysis also examines disparities in the benefits of tax expenditures by race within income deciles. The findings within the income decile are particularly stark for capital gains and dividend prime rates. White families are generally more likely to benefit from these preferential rates across the income distribution (see the figure below) and receive greater benefits at higher income levels where the benefits of these preferential rates are greatest. pronounced. The same is likely to be true for the transfer of income deduction, but the differences within income class are not statistically significant. …

While many questions remain, these initial findings emphasize the scrutiny that must be given to existing and proposed tax expenditures that take the form of deductions, exclusions, and preferential rates. On a per capita basis, these types of benefits generally benefit a disproportionately white population and thus widen racial disparities. By contrast, reimbursable credits more often reduce racial disparities and can also often be better designed to achieve underlying policy goals.

bloomberg, White Americans get 92% of the profits from investor tax breaks:

The first US Treasury Department analysis of tax filing data by race and ethnicity shows that white Americans benefit disproportionately from a variety of tax breaks, including those aimed at investors.

Non-Hispanic white Americans, who make up two-thirds of US families, receive 92% of the benefit of the lowest tax rate on dividends and capital gains, and about the same share of deductions for charitable contributions and business income transfer. according to the treasury study, which analyzes the impact of several important tax breaks. Some other provisions, such as the earned income tax credit and child tax credit, are more evenly distributed.