Is the Tax Code Racist? A Critique Of Dorothy Brown’s The Whiteness of Wealth

“The American system for building wealth has always taken wealth away from black Americans and given it to white Americans . . . .”^[1]

I. Introduction

This article is a critical review of Dorothy Brown’s The Whiteness of Wealth: How the Tax System Impoverishes Black Americans—and How We Can Fix It. Brown accurately points out that the U.S. tax code, on average, affects racial groups differently. However, she goes further to claim that such a tax code is racist against black Americans.^[2] This conclusion is not surprising given Brown’s belief that “there’s nothing in this country that race and racism aren’t a part of . . . .”^[3] However, different racial outcomes do not per se prove racism. It could simply be a natural function of how races occupy different financial positions on average. It is certainly not the case that the IRS treats two taxpayers with identical tax returns differently based on their race. Indeed, the IRS does not even collect information on race.^[4]

This review provides a critique of Brown’s claims regarding the net effect of the tax code, the deceptive use of anecdotes, the marriage penalty, and the tax consequences of overtime work. The issue of Social Security is peculiarly absent from Brown’s book despite being perhaps the most racially discriminatory tax policy today. Additionally, this review addresses the consequences of Brown’s use of race as a proxy for financial disadvantage and an inability to get ahead. Finally, Brown’s proposed solutions—some of which are surprisingly common sense—are discussed for their positive prospect of achieving bipartisan support.

II. One-Sided Nature

The main problem that permeates Brown’s analysis is that she only considers one side of the equation. The tax code contains numerous features that, on average, affect people groups differently. It is easy to make the tax code appear discriminatory–if one only considers those policies that harm a given group while ignoring policies that have the opposite effect. For example, the following tax policies could harm white Americans and benefit black Americans because they apply disproportionately to high-income taxpayers:

• Progressive tax rates

• Capping mortgage interest deductions at $750,000 ($375,000 if married filing separately)

• Capping the state and local tax deduction at $10,000

• Earned Income Tax Credit

• Alternative minimum tax

• Income limits on Roth IRAs

• Estate taxes

• Progressive capital gains tax rates

This list is not to say that, on average, the current tax code does not favor white Americans at the cost of black Americans. Rather, this is only to point out that, one must consider both sides of the equation to accurately make such a claim. Unfortunately, Brown does nothing of the sort. This lack is likely because doing so would cast serious doubt on the legitimacy of her claims. For example, the top 1% of federal income taxpayers pay more than the bottom 95% combined.^[5] Additionally, of the top 1% wealthiest Americans, only 1.7% are black, despite making up over 13% of the population.^[6] Starting from this vantage point, we see the immense uphill battle required to demonstrate that such a system is discriminatory against black people.

III. Deceptive Anecdotes

Much of the book has to do with the differences between the average black American and the average white American. Moreover, when Brown refers to this, she generally uses the terms “average” and “median” to denote this distinction. However, sometimes she omits the term, which creates a misleading statement. For example, Brown states that “neither black husbands nor black wives have the same job opportunities and earning potential as their white peers,”^[7] and “[w]hen [black people] purchase homes, they do not receive the home equity boost that their white peers get.”^[8] As written, these statements are incorrect because they omit the “average” distinction.

Perhaps even more misleading is Brown’s frequent use of targeted examples of individual white and black taxpayers. She almost exclusively provides examples of wealthy white Americans and poor- and lower-middle-class black Americans.^[9] It is true that white Americans are statistically more likely to be in the former category and black Americans in the latter. However, by only providing examples that conform to this generality, the reader is given a false impression about the economic diversity of black and white people.

Another problem with generalizing white people as financially successful and black people as not is that it perpetuates harmful stereotypes. If society views wealthy white people and poor- and lower-middle-class black people as the norm, risks treating poor white people and wealthy black people—of which there are many—as abnormalities. Brown even goes so far in perpetuating this harmful stereotype as to refer to black people who have obtained financial success as “act[ing] white.”^[10]

The problematic nature of using poverty and prosperity as proxies for black and white people, respectively, is even more inadvisable when one considers how unnecessary it is. It would have been more accurate and more direct to point out the differences between how the tax code treats rich and poor Americans rather than black and white Americans. For example, the disparity in who may take advantage of the housing mortgage tax credit is more significant between rich and poor people than white and black people.^[11] By removing race—which is only somewhat related to tax benefits—from the equation, this would allow for a more targeted, less ambiguous, and less emotionally driven approach.

