Speaker 1: With the IRS filing deadline extended until mid-May. Most of us will keep ignoring everything having to do with taxes for at least a few more weeks. Most of us, but not all.
Dorothy Brown: I think of the Internal Revenue Code, which is the document that has all the tax laws in it, as a puzzle and I like puzzles.
Speaker 1: Dorothy Brown is a professor of law at Emory University and she's an expert on the tax code. Brown has just written a book called The Whiteness of Wealth: How the Tax System Impoverishes Black Americans and How We Can Fix It. What brown argues is that the racial disparities we see in so many facets of American life, from higher education to home ownership to employment, all are compounded by the tax code, a system that you might have thought was totally race blind.
Dorothy Brown: I've spent 25 years doing this research and it's led me to one conclusion, that when white Americans and Black Americans engage in the same activity, tax law benefits how white Americans engage in it and disadvantage how Black Americans engage in it. In other words, we bring out racial identities onto our tax returns.
Speaker 1: Brown recently spoke with staff writer Sheelah Kolhatkar who covers finance and the world of business.
Sheelah Kolhatkar: One area you talk about a lot is marriage. We know that policymakers in Washington always say that they're eager to encourage marriage and getting married is supposed to help your tax bill. What did you discover when you looked into this?
Dorothy Brown: What I discovered is it helps you if you're white, but it disadvantages you if you're Black. What do I mean by that? White people do marriage differently than Black people in America that is based on an anti-Black labor market. When we look at who makes the highest wages, who makes the lowest wages, we see there's a difference by race. That translates into who can afford to have a spouse to stay at home and work at home and stay out of the labor market? Typically, white Americans.
Our tax laws in that instance where you have dramatically different income contributions to the household by spouses, that household, when they get married, gets a tax cut. Take my parents, my father was a plumber, my mother was a nurse, they made roughly equal amounts. As a good daughter who got an LLM in tax, I did their tax returns. I always knew something didn't make sense. My parents made income close together. Our tax laws do not give that couple a tax cut, our tax laws made my parents pay higher taxes because they were married to each other.
Sheelah Kolhatkar: It turns out that a very wealthy, usually male spouse with a high income, who has a stay at home wife is going to end up paying lower taxes-
Dorothy Brown: Yes.
Sheelah Kolhatkar: -even though he makes the same amount of money as your parents combined?
Dorothy Brown: That's right, and it's true up the income scale. Black married couples, even at high income levels are more likely to be in an equal 50-50 household. Whereas white married couples are more likely across the income spectrum to have the stay-at-home spouse.
Sheelah Kolhatkar: I thought it was really interesting as well the way you talked about the enormous economic benefits that accrue to a family when there's one spouse at home full time. I thought about this because I'm part of dual working couple. You have to outsource a lot of expenses. If you have one spouse at home just dedicated to making the family run, then the other spouse can focus on building their career and increasing their income.
Dorothy Brown: That is exactly right. The tax law looks at the value of those services contributed by that stay-at-home spouse. [unintelligible 00:04:01] we're not going to tax it.
Sheelah Kolhatkar: You write about the role of legacy transfers of wealth and assets in building wealth, how families pass down gifts, tuition payments, inheritances to their kids and this perpetuates this wealth advantage that white families have. Can you describe what you found when you looked into this?
Dorothy Brown: It's complicated, but generational wealth begets generational wealth. Tax law helps those with wealth transmit it to the next generation. What we see is that's how wealth works for white Americans. It's from parent to child, grandparent to grandchild, but because of systemic racism, because of Jim Crow, what you see is the typical Black college graduate who gets a good paying job is sending money up. They're sending money to their parents, they're sending money to their grandparents. You see that race matters greatly into who has wealth, how the government allows you to build wealth, and then tax policy comes and says, "Oh, give it away, it's tax free."
Sheelah Kolhatkar: There's a great quote in your book, "Increasing access to a system designed to build white wealth will ultimately not work to build Black wealth." Why is that? Why can Black Americans not use this system to change their situation for the better?
Dorothy Brown: Let's take home ownership, because that's like the asset that helps most white Americans become middle class. The home ownership market is racist. It's based on white preferences and white Americans do not want to live in neighborhoods with too many Black Americans. As a Black homeowner, I'm going to say, "I want to buy a home." If I buy a home in an all-white neighborhood it will be a great financial boon and it will help me build wealth.
