The Tax Code -9 Ways it Hurts Black People

Can the Tax Code Hurt Black People?

So here is the obvious question, does the Tax Code hurt black people? Depending on who you ask, you usually only get a strong “yes” or a strong “no”. In reality, this is a very interesting question. Especially, since race and ethnicity are not reporting requirements for the Internal Revenue Service (IRS). Going further, race doesn’t directly factor into a person’s tax liabilities or their tax breaks.

Some folks say that the tax code is strictly about the money. They are suggesting that it has little, if anything, to do with race. However, that couldn’t be further from the truth. When you broaden your perspective, you quickly realize that you can’t talk about money in the United States without acknowledging racial factors. The hard part is figuring out just how much race is a factor.

Race

Most often, we associate “Race” with biology and connect it to physical characteristics like skin color, or hair texture. Typically, we link “Ethnicity” with cultural expression and identification. However, both are social constructs. We use these constructs to categorize and characterize seemingly distinct populations. How do these play a role, if any? It will become easier to see as we go on.

Tax Liabilities

Basically, your tax liability is how much you owe in taxes. Since it all starts with income, you can see why most people think of income taxes when you mention taxes. If your job is your only source of income, it’s usually pretty easy to figure out. It’s a little more complicated if you are self-employed. Does race have any statistical relevance pertaining to the tax liabilities of the population?

Tax Breaks

In terms of taxes, a break is anything that reduces a taxpayer’s total tax liability. Breaks are a direct result of how tax laws are written. The come in the form of deductions and credits. Essentially, a tax deduction reduces the amount of gross income that is subject to taxes. Meanwhile, a tax credit offsets the taxpayer’s liability on a dollar-for-dollar basis. Statistically, where does the black population rank in terms of access to tax breaks?

9 Ways Black People are Hurt by the Current Tax Code

On the surface, the harm brought by the tax code isn’t easy to see. Mainly, this is because race doesn’t determine a person’s tax liabilities or tax breaks. But, we have to look deeper into the factors that do. Those 9 factors are as follows;

• Income
• Political Policy
• Regressive Taxes
• Capital Gains
• Race and Ethnicity Reports
• Audits
• Enforcement Attitudes
• Quantifying the Effects
• Invisible Privilege

Good luck trying to read the entire code. However, if you’d like to give it a shot, you can get a copy from the Government Printing Office. It is spread over two volumes. Roughly, book one is 1,404 pages and book two is 1,248 pages. That makes for a total of 2,652 pages. Basically, we can assume around 450 words per page. Overall, it comes out to well over 1 million words. Again, good luck with that. Let’s take a look at how each of these things harms black people through the current tax code.

The Tax Code is Based on Income

The most important thing to consider about the tax code in the United States is that it’s based on income. But, that’s only part of the picture. Let’s see if, and how, taxes on black incomes are shaped by systemic racism.

Earning

Black earnings patterns are based on a number of factors. Among them are employment, consumption, and education. Overall, the demographics with the highest levels of education are also those with the highest household income and wealth. As of 2020, black families had a lower median household income than that of white families. Black families posted an average number just over $41,000. In contrast, white families posted a median household income average number of more than $70,000. There’s already a divide in earning levels between blacks and whites in America. But, as we’ll see later, it’s not only about how much we make, it’s also about how much we keep.

Family and Relationships

The number of children born in two parent homes is becoming less and less across America. Unfortunately, the trend is bigger for black children. That number went from 34% to 67% between 1940 and 1994. That’s a 33% drop. Why does that matter? For one, that has a huge affect on societal norms and what kids see as “acceptable” life choices. But how does that matter when it comes to the tax code? Well, marriage brings with it certain tax benefits.

For example, If one parent makes less money, marriage helps when it comes to the tax brackets. You gain an advantage when you get married and file joint returns. According to current rules, people who make more money pay a higher percentage of their income in tax. Usually, combining incomes results in paying a lower total tax than two single taxpayers would pay.

Location

Over the years, blacks migrated all over the country. However, today’s distribution of black Americans follows the historical patterns of the black population to a large degree. The same counties today with high percentages of black are the same ones as before the Civil War. That suggests that conditions of the past have had extremely persistent impacts on black outcomes.

It’s a trifecta

Originally (early 1970s), referred to a horse-racing bet. This was a bet in which the first, second, and third place finishers are chosen in the correct order. Another word for Trifecta is “trinity”. However, in this case, the trinity is far from being holy. The triple threat of earnings, family and relations, and location is perfect for harming black people under the current tax code. It’s so effective that most people aren’t even aware of it.

Policy Makers Can’t Make Race Neutral Tax Code Decisions

Any policy decision made under the current tax code will affect racial demographics differently in some way. In reality, it is virtually impossible for policy-makers make today to make decisions that are race neutral. Remember, at the beginning of this post, I made a reference to how large the US tax code is. Think about that. Nowadays, all we see is more code being piled on top of what is already there. New policies and programs galore. Now, think about how much more difficult it makes it to see the real negative impacts. They are built in at the core. The two major political parties (Democrats and Republicans) tend to overlook some of the real issues.

