The US Tax Code’s Invisible Biases

As the U.S. tax filing deadline, rescheduled to July 15, looms, three recent reports from the National Women’s Law Center detail the ways the U.S. tax code perpetuates racial and gender bias by rewarding particular family, household, and business structures and disadvantaging low-income women, disabled women, immigrants, LGBTQ people, and women of color.

The reports point out that these policies are “facially neutral,” meaning the language of them isn’t discriminatory even if the impact is. “Many argue that the tax code’s treatment of taxpayers is neutral … because it does not explicitly address demographic characteristics like race and gender,” says the first report, The Faulty Foundations of the Tax Code: Gender and Racial Bias in Our Tax Laws, “But the tax code’s impact is not race- or gender-neutral, and this reality has far-reaching and important consequences for women’s economic security, especially low-income women and women of color.”

Amy Matsui, co-author of this report and director of income security and senior counsel at the National Women’s Law Center, explained, “When you take a facially neutral approach, without taking a law’s actual disparate impact on different groups into account, you end up perpetuating ingrained gender and race oppression. Any body of law reflects back a vision of society and the perspective of people who wrote those laws.”

Although it has been amended several times, the tax code continues to reflect the biases embodied in the law when it was enacted in 1939. “The primary ‘family’ tax filing unit is based on the predominant family structure for white, upper-class men in the beginning of the 20th century … a married, heterosexual couple with children, and a male breadwinner,” says the first report. “The worker whose income was taxed was assumed to have a wife (or domestic worker) at home whose unpaid or hardly paid labor ensured the care of children and other family members.”

Some examples of disparate impact outlined in the reports:

• Joint filing for married couples, in which spouses’ incomes are combined when calculating the tax owed, provides a "marriage bonus" for “single-earner or unequal-earner couples, in which one spouse makes significantly more than the other,” rewarding households with a primary wage earner and a partner staying home to care for children, which the report calls “an increasingly outdated household structure.”
• Business deductions. Business owners may deduct the cost of capital expenses such as machinery. Men are more likely to own capital-intensive businesses, such as construction or manufacturing, while women are more likely to own service firms, such as salons and consulting firms, which rely on human labor — no tax breaks involved. Similarly, child care expenses are never deductible.
• Income from investments. Provisions that reduce tax on income from wealth, as opposed to income from labor, “offer disparate benefits by gender, race, and other characteristics because of disparities in income and wealth,” according to The Faulty Foundations of the Tax Code. Further, according to a second report, A Tax Code for the Rest of Us: A Framework & Recommendations for Advancing Gender & Racial Equity Through Tax Credits, “Tax breaks on income generated from extreme wealth allow the already wealthy to face lower tax rates on much of their income than people who earn their income from work — and also allow extreme wealth to be accumulated across generations without facing much or any taxation.”
• The mortgage interest deduction “subsidizes home ownership, thereby rewarding wealthier individuals and disadvantaging women, people of color, and other marginalized groups.” This deduction is primarily claimed by families earning over $100,000, but there is no federal tax policy to help working-class families afford rent.
• Workers compensation due to an injury isn’t taxed, while damages received from a discrimination complaint are taxed as income. Women, people of color, and disabled people are more likely to receive damages due to a discrimination complaint and are overrepresented in low-income groups. “This distinction between physical injury and discrimination awards codifies the notion that a physical harm causes a tangible, measurable loss, while discrimination, whether based on gender, race, or disability status, does not,” according to the first report.

Ariel Jurow Kleiman, coauthor of The Faulty Foundations of the Tax Code and law professor at University of San Diego Law, emphasized that these investment benefits privilege men. “Because of the gender pay gap, women simply earn less and save less than men. Savings incentives benefit men more.”

Two provisions in the tax code that actually do help low-income families are the Earned Income Tax Credit and the Additional Child Tax Credit. Unfortunately, for single, childless people the income cap for the EITC is around $15,000 with only about a $500 benefit.

“The credits are particularly important to women, and women of color especially, who are overrepresented in the low-wage workforce and who experience pay and other forms of discrimination, disproportionate responsibility for caregiving, a greater likelihood of working part time, and other factors that exacerbate economic insecurity throughout their lives,” according to The Faulty Foundations of the Tax Code.

The authors point out that the biases are so deeply engrained in the tax code that adding one refund or closing some loopholes won’t do much to fix the totality of the unfairness and could have unintended consequences. Adding more refundable tax credits could help advance economic, gender, and racial equity. However, Matsui emphasized, the tax code needs to be looked at comprehensively in order to fix it.

The reports point out that the full extent of the disparate impact is not known because the government doesn’t collect data about how the tax code impacts people based on race, gender, and disability. “We as advocates can’t even analyze how these tax provisions affect marginalized communities we care about because the data isn’t available,” said Jurow Kleiman. “We think the government should be required to collect the data and make it available to everyone. There are social scientists who do that work, but it is difficult and not everyone has access to the data. The federal government should do it to be held accountable for their decision making.”

For example, the IRS doesn’t collect data on the impact of tax policy on people with disabilities. However, it is known that the disability community has an unemployment rate of up to 80% and often earn a subminimum wage when they are working, keeping them at the poverty level and preventing them from receiving many of the aforementioned tax benefits.

The tax code is not a neutral piece of policy but a powerful tool that can increase race and gender discrimination or can remedy inequality with targeted solutions that take the reality of the lives of marginalized people into consideration. As long as the tax code is built on the racialized and gendered assumptions of the 1930s, it will continue to perpetuate race and gender disparities rather than addressing them. Matsui said that more women being elected to office may help: “Our experience has been that when we talk to women members of Congress or their staffers about taxes, they intuitively get that if you’re not specifically designing tax policies with women and underrepresented or marginalized communities in mind, a gender-neutral approach tends to leave women out as an unavoidable consequence.”

Note: The three reports are:

The Faulty Foundations of the Tax Code: Gender and Racial Bias in Our Tax Laws

Reckoning With the Hidden Rules of Gender in the Tax Code: How Low Taxes on Corporations and the Wealthy Impact Women’s Economic Opportunity and Security

A Tax Code for the Rest of Us: A Framework & Recommendations for Advancing Gender & Racial Equity Through Tax Credits