By John Hardt
Policymakers who create and administer the U.S. tax system often trumpet “fairness” as a guiding principle in how the system is designed. Yet, ironically, many people consistently complain that the U.S. tax system is quite the opposite.
When discussions about “fairness” arise, some envision a level playing field where every taxpayer is subject to the same rules and regulations – a notion that the U.S. Tax Code ostensibly upholds. After all, race doesn’t factor into the tax code’s text and the IRS doesn’t collect data on taxpayers’ racial backgrounds. In theory, individuals in similar financial circumstances should face identical tax burdens. However, reality paints a different picture – one marred by disparities and inequities.
It is widely recognized, even within the IRS, that low-income taxpayers have more difficulty navigating the tax system than other taxpayers. Even the IRS recognizes this disparity. In response, Congress allocated funding for the creation of the Low-Income Taxpayer Clinic program under the IRS Restructuring and Reform Act of 1998. Over a hundred of these independently run clinics, scattered across the nation, aim to provide free tax and legal assistance to those who can’t afford representation. In Baltimore, where I work at one such clinic, we witness firsthand the formidable challenges our clients encounter due to certain aspects of the tax system.
Low-income taxpayers often grapple with unstable housing and unreliable internet access, exacerbating their difficulties in interacting with the IRS. The agency predominantly communicates via mail, which presents an obstacle for those without stable housing or who frequently transition between short-term housing. While the IRS avoids contacting taxpayers by phone due to prevalent IRS impersonation scams, the current lengthy wait times worsen the problem for those who need assistance.
Although the IRS has hired more staff and expanded its online services, this has done little to help low-income individuals with limited internet access or technological proficiency. Unfortunately, many elderly taxpayers face similar hurdles. These barriers to service impede timely resolution of audits or disputes and often result in escalating penalties and debts.
Recent analyses of internal IRS systems revealed that Black taxpayers are audited more frequently than non-Black taxpayers. In early 2023, the Stanford Institute for Economic Policy Research (SIEPR) released a report showing that Black taxpayers are audited nearly three to five times more than their non-Black counterparts. According to the report, much of this disparity focused on the IRS’ selection process for which tax returns claiming Earned Income Tax Credits (EITC) to audit.
The EITC is one of the most important tax credits available for low- and middle-income families, giving them a break on their taxes based on how much they earn and how many dependents they have. But because the rules for who qualifies can be tricky, some people claim the credit when they shouldn’t, leading to more audits.
What’s worse, even Black taxpayers claiming the EITC get audited more often than non-Black taxpayers who also claim it. The problem seems to be with the IRS’ computer systems, which go after as many potentially wrong returns as possible, instead of focusing on finding the most unreported income. If the IRS targeted more complicated returns, the gap in audits between Black and non-Black taxpayers wouldn’t be so huge.
In response to the SIEPR report, the IRS publicly pledged to reassess its policies and pursue fairer practices. However, whether this commitment translates into tangible change remains to be seen. Similar promises were made after the IRS faced criticism for prolonged wait times by phone during the pandemic. This yielded some progress, but still fell short.
American taxpayers must continue to speak out against injustices in the U.S. tax system to ensure we have a system that works in the best interests of everyone and treats us all fairly.