The tax system is built to favor wealthy Whites, new book argues Dorothy Brown thought tax law was colorblind. But decades of research proved otherwise. Now a professor of law at Emory University, Brown has written a book laying out how racism is built into the U.S. tax system, contributing to the wealth gap for Black people. "What people tend to say is, 'Well, the tax laws can't discriminate, because there's nothing in the tax law that says Blacks pay more, Whites pay less.' And that's true," Brown said in an interview. But if you look at how certain provisions got into the tax code, there's a racialized history that has generally favored White Americans. "Our tax laws were designed with White Americans in mind," she writes. "That's why no solution proposed by either the right or left — not better jobs, not increased homeownership, and not more access to higher education — will be effective without significant and fundamental tax reform." In the past, I've selected a personal-finance book each month for the Color of Money Book Club. Last year, as the pandemic escalated, I suspended the club to focus on providing much-needed information about stimulus payments and the glitches in getting the money to millions of Americans. Although I won't be resuming a monthly book-club selection, I'll still, on occasion, review books related to consumer finance. In my first selection for this year, I'm recommending Brown's book, "The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It." Even though the IRS does not ask for a tax filer's race or ethnicity, research shows that systemic racism — in homeownership, employment and education — is playing out in the taxes people pay or don't pay. In an interactive guide through the 1040 form, researchers for the nonpartisan Tax Policy Center also explained in a 2020 report the various ways in which the tax code contributes to racial inequities. Here's how. Capital gains tax rates overwhelming benefit wealthier White families. Workplace retirement plans such as 401(k)s are creating greater wealth for White employees because Black and Hispanic workers are less likely to have access to this tax-favorable benefit. Although these workers could invest for retirement on their own, studies show that workplace plans, often with the carrot of a matching contribution from an employer, increase participation. And who has largely benefited from the home mortgage interest deduction and how home sales are taxed? "Federal tax subsidies make things better for most White Americans, who've been reaping market and government rewards for more than half a century, and worse for most Black Americans, whom the market and government have already punished," Brown writes. "While White home buyers no longer have a monopoly on receiving FHA subsidies, they still benefit from the anti-Black preferences present in the real estate market." A married couple filing jointly can deduct mortgage interest on up to $750,000 for a qualified residential loan. Then there's the tax break people get when they sell their homes. Up to $250,000 (or $500,000 for married couples) of capital gains from the sale of principal residences can be tax-free if taxpayers meet certain conditions. Here's where the disparity comes in. Housing discrimination kept many Black families from owning homes. Homeownership rates for Blacks still pale in comparison with rates for Whites. In the first quarter of 2021, homeownership for non-Hispanic Whites was nearly 74 percent, according to the Census Bureau. For Blacks, it was 45 percent. "Between 1934 and 1962, 98 percent of FHA-insured loans went to white families, providing them a critical wealth-building foundation for future generations," according to a 2020 Urban Institute report. The baked-in bias in the tax system delivers a greater tax break for many White sellers, and that is rooted in disparities for home appraisals for Black homeowners. Studies show that property values start to fall when Black presence in the neighborhood exceeds 10 percent, Brown writes. Read: Being Black lowers the value of my home: The legacy of redlining As we talked about the disparity in home values and appraisals, Brown knew what I was going to ask next. There are Whites who argue that the difference in appreciation isn't about race but about crime rates, I said. "They say this not realizing how racist that is," she chided. "Okay, so now you're saying every Black person is a criminal. That's your defense as to why it's not about race. Really? So, the research says many White Americans don't want to live around too many Black Americans." In July, an enhanced child tax credit will start delivering monthly payments to families. President Biden has proposed increasing the capital gains tax. Brown's analysis is an important addition to the conversation about closing the racial wealth gap through tax policy. Brown wants the IRS to publish tax data by race to easily expose discriminatory tax policies. She advocates for a progressive income-tax system with no exclusions. All income would be taxable. Americans would get only a living allowance deduction that would reduce or eliminate income taxes for people who earn less than a living wage, based on their geographic region. This book packs a powerful punch of historical context, concluding with bold recommendations that would face incredible opposition. But as the saying goes, go big or go home. Reader Question of the Week If you have a personal finance or retirement question, send it to colorofmoney@washpost.com. In the subject line put "Question of the Week." Please note that questions may be edited for clarity. Q: I am 77 and my wife is 73. We adopted two grandchildren at birth. They are now 13 and 16. We have not filed income taxes for several years due to our low income. We are not sure how to proceed to receive stimulus payments for them. Are we qualified for some type of payment? A: Based on your information, you and your wife are entitled to stimulus funds for yourselves and should have received the money already if you are receiving Social Security. The IRS automatically sent economic impact payments, which is what the agency calls the stimulus payments, to people who did not file returns but who receive certain federal benefits, including Social Security retirement. Married couples who qualify for the full amount of stimulus payments should receive a total of $6,400 ($2,400 in the first round, $1,200 in the second round, and $2,800 from the third round.) Under the Coronavirus Aid, Relief, and Economic Security (Cares) Act, parents or guardians could receive an extra $500 for each dependent child under 