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Tax Fairness: In Search of Justice and Representation

Posted on Aug. 30, 2021

Global Roundtable is a regular series appearing in Tax Notes Federal, Tax Notes State, and Tax Notes International that brings together experts from each discipline to help advance the discussion of tax issues.

In this installment, the authors examine the lack of racial diversity in the tax profession and built-in biases in tax policies and suggest ways to remedy the inequities.

This article is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

Copyright 2021 Alice G. Abreu, Jacqueline Laínez Flanagan, and Peter Mason.
All rights reserved.

Why Is Tax So White?

Alice G. Abreu
Alice G. Abreu

Alice G. Abreu is the Honorable Nelson A. Diaz Professor of Law at Temple University’s Beasley School of Law, and the Director of the Temple Center for Tax Law and Public Policy.

Tax lawyers are crucial to the formulation and implementation of tax policy, and tax policy reflects the values and priorities of those who make it. But as Professor Rick Greenstein and I demonstrated in “Rebranding Tax/Increasing Diversity” (96 Denver L. Rev. 1 (2018)), the tax bar is much less diverse than the bar as a whole. This is especially disturbing because it is well known that the bar is much less diverse than the general population. And that lack of diversity may be contributing to the existence of tax law that disproportionately favors white taxpayers, directly and indirectly.

One reason for the relative lack of diversity in the tax bar is vividly illustrated by Emory University Law Professor Dorothy Brown’s explanation of why she became a tax lawyer. Her recently published and pathbreaking book, The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It (2021), opens with this statement: “I became a tax lawyer to get away from race.” She goes on to explain that “I learned early on that people might look at me and see black, but as far as tax law was concerned, the only color that mattered was green. . . . Tax law was about math, and I was sure I’d chosen a career where race had nothing to do with my work.” Only later did Professor Brown discover that she had “never been more wrong about anything in my life.” Professor Brown eloquently captures the popular view that tax law is only about numbers — a view that we argued in “Rebranding Tax” might contribute to the relative lack of diversity in the tax bar and to the ways in which the tax law implicitly privileges white taxpayers.

The thesis of our article and our call for rebranding tax is that, like the young Professor Brown, many people, including many law students, believe that tax is a field of law in which “the only color that matter[s is] green,” and that belief affects the composition of the tax bar. The data we discuss in “Rebranding Tax” suggest that law students who are members of racial and ethnic minority groups are more likely than others to choose legal careers that allow them to “do socially responsible work” and to “help others.” If, like the young Professor Brown, they view tax as a field of law in which “the only color that matter[s is] green,” it’s unsurprising that relatively few of them are attracted to tax. To increase the diversity of the tax bar and create a tax system that reflects that diversity, it is therefore crucial to make it widely known that tax law reflects values beyond the green of money.

The view that tax is concerned with only green is abetted by the concept of tax expenditures. Tax expenditure provisions are so classified because they serve social policy goals, such as home ownership. But traditional tax policy casts tax expenditures as interlopers — party crashers that defile what would otherwise be a pristine revenue-raising machine — what economists refer to as distortions.

Casting tax expenditures as distortions, as traditional tax policy does, promotes the view that tax should be only about raising revenue, and a field of law that purports to concern itself with only one value — in this case, raising revenue — is likely to attract a less diverse cohort of practitioners than one that openly embraces multiple and diverse values, including the value of social justice.

Moreover, a field of law that fails to recognize that it reflects values will not only fail to recognize that it implicates good values, like social justice, but it will remain blind to the way it reflects bad values, like racism, misogyny, and homophobia. The OECD’s work on tax and gender has shown that tax law is gender blind but not gender neutral. Applying the blind-versus-neutral distinction to one of the most significant preferences in the tax law — the preference for capital over labor — provides important insights.

Capital is the favored child of the tax system. Not only is income from capital taxed at much lower rates than income from labor, but increases in the value of capital are not taxed until realization, although such increases can be enjoyed well before realization by borrowing. Moreover, neither death nor gratuitous transfers are treated as realization events, and a transfer at death carries with it a step-up in basis regardless of whether any estate tax is due. And who owns most of the capital and therefore reaps most of the benefits of favored child treatment?

