Black Sources of Income and Personal Taxes – Where is the Money?

Black income in America is tracked along with the rest of the population by the Bureau of Labor Statistics. A 2020 report paints a clear picture of where black money is coming from. It also shows us where black people are being taxed on the money that they earn. In this post, we’ll take a look. First, we are looking for the sources of income. And then, we’ll see how the government is taxing it.

Black Income

For starters, let’s clarify what we call “black income”. For the purposes of this post, we base this categorization strictly on government reporting. In short, the numbers come straight from the Bureau of Labor Statistics (BLS) website. The source shows shares of annual aggregate expenditures along with sources of income. Essentially, this data comes from Consumer Expenditure Surveys conducted in 2020.

In reality, this is based (in part) on self-identification of those reporting. And, in part, on those identifications made by third parties.

Black Income Before Taxes

Your income before taxes is basically the same as gross income. It is the amount of money you earn before anything is taken out for taxes or other deductions. Let’s see where most of this comes from for black people. Before we do, keep in mind that gross income is not the same as taxable income. Basically, taxable income refers to the income on which you pay taxes. So, it’s the amount left after you claim deductions for all the expenses you can. The seven sources of income listed were as follows;

• Wages and Salaries
• Self-Employment
• Social Security, Private, and Government Retirement
• Interest, Dividends, Rental Income, and Other Property Income
• Public Assistance, SSI, and SNAP
• Unemployment & Worker’s Comp, VA Benefits, and Regular Support
• Other income

Be sure to follow along until the end, that’s where it gets interesting.

Out of around $11 Billion in income reported in the Consumer Expenditure Surveys, blacks accounted for 9.5 percent of it. Roughly, it was a little over $1 Billion. Mainly, it’s important to note the 9.5 percent number because it is far lower than the population percentage. Blacks made up over at over 12 percent of the population at the time.

Here’s the breakdown.

Wages and Salaries

Basically, employers pay a wage based on the number of hours worked. Simply put, multiply the number of hours worked over a period by an hourly rate of pay and you get the total. Usually, the periods are a week or two.

However, a salary is different. In short, it is the payment of an agreed annual amount, paid at agreed intervals (i.e. every two weeks or monthly). Ultimately, they both fall into the same category of income. When it came to wages and salaries, blacks accounted for 9.7 percent of the aggregate total. As with overall income before taxes this was a couple points below the black share of the population.

Self-Employment Income

In contrast to wages and salary, self-employment income is earned from carrying on a “trade or business”. Usually, this is in one of three forms; as a sole proprietor, an independent contractor, or some form of partnership. Essentially, to be considered a trade or business, an activity does not necessarily have to be profitable. Also, you do not have to work at it full time. But ultimately, profit must be your motive. Accordingly, blacks accounted for 7.6 percent of the income in the survey. Again, this is much lower than the corresponding percentage of the population.

Social Security, Private, and Government Retirement

Social Security, private retirement, and government retirements form the most common thought about retirement safety nets. This is common throughout the psyche of all Americans. In the past, my conversations with black clients confirmed this in the black community as well. When I asked what they were planning for retirement, most of them mentioned one of these as their primary vehicle. This was pretty much the same regardless whether single or married.

According to the survey, blacks made up 8.4 percent of the aggregate self employment income of the participants. Like the two previous categories, that number was far below the percentage of the population made up by black people.

Interest, Dividends, Rental Income, and Other Property Income

This is where things take a big turn for the worse. Income in this category is directly related to the abilities and attitudes toward investing. In short, the black share drops all the way down to 3.4 percent. This should send alarm bells throughout the black community. And, the question that everyone should be asking is, “What’s going on?” It’s about more than just the number. It’s more about the underlying thought processes prevalent among members of the community.

The first thing I noticed was how the percent of the white and all other races share percentage far exceeds their share of the population at 92.3 percent of those surveyed. Meanwhile, the asian population is below but not by far at 4.3 percent. But, an almost 9 percent disparity with black investment versus population is sickening. We’ll dive deeper in another post.

Public Assistance, SSI, and Snap

If the numbers in the previous category was surprising or upsetting or unsettling, hold on. The numbers relating to public or government assistance start to reveal some really deep issues. We have a number that is twice the size of our population. Amazingly, black people accounted for a 24.6 percent share of these benefits. I see a problem. However, I’m sure there are many people who would argue with just as much, or more, passion for the reverse.

Rather than solutions, the reply I often get when this is brought up is a defection. Somehow, the fact that there are white people on public assistance seems to make it a good thing. It’s not a good thing, necessary in many situations, but not good. More dependence on public assistance is simply more dependence on the government. That dependence plays out in the political theater and it never ends well for black people.

Unemployment & Worker’s Comp, VA Benefits, and Regular Support

Black people take a 16.5 percent share in this category of income. Again this number is higher than the percentage of population. Unemployment suggests blacks are have less steady employment. Meanwhile, worker’s compensation suggests blacks are more prone to work injury. However, you can’t justify those conclusions based strictly on these numbers. The category also includes veteran’s benefits and regular contributions for support.

