More than 140 million Americans are expected to file a federal income tax return this tax season. Most of these taxpayers will be “bothered” by how complex the tax code is. With the tax code spanning more than 4.1 million words, who can blame them for this frustration? But with Women’s History Month underway, we need to ask another important question: is the tax code, already complex and difficult to understand, equitable and impartial to both men and women? The truth is – it is not.
Although there are no explicit instances of gender bias in tax law, persistent income disparities between men and women have significant tax consequences. Women do not enjoy tax advantages for playing an outsized role in child rearing, family logistics and caring for their aging parents. Additionally, there are major tax ramifications for different categories of jobs still largely dominated by men versus women.
According to the Pew Research Center, progress in closing the gender pay gap has stalled over the last 20 years. On average, women earn only 82% compared to their male counterparts. It’s an unfortunate reality that with less income, women are less likely to save as much as men. Despite making up almost half the American workforce, women have fewer retirement accounts and contribute less to them than men do. As a result, the favorable tax treatment of retirement savings, one of the largest federal breaks, benefits men more than women.
Economic journalist and author Annie Lowrey wrote in The Atlantic in 2019 that “tax policy seems to quietly prioritize male-dominated, capital-intensive businesses, such as firms in construction, computing, and robotics, by allowing them to deduct the cost of new machinery. Service-oriented businesses, such as restaurants or salons, which women are more likely to start than manufacturing businesses, get less advantages.”
Essentially, the tax code allows deductions for expenses directly related to your self-employed business, such as purchasing tools and construction materials, which benefit businesses that are predominantly started and run by men. However, the tax code does not allow deductions for all childcare and senior care expenses, such as the cost of emergency daycare or in-home caregiving, that are predominantly borne by women. This implicit bias results in a clear gender tax disparity.
Research shows that fatherhood leads to an increase in income for most men while motherhood results in a decrease for most women. Both the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) benefit women when filing federal taxes, particularly those who are single heads of household. According to Census data, women are overwhelmingly a majority in single-parent households, and most can take advantage of the CTC. With 16 million women working in lower-income jobs, their access to the EITC is a vital and concrete step to right historical gender inequities.
Today, two-thirds of family caregivers are women, many who have had to leave the workforce or reduce their employment to care for a loved one according to The Family Caregiver Alliance. While the federal Child and Dependent Care Credit provides a credit for up to $1,050 for one child, and a credit of up to $2,100 for expenses, it often falls substantially short of actual out-of-pocket expenses and does nothing to help offset lost wages or the out-of-pocket expenses directly related to caregiving.
Tax credits like the CTC and the EITC offer support to low-income workers and can produce equitable results for women. These tax credits should be improved.
For example, the complexity of the tax code makes it extremely difficult for low-income women to claim these critical credits. The Internal Revenue Service’s (IRS) guide for claiming the EITC is 37 pages. The EITC’s rules are so complex that there are errors on 27% of applications. This results in low-income taxpayers missing out on $18 billion yearly for just this crucial credit.
With some tax provisions from the Tax Cuts and Jobs Act of 2017 expiring next year, we encourage our former Congressional colleagues to correct these historical inequities. Congress should simplify and expand the value and reach of these credits, as both Republicans and Democrats have proposed. Most notably, we commend Sens. Sherrod Brown, D-Ohio, and Michael Bennet, D-Colo., and their co-sponsors, as well as Sens. Mitt Romney, R-Utah, and Steve Daines, R-Mont., for their distinctive yet equally admirable leadership efforts on this issue. If they can craft a bipartisan reform of these credits, it can make “tax time,” less taxing and more equitable, especially for women who are heads of household.
Blanche Lincoln is a former U.S. senator from Arkansas. She is founder and principal at Lincoln Policy Group. Olympia Snowe is a former U.S. senator from Maine. She is currently a board member and senior fellow at the Bipartisan Policy Center.