Democrats

The Democratic Party supports a more progressive tax structure. Their stated aim is to provide more services and reduce economic inequality. Theoretically, this is accomplished by making sure that the wealthiest Americans pay the highest tax rate. In addition, they support more government spending on social services while spending less on the military. What they fail to speak as loudly about is the fine print in the current tax law. It’s more than just a simple graduated tax system. They scream about making the rich pay their fair share. Meanwhile they struggle with dealing with the way the rich use the law to reduce their tax liabilities. So, Democrats steadily create more and more “band-aids” with new programs that further burden the system.

Republicans

By and large, Republicans consider the income tax system to be inherently inefficient and they oppose graduated tax rates. Basically, they reason that a graduated system unfairly targets the people who create jobs and wealth. In addition, most Republicans believe private spending is inherently more efficient than government spending. They also, generally, oppose the estate tax. While Democrats are screaming about taxing the rich, Republicans are yelling, “we all have the same opportunity!” As a result, most of them are proud to say that here “in America” everything is equal. That is, of course, except for a tax system that penalizes success. So, Republicans focus on privatization and tax shelters while ignoring the inherent disadvantages black people face. After all, everything is already “equal” right?

Get the Picture?

Going back and forth between the parties, you problem see both have some things “right” and some things “wrong”. But, both sides are missing an important point. Maybe, just maybe, the problem starts with a tax system based primarily on income in the first place.

Regressive Taxes Cost Poor People More

If progressive taxes are a problem at the Federal level, regressive taxes are equally troublesome at the State level. Essentially, nearly every state tax system is “upside down.” In short, the state makes most of its revenue using “regressive” taxes. These types of taxes cost more of poor people’s income, proportionally, than wealthy people. In other words, poor people pay a higher proportion of their income in taxes. For example, sales tax raises the cost of an item at the cash register. That increase is the same regardless of whether or not the person buying it makes minimum wage or six-figures.

Lower Taxes on Capital Gains in the Current Tax Code Favor the Wealthy

Historically, evidence suggests that lower taxes on capital gains (gains in investment) benefits America’s richest people more. After all, wouldn’t richer people have more capital to invest in the first place? According to a Hamilton Project analysis, the median white household held $188,200 in wealth 2019. That figure was 7.8 times that of the typical Black household which was $24,100.

They added that average wealth, was even more heavily skewed. Additionally, they noted that median wealth is more reflective of the typical household. Meanwhile, average wealth shows just how big the gap is in terms of the richest and poorest households. It also alludes to the gap between black and white when it comes to leverage a capital gains tax strategy.

Race and Ethnicity are Not Reported

The Internal Revenue Service doesn’t ask about your race or ethnicity. Even still, they know a whole lot about you. Like, how big your paycheck is. Or, your spouse name. And, even things your extended family might not know, like your mortgage balance. We give them all types of information but the forms never mention race. Sounds like a good idea at the surface. However, if there was data on race available, it’d be a lot more clear who benefits most from tax breaks.

The IRS Targets Low Income People for Audits

Overall, low-income people are far more likely to be audited than high income earners. A major factor in this is that auditing them is much, much simpler. With limited resources, it makes sense that the IRS has limitations on auditing big corporations and wealthy individuals. As a result, many of the big players escape scrutiny. Meanwhile it has the affect of disproportionately punishing low-income people. Where do you figure that most black people fit into that equation? As an aside, funneling more resources to the IRS as President Biden suggested is probably not the best answer. Why, because the complexity of the auditing process would still be a factor. What do you think that means for lower-income people?

Black People Have a Negative Attitude Toward Enforcement Agencies

Another important thing to remember is that the IRS is an enforcement agency. According to a Pew Research study, black adults are about five times as likely as whites to say they’ve been unfairly stopped by police because of their race or ethnicity. This is the foundation of perception that the attitude is built on. If we often see disparate enforcement along lines of race and ethnicity in other areas,” it makes sense to suspect the same from the IRS. In addition, it makes sense to conclude that it would directly affect levels of cooperation. We all know what happens when we don’t “cooperate” with the law. But, since race and ethnicity are not reported by the IRS, it’s hard to determine the extent. Furthermore, the IRS is not public about how it chooses people to audit. That is a problem in and of itself.

The Tax Code Affects are Difficult to Quantify

As we discussed, there are a host of factors contributing to the affect of the tax code on black people. It includes everything from how the IRS works to how families are structured. We see that income plays a big role. And, just as income plays a role, the liabilities and breaks under the tax system play a role as well. Add the fact that the IRS does not report on race and you get murky water. The overarching result, is that the affects of the tax code on blacks are incredibly difficult to quantify. How do you qualify changes to a thing without quantifying the need?

The Current Tax Code is a nearly Invisible System of Privilege

It’s been said that privilege is invisible to those that have it. In America, it is often said, “Everyone is under the same rules.” Now, we can debate that but, generally, the statement is true. I stress the word “generally”. As a consequence, we often hear that in this country anyone can make it. That too can be considered true however it doesn’t address the level of difficulty that is built in. In this case, built into the tax code. To gain a true understanding, we must explore the psychology of privilege. We need to realize how everyday experiences and behaviors affect underlying motivations. And, how those motivations are shaped by a privileged position in the social hierarchy.

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Peace and Blessings