 It's simply inequitable to suggest that Black Americans should pay higher taxes because we are the victims of systemic racism and we bring that on to our tax returns. Welcome to the State of Working America podcast, where we strive to provide a reality check on how workers from all walks of life are impacted by the economy and what needs to be done to address workplace inequalities. Today we address a source of inequality that a lot of folks don't think about, including me up until now, the racial bias in the tax code. I'm Eve Tachman-Gio, the communications director for the Economic Policy Institute. EPI is a nonpartisan think tank focused on leveling the playing field for all Americans and their families. When we think about economic discrimination impacting workers based on race, we tend to think about pay disparities, the lack of good job opportunities, but what about how taxes, the taxes we all pay, contribute to those inequalities, especially for Black workers and their families? Could the tax system we all live under be biased? Our guest today, Dorothy Brown, the author of The Whiteness of Wealth, How the Tax System Impovishes Black Americans and How We Can Fix It, makes the case that, quote, our tax policies were built in total ignorance of, if not willful disregard for, Black families' financial and social structure. And she goes on to argue that Black workers have not only not benefited from many tax breaks, but they have actually had money taken out of their pot with as a result. Dorothy, welcome to the State of Working America podcast. We're so happy to have you. Thanks for having me. I'm delighted to be here. Well, let me tell you, I never thought I'd curl up with a book at night on the tax code, but I just found it fascinating. It made me think in a way, you know, I never ever thought that our tax system could be skewed against a certain group of individuals. And that's, you know, what you bring out here in the book. And so the tax policies, you're saying the tax policies are biased against Black workers, Black families, and you looked at Black individuals and compared them to White specifically. You're not looking, you didn't look at other groups, right? And in this book, no, in this book, it's basic. It's Black and White because the racial wealth gap is the greatest when you compare Black Americans and White Americans. So that's the focus of the book. Right. So why don't you go over a little bit of the overarching findings that you, you know, and what's surprising to you, it seemed for the book. Yes. So I first want to start with something you just said, Eve. And basically it was that you never really thought about tax policy, having a racially disparate impact. And quite honestly, there was no reason for you to think it because the IRS never published statistics on race. So there was never a connection when we talk about tax statistics about race. And in fact, I went into tax law because I knew it had nothing to do with race growing up in the South Bronx dealing with racism on a regular basis. I didn't want to take a job that required me to deal with racism in the substance of the law. I knew I wanted to be a lawyer and I made you an accounting in college and took a tax accounting course and said, that's it. It's just numbers. The only color that matters is green and I want to be a tax lawyer. And as I say in the book, I've never been more wrong about anything in my life and how is it that I stumbled onto this? Well, it started years before I figured it out when I was doing my parents' tax returns. So I'm doing their tax returns. I'm doing my tax returns. My mother was a nurse. My father was a plumber. They earned roughly equal amounts. Some years my mother would make more than my father by like a couple hundred dollars. Other years, my father would make more than my mother, depending on how much overtime he made. And I earned by myself what they earned combined and under our progressive tax system that should have meant I would be paying a whole lot more in taxes. I was paying more, but not a whole lot more. And every year that I did their tax returns, I left thinking I'm missing something. I don't understand this is the right answer, but I don't understand why fast forward. I become a law professor one day. I read an article and the article says, how do you know there isn't a race and tax problem if you don't look? And I went, what race and tax? And it was written by someone who was a mentor and who always made me think. So I picked up the phone and I called him and I said, I'm going to do something. That's when I realized the IRS does not publish statistics by race. So how am I ever going to do something? I couldn't believe that, you know, and you know, at EPI, we're all about data and data, right? How, how could that be? And I mean, that could be a whole other discussion. So you can't even gauge what's going on because they're not publishing the data. Yes, because there is this myth that tax law is color blind. There's this myth that there might be a class differential, right? Because we have a progressive tax rate, the higher your income, the higher your tax rate, although that's not true because high income Americans have a lot of income from