How Does the United States Tax System Systemically Punish Black Wealth?

Continuing our discussion on race, we turn to the American tax system. Our next guest, Dorothy A. Brown is a law professor and nationally recognized scholar in tax policy. She chose this field because she believed that it was free of racism. But she soon discovered how wrong she’d been. Her new book draws on decades of research and anecdotes. It’s called “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans–and How We Can Fix It.” And here she is explaining to our Michel Martin just how it works against black people.

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MICHEL MARTIN, CONTRIBUTOR: Thanks, Christiane. Professor Brown, thank you so much for joining us.


MARTIN: So, Professor Brown, I was so looking for to this conversation, but to be honest with you, dreading it at the same time because the more I read the more infuriated I became. I have been aware of your work for years, it’s very unique. You’re one of the very few people kind of looking at the tax implications or the racial implications of tax code, and the more I read, more infuriated I got and I just wondered, did you have that reaction when you are doing the research?

BROWN: Absolutely. And one of the goals in my book was for you to react exactly the way you did. So, the research showed me that no matter what Black Americans did when we engaged in the exact same behavior that white Americans did, tax policy advantaged white Americans and disadvantaged black Americans.

MARTIN: So, let’s talk through it because one of the things — you know, walk me through it because one of the things that you point out in the book is that some government policies are intentionally discriminatory, at least they have been intentionally discriminatory like federal housing administration, housing laws. I think I hope by now that most people, educated people, realize that this program was intentionally discriminatory against black people, that’s where the term redlining comes from. But you’re saying that’s not true of tax policy, in fact, the IRS doesn’t even gather information by race. So, why do you say that it heavily advantages white people and heavily disadvantages Black people? Other groups too, but black people in particular. Walk me through it. And why don’t we start with the example that came from your parents, when you started doing their taxes.

BROWN: Every year I did their taxes, something seemed off. They combined, made about as much money as I did by myself. And they paid too much in taxes and it was my gut feeling, compared to how much I pay, they pay too much. And I could never figure out why, I just knew there was a problem. But when I read that report that said black lives contribute to 40 percent on average to their household, it hit me, my parents paid too much in taxes because they were married to each other. The joint return did them in. And how did that happen? Well, one way to look at it is, as I put it, taxpayers bring their racial identity onto their 1040. So, just because there’s no box on your tax return that says race, doesn’t mean race isn’t implicated because you, the taxpayer, have a race and you are operating in a society that has systemic racism. So, how did we get the joint return? There is this couple, Henry and Charlotte Seaborn. They were a rich White couple, stay-at-home spouse, and they were one of the few taxpayers that paid taxes. What? Before World War II, the only people who paid taxes were rich white Americans, basically. That’s who paid taxes. And at this point, they paid taxes and they didn’t like it and they used their wealth to hire an attorney and challenge the law that required every person to file individually. So, what we know of as the joint return didn’t really exist back then. But they wanted to split their income if the sole wage earner could have half of it taxed with to his wife, that unit would pay less in taxes. They couldn’t do it under the law, but then they sued, it went all the way up to the Supreme Court, and they won. So, because of the Seaborns, we have — there are others, but to make it simple, because of them, we got Congress in 1948 creating the joint tax return.

MARTIN: So, why does that disadvantage black people so profoundly and advantage white people so profoundly? I think it’s important to say both. Why is that?

BROWN: So, what the progressive tax system does is, let’s take a household with $100,000 of income. If the wage earner makes a hundred thousand dollars, his last dollar of taxes is going to be taxed much higher, his last dollar of income is going to be subject to taxes much higher than his first dollar. In fact, when you are in $100, 000, your tax bill is higher than if you earned $50,000. So, what the joint return does is, in effect, allow the $100,000 household to be taxed like it only has $50,000. That’s just a rough approximation, but it gives you a tax cut when you get married because a stay-at-home spouse has no taxable income. Well, married black couples need two incomes in order to get to a $100,000 because.

MARTIN: Because with African Americans, it’s more likely that both parties will work, right?

BROWN: Exactly.

MARTIN: And it’s also more likely both that party’s incomes will be about equal?