IV. Marriage Penalty

The marriage penalty is a real phenomenon in U.S. tax law. It occurs when two individuals pay more taxes when married than they would if they were single.^[12] The marriage penalty is more likely to occur with couples who both earn similar incomes.^[13] Because this is more likely to occur with black couples, they are disproportionately likely to incur the marriage penalty.^[14] However, Brown’s explanation and examples of the marriage penalty are likely to leave the lay reader with either confusion or an incorrect understanding as to the reality of the marriage penalty. Brown confusingly gives the example of the “typical marriage-penalty couple” taxed $70 less than they would be if they were not married.^[15] Brown never explains how saving money on taxes by being married is an example of a marriage penalty.

Another questionable example provided by Brown regarded how the tax code affected black and white families differently. He gives the following example: Imagine a white married couple with a husband who earns $100,000 and a wife who earns nothing.^[16] Then imagine a black married couple with a husband and wife who both earn $50,000.^[17] Brown says that “the tax break goes to the single-earner couple, not the dual-earner couple.”^[18] This is likely to cause a lay reader to conclude that the black couple in the hypothetical will be assessed higher taxes, which is not true. What Brown is referring to is that—when considering the difference between the white couple being single or married and the black couple being single or married—the white couple will experience a reduction in their tax bill after marriage, while the black couple likely will not.^[19] It is interesting to note that, as with many of Brown’s points, this could be viewed as a detriment to black people—as Brown presents it—or the opposite. For example, one could describe this same scenario as producing a “singlehood penalty” that disproportionately inflicts unmarried white couples.

It is harmful to promote the notion that marriage “is in fact making black couples poorer”^[20] with such easily misunderstood examples. The majority of married black couples do not experience a marriage penalty.^[21] Even if they did, other aspects of the tax code that benefit married couples might counterbalance the marriage penalty. Examples include:

• Spousal social security benefits^[22]

• Survivor benefits under a pension^[23]

• Gift tax marital deduction^[24]

• Estate tax marital deduction^[25]

• Spousal IRA benefits^[26]

• Health insurance savings^[27]

Exaggerated warnings about marriage are particularly dangerous for the black community, which already suffers from low marriage rates. While 74% of white children live with married parents, only 36% of black children do.^[28] This is incredibly important because children raised with married parents are more likely to graduate high school, less likely to use illegal drugs, less likely to become pregnant as teenagers, more likely to go to college, and less likely to commit crimes.^[29] Additionally, the marriage gap is a driver of income inequality, contributing 20% to 40% of family income inequality.^[30]

V. Overtime

Brown stated that when her father worked overtime, “had actually cost [her] parents a bundle in taxes over the course of their life together.”^[31] She goes on to claim that her father’s overtime work that he thought would get him ahead actually “was putting [him] further behind.”^[32] Brown never provides an explanation for this counterintuitive claim, so the reader is left to speculate. One potential explanation was that Brown intended to communicate how her father’s overtime work caused higher marginal tax rate.^[33] Therefore—in a very technical sense—the overtime work could be described as costing a bundle in taxes. However, the extra work would have resulted in higher after-tax earnings, so it is unclear how it could be putting the family further behind. Extra income—whether through overtime, a raise, or the receipt of a gift—may result in a higher marginal income tax rate. But again, this would result in more, not less, after-tax income for the family.^[34]

It is possible that, by working overtime, her father had to pay for services, such as yard maintenance, that he would have otherwise performed himself. These expenditures could have totaled more than the additional after-tax income received from working the overtime. In this highly nuanced sense, it is possible to claim that the overtime work put the family “further behind.” Regardless, in a book about the hardships that black Americans face, it is harmful to promote the notion that hard work will only leave black families further behind; therefore, Brown should avoid this notion.

