This blog is the fourth in a four-part series sharing key takeaways from Making Tax Analyses More Effective and Inclusive: A Guide For Analysts.
Persistent income and wealth gaps are shaped by tax policy choices, including “upside down” tax breaks for homeownership, retirement savings, or business investments. But traditional tax analyses focus on how a policy changes people’s income (or tax bill) in a given year and may not consider the historical arc or the context outside of taxes.
We know that tax advantages and disadvantages can compound over time, and that they intersect with wider social inequities, as suggested by recent research on the disparate tax treatment of wealth. Conducting and citing research on inequities, and via storytelling and visualizations, analysts can call attention to the important role the US tax system plays in narrowing, maintaining, or exacerbating wealth gaps.
This research can help improve tax debates by incorporating more nuance and historical perspectives, while ensuring research is relevant to people’s daily lives and their long-term financial well-being.
In a new guide, we explore how researchers, communicators, and organizers can add important context of historical trends and persistent policy structures surrounding taxes to make their analyses more accurate and easier for wider audiences to see and understand. Here are three strategies.
1. Analyze whether and when disparities exist for different groups
For example, prior research has revealed racial disparities in who benefits from itemizing deductions versus taking the standard deduction on a tax return. While any taxpayer, regardless of their race or ethnicity, may choose to itemize their deductions, it is typically more advantageous to do so for taxpayers with higher incomes and specific kinds of tax-preferred spending. Future tax analyses that include subgroup analyses can delve further into how access to well-paying jobs, employer benefits, and other factors help determine who benefits from these and other tax benefits.
Analysts can pair tax data with socioeconomic data from sources like the US Census Bureau’s American Community Survey or the Federal Reserve’s Survey of Consumer Finances on asset ownership, including breakdowns by race or ethnicity where feasible. For example, the widening racial wealth gap since the 1980s is in part due to the disparate accumulation of capital gains from housing and financial assets, disproportionately held by White households. Capital gains receive preferential tax treatment relative to wages and salaries, making it harder for growth in employment earnings alone to close wealth gaps.
Other household or individual characteristics, such as disability or geographic region, may also affect what benefits people do or do not reap from the tax system.
2. Explore and explain why differences exist, and inspire that curiosity in readers
Instead of treating disparities as incidental or inevitable, consider ways in which tax policy rules and administration may produce disparate outcomes.
For example, Black couples experience relatively larger marriage tax penalties, which are a consequence of the relative income split between people’s earnings in couples. That illustrates how tax parameters interact with labor-market inequality, which itself is shaped by wage discrimination and occupational crowding.
More context could allow readers to question why policymakers created tax filing categories or groups the way they did, and whether any suggested policy reforms adequately address disparate taxpayer experiences. Similarly, diving into the history behind the design of specific tax credits could serve key context on what social forces have played a role in their evolution over time.
At the same time, analysts must be upfront about study limitations so readers accurately interpret findings. It might not always be possible to compute counterfactuals, like what today’s distribution of income taxes would look like if Social Security’s exclusions of agricultural and domestic workers never occurred. But, analysts can provide historical context surrounding policy decisions and how that could affect people today.
3. Offer accessible ways to learn about historical and structural factors
Simple and engaging visualizations, including descriptive titles and annotations or notes, can help call out historical and structural patterns in accessible ways.
For example, figure titles can state not just the outcome of who benefits and who doesn’t from a tax policy, but also the larger context: “Homeowner Tax Subsidies Largely Benefit People with More Income and Wealth, Amplifying Existing Racial Wealth Gaps.” Annotations in timelines could place tax policies alongside housing policies. And, brief discussions of group-specific context, such as a zoom-out on exclusionary practices that disproportionately impacted Asian households and Black households, could provide some historical insights on present-day gaps.
By adding historical and structural context, tax analysts can produce research that better explains not just who benefits or doesn't, but why. That makes the work more accurate, more relevant, and easier for wider audiences to understand.
