Income Tax Compliance and the Black-White Disposable Income Gap

Abstract:     
The U.S. Government has detailed historical knowledge of income tax compliance differences by categories of income taxpayers. Wage and salary earners know that information returns precede their tax filing with the Internal Revenue Service (IRS), and they respond with high-level compliance. Because shareholders are the residual claimants for corporate income, and because corporations have access to legal means to avoid tax liabilities, corporate employees have little incentive to misreport corporate income. The IRS also receives information returns for partnership distributions; therefore, noncompliance on partnership income tax is constrained. However, the IRS receives no information returns for income earned by operators of proprietorships, and this class of income taxpayers is the least compliant. This paper explores how variation in tax compliance and Black Americans’ disproportionately low representation in a high tax noncompliance income category disadvantages Blacks and contributes significantly to the Black-White disposable income gap.

Number of Pages in PDF File: 14

Keywords: income taxes, noncompliance, black-white income gap

JEL Classification: D31, H24, H26, J15

working papers series