In one of the most important books published last year, From Here to Equality: Reparations for Black Americans in the Twenty-First Century (2020), Professor William Darity Jr. and A. Kirsten Mullen make a compelling case for reparations. They ground their case in wealth disparity, which they believe only infusions of capital can remedy. Darity and Mullen report that:

Data from the 2016 Survey of Consumer Finances indicates that median black household net worth ($17,600) is only one-tenth of white net worth ($171,000). That means, on average, that for every dollar the middle white household holds in wealth — measured by assets like homes, cash savings, and retirement funds — the middle black household possesses a mere ten cents. [Emphasis in original.]

If white households own, on average, 90 percent of the country’s capital, then a tax system that favors owners of capital has to disproportionately favor white taxpayers over Black taxpayers. Racial bias is baked into the fiber of such a system. The Whiteness of Wealth illuminates the specific ways in which this occurs. If existence of that bias were widely known, the tax law could attract a more diverse cohort of individuals, and the calls for change to the taxation of capital might not fall on deaf ears.

Although the view of tax as a field of green performed a valuable service in bringing Professor Brown to tax, it has also been costly. To attract a more diverse group of people to tax, and to change the law, tax needs to be seen as a field in which colors other than green matter.

Seeking Tax Justice for Undocumented Immigrant Workers

Jacqueline Laínez Flanagan
Jacqueline Laínez Flanagan

Jacqueline Laínez Flanagan is a visiting associate professor and acting director of the Janet R. Spragens Federal Tax Clinic at American University Washington College of Law.

Across the globe, the subject of immigration is politicized and polarizing. In the United States, the unauthorized immigrant population, I assert, is the result of immigration policies ill-suited to address economic and humanitarian realities. Specifically, undocumented immigrant workers yield economic benefits through their labor, tax contributions, and global remittances.1 Tax revenue, in particular, is seldom a focus of immigration reform discourse. But by some estimates, ongoing tax contributions by unauthorized immigrant workers total nearly $12 billion per year.2 Granting undocumented immigrant workers the dignity of formally recognizing their contributions to the economy and creating a legal pathway for those living in the shadows should not be polarizing.

In a recent law review article,3 I argue economic considerations should ideally advance meaningful immigration reform, noting the immigration system is neither efficiently addressing the need for migrant labor nor effectively stemming the tide of unlawful entries. My proposal for a way forward recommends systemic changes to increase tax compliance by directly connecting tax return filings with immigration benefits. This proposal revisits a component of previous immigration reform bills and makes tax compliance the architectural centerpiece of any potential future reform, recognizing key incentives inherent in our tax system.

The United States is an economic powerhouse, yet it comprises less than 5 percent of the global population.4 The United States has an increasingly aging native population and a growing need for workers in various service sectors. But it has overly restrictive immigration quotas.5 Refugees and asylum seekers in the United States contribute far more to economic sustainability than they cost U.S. taxpayers;6 despite a recent increase in the refugee admissions cap, refugee and asylee admissions remain artificially low.7 And those seeking admission into the United States who do not qualify for asylum, or as high-skilled business immigrants, face immense odds of ever attaining lawful status.

Despite facing ongoing myriad challenges, these unauthorized workers play an important role in our society and tax systems. Many Americans are unaware of the individual taxpayer identification number program or that unauthorized immigrants working as statutory employees contribute to the Social Security Administration (SSA) through payroll taxes, with more than $1.2 trillion accumulated in SSA’s Earnings Suspense File (ESF) as of 2012.8 Facilitated by ITINs, estimates indicate 50 percent of undocumented immigrant workers file personal income tax returns.9 Notably, 62 percent of the undocumented population consists of individuals who arrived by plane and overstayed their temporary visa.10