BROWN: Exactly. And instead of being able to spread their income to a non- earning spouse, their income, in effect, is stacked on top of the other spouse and they don’t get a tax cut. The law was changed in 1969, such that not only did married black couples not get a tax cut the way single wage or white couples did, but their taxes actually increased, and they gave a marriage penalty as a result of the taxing. So, the Seaborns still got a tax cut, but my parents, the Browns, wound up paying higher taxes.

MARTIN: You know what gets me about this is that for decades now, conservatives have been with haranguing black people around marriage, right, mostly white conservatives but also some black conservatives, haranguing black people about their marriage rates. Saying, oh, well, see, if you would only get married and do things the right way, then you would prosper. It’s your behavior. And what you are saying is that even when you do things the right way, you actually are penalized for it under the tax code.

BROWN: That’s absolutely right because black Americans cannot do marriage the way white Americans can. Like we can’t do homeownership the way white Americans can.

MARTIN: Well, talk to me about homeownership. Tell me about that. Like why is another example where the tax code disadvantages some people and advantages others? Because, I think, again, buy a house, you know, be a citizen, you know, get your pennies together, get your coins together, buy a house, be stable.

BROWN: So, I want to talk about just the tax subsidies for homeownership. So, there are two that — so, everybody knows about the mortgage interest deduction, but I want to focus on to other provisions. One that occurs when you sell your home. So, if you are married and you sell your home for a gain, up to half a million dollars of that gain can be received tax-free. But when you sell your home for a loss, there is no tax break associated with the laws. So, you say, well, that shouldn’t matter because homeownership is the same whether you’re Black or white, and it is not. In fact, where is the most appreciation in homes? It is found in all-white neighborhoods or almost all-White neighborhoods. Where do most black homeowners live? In racially diverse neighborhoods or all-Black neighborhoods. So, black homeowners are, one, less likely to sell their home for a gain because the market doesn’t value their homes the way the market values homes of all-White communities. As bad as that is, it gets worse when we look at losses. Black homeowners are more likely than white homeowners to sell their homes for a loss. That is nondeductible. So, we get — black homeowners more likely to have a loss, no tax break. White homeowners, more likely to have a gain and large gain tax-free.

MARTIN: And why is that though? Because I think some people would hear that, they’d go, oh, well, maybe it’s because there’s more crime in an African American neighborhood or maybe there are fewer amenities, that it isn’t race, it’s something else. What do you say about that?

BROWN: It’s exactly race and there’s research that proves this. So, first of all, white Americans prefer living in neighborhoods with very few black Americans, that’s number one. And what I often hear is the pushback is, well, Dorothy, it’s not that they are that virulent racist, is that white Americans are worried about their property values. And my response is, but it’s the preferences of white homeowners that are damaging the production of black wealth in their homes, and as a black homeowner, I don’t really care whether you are virulent racist or you act like one, right. I am honed by that. So, that’s the first group. The second point is research shows, and this is really interesting research, videos were done where they showed white and black people, neighborhoods. It was the exact same neighborhood. The only difference were the actors hired to be in the video. There was the all-white video, there was the all-Black video, and there was a 60 percent white, 40 percent Black people. White viewers picked the white neighborhood over all the others. There was no crime. There was no bad school. It was the identical neighborhood. Whereas black homeowners, Black viewers hit the racially diverse or the all-Black neighborhood. Their least favorite neighborhood was the all-white one. So, white Americans who live in these virtually all-white no black neighborhoods like to think of themselves as we progressive and old stuff happens, but when they are given pictures of a neighborhood with identical social amenities, they somehow are more comfortable with the all-white neighborhood.

MARTIN: But about college, for example? That’s another thing that, you know, African Americans are all constantly sort of — it’s — look, let’s just say it, are constantly sort of treated as if they don’t value higher education. But when they pursue higher education, doesn’t have the same value. How does the tax code see that and is there a racial difference there?