stock that is taxed at a separate rate, not even in the progressive tax system. And it's at a low rate. So, but there's this myth of color blindness. So we point out to an investing that you put when you compare blacks and whites that whites are investing more in the stock market. So that creates that inequity there. Absolutely. It's everywhere. And, and what the research shows is even wealthy black Americans don't have the percentage of stock ownership that their white peers have. So race is throughout the impact of the code, but it's ignored in the Treasury published statistics. So what did I do? Well, once I figured out this is going to be a lot harder promise to keep, I then started reading everything I could get my hands on that talked about race and I applied my tax eyes to them. And shortly after I made the promise to write about this, I came across a commission on the status of black women. And in the report, it said black wives contribute roughly 41 percent to household income and white wives contribute 29 percent. So to anybody else reading that, they're like, yeah, OK, fine. But to me, it was tax gold because that was the beginning of my unraveling why my parents paid so much in taxes. What that 41 29 breakout tells me is I know there's this thing called the joint return and I know that when some people get married, they get a tax cut. And when other people get married, their taxes go up. If you contribute income to household roughly 50 50 like my parents, you don't get a tax cut. I'm sorry. You don't get a tax cut. You pay higher taxes. If you contribute like a hundred percent zero or 70 79 21 something less than 20 percent, you get a tax cut. So what does that tell us in and of itself? Nothing. What I needed was Census Bureau data to confirm what that statistic hinted at, which is namely when black Americans get married, they are more likely to be in the 50 50 wage earner household that doesn't get a tax cut. And when white Americans are more likely to be married, they are more likely to be in the hundred zero or 90 10 household and they get a tax cut when they get married. That's why my parents are paying so much in taxes because they were married to each other and contributing in roughly equal amounts to household income. I love how you weaved your family through it, your parents through it. It really just made it a great read. But you actually go back in time and show that this was set up many moons ago by a white guy who found a way, you know, to commit to influence and change the tax system. His wife didn't work. So he went with a tax break. That that was fascinating. Can you explain that? Absolutely. So it's Henry and Charlotte Seaborn. And back in the 1920s, basically at the beginning of progressive tax system in 1913, the only people who paid taxes were the really rich. When I tell this to my students, they're like, what are you that's crazy, right? No, the only people who pay taxes were the highest income Americans. One of them were Henry and Charlotte Seaborn, and they didn't like it. He made all the money. She was a stay at home spouse. We had individual filing, so he was filing a tax return and paying taxes on all of his income. But he and his lawyers came up with an idea. If they could, if he could shift half of his income to Charlotte, then the last, the tax rate that applied to his last dollar would be significantly lower than if he was taxed on all of it. So that's what they did. They filled out what I would say is a fraudulent tax return. They put half the income on his, half the income on hers, and they got a reduced tax bill. But the IRS said, no, you can't do that. There's no such thing as what you just did. And it went all the way out to the Supreme Court and the Supreme Court sided with the Seaborns. The reason why the Supreme Court sided with the Seaborns is they lived in a community property state. And in a community property state, each spouse has a legal right to half of what the other spouse has. So the Supreme Court says she basically has half. So yeah, let you get tax on half. The problem is every rich white American who didn't live in a community property state paid higher taxes and they didn't like that and ultimately got Congress to change the law to make a joint return possible so that no matter where you lived, if you were rich and a single wage earner, you get a tax cut when you got married. So forward fast to today. And recently things have shifted a little bit, but that creates an inequity because you have what you were saying like your parents, James and Dottie, who made about the same amount of money. So they yeah, with a penalty. That's right. And like you said, things have changed. The 2017 Tax Act has minimized the couples, the married couples that pay a tax penalty. However, the 2017 Tax Act ignored the significant marriage penalties in the earned income tax credit and ignored the significant marriage tax penalties at high income levels. Why is that? So at high income levels, most white married couples are in single wage earner households and get a tax cut. But at high income levels, married black couples are still more likely to pay higher taxes than if they remained single or live together unmarried. So at these