Brooklyn Law School professor Steven Dean’s recent piece “A Plea to President Biden to Stop Perpetuating Racist Tax Policy” declares that failure to address racist domestic and international tax policies, like the disparities between the majority Black countries among blacklisted countries and tax havens such as Ireland and Switzerland, would prevent the fulfillment of President Biden's promises to rid our nation of systemic racism.
Dorothy A. Brown, a professor of law at Emory University, delved into the domestic side of the tragedy highlighted by Dean by examining how the impact of redlining of real estate tracts continues to plague home values in nonwhite communities. In “Your Home’s Value Is Based on Racism,” she explains that because “white families typically prefer to live in predominantly white neighborhoods with very few or no Black neighbors,” these neighborhoods “tend to have the highest market values” because they are desirable to most Americans. This makes it harder for Black people to benefit from the tax law’s $500,000 of tax-free appreciation upon the sale of their homes.
Where you live sets not only expectations for your future, but also how susceptible you are to IRS audits. The revenue collection agency that looks for deference from the courts based on expertise seems to search for those without tax knowledge to increase its audit rates.
Many of the most frequently audited places in the country are predominantly Black communities. Kim M. Bloomquist, senior economist with the IRS’s research division for two decades, published a study in Tax Notes in March 2019 concluding that the 2017 population of highest audited “10 counties is 79 percent nonwhite (nearly all black or African-American) according to the U.S. Census Bureau.”
The benefits of landownership have long been withheld from Black people. Because so many benefits relate to preferential tax treatment of capital gains from property ownership, that fact has made it harder for Black people to access them, as Brown explains in her book, The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — And How We Can Fix It. Accumulating investment income is more difficult for them after generations without property ownership rights and knowledge. Brown explains that “as ‘Property,’ enslaved blacks could not get educated, could not get paid for their work. Property could not get married. Property could not own property.”
It is virtually impossible for Black communities to catch up, given this history. Tax laws ensure old money grows faster than new money. Wealth transfers obtain tax-free basis step-ups and exemptions. It takes money to make money.
U.S. laws indicate that capital is superior to labor and that working as an employee is a fool’s errand. Even payroll taxes are completely phased out at $142,800. Thus, the means for collecting roughly a third of federal revenues is imposed only on employees, excluding many wealthier taxpayers. The racial gap in business ownership, such as the mere 1.3 percent of total American sales that Black businesses can claim, limits the availability of related tax benefits such as preferential capital gain rates and section 199A’s 20 percent passthrough deduction.
IRS Commissioner Charles Rettig said his agency would work with Congress to examine how the tax laws further racial disparities. But how committed is Biden to acting on what the IRS finds? Tax enforcement practices at Treasury and its agencies are already deeply embedded through decades of policy and regulation that disadvantage communities that were prevented from owning property or accessing increases in value of their assets. It is unsurprising that the IRS is auditing communities with fewer resources given that the tax laws clearly favor those with more.
As leader of the executive branch, Biden can work with Treasury to make important progress on his promises to rid our nation of systemic racism by taking heed of Dean’s and Brown’s efforts to address the roots of the suppression of Black financial success in this nation. Improving laws as well as enforcement policies, particularly through thoughtful and targeted efforts to close the tax gap, could go a long way toward addressing systemic racism.
As for the legislative proposals now being discussed on the Hill, we will have to see if Biden can build enough support in Congress to prevent geography, race, and resources from keeping the IRS focused on those who benefit least from the tax laws.