However, living in an all-white neighborhood for a Black person means our neighbors may call the cops on us because they don't think we belong there. If we have children, we have to do battle with administrators and teachers who see our children as criminals. It'll be a good financial investment, but you'll have to compensate for living in an all-white neighborhood in other ways. I have to be defensive. My advice that I give to Black homeowners is, "Okay, you know this, then don't be house poor. Do not put all of your money into your house." We as Black Americans, we can't build wealth in the carefree manner that our white peers can.
Sheelah Kolhatkar: That's really depressing because we've been told for so long that buying a house is the cornerstone [unintelligible 00:06:57] that's how a middle-class family is going to build over time and leave something to their kids. It's remarkable when you think about how it actually works on the ground.
Dorothy Brown: Absolutely, Sheelah, and what's really amazing is how many people don't realize this and how many policymakers think, "Oh we could fix this racial wealth gap if we just increased the number of Black homeowners." I'm like, "Hold up, wait a minute, not really because we are buying into a system that's anti-Black." Until we fix the system, you can't build up wealth the exact same way. One other thing, Black homeowners are more likely to sell their home for a loss than white homeowners, and tax law disallows losses on the sale of homes. Yes it's depressing, I wrote the book.
Sheelah Kolhatkar: The system is obviously broken, it does not take into account the world as it actually is. What are the solutions, like what can be done about this given that the system is so broken?
Dorothy Brown: Step one, collect and publish race and tax data. The IRS doesn't collect and publish it. I had no idea when I embarked on this journey that the IRS didn't do it. We need IRS data by race so that we can see what I wrote a whole book about, "There it is." That's one thing. Number two, any tax reform out of the Biden administration needs a racial impact analysis. It needs to tell us what is this bill going to do to the racial wealth gap, what is this bill going to do to Black Americans, what is this bill going to do to Americans of color. That's the second thing, no tax reform without a race analysis.
In terms of specific tax reforms, I've got a whole tax system which gets us back to our roots, which is basically progressive tax system, no exclusions, no deductions because those are the things that advantage white Americans and disadvantaged Black Americans, and we have a living allowance. Anything you make under that, the government writes you a check, anything you make over that, that's going to be taxed, and all income is taxed the same, whether it's income from stock or income from labor.
Sheelah Kolhatkar: To some people, that's going to sound like a radical idea. [laughs]
Dorothy Brown: Ooh, thank you for saying that, especially the latter one. The reason I love it is because Ronald Reagan-- You know that radical guy? He had at the centerpiece of his 86 Tax Reform Act, taxing wages the same way it's income from capital. If it's good enough for the [unintelligible 00:09:56], it's good enough for us.
Sheelah Kolhatkar: One thing you talk about is the fact that white Americans often are not open about the advantages that all these gifts and supports that they get bestowed to them and that the way they accumulate. Why is that important? Why is it important for people to really be open about the fact that they're these sort of tax-free gifts, that their grandparents are paying their kids' private school tuition? What effect does it have when they pretend or just don't acknowledge those sources of income?
Dorothy Brown: It's so important because you could imagine a Black and white coworker working in the same place, and now we're going to suspend disbelief and assume they're paid the same. Research shows they are not, but we're going to assume they're paid the same. Black person who has family to support, in addition to their immediate family, grandma, parent is sending money up. Their colleague in the next cubicle is talking about the rich private school their kids are going to, they just moved to a fancy house in an expense of neighborhood and the Black worker is going, "What on earth is going-- Why can't I do--"
By telling the truth, it helps Black Americans see we're not doing anything wrong other than we were born Black, and it helps white Americans see they're not doing anything right other than they were born white. What white Americans resist, and quite frankly, none of the white Americans interviewed from my book wanted us to use their last name because they didn't want to be associated with this, but it burst the bubble of this meritocracy.
It's really important that white Americans are transparent about the myriad of ways their family wealth has helped them to get where they are today. They don't want to think of themselves as racist. You don't have to be racist, but you did make the choice to buy in a neighborhood with no Black people and it didn't occur to you until I had the conversation that maybe you're part of the problem. I've gotten some pushback. In fact, it often comes in the form of, "Well, Dorothy, do you think Congress was racist when they put these laws into place?" and my response is, "It is irrelevant to me whether it was intentional or accidental. The bottom law is Black taxpayers are paying more. Now that you know, what are you prepared to do to fix it?"
Speaker 1: That's Dorothy Brown, a professor at Emory University. Brown's new book is called The Whiteness of Wealth, and she spoke with The New Yorker's Sheelah Kolhatkar.
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