high income black households where you would think you would see more wealth production, tax law penalizes them. So now there are a few specific things you point to that are skewed against black families. So there's the marriage penalty we talked about, no deductions for rent, limited tax breaks for for-profit colleges. There's a whole story there. The term in account early withdrawal penalties, among other things. Yes. Is there one you think impacts black people, black workers hardest and their wealth or when I when I think about the impact on black workers, I think about health insurance and retirement accounts that are received tax free. But because of occupational segregation in the labor market, black Americans are less likely to have access to the jobs that come with those tax free benefits. So I look at the racism in the labor market and how tax law comes on top of that and makes it even harder for black workers to get tax benefits. Got it. So all tax policies are inherently designed to incentivize some activities, de-incentivize others. What do you say to folks who might be skeptical that racism, a motivating factor in some of these policies? That it should, well, we know that the law says it is illegal to discriminate on the basis of race. And even though Congress may not have a sentence in the legislative history that says we want blacks to pay more. If, in fact, black Americans are paying higher taxes than their white peers, we should all see that as unfair and we should all work to change it. So it's simply inequitable to suggest that black Americans should pay higher taxes because we are the victims of systemic racism and we bring that on to our tax returns. Right. And as you say, we don't know exactly how blacks are impacted because we don't have the data. How would it help us to have that data? So it would help us tremendously because what I've been able to show in my book would be easily replicated with tax return data. So we would see that black Americans pay higher taxes. We would see we would have a connection in the minds of the American public that taxes and race go together. Right now, the refusal refusal of treasury to publish statistics by race reinforces the narrative that there are no racial disparities. There's not really a problem. And if there is a problem, it's no big deal because, you know, everybody loses under the tax system. But it's simply not true. Everybody doesn't lose under the tax system because of their race. But black Americans do. So I really want to give you time on the solutions part because, you know, I love a book with solutions. Well, it's daunting to think of the things we face. And we all identify the problem, but we and we try at EPI to say, OK, now what do we do? What do we want policymakers to do? So how do we make our tax policies more equitable? You have three solutions in your book. So the race and taxes, statistics, transparency, which you just spoke about. And I'd like you to delve into, you know, how we get there potentially return to a more progressive tax system, something that, you know, does not discriminate whether intentionally or unintentionally. And then the racism tax credit, which made so much sense to me, you know, there was a lot of talk of reparations. There's a universal income. But this is an interesting twist there. So why don't we take each one? Race and taxes, you know, how do we get that transparency? Well, the IRS decides to do it. And let's start with President Biden's racial equity order. His first executive order, once he became president, was a racial equity order that basically said his administration is going to look at racial equity across the government. And he put together a working group that includes the Assistant Secretary for Tax Policy at Treasury. But nothing has happened. So the fact that the president signed this executive order doesn't mean Treasury is taking it seriously and making any progress. I can compare Treasury with what the Department of Labor has done in response, which has been amazing. They've been transparent. They have up on their website. This is what we're looking at. Basically, you can hold us accountable. So there are government agencies that are taking the president's executive order seriously. Unfortunately, Treasury is not. So we need the president, in my view, to basically kickstart the Department of Treasury to say, I meant it when I signed this executive order. I want to see movement. So we need Treasury to get on the stick, right? We need Treasury to get it together. And it's easy to do. That's the thing. It is not difficult for this to happen. In fact, in 1977 or 1978, there was a report that was put out under the auspices of Treasury that dealt with race. So it's an outlier, but it's totally doable. So that's number one. Is it information that they're tracking and obviously can see if they want to pull it or? Oh, that's what I'm saying. It's totally doable. This isn't, you don't need a law. You don't need anything other than will. And I simply do not think the will is there. Or the competency, quite frankly, when you look at who is in Treasury and who's holding these jobs, they were former academics who never wrote about systemic racism and