But if you look at how certain provisions got into the tax code, there’s a racialized history that has generally favored White Americans.
“Our tax laws were designed with White Americans in mind,” she writes. “That’s why no solution proposed by either the right or left — not better jobs, not increased homeownership, and not more access to higher education — will be effective without significant and fundamental tax reform.”
In the past, I’ve selected a personal-finance book each month for the Color of Money Book Club. Last year, as the pandemic escalated, I suspended the club to focus on providing much-needed information about stimulus payments and the glitches in getting the money to millions of Americans. Although I won’t be resuming a monthly book-club selection, I’ll still, on occasion, review books related to consumer finance.
In my first selection for this year, I’m recommending Brown’s book, “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It.”
Even though the IRS does not ask for a tax filer’s race or ethnicity, research shows that systemic racism — in homeownership, employment and education — is playing out in the taxes people pay or don’t pay.
In an interactive guide through the 1040 form, researchers for the nonpartisan Tax Policy Center also explained in a 2020 report the various ways in which the tax code contributes to racial inequities. Here’s how.
Capital gains tax rates overwhelming benefit wealthier White families. Workplace retirement plans such as 401(k)s are creating greater wealth for White employees because Black and Hispanic workers are less likely to have access to this tax-favorable benefit. Although these workers could invest for retirement on their own, studies show that workplace plans, often with the carrot of a matching contribution from an employer, increase participation.
And who has largely benefited from the home mortgage interest deduction and how home sales are taxed?
“Federal tax subsidies make things better for most White Americans, who’ve been reaping market and government rewards for more than half a century, and worse for most Black Americans, whom the market and government have already punished,” Brown writes. “While White home buyers no longer have a monopoly on receiving FHA subsidies, they still benefit from the anti-Black preferences present in the real estate market.”
A married couple filing jointly can deduct mortgage interest on up to $750,000 for a qualified residential loan. Then there’s the tax break people get when they sell their homes. Up to $250,000 (or $500,000 for married couples) of capital gains from the sale of principal residences can be tax-free if taxpayers meet certain conditions.
Here’s where the disparity comes in. Housing discrimination kept many Black families from owning homes. Homeownership rates for Blacks still pale in comparison with rates for Whites. In the first quarter of 2021, homeownership for non-Hispanic Whites was nearly 74 percent, according to the Census Bureau. For Blacks, it was 45 percent.
“Between 1934 and 1962, 98 percent of FHA-insured loans went to white families, providing them a critical wealth-building foundation for future generations,” according to a 2020 Urban Institute report.
The baked-in bias in the tax system delivers a greater tax break for many White sellers, and that is rooted in disparities for home appraisals for Black homeowners. Studies show that property values start to fall when Black presence in the neighborhood exceeds 10 percent, Brown writes.
As we talked about the disparity in home values and appraisals, Brown knew what I was going to ask next.
There are Whites who argue that the difference in appreciation isn’t about race but about crime rates, I said.
“They say this not realizing how racist that is,” she chided. “Okay, so now you’re saying every Black person is a criminal. That’s your defense as to why it’s not about race. Really? So, the research says many White Americans don’t want to live around too many Black Americans.”
Brown wants the IRS to publish tax data by race to easily expose discriminatory tax policies. She advocates for a progressive income-tax system with no exclusions. All income would be taxable. Americans would get only a living-allowance deduction that would reduce or eliminate income taxes for people who earn less than a living wage, based on their geographic region.
This book packs a powerful punch of historical context, concluding with bold recommendations that would face incredible opposition.
But as the saying goes, go big or go home.