The COVID-19 pandemic shed light on the contributions and treatment of undocumented essential workers.11 Home health aides and other healthcare support occupations are among the lowest-paying jobs in the economy and are often filled by immigrants. A 2018 study using 2016 U.S. census data found that nearly a quarter of home health aides were born outside the United States, with most emigrating from the Caribbean and Central America.12 Additionally, Deferred Action for Childhood Arrivals (DACA)13 recipients are working on the front lines of the coronavirus pandemic — including doctors, nurses, and paramedics.14

Most noncitizens living in the United States are typically within the working ages of 25 to 64.15 Many DACA medical workers are younger, often in their 20s.16 Reports indicate DACA holders, DACA-eligible youth, and temporary protected status (TPS) recipients collectively contributed more than $5.5 billion in 2017 taxes and held more than $25 billion in spending power.17 DACA proponents note citizenship for DACA recipients would yield state and local contributions of about $50 million.18

The economics of immigration reform is not a novel concept. University of Pennsylvania law professor Howard F. Chang has written extensively about immigration and economic policy, invoking economic analysis as an underlying rationale for more liberalized immigration.19 Chang points to the value of labor, noting a worker immigrating to the United States is generally paid more for their labor than in their homeland and “higher wages for the same worker mean that the worker produces more value in the country of immigration than in the country of emigration” — leading to an anticipated labor flow toward the country that will pay or value the labor the most.20

Thus, the immigrant diaspora should be recognized as a necessity in an economically robust country with an increasingly aging native population. It is also vital to correlate the fiscal effects of immigrant labor with the potential for increased, large-scale, government-sponsored benefits. Expanding the tax base to include all workers in the United States — regardless of immigration status — could increase our nation’s ability to sustain education and job training programs to reposition native workers displaced not by migrant laborers, but by technological advancements and global economic shifts.

Viewed through an equity and fairness lens, undocumented workers continue to shoulder more of a tax burden than they are given credit for regarding their contributions to federal tax and Social Security systems.21 States also reap benefits, as unauthorized workers contribute an estimated $11.7 billion in state and local taxes.22 Further, a pathway to legalization would result in higher wages from more “on the books” income, estimated to yield $2.2 billion in state and local tax revenue.23

Stephen J. Entin, senior fellow emeritus at the Tax Foundation and former Treasury deputy assistant secretary for economic policy under former President Reagan, pointedly frames the benefits of legal immigration as economic: increasing tax revenue, our military power, and maintaining our status as a global leader by boosting our population.24

The treatment of undocumented workers in the United States overlooks the tax system’s incentives to connect tax and revenue collection with immigration benefits. While doing so would increase costs due to direct expenditures associated with increased wages and workers’ rights, this would be a positive development. It would help coax individuals from the shadows, an inequitable existence in our society, and prevent them from being preyed upon by the most unscrupulous.25

These are large-scale societal, even moral, issues. For example, the Coronavirus Aid, Relief, and Economic Security Act excluded undocumented immigrant families from stimulus payments, in many cases affecting U.S. citizens within a family unit.26 And it was largely projected that the Tax Cuts and Jobs Act would negatively affect immigrant families, with changes slated to various family-based tax credits, especially the child tax credit.27 The concern was justified. Signed into law on December 22, 2017, the TCJA removed filing incentives for undocumented workers with children who possess an ITIN.28

Ultimately, it remains to be seen whether our nation can overcome political narratives casting immigrants as the ever-dangerous “other” in society.29 Local and national business leaders also conceivably welcome the current state of immigration, in which few are eligible to legalize their status and thus possess less political power to implement change — including fairer wages.30 There may also be opposition to the expansion of undocumented immigrant rights, despite their ongoing tax and economic contributions, because it would signal government acquiescence.31 Yet the government and general public have already acquiesced to immigrants’ place in society. Acquiescence was central to the creation of the IRS ITIN program, which is an acknowledgment not only of the presence of undocumented workers, but their vast economic contributions.

Congress perennially encounters opportunities to implement viable immigration reform, but consistently lacks the uniform political will to do so, due to deep ideological divides. On the Senate floor in 2006, then-Sen. John McCain criticized pending efforts to prevent earned income tax credit claims by newly legalized immigrants should immigration reform succeed.32 It was not solely the content of his rhetoric that was striking, but the fact that throughout most of his extraordinary career, he was often willing to cross party lines to seek the best way forward to advance the promise of American ideals. May his spirit of bipartisanship guide our way.