tax. So they ignored it when they were professors and they're continuing to ignore it now, right? So that's why their boss, the president, needs to help them understand. He meant it when he said it and we need to get it done. I will say this, I've testified before Congress twice talking about race and tax statistics and there certainly seems to be support in Congress for more transparency on race and tax. So I'm cautiously optimistic but disappointed in Treasury. Okay. And then number two, so returning to a more progressive tax system. Yes, let's get back to basics. What it was like at the beginning. We didn't have a joint return so we shouldn't have a joint return now. The Henry C. Born should pay taxes on the income that he receives. That's number one. And from a bigger picture perspective, we should get rid of these deductions and loopholes that were for the most part put into the law to benefit white Americans and leave black Americans behind. So we need to get rid of these deductions and exclusions and tax income from stock, the same way as income from labor. And what you would see is if you want it, lower progressive tax rates across the board. If you expand the base, you don't have to tax income as high as we're currently taxing it. And then the final one I found so interesting, essentially a racism tax credit. Yes, so I wrote a book that showed regardless of what the activity was, whether it was getting married, whether it was buying home, whether it was paying for college, whether it was getting a job, our tax laws subsidize how white Americans engage in the behavior, but disadvantage how black Americans engage in the behavior. Well, I want to compensate black taxpayers who have been paying higher taxes. So I came up with a reparations tax credit, right? Targeted for black Americans who paid higher taxes. Unfortunately, the Supreme Court would not find that constitutional. So that would be a legal race-based discrimination. But my next best alternative is a wealth tax credit. And the wealth tax credit would be applicable to any taxpayer in a household with below median wealth. So it would apply across the board, but it would disproportionately advantage black Americans because of the racial wealth gap. So it's my second best alternative, given that my first alternative wouldn't be found legal. And so on this one, you mentioned that it would impact not just black families, but other- All families, yes, white. Yes, white, exactly. White Americans, Latino Americans, Asian Americans, Native Americans, everybody who had, was in a household with below median wealth would get this wealth tax credit. And a lot of the book you talk about, black families are impacted, but I could see why families who feel that they're not benefiting from the tax system because of wealth issues, because maybe they didn't have the generational wealth that other affluent white families had. But again, we go back to disproportionately, black families don't have that generational wealth, right? Right, absolutely. And I will give you an example where white families are impacted as well. So 2016 Treasury Report said 51% of married couples got a tax cut when they got married, but 40% paid higher taxes. And while my book would show that's disproportionately in the black community, there's a significant minority of white Americans who are paying a marriage penalty. I actually think that led to the Trump tax cuts minimizing the impact of the marriage penalty. I think over time, more and more white Americans needed two workers to get their household functioning financially. So we see what happened in the black community for decades, suddenly started happening more in the white community. And once again, tax policy was responsive to this increased percentage of white Americans paying a penalty and fixed it. Right, right. So, and you mentioned now under this administration with Biden saying that he wanted equity in the tax system, is there anything in the plans that he's introduced that make you feel like, yeah, this is in the right direction or wrong direction? So absolutely the right direction is his plan. If you have more than a million dollars, income from stock will be taxed at the same rate as income from wages. Now, taxpayers with more than a million dollars are three-tenths of 1%, right? So we're not talking about a revolutionary change, but there is an argument that once the camel gets his nose in the tent, it's over, right? So once we started a million, we can come down to half a million and then we can come down to a quarter of a million. So I'd say that's a huge step in the right direction because stock ownership is such a racialized asset that even high income black Americans do not own stock the same way their white peers do. Yeah, I did see research recently that younger black workers are investing more during the pandemic especially, but still there's a long way to go. Absolutely, absolutely. Investing more is a start, but there's still huge disparity. And millennials don't have that much money to invest. A lot of them have a lot of college student debt, right? What my research shows or what my book talked about is research shows black college graduates are more likely to send money home