When filling out your federal income tax return, there is no requirement to identify your race. Moreover, the US tax code does not contain specific racial group provisions. Yet just because the tax code is considered race blind does not mean it’s race neutral.
A recent study by the Tax Policy Center, for example, found that Black couples on average face higher tax costs associated with marriage than White couples. It is part of a growing body of research that shows the tax code can create or reinforce economic disparities between Black households and White households.
The research is providing empirical evidence for the seminal work done by legal scholars Dorothy Brown, Beverly Moran and William Whitford, which raised the likelihood of racial inequities in the tax code.
Generally speaking, when US tax filers of any race get married, they can get hit with either a “marriage penalty” or a “marriage bonus,” meaning they pay more or less in taxes as a married couple than they would as two singles.
Penalties are more likely when both spouses in a couple work than among one-earner couples. And they are higher when two spouses each make about the same amount of money. Penalties are also more likely when a couple has children.
If the financial facts of a Black married couple were identical to those of a White married couple, there would be no difference in their tax burdens, said William Gale, co-director of the Tax Policy Center and a coauthor of its marriage study.
But the economic facts of Blacks and Whites on average are different.
For example, Black married couples are more likely to live in a two-earner household; each spouse is more likely to earn about the same amount as the other; and they are more likely to have dependents.
“We find that Black couples are more likely than White couples to experience an income tax penalty from marriage and to face higher penalties. We show that these patterns arise because, controlling for income, Black spouses have more equal earnings than white spouses … and because Black couples are more likely to have dependents,” the authors of the report write.
Differences in dollars and cents
Researchers found that among couples hit with a marriage penalty, Black couples paid less in dollars ($1,804 versus $2,091) but more as a share of their income than White couples (1.8% versus 1.4%).
When researchers specifically focused on households with adjusted gross income between $50,000 and $100,000 under the tax law in effect for 2018, they found 59% of Black couples faced a marriage penalty versus 51% of White couples. Black couples paid about $150 more on average.
Only 33% of Black couples got a marriage bonus compared to 44% of Whites, and those bonuses were roughly $170 smaller on average.
“Taken together, Black couples in this income group paid, on average, a net penalty of $358. White couples in this income group received, on average, a net bonus of $61,” the report noted.
The researchers found a similar pattern among most other income groups.
More work ahead
The TPC study comes after the US Treasury released details on how to impute race and ethnicity on to tax data — an effort made in response to an executive order from President Joe Biden directing government agencies to better measure and advance racial equity.
However, there is “no easy solution to the racial disparities in the tax treatment of marriage in a tax code that doesn’t explicitly refer to race,” the TPC authors noted in a blog post.
One option might be to let married couples file as unmarried individuals, they said — although that would “make the tax code less progressive and open new opportunities for tax avoidance.”
It’s still early days when it comes to detailing how tax and other federal policies affect racial equity and how differences can be cured, said Gale. “We’re maybe in the second inning. There is so much work to be done.”