Easier Access to the Tax System Has Racial Equity Implications

Evidence has been building for years that people of color are disproportionately likely to miss out on the critical social support that’s delivered through the tax code. The U.S. Internal Revenue Service (IRS) has reported that Earned Income Tax Credit (EITC) non-recipients are disproportionately households with non-traditional family structures (who are disproportionately Black), Indigenous people, and non-native English speakers. During the 2021 expanded Child Tax Credit (CTC), Zip codes with more people of color had higher rates of unclaimed children, even after controlling for other characteristics.

But earlier this year, federal government researchers released the most striking data yet in this vein: people of color were more than twice as likely as white people to not receive pandemic-era Economic Impact Payments (EIPs). According to our analysis of the government data, only 4.0-5.8% of eligible white adults missed out on the payments, while 8.3-12.1% of people of color missed out. Although people of color made up just 36% of eligible adults, they comprised the outright majority of eligible non-recipients.

It is the clearest evidence yet that improving access to the tax system has critical racial equity implications . Every year, the biggest anti-poverty program in the United States runs through the tax code; in the pandemic, genuinely life-saving emergency payments also came through the tax code. But people of color are missing out on these payments at profoundly disproportionate rates.

The evidence is clear

The data behind these claims were released in May 2023 by researchers from the U.S. Census Bureau, U.S. Department of the Treasury, and the Internal Revenue Service. They matched IRS records to Census records to identify the demographic characteristics of those who did and did not receive the first Economic Impact Payment (a.k.a. stimulus payment), which was distributed starting in April 2020.

Want to learn more? Our detailed racial analysis of government data is available here.

The data shows that 228 million adults were eligible for the first EIP. Of these, an estimated 64% were white (146 million), and 36% were people of color (82 million). Meanwhile, the researchers identify 18.4 million people who were eligible but didn’t receive their EIP— 8.1% of the total eligible. Of these, 8.5 million are white, but 9.8 million are people of color. In other words, 5.8% of white adults missed out, compared to 12.1% of people of color.

Our detailed analysis of the Treasury data also shows that the findings hold when testing alternate analytical assumptions. In particular, the researchers note that, due to incomplete data matching, 5.6 million of the 18.4 million identified non-recipients may have in fact gotten the payments. But this mismatch is unlikely to change the headline result. Even if people of color were 20 percentage points more likely to be in the unmatched group than the prevailing distribution, eligible people of color would still be 50% more likely than eligible white people to have missed the payment. No matter how you look at it, people of color are missing out on assistance at far higher rates.

We need Direct File and IRS modernization

Given the way the tax system functions, the gaps in access are due — at least in significant part — to gaps in the rate of tax filing across racial groups. This means that in pursuit of racial equity, the government must make it easier and less costly to file a tax return.

That’s the work the IRS has taken on with the generational investment of the Inflation Reduction Act, and in particular through Direct File, the IRS’s first real foray into taking ownership of the front door of the tax filing system in the digital age. Through this work, and through the Treasury and IRS’s renewed focus on equity, we can begin to close the racial disparities in access that have existed for far too long.