BROWN: There absolutely is. And the first point is that — 60 percent of black Americans who start college do not complete it. A lot of it is because we self-finance our college educations. We — black Americans are more likely to graduate. And when we do graduate or when we drop out, have higher debt loads than white college students. So, what does our tax law do with respect to debt? Well, student loan debt very limited deduction. Only $2,500 of interest can be deducted. But if you look at average debt loads, that means white Americans with lower debt loads can basically write off all of their student loans interests. Black Americans, in the early years, cannot because their debt loads are so high, it’s — their interest on the debt is higher than $2,500.

MARTIN: So, we talked about how the tax code penalizes black marriage and Black homeownership. In the book, you also talk about how it penalizes Black college graduates and the intergenerational wealth plays in that. Could you just talk a little bit more about that?

BROWN: Yes. Because once Black Americans take their debt labor into the labor market, they face racism in the labor market as well. So, even if a black American is lucky enough to get a job with an employer that provides retirement accounts, they are less likely to benefit, they are less likely to participate in the retirement account. Why? Because they are sending money to their parents or their siblings and seeing that somebody’s life bill gets paid. So, their money cannot stretch as far, so they can’t participate in their retirement account the way their white peer can. And even if they do, they are more likely to be forced to take an early withdrawal which comes with high tax consequences because there’s some family emergency. So, even when black Americans take that degree and get a better paying job, they are disadvantaged because their parents suffered from Jim Crow and their siblings didn’t have the same opportunities.

MARTIN: You criticize both the political right and the political left for how they address these issues? Now, the political right, you know, you can see, well, Republicans who are sort of — or conservatives who sort of applauding Black people are lazy or that they don’t value education, OK, we’ve heard that. But why do you criticize the political left on this point as well? You say they aren’t doing their part either. Why is that?

BROWN: Because the political left likes to talk about historical race discrimination. They like to talk about FHA redlining. They like to talk about how other white people are discriminated against, but not them. I want to talk about how they are discriminating against black people today when they live in all-White neighborhoods, right. So, while — the left, the political left ignores the systemic racism they benefit from today and the behavior they engage in today. So, that’s my beef with the left.

MARTIN: What would fairness look like? Because as you point out in the book, you can’t put a box on your tax returns to say, OK, I’ve been overpaying all these years, so give me my — give me some of that back. That would likely be unconstitutional. So, what would fairness look like going forward?

BROWN: So, one of the things I advocate for is a wealth tax credit. Since I can’t compensate black Americans with higher taxes because the Supreme Court won’t let me, I can compensate or decide to use tax credits for anyone with below — in a household with below medium wealth. That’s going to disproportionately benefit black Americans because of the racial wealth gap, but it’s also going to benefit white Americans, it’s going to benefit Latinx Americans, it’s going to benefit Asian Americans, Native Americans, it’s going to benefit every household with below medium wealth. And there does seem to be some momentum for talking about that. So, that would be one step towards fairness. Of course, the other step, which is the big tax reform proposal that I make in the book, is let’s get rid of these deductions and exclusions that benefit white Americans. Let’s just tax income the labor, the way we tax income from stock, like the Reagan Tax Reform Act in 1986 did. Let’s only have a living rounds deduction. So, depending on where you live would determine how much you needed to thrive. We’re not talking minimum wage, because in a lot of areas minimum wage will not help you survive much less thrive. We get this living allowance level. If you make less than that, you get a refund. If you make more than that, then you pay tax at the price of tax.

MARTIN: Truly, honestly reading this — I mean, I can’t deny that you and I are similarly situated. I mean, look, let’s just look at us. I mean, we’re similarly situated. You know, I’m a college-educated, married, African American person, married to a wage-owning African American man. I had two married African American parents who did their best and you just — it’s so overwhelming.

BROWN: I wanted black Americans to understand they weren’t doing anything wrong. That notwithstanding the message that maybe they were doing something wrong, they weren’t. But the system is designed for white wealth, not black wealth. So, until we fix that, then we need to be defensive players in the system but we need to give ourselves a break and say, we’re doing the best we can. We are managing to scratch out something in the system that’s not designed for us. I’m going to pat myself on the back. So, for me, what was important it is for Black Americans to have the tools to understand the system isn’t designed for us and we didn’t do anything wrong.

MARTIN: Dorothy Brown, thank you so much for talking to us.

BROWN: Thank you for having me.