17. As part of the Coronavirus Response and Relief Supplemental Appropriations Act, the dependent payment was $600 for each qualifying child, also under 17. The American Rescue Plan provided direct stimulus payments of an additional $1,400 for each dependent regardless of age. However, unless you filed a recent tax return claiming your grandchildren as dependents, the agency doesn't know that you qualify for the dependent stimulus payments. The only way to receive the money now is to file a 2020 tax return. Technically, the stimulus payments were an advance of a credit referred to on Forms 1040 and 1040-SR as the "Recovery Rebate Credit" — on the second page, Line 30. Eligibility for the Recovery Rebate Credit is based on your adjusted gross income on your 2020 tax return. Make sure to include the amount you are due on Line 30. People earning $72,000 or less can get their federal tax returns prepared free. But be sure to go to the IRS website to search for a Free File provider, to avoid a surprise fee for the paid product from the same companies. There's another reason why you need to file a 2020 return as soon as possible. President Biden's $1.9 trillion covid-related aid package includes a substantial increase to the Child Tax Credit for the 2021 tax year. The one-year expansion increases the credit to $3,600 for children 5 and younger and $3,000 for those ages 6 to 17. Monthly payments are slated to be delivered electronically on July 15. The money is an advance, amounting to roughly half of the tax credit parents and guardians can claim when they file their federal returns next year. "Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so," the IRS says. For more on the child tax credit read: What you need to know about payments for children and dependents in the American Rescue Plan and at irs.gov you'll find an information page about the Advance Child Tax Credit Payments in 2021. In Retirement News Part of planning for retirement and then living on the money you've saved or invested for retirement is keeping up with the issues that you need to know. In this section, I'll feature blogs, news stories, new research, surveys, and government policy changes that could affect your retirement. And if you see a news story or issue you think would help folks, let me know and I'll check it out and share it with newsletter subscribers. This week, I'd like you to read a column I wrote about spending leading up to retirement. Read: Could you be saving so much for retirement that you're missing out on living your best life now? Retirement Rants and Raves What are your thoughts about saving for retirement? If you're retired, how is it going? What advice would you have for others about retirement? This is your space to rant or rave about anything related to retirement. Send your comments to colorofmoney@washpost.com. Please include your name, city, and state. In the subject line put "Retirement Rants and Raves." Responses may be edited for clarity. Well, what a week. I wrote about a Fidelity Investments report that found that the average 401(k) balance in the first quarter of 2021 was up 36 percent from the same period a year ago. The average IRA balance increased 31 percent. The quarter also ended with a record number of 401 (k) and Thrift Savings Plan millionaires. But, as I wrote, I've been struck by the extraordinary wealth created during the pandemic while so many others are struggling. If you missed the column here it is: Amid the pandemic, some people can't afford rent, others became 401(k) and TSP millionaires. I linked – or thought I had – to various articles about the disparity: The pandemic destroyed 225 million jobs worldwide, but billionaires got richer, reports find The billionaire boom "The rich got richer during the pandemic. We need to claw back their gains," was the headline on a column by columnist Charles Lane, who specializes in economic and fiscal policy. Lane argued that the federal stimulus payments should have been more targeted. He also advocated for getting rid of certain tax deductions that overwhelmingly favor the wealthy.
"Carefully targeting 'stimulus' checks to those who need them, while clawing back some of the 2020 real estate and stock bonanza, would send two salutary messages: that a Democratic-controlled U.S. government intends to spend dollars according to genuinely progressive principles, not populist slogans — and that it doesn't intend to borrow every dollar it spends," Lane wrote. I felt the wrath of people who disagree with Lane and mistakenly thought I advocated "clawing" back their investment gains. "Your column disgusted me this week," wrote one reader. "Clawing back the retirement gains that millions of middle class workers have saved is not something to aspire to. People that have the discipline to save more when they have the opportunity should be commended. I realize that the rich profited from the pandemic but the economy and stock market are there for all to benefit from." This reader had more to say, but it was too racist to include. "It is true, as you also said, that many working and poor people were especially hurt during the pandemic," wrote Carl Danner from Alamo, CA, who was much more respectful in his comments. "Why they were ignored by many government policies is a real issue. It is also true that finding ways for more people to thrive and prosper in our society is a key concern. But confiscation of legally earned gains by others does not seem like a good response, except to reduce some kind of measured inequality by making them worse off." Another reader, wrote, "Why are you bashing people who are saving for retirement in 401(k)? We no longer have pensions and these savings plans help to keep us out of poverty when we retire. I thought that was a good thing. I thought responsible employers providing matching contributions was a good thing. It's like you want them to feel guilty for looking ahead and planning." "I started out in the carpenter trade and later put myself through college," Carl van Katwijk from Tucson wrote. "I worked hard. I tithe 11 percent to my church and contribute to charities another 1 percent. It bothers me that some people think that we should be forced to make all people equal by taking 'claw back' from anyone with more than someone else. That is not justice nor equity." I appreciate the feedback, and even though I didn't advocate clawing back anyone's gains, the larger point is that the widening wealth gap isn't good for any of us. The following article explains why: How rising inequality hurts everyone, even the rich | 
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