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Faculty and Scholarship

Racial stereotypes influence opinion on earned income tax credit, Professor Brown says

Emory University School of Law |

Who’s paying their fair share of taxes has become a major topic in this year’s presidential election, at least for Democrats. With a U.S. tax gap of about $300 billion, the issue of tax avoidance is a real one.

One thing we may not be considering is how racial stereotyping affects how we go after tax cheats, Emory Law Professor Dorothy Brown says.

A discussion Brown participated in aired on CSPAN 2’s “Capital News Today,” on Aug. 24. The program on racial bias in the legal system was held at Harvard Law School in June.

The myth of the welfare queen that emerged during the Clinton administration continues to warp tax law and enforcement, Brown argues.

In the 1970s, the Earned Income Tax Credit was created to reward the working poor by refunding some of their federal taxes, thereby encouraging work over welfare.

“In 2010, 6.3 million people were lifted out of poverty as a result of this tax credit,” Brown said. Many of those were children, she added.

However, the error rate, or overpayment, for the EITC is about 25 to 30 percent.

When Republicans threatened to kill the credit because of that, Clinton and Congress worked out a compromise that threw about a billion dollars at cracking down on cheaters, with the idea that more audits would reduce the error rate, Brown said.

Ten years later, “the error rate has barely budged,” she said.

Around the same time, Congress dramatically defanged IRS audit power over middle-class taxpayers, following claims of draconian enforcement.

The result of those converging policies was that, from the mid-1990s to the early 2000s, the majority of taxpayers audited were EITC taxpayers, Brown said. Of the current $300 billion estimate, ”less than 1 percent is attributable to the Earned Income Tax Credit,” she said.

There are two camps on why the EITC has such a high error rate, she said. One is that cheaters game the system. The other, which Brown supports, is that code is unnecessarily complex.

“The IRS booklet that accompanied the earned-income credit is over 50 pages long and has several computations involved,” Brown said.

“I have an LLM in tax … When I say the Earned Income Tax Credit is complicated, the Earned Income Tax Credit is complicated,” she said. She also noted a greater percentage of EITC taxpayers’ returns are done by tax preparers—72 percent, compared to 60 percent of all taxpayers.

Legislators continue to embrace the first theory because of racial stereotyping, Brown said.

“The reason why Congress went the audit route as opposed to the simplification route is because of who they believed the EITC claimants were,” Brown said. “And the rhetoric around welfare tells us what that means—that’s very raced.”

Brown said studies show more than 50 percent of those claiming the EITC are white.

“So while Congress was using this rhetoric about welfare cheats—and we know that means, lazy black people waiting for government checks, right?—they were in all likelihood auditing to death low-income white taxpayers, because they make up the majority of EITC claimants. So if you wanted to target the lazy black taxpayer, you were missing the mark.

“My argument is the problem isn’t really with the cheating. The problem is with the complexity of the earned income tax credit,” Brown said. 

Related links

Watch “Racial Bias in the Legal System” on CSPAN