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Culture War Roundup for the week of January 30, 2023

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New Frontiers in Algorithmic Racism - Tax Edition

The New York Times has an article out on the IRS algorithmically targeting black Americans at higher rates than other racial groups. The claim is that there's something in the algorithm that inappropriately biases it against black Americans. Summarized in the opening paragraphs:

Black taxpayers are at least three times as likely to be audited by the Internal Revenue Service as other taxpayers, even after accounting for the differences in the types of returns each group is most likely to file, a team of economists has concluded in one of the most detailed studies yet on race and the nation’s tax system.

The findings do not suggest bias from individual tax enforcement agents, who do not know the race of the people they are auditing. They also do not suggest any valid reason for the I.R.S. to target Black Americans at such high rates; there is no evidence that group engages in more tax evasion than others.

OK, so what exactly is causing them to get audited more if it's not individual bias, the machines are blinded to the race of the individual, and the rules are the same for everyone? Apparently some of it comes down to targeting EITC filings:

Black Americans are disproportionately concentrated in low-wage jobs. They are more likely than whites to claim the E.I.T.C. The authors wondered if that prevalence in claiming the credit might explain why Black taxpayers face more audits, because I.R.S. data show the agency audits people who claim the E.I.T.C. at higher rates than other taxpayers.

But as the research progressed, the authors found the share of Black Americans claiming the E.I.T.C. only explained a small part of the audit differences. Instead, more than three-quarters of the disparity stems from how much more often Black taxpayers who claim the credit are audited, compared with E.I.T.C. claimants who are not Black.

Unless I'm missing something, the article does not explicitly state what the relevant factors are that result in this targeting are. In what I see as typical NYT style, it does leave a breadcrumb that might be suggestive if you're ignoring the narrative quotes embedded in the article:

Black taxpayers appear to disproportionately file returns with the sort of potential errors that are easy for I.R.S. systems to identify, like underreporting certain income or claiming tax credits that the taxpayer does not qualify for, the authors find.

To me, this reads like the most likely explanation for black taxpayers being audited more frequently is that they report their income incorrectly in easy-to-detect ways. Since the IRS already has W-2 data for filers, it's probably not very hard for them to notice when someone reports their income wrong. There isn't really any elaboration that I find after this, so I'm unclear on how much this accounts for auditing disparities. The implication of the article and the quotes from "equity" advocates imply to me that we should figure out a way to make sure that white Americans are audited at least as much as black Americans, regardless of who is misreporting their income more frequently.

As cynical as it sounds, I'm beginning to hear the term "algorithmic bias" as nothing more than a form of projection - algorithm systems frequently detect something real about the world, people with racially motivated politics don't like that outcome, and they seek to shift the algorithm towards a bias in favor of their preferred group. If a program that is optimized for detecting incorrect tax filings works as intended to detect them, but turns up more black Americans than white Americans, the suggestion appears to be to change the weighting until it evens out the races, regardless of the impact on the efficiency of detecting lost revenue. The "algorithmic bias", from my reading of this would be injecting a deliberate racial preference to counter the program noticing actual disparities. I am reminded of the racial resentment scale, in which people who say that "blacks have gotten less than they deserve" are not racially resentful, while those who think things like "Irish, Italian, and Jewish ethnicities overcame prejudice and worked their way up, Blacks should do the same without any special favors" are racially resentful.

Anyway, I'll be curious to see if the study is released more publicly and details what exactly is causing the disparity.

Yet another reason the FairTax would be fairer. As only businesses would pay taxes, consumer-laborers would be freed from fear of the taxman, and used goods such as thrift store clothes, used cars, and pre-owned houses would be completely tax-free.

That sounds like a major loophole. If "used" goods aren't taxed, why would anyone ever sell "new" goods?

Because goods eventually wear out. Used clothes tear. Used cars break. Used houses subside. And only a small part of all purchased goods are on the market at a given time.

Thrift stores currently exist, many of them nonprofits. Why would anyone not buy all their clothes there at a 50-90% discount from retail?

Sorry, perhaps I was unclear. I understand why people buy actually new items instead of used items. The question is how the law defines "new" vs. "used" to avoid legal gymnastics to allow for legal tax evasion.


Thrift stores currently exist, many of them nonprofits. Why would anyone not buy all their clothes there at a 50-90% discount from retail?

This actually seems to be an interesting cultural thing. While division probably isn't actually quite so clean, I feel like a lot of people I know can be divided into "buys all clothes new, would never occur to them to shop at a thrift store" and "buys all clothes used, would never occur to them to buy new".

Ah, yes. That’s defined in the text of the bill as retail goods at point of sale: basically the point at which a finished new good is sold the first time. The FairTax is included on the receipt, and that good can never again be sold taxed.

I think the idea is that you only get to forgo paying taxes up to the amount of taxes that were paid for the new item. Usually used items cost less than new items so this is a total elimination of taxes but if you buy it "new" for $1 and sell it "used" for $1000 you still pay tax on $999

Presumably, the answer would be (I am not a Fairtax proponent but do support creating a VAT on new durable goods) to create some definition of used which precludes doing this. Eg must have been sold to an end user, must be through a specialized resale shop, etc. I would expect, like most regulations, that this would create counterintuitive scenarios and probably define different goods differently, but ‘vehicles must have at least 15,000 miles to be sold as used, while firearms can only be sold as used if through a licensed pawnbroker and not ordered from out of state(both of which are extremely plausible definitions of used for those particular goods)’ has the helpful side effect of employing the legions of CPAs that would otherwise be unemployed to fairtax.