Racial disparities in tax treatment begin at home. For most homeowners, their home is far and away their biggest and most important financial asset. However, racial minorities are less likely to own a home, and, if they do, tend to own one of lower value.
These racial differences in home ownership are due in part to past federal policies that codified real estate discrimination. The National Housing Act of 1934, for example, openly denied federal backing for home loans to black families while helping low-income whites.
Although legal housing discrimination was outlawed in 1968, discriminatory lending practices still exist today. Racial minorities were much more affected by subprime loans during the housing crisis.
The federal government’s spending patterns reinforce, rather than combat, the racial housing divide. In 2015, more than twice was spent on the home mortgage interest and property tax deductions than was allocated to Department of Housing and Urban Development, whose major programs assist low-income homeowners. Moreover, there are no federal tax breaks for renters, who are disproportionately black and Latino.
Racial inequalities in tax benefits also extend into the workplace. In the United States, a worker’s economic security depends a great deal on access to employer-provided social insurance. The two largest tax breaks are for employer-based health-care insurance and pension plans. These programs cost the federal government over $300 billion dollars in 2015.
Both programs disproportionately benefit whites. The Kaiser Family Foundation found that 71 percent of whites were covered under an employer-based health-care plan, compared to only 47 percent of black workers and 39 percent of Latino workers. The modal worker who receives an employment-provided pension is a white male earning a higher-than-average income in a large corporation. White workers also receive larger tax subsidies since they earn more (and therefore have higher marginal rates) than minority workers, on average.
Before the Civil Rights Act of 1964, racial and ethnic job discrimination was legal and widely practiced in the United States. Studies show that to this day persistent job discrimination is partially responsible for racial differences in unemployment levels, full-time employment and total salary. Latino families may also face additional barriers due to immigration laws that restrict their rights in the workplace.
Of course, the tax code also contains provisions intended to benefit lower-income people. One is the Earned Income Tax Credit (EITC). The EITC encourages work by offsetting federal taxes and offering tax refunds for families that earn between $40,000 and $53,000. The EITC is credited with helping lift more than 6 million people above the poverty line.
But even among the EITC-eligible population, nearly half are white. Lower-income people with only high school degrees — who are disproportionately non-white — are less likely to know if they are eligible for the program.
These racial discrepancies in tax breaks add up. In 2011, white households reported a median wealth 16 times higher than the median wealth of black households. Federal policy has helped create this gap.
To be sure, these tax breaks may serve noble goals. Many citizens and policymakers consider promoting home ownership and helping people with their retirement nest eggs as good goals for government. But the reality is that these federal programs aren’t building nest eggs for everyone. These programs are amplifying racial discrepancies and discrimination.
Christopher Faricy is assistant professor at the Maxwell School of Syracuse University and the author of “Welfare for the Wealthy.”