Fairness: Racism in Taxation

Peter Mason
Peter Mason

Peter Mason is a tax, treasury, and finance consultant, as well as the author of Tax Commandments for Business (2020). He is based in London.

It is with a heavy heart that I start with the conclusion that there is racism in taxation. I personally deplore discrimination in every walk of life, in every place, and on every level. In my opinion, there is inadequate representation throughout our taxation profession for many ethnic minority groups. This is the overt evidence that racism exists in taxation today. To be truly representative, any organization or profession should mirror the society or group of people it represents. In that way, it can best address the needs of all its people fairly and justly. Although the tax profession does not create the political agenda, it advises and influences legislation that frames and controls the levying of tax through tax authorities, advisers, and business. A truly diverse taxation profession should therefore drive fair taxation for all its people.

It is with deep regret that I look back over my 40-year career and realize that I have employed very few tax professionals from ethnic minorities. I do not believe that this was by intent, although no person can rule out unconscious bias. I grew up in North London, in mixed-race communities, and I have never considered myself in any way racially discriminatory. I believed in a fair and rigorous recruitment process for my tax teams to employ the best people. I chastise myself now for not deploying positive discrimination to redress any imbalance in my teams. I had naively failed to recognize that sometimes what is best emerges in other ways.

It is with profound shock that I struggle to remember working with a tax law adviser from an ethnic minority group (discounting my visits to other parts of the world). Is this because the advisory firms seek to mirror their clients’ backgrounds, assuming that clients will best identify with these individuals? Or is there not the same level of multiracial talent available yet? I suspect the latter, although the former is equally suspect. On all accounts, those firms are trying to correct the situation.

It is with huge sadness that this is an all-too-familiar feature across many of our great professions. It is now recognized that our educational systems need to support the development of such degrees of diversity. The remedy starts with better recognition and celebration of cultural backgrounds at school. We need to encourage the belief that anyone from any background can succeed in the tax profession. Racism is an indictment of the system that recruits, trains, qualifies, develops, promotes, and ultimately generates experts in the taxation field.

It is with serious concern that I recognize the consequence of this lack of racial diversity: Our tax laws have structural racial bias. I will not stray into a political statement on the disproportionate effect of some tax laws on minority groups. This has been ably covered by others. But even nowadays when I attend virtual meetings of leading industry tax executives to discuss and lobby for better laws, there is barely any variety of racial background among participants. Whatever the political bias, it is indisputable that lawmakers drawn from a taxation profession lacking true popular representation cannot create fair laws for the unrepresented factions. As a result, whether unconsciously or not, we are promulgating discriminatory tax legislation.

It is with huge disappointment that I recognize that tax laws have become overly complex. The generic tax language has become incomprehensible at best and offensive at worst. The homonym in this article’s title is indicative of the hypocrisy within our tax lexicon. The Office of Tax Simplification in the United Kingdom has laudable aims to simplify the legal structure of tax laws to create greater accessibility for more people. This should also accommodate racial nuances. This all underlines the need for a radical shake-up of tax terminology to be just, inoffensive, and simpler for all.

It is with sincere worry that I fear ethnic minorities have less access to like-minded tax professionals able to challenge tax laws or to even properly understand ethnic minorities’ taxation rights. The Chartered Institute of Taxation in the United Kingdom has promoted charitable programs in recent years for helping disadvantaged groups secure just tax representation. This is likely to account for a large share of the racially marginalized sections of our population.

It is with the above assertions that it is clear a significant opportunity lies in greater diversity in the taxation profession. Providing broader representation would gain better acceptability of a citizen’s duty to pay taxes within a well-functioning society. This would lead to better tax laws and in turn should secure more tax revenues to support our communities.