Service member numbers for blacks exceed the percentage of the population. Therefore, it makes sense why the share of veteran’s benefits would as well. However, as mentioned, this is a broad category. It makes it harder to figure out the impact.

Other Income

The last category of income is what we call “other income”. Basically, other income is business income that isn’t related to the business focus. Some examples include; interest income, gains on the sale of assets, and gains from foreign exchange transactions. Blacks took 14.6 percent of the share in the area.

One thing that stands out is the difference between this share and the self-employment income share. The reason for this is the word income itself. Being self-employed is simply a status. Blacks in this status are earning a lower share than the population. However, they are earning a higher share of “other income”. It appears to show that self-employed blacks earn less that self-employed members of other races on the whole. Yet, they claim “other income” at a much higher rate.

What can we learn from this?

Black Annual Aggregate Sources of Income and Personal Taxes (2020)

Personal Taxes

Personal taxes are the flip-side of the income equation. Income is money coming into the household. Meanwhile, taxes equal money going out (usually). We’ve seen how blacks stack up against other races in the survey in terms of income. But, where do we fit in when it comes to taxes? Let’s look at Federal and State Income Taxes, Stimulus Payments, and Other Taxes. Bear in mind that some of the values are imputed.

Federal Income Taxes

Federal income taxes are, by and large, the government’s number one source of income. They are based on our income and filing status. And, the same federal tax rates apply to everyone, regardless of where they live or work. The IRS has no reporting for race. However, there are some things that blacks should be aware of involving tax codes. It might give a black person, and many others, a different perspective on the current tax code.

Aside from that, blacks reported paying a 6.1 percent share of the total paid by participants. This percentage comes in at around half of the black percentage of the population. That can indicate two things. For one, it can indicate lower black incomes on which to pay taxes. Additionally, it can indicate blacks find more deductions and tax breaks to reduce their taxable income. That doesn’t seem likely to me. What’s your take on the reasons for it?

Black Income from Stimulus Payments

We see another huge discrepancy when we look at the affect of stimulus payments. First, keep in mind that this number is a negative number in regards to taxes. Basically, it shows money going back into the hands of the consumer. Essentially, it works like a refund. That, in and of itself is interesting, when you consider what a refund is. A refund is supposed to be money returned to the consumer that has been sent. With that in mind, you would expect the share of the overall percentage to mirror the share of taxes paid. This isn’t the case, in fact, it isn’t even close.

The black share of the stimulus payments, in the survey, was 13.1 percent. In reality, the number mirrored the black share of the overall population. Seems fair enough because it demonstrates an even distribution of the funds. This was the same across all demographics. However, if you recall, the Federal Income Tax share paid by blacks in the survey was only 6.1 percent. What does that mean? It means that, ultimately, it amounts to a redistribution of wealth.

Overall, your opinion on that will probably vary based on your personal financial situation. Those opinions help to fuel the political debate in America. Who gets what, when, and how? On the other hand, it masks a ton of government spending that, quite frankly, a lot of blacks weren’t paying attention to. If the intent was purely to keep things going, provide for the people, and spur the economy, those checks would have been bigger. That’s not the topic of this post, so I’ll leave it right there.

State and Local Taxes

The black share of total state and local income taxes paid in the survey was 8.3 percent. The share for both the White and All Other Races as well as the Asian category both exceed the share of their respective populations. These taxes can vary widely from state to state. There was no breakdown by state in the survey. However, it’s good to note that Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income taxes.

Other Taxes

“Other taxes” show up on Schedule 4 of your tax forms. From there, they flow to Form 1040 line 14. Here is what this category of income includes.

• Self-employment tax
• Social Security and Medicare tax on unreported tips
• Additional tax (i.e. penalty) for early distributions from an IRA or 401(k), failure to take an RMD, or excess contributions to an IRA, ESA, MSA, HSA, or ABLE account
• Household employee taxes (“nanny tax”)
• Repayment of the first-time homebuyer credit
• Individual responsibility payment (i.e. penalty) for not having health insurance coverage
• Additional Medicare tax
• Net Investment Income Tax

So, as you can see, it’s a mixture of additional taxes. Many of these would probably never cross the average person’s mind. On the other hand, most of us are very aware of self-employment taxes. Blacks have a high number in this category at 11.3 percent. This is actually consistent with a high percentage of the share in the “Other income” category

Income After Taxes

After tax income for a demographics combined in the survey was nearly 10 billion dollars. In short, this amounts to a $1,233,910,000 difference between the before tax number and the after tax number. That was money paid in taxes by the survey participants. Of that amount, blacks accounted for a 10 percent share. That 10 percent share was below the share of the population that blacks represent. Asians paid 6 percent which exceeded their share of the population. Those in the Whites and All Other Races category paid 84.1 percent. That percentage exceeded their population numbers as well.

The survey shows that blacks were the only racial demographic that paid less in taxes than their share of the population. One thing is for sure, this shows us how complex our financial system is when it comes to income and taxes. But, since taxes are based on income, we can be sure of one thing. Blacks in America were earning less than the other races in the Consumer Expenditure Surveys of 2020.

Let’s change that in the future!

Peace and Blessings