Maybe people are upset that stereotyping machines are being given harder powers to make consequential decisions about individuals.
Then these people should argue against AI instead of swinging the racism cudgel.
More concrete: government AI shouldn't use things like names, zipcode demographics (at least those strongly to those characteristics we think discrimination = racism) and pictures of humans in their models. Why? Because it's pretty much impossible to control your model for racist tendencies one you start there. It's in the ethics of the creator of the model to point that out and just don't do it. If you do, and all people whose name start with an M (for Mohammed) get a different category, racist is the right term IMHO.
Quite a tautology.