It is with enormous pride in our tax profession, particularly hearing the younger members’ strong drive for equality, that I believe the speed of change in tax will hasten. Diversity is today at the forefront of government, tax advisory firms, and business briefs. Most accounting firms now publicly report on their ethnicity pay gap and are setting targets for minimum numbers of ethnic tax partners. Social responsibility training in most organizations actively engages with minority groups, unconscious bias, inclusivity briefing, diversity training, and similar campaigns. Even after the fear created by the divisive undertones of Brexit, I believe that the people of the United Kingdom are in the main tolerant and welcome the wonderful wealth of a cosmopolitan society. Do not begrudge your forebearers that more was not done. Much has been achieved, but there is much to do. Be indignant, be vocal, and take the knee, apolitically and peacefully.

It is with great hope that I look forward to a tax profession in which there is a rich pool of diverse talent to create a just tax system representative of all, understandable by many, and supported by most. The English learned that there should be “no taxation without representation” many years ago, but it is still pertinent here and now. If we can all appreciate the substantial benefits of paying our taxes for the great collective endeavors to society that it funds, irrespective of political nuances, then we will all hugely gain in the future. It is with us all working purposefully, side by side, that discrimination will end.

FOOTNOTES

1 See Dan Kosten, “Immigrants as Economic Contributors: Immigrant Tax Contributions and Spending Power,” National Immigration Forum (Sept. 6, 2018). Remittances by immigrants to their home countries are substantial, totaling $148.5 billion in 2017. See David R. Henderson, “Immigrant Remittances Are Private Foreign Aid,” Hoover Institution (June 25, 2019) (stating “The top 10 recipients of U.S. remittances in 2017 were all countries where the majority of people are poor by U.S. standards. Mexico led the list with receipts of $30 billion from the United States, followed by China ($16.1 billion), India ($11.7 billion), and the Philippines ($11.1 billion).”

2 Tax contributions by immigrant workers are estimated at $11.74 billion annually, with legalization estimated to increase these contributions by more than $2 billion per year. See Lisa Christensen Gee et al., “Undocumented Immigrants’ State & Local Tax Contributions,” Institute on Taxation and Economic Policy, at 2 (2017).

3 Flanagan, “Reframing Taxigration,” 87 Tenn. L. Rev. 629 (2020).

4 World Population Review, United States Population 2021 (Live).

6 There are documented gains insofar as overall refugee contributions to public coffers is concerned, especially when compared to their use of social services. See Madeline Buiano and Susan Ferriss, “Data Defies Trump’s Claims That Refugees and Asylees Burden Taxpayers,” Center for Public Integrity (May 8, 2019); see also Julie Hirschfeld Davis and Somini Sengupta, “Trump Administration Rejects Study Showing Positive Impact of Refugees,” The New York Times, Sept. 18, 2017.

7 Kathryn Watson, “Biden Increases Refugee Cap to 62,500 After Backlash,” CBS News (May 4, 2021).

8 See SSA, “Office of the Inspector General FY 2017 Budget Justification,” at 191 (2017) (“Per the latest available data, the [ESF] had accumulated over $1.2 trillion in wages and 333 million wage items for Tax Years 1937 through 2012. In Tax Year 2012 alone, [the SSA] posted 6.9 million wage items, representing $71 billion, to the ESF.”).

9 The 50 percent tax filing rate is most likely due to the demonstrable level of risk involved, despite protections afforded by section 6103, designed to prevent government agencies from disclosing taxpayer information subject to certain exceptions. There is no definitive government data source to confirm this estimate: “The best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Identification Numbers (ITINs), and many who do not file income tax returns still have taxes deducted from their paychecks.” Gee et al., supra note 2.

10 Robert Warren, “U.S. Undocumented Population Continued to Fall From 2016 to 2017, and Visa Stays Significantly Exceeded Illegal Crossings for the Seventh Consecutive Year,” Center for Migration Studies (Jan. 16, 2019) (“Of the estimated 515,000 arrivals in 2016, a total of 320,000, or 62 percent, were overstays and 190,000, or 38 percent, were” Entries Without Inspection). See PBS Newshour, Amna Nawaz interview of Roger Bennett, “What Being an American Means to This Former British Citizen,” noting Bennett’s visa overstay, and the fact that Bennett was lauded by some on social media for immigrating to the United States “the legal way” when he is one of many with a visa overstay on his record (July 5, 2021). See also Shani M. King, “Child Migrants and America’s Evolving Immigration Mission,” 32 Harv. Hum. Rts. J. 59 (2019), asserting that political expedience, Cold War ideology, and xenophobia have long been the driving forces of U.S. immigration policy.