to their parents. White college graduates are more likely to receive money from their parents and that they use to build wealth. Whereas black college graduates are seeing their wealth depleted so that they can take care of family members who were victims of Jim Crow, who are currently dealing with systemic racism. So we see black millennials, they have a really hard, they have a lot of difficulty building wealth. Yeah, our research is focused on definitely leveling the playing field. We talk a lot about raising the minimum wage, which would impact black workers considerably. So there's the two, and you started out saying, there's this disparity potentially in job opportunities and then overlay the tax issues. No one likes getting tax, but you're not arguing we shouldn't be taxed. I mean, the bottom line is you just wanted more equitable. I mean, there was a key point in your book, I wanted to share it and I tweeted it the other day. Hard work alone will never enable black Americans to get the benefits that their white peers receive. And you really feel the way the system is right now is gonna- That's absolutely true. And what we see when we look at whether it's home ownership, whether it's marriage, whether it's paying for college, wealthy black parents cannot protect their students from debt the way their white peers can. So you can't run away from being black, right? It doesn't matter. This system, systemic racism is going to get you and try to pull you down. Even when you overcome, you are still fighting a system that wasn't designed for you to build wealth. It's such a good point. And we talk a lot about this idea of worker power and how workers' powers today has diminished over the last few decades. Going into work with college debt diminishes your power even more. Absolutely and we know that black students have more college debt than white students and over time black debt increases while white debt decreases. Part of that reason is a higher percentage of black Americans go to grad school, but also we see income-based repayment a lot in the black community. And all that does is increase the amount of debt outstanding, which is why I basically support student debt forgiveness. Have you got in any pushback on the bulk or you've been out there now and I said, I saw, listened to your NPR interview. What has been the reaction? So I get a lot of positive emails, a lot of positive tweets, but the pushback tends to fall in a couple of categories. One is she can't be right. The tax law is objective. She can't be right because it's written in a race neutral way. So these are people that haven't read the book. If you read the book, it's obvious. Yeah, I'm kind of right. So the other pushback is she's wrong. It's not race, it's class. It's fascinating. White Americans who are resistant to conversations about systemic racism always come back with, but what about poor whites? That's the, it can't be race, it's class. When no, this is impacting black Americans at all income levels and it is not impacting white Americans at all income levels. So those are the two primary pushbacks that I get. And there's so much going on in this country, a reckoning on race, the discussions we're seeing, George Floyd, the trial, the discrimination that is so clear that we do see in the workplace. And I wonder that could it be disheartening that they're like, and the tax system too? Well, actually what I think is the summer of 2020 woke up a lot of white Americans watching George Floyd be murdered in real time woke up a lot of white Americans to how messed up the policing system was. Black Americans knew this. We were victims forever. We knew it. I grew up knowing it, right? But white Americans said, wait a minute, I watched this, right? White Americans disproportionately had jobs that enabled them to work at home during the pandemic. They were home. They could watch it and they were outraged. And then they took to the streets in the middle of a pandemic. Those same white Americans that had this revelation are quite receptive to the argument of my book that, oh, here's another area that systemic racism is playing a role. Black Americans, on the other hand, have embraced the book because they've kind of known something was wrong but they didn't quite know what it was. And then they read the book and go, aha, I knew it. I just didn't know what the it was. So this seems to be a unique moment for people to embrace thinking about systemic racism in ways and in areas they never would have thought about or even accepted a year and a half ago. That is great, Dorothy. Thank you so much for the enlightening conversation, for making me think, for helping me curl up with a tax book. Thank you, thank you. This is my life. Dorothy's book is the Whiteness of Wealth, as we said, how the tax system impoverishes black Americans and how we can fix it. To hear more of EPI's State of Working America podcast, check us out on YouTube, Apple, Spotify, wherever you get your podcasts or visit epi.org, backslash podcast. Our latest analysis, research trends can be found at epi.org and follow us on social media via act economic policy. Thank you so much for joining us and thank you, Dorothy, again. Thanks for having me.