VI. Social Security

Peculiarly, Brown neglects to mention Social Security, which is likely the best example of a tax policy discriminatory against black Americans. Social Security was not only originally passed with purposeful invidious racially discriminatory intentions, but it still has discriminatory effects today.^[35] The racially disparate effects are so severe that some have even posited that Social Security violates equal protection.^[36] This is because workers have to pay into Social Security at the same rate regardless of race, and the system pays out full benefits after reaching age 66–67.^[37] But the average life expectancy of black Americans (especially black males), is lower than that of white Americans (primarily white females).^[38] Therefore, Social Security essentially functions as a mechanism for redistributing wealth from black males to white women.^[39] Given this blatant disparate outcome from Social Security along racial lines, its complete absence in Brown’s book is surprising.

VII. Harmful Ideology to Promote

Brown explicitly promotes the belief that, under the current tax system, black Americans cannot get ahead.^[40] To the contrary, the evidence shows that America and its tax code are highly advantageous for black Americans to amass extreme levels of wealth. For example, most of the world’s black billionaires live in America.^[41] And there are over one million black millionaires in America.^[42] This fact would be an odd result in a country where black people allegedly cannot get ahead. Even worse that Brown’s false assertions is the harm it causes. Telling people that they cannot get ahead no matter how hard they work^[43] is not an empowering message likely to lead to success. Instead, it is a message of hopelessness, despair, and resignation.

Brown’s hyperbolic language and exaggerated claims are likely to provoke an overreaction from lay readers. Furthermore, her use of militaristic language could cause even worse reactions. For example, she refers to the current tax code as “nothing less than a war on the financial stability of most black Americans.”^[44] This language invites a militant response, as voting and political advocacy are largely ineffective to combat a military action.

VIII. Solutions

Brown proposes three solutions to fix what she views as problems in the tax code. Given Brown’s views on race and taxation, she provides three surprisingly restrained solutions. Moreover, the most significant one—the second—has some bipartisan support. Brown’s proposals are as follows:

• Publish tax data by race^[45]

• Maintain a progressive income tax system but with no exclusions; a single deduction; and no preferential rates, such as on capital gains^[46]

• Establish a tax credit to compensate for historical racism^[47]

The single deduction Brown would allow is a living allowance deduction whereby income taxes would be reduced or eliminated for those earning less than the living wage.^[48] One can view this deduction as a progressive version of the flat tax that some conservatives advocate for.^[49] Both proposals would almost entirely eliminate deductions, thus vastly simplifying personal taxes.^[50] The main difference is that the flat tax imposes the same tax rate for everyone while Brown maintains progressive tax rates under which the rich would pay not only more money (as they would under a flat tax) but also a higher percentage of their income. Detractors may argue that the similarity of eliminating deductions is greater than the difference of flat versus progressive rates. This argument provides reason for optimism for obtaining bipartisan support for such a plan.

Brown’s third proposal is to establish a wealth-based tax credit targeting the lowest-wealth Americans (regardless of race).^[51] Proposals for using wealth to impose tax policy are nothing new. Prominent politicians, such as Bernie Sanders and Elizabeth Warren, have promoted a wealth tax on high-wealth Americans.^[52] Brown’s wealth-based tax credit would avoid many of the pitfalls of wealth taxes.^[53] However, it would still necessitate self-reporting of wealth, which is inherently subjective and difficult for the IRS to confirm. Additionally, it would lead to peculiar outcomes, such as a tax break for someone who earns $250,000 every year but maintains low wealth due to spending all his income on non-wealth-building expenditures, such as vacations.

The practicality of a policy proposal rests on its merits regardless of its advocates’ mental state. However, it is interesting to note how Brown arrived at this wealth-based tax credit. She states that she would prefer a tax credit that would exclusively apply to black taxpayers.^[54] But because this would be unconstitutional, she is willing to settle for this wealth-based tax credit, as it would cover a high percentage of black Americans.^[55]

IX. Conclusion

As demonstrated in this critical review, Brown based her case on incomplete or misleading information. Her use of race as a proxy for poverty and the inability to get ahead likely does more harm than good. Regardless, this does not mean that legislature should reject her proposed solutions. An income tax applied universally to all income with only one deduction affords many benefits over the current system.

Ideal tax reform policy requires the careful consideration of factors such as maximizing revenue, incentivizing desirable behaviors, prioritizing simplicity, maintaining fairness, catching tax cheats, etc. This process is made difficult by the subjective nature of these factors and the threat of special interest groups lobbying legislators for preferential treatment. Adding racial considerations to this list would only serve to make the process more convoluted and contentious without any benefit.