11 Lissandra Villa, “‘We’re Ignored Completely.’ Amid the Pandemic, Undocumented Immigrants Are Essential but Exposed,” Time, Apr. 17, 2020. See also the Families First Act, which omitted some immigrants — including DACA program recipients and temporary protected status holders — from COVID-19 related testing and medical services. Manar Waheed and Avideh Moussavian, “COVID-19 Doesn’t Discriminate — Neither Should Congress’ Response,” American Civil Liberties Union (Apr. 2, 2020).

12 See Yash M. Patel et al., “Proportion of Non-U.S.-Born and Non-Citizen Health Care Professionals in the United States in 2016,” 320 J. Am. Med. Ass’n 2265, 2266 (2018).

13 The DACA program was instituted by former President Obama, intended to shield those brought into the country as minors from deportation. See Richard Cowan and Ted Hesson, “Steep Obstacles for U.S. Effort to Legalize ‘Dreamer’ Immigrants,” Reuters (Aug. 6, 2021).

15 See Congressional Budget Office, “How Changes in Immigration Policy Might Affect the Federal Budget,” at 8 (2015).

16 See Sacchetti, supra note 14 (noting calls in Illinois for retired doctors and nurses to come forward, even though these individuals “would be at higher risk of complications if they become infected because of their ages”).

18 Kosten, supra note 1.

19 Chang, “The Economics of Immigration Reform,” 52 U.C. Davis L. Rev. 111, 114-115 (2018).

20 Id.

21 This is particularly noteworthy when compared with the perennial data point in yearly IRS reports showing that corporations contribute less than 10 percent of annual revenues (for example, 7.6 percent for tax year 2018) in the United States, compared with contributions of nearly 60 percent by U.S. individual taxpayers, including undocumented workers. See IRS Publication 55B, “2018 Internal Revenue Service Data Book,” at 3 (2019).

22 See Kosten, supra note 1.

23 Id.

25 There are far too many instances of abuses committed against recent arrivals, most of whom are loath to go to the authorities to report crimes committed against them. See interview by Miki Meek, “ICE Capades,” This American Life (July 20, 2018).

26 CARES Act, S. 3548, 116th Cong. (2020); Meena Duerson, “This Woman and Her Kids Are U.S. Citizens — But They Can’t Get Any Coronavirus Stimulus Money,” Vice News, Apr. 16, 2020.

27 Kenneth Megan, “Tax Reform Will Raise Costs for Many Immigrant Families,” Bipartisan Policy Center (Dec. 22, 2017).

28 Id.

29 See Ibrahim Hirsi, “Trump Administration’s ‘Public Charge’ Provision Has Roots in Colonial US,” The World (Dec. 19, 2018) (demonstrating the discriminatory roots of the phrase “public charge”); see also Center for Immigration Studies, “Historical Overview of Immigration Policy,” (providing an overview of the history of immigration in the United States); Archie Bland, “Rats: The History of an Incendiary Cartoon Trope,” The Guardian, Nov. 18, 2015 (noting a history of using vermin to depict immigrants and refugees).

30 See Chang, “Liberalized Immigration as Free Trade: Economic Welfare and the Optimal Immigration Policy,” 145 U. Pa. L. Rev. 1147, 1149 (1997) (“Immigration barriers interfere with the free flow of labor internationally. . . . For any given class of labor, residents of high-wage countries could gain by employing more immigrant labor, and residents of low-wage countries could gain by selling more of their labor to employers in high-wage countries.”).

32 See 152 Cong. Rec. S9542-S9602 (May 25, 2006) (discussion of the Comprehensive Immigration Reform Act of 2006).

END FOOTNOTES

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