The IRS’s new initiative called Direct File will have the agency prepare low- and moderate-income Americans’ taxes in the upcoming tax season. Albeit having good intentions, the IRS and Congress must address the myriad of concerns raised that suggest Direct File may inadvertently expand systemic racial inequities.
This wide bipartisan criticism has come with good reason. The nation’s tax collector recently admitted to finding systemic racism within its operations, and it’s now trying to become the nation’s tax preparer before fixing these very real structural problems.
A January Stanford University study found that Black taxpayers are audited at 2.9 to 4.7 times the rate of non-Black taxpayers. This data understandably rubbed Sen. Ron Wyden, chair of the Senate Finance Committee, Rep. Bill Pascrell, the ranking member of the House Subcommittee on Oversight and Investigations, and their colleagues the wrong way. They sent a letter to IRS Commissioner Daniel Werfel demanding to know the truth and the agency’s plan to correct this problem.
To many policymakers’ surprise, the IRS confirmed the study’s findings, acknowledging structural inequities while pledging its commitment “to doing the work to understand and address any disparate impact of the actions we take.”
This news is no surprise to many civil rights activists who have sounded alarm bells on the IRS’ racial disparities for decades.
For example, Georgetown University tax law Prof. Dorothy Brown, who grew up in New York City, wrote a 2021 book titled “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It” analyzing the issue at length. Brown’s research found that “tax policies were made with the intent to benefit white Americans,” many of which she traced back to the Jim Crow era.
In January, even the Office of Tax Analysis admitted as much, noting that “the tax expenditure for preferential rates may promote income growth for white families relative to Black families which would work towards increasing income inequality by ‘race and Hispanic ethnicity.’ ”
It’s clear, then, that inequities in the IRS’ operating procedures have made many African-American families pay more to the IRS relative to their white counterparts. Yet, the IRS still unveiled Direct File — which will put the agency’s biased algorithms to even greater use — less than two days after admitting to inadvertently operating this biased system.
Why isn’t the agency hitting the pause button on Direct File and prioritizing becoming more equitable over becoming more powerful? Why isn’t it conducting sweeping audits and investigations into its current operations before expanding its authority using the same faulty, discriminatory procedures and systems that civil rights activists have called out?
Until the IRS does these things, Direct File will remain a recipe for failure, not fairness.
Wyden is right: “You cannot have equality in society if algorithms and other automated systems that affect people’s lives treat them differently based on the color of their skin.” The IRS is paying lip service to stomping out this bias, and it’s without question well-intentioned in its goals, but as former NAACP Executive Director Benjamin Chavis argued, it won’t be able to do so if it puts preparing our taxes before correcting the problems related to its collection of them.
Rather than begin Direct File, the IRS should use the $80 billion funding increase proposed by President Biden’s Inflation Reduction Act to make its operations more equitable.
After conceding that racial disparities appear to exist at the IRS, Werfel wrote that the agency is “dedicating significant resources to quickly evaluating the extent to which IRS’s exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity.”
Werfel also wrote that the IRS is “evaluating the potential impact of methodological changes to case selection (e.g., optimizing on broader tax issues rather than focusing on Earned Income Tax Credit overpayments).”
Given that this problem appears structural, reform will likely prove costly and time-consuming. Implementing Direct File now would only limit the resources the IRS would have to address this problem adequately. That could quickly become an issue given that, just months ago, the agency cited a shortage of resources.
Even if the IRS decides it only needs to make minor changes to address its racial disparities, the agency should pause and not begin preparing taxpayers’ returns until it has sufficiently diagnosed the reason for its operational inequities and proven to have resolved them. Only then will policymakers be able to ascertain whether Direct File would be a net positive or negative for the vulnerable Americans it’s supposed to help.
Towns, a civil rights activist, is a former member of Congress from Brooklyn who served on the Congressional Black Caucus.
Ed Towns
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