Our tax system fails to account for race: Expert

Dorothy Brown, Asa Griggs Candler Professor at Emory University School of Law and author of “The Whiteness of Wealth”, joins Yahoo Finance’s Kristin Myers and Alexis Christoforous to discuss how tax policies impact the racial wealth gap.

Video Transcript

ALEXIS CHRISTOFOROUS: So President Biden's plan to pay for his $2 trillion infrastructure plan is to hike taxes on individuals and businesses. We know that he wants to raise the corporate tax from 21% to 28% over 15 years. He's also promising not to raise taxes for anyone making less than $400,000 a year. But our next guest says his tax plan actually falls short when it comes to closing the wealth gap and accounting for race.

Dorothy Brown is a professor at Emory University School of Law and author of "The Whiteness of Wealth." Professor, it is good to have you here. I know that you say our tax system currently fails to account for race. How so? And why is it so important that they not?

DOROTHY BROWN: So our tax system currently doesn't say anything about race. Think about the tax returns that you fill out. There's no race box. And I don't advocate that there should be.

The problem, however, is taxpayers bring their racial identity onto their tax returns. So there are racially disparate impacts. My research over 25 years has shown when Black and white Americans engage in the same activity, tax subsidies help white Americans, while disadvantaging Black Americans.

KRISTIN MYERS: So how does that happen exactly? Because when I was reading this, I immediately thought, oh, well we do know that a lot of those corporate tax breaks for example, are those tax breaks that go towards the country's wealthiest disproportionately impact white Americans. But if you're saying that they're doing even the same activities and there's a disproportionate impact, how does that happen?

DOROTHY BROWN: So let's take marriage, right? There's the joint return. And if you have two spouses where one works in the paid labor market and the other works at home, that couple gets a tax cut when they get married. We call that a marriage bonus.

Take another couple where there are two coequal wage earners. That couple does not get a tax cut. And for decades that couple paid higher taxes when they got married. Well and behold, my research looking at Census Bureau data showed white married couples were more likely to have a single wage earner and get a tax cut when they got married. Black married couples were more likely to have two coequal wage earners and not only didn't get a tax cut, but people like my parents-- my mother was a nurse. My father was a plumber-- their taxes went up because they were married.

ALEXIS CHRISTOFOROUS: You know, this is interesting. I don't think a lot of people even realize that. And another thing that I didn't realize is that I know that part of his tax plan-- Biden's tax plan-- is to allow for some tax subsidies when it comes to home ownership, especially for first time home owners. On the surface, one would think this is good for all folks who are looking to get into the market to buy a home. But you say it actually in some instances works against potential Black homeowners.

How so?

DOROTHY BROWN: So a tax credit is going to give you a break when you buy a home. The problem, though, is Black Americans need down payment assistance. We don't have intergenerational wealth. We don't have our parents who can give us a down payment for a home. So what that tax credit will do is just give a tax break to people who were already going to buy a home and had the money for it. So that's going to disproportionately help white Americans, not Black and LatinX Americans.

KRISTIN MYERS: All right, so I'm hearing, you know, obviously how there's this disproportionate impact that already exists within the tax system because of the disproportionate ways that our systems handle, you know, employment for example, education, et cetera. So if you are Black and you're at home and you're listening to this segment and you're hearing how you are essentially losing every time tax time comes around, what do you then do about it, right? Absent of some changes being made to the tax policy, are there some loopholes that folks can take advantage of? Are there some kinds of filings that they should be doing to really try to take as much advantage of the existing tax system that we have?

DOROTHY BROWN: So one thing I will say is Black Americans who work for employers that provide them with a retirement account, they should max that out to the extent they financially can. Don't leave any money on the table because that is a tax-free benefit that you get. You're not taxed on any amount you put in your retirement account. So there are tax subsidies that Black Americans may be able to take advantage of.

But really, we need a fix. We need, first, the Biden administration to live up to their promise of that executive order that said racial equity should go across the federal government and include Treasury. So I spent 25 years being a detective to figure this out. The IRS should be publishing race and tax statistics.

So one of the things people at home who think this is a problem like I do, they should be agitating the Biden administration to make good on their promise. We should know what statistics are by race.

KRISTIN MYERS: You moving forward as we talk about making changes, lately we've been talking a lot about reparations, for example. I'm wondering if one of those potential policies can be enacted through our tax system? Perhaps, giving tax breaks, tax credits to Black households, especially households that are descended from American slaves. Is that a reform that we really need to be making here as well?

DOROTHY BROWN: So in my book, I talk about a reparations tax credit, which would compensate Black Americans for paying higher taxes over decades. But I also talk about that would not be found constitutional. A Supreme Court would say you need to prove Congress intended to discriminate against Black Americans, which is basically a burden that won't be able to be overcome.

But my second best alternative is a wealth tax credit, which would be available to any taxpayer who was in a household with below median wealth, which means disproportionately Black taxpayers because of the racial wealth gap. But white taxpayers, LatinX taxpayers, Asian-American taxpayers, all taxpayers in homes with less than median wealth would be eligible for that tax credit. And I think it's obviously something worth considering.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there-- Professor Dorothy Brown, a professor at Emory University School of Law. The book is called "The Whiteness of Wealth." Thanks so much for being with us.