Tax Code’s Race Bias Runs Deep

Black Americans. In her forthcoming book, The Whiteness of Wealth, Brown argues that generations of lawmakers have optimized the system for white people, with the result that, in the US is supposedly progressive, in race neutral tax code, black people end up paying more than white people with the same incomes. So does all this mean the writers of these tax laws were racist? The question of intent is really irrelevant. According to Brown, It's hurting Black Americans, whether Congress meant

it to or not. That's what she says. Tax code so white. Dorothy Brown has spent her career documenting racism in a tax system that's supposedly color blind. By Ben Steverman. Growing up in the Bronx during the nineteen sixties and seventies,

Dorothy Brown couldn't escape racism. It was all around her father, James, a plumber, being barred from joining the local union, her mother Dottie, having to battle prejudice teachers, including one who marked down Dorothy's sister's grades so the precocious child wouldn't upstage her white classmates. Or the white cop beating a handcuffed black man in the back seat of a cruiser, something she once observed while waiting to cross the street as a teenager. Brown thought she'd found a way out,

a loophole in American racism. Taking an accounting class, the self described math geek discovered the U. S. Tax code, a universe governed by intricate rules where race wouldn't matter in tax law. She thought the only color that mattered was green. The assumption carried her through an early career as a tax attorney, an investment banker, and then a

political appointee and President George H. W. Bush's administration. After that, though, Brown spent a quarter century trying to prove the opposite, that although tax laws may appear to be color blind, they still discriminate against Black Americans. Now the ASA Griggs Scandler, Professor of Law at Emory University. Brown is preparing to publish a book that's the culmination of years of research, titled The Whiteness of Wealth, How the Tax System impoverishes

Black Americans and How We can fix It. It arrives at an opportune time. After decades during which the sixty one year old Brown, says mainstream tax and policy experts either dismissed, attacked, or ignored her. Her ideas appeared to be finding an audience. People are starting to pay more attention to her work and what she's been telling us for a while, says Chia ching Huang, executive director of

New York University's Tax Law Center. Last summer, after the killing of George Floyd ignited protests around the country, Browne got more calls from reporters than she had received in her entire career. By the time President Biden promised on his first day in office to identify and dismantle systemic racism perpetuated by all federal departments, staffers on Capitol Hill were already consulting Brown about the Internal Revenue Services impact

on racial disparities. Suddenly, people wanted to talk about race and tax She says, with the whiteness of wealth, Brown has turned a notoriously boring topic into a surprisingly accessible and lively two hundred and eighty eight page book, relying on examples from real families, including her own, to guide readers through the intricacies of a tax code provisioned for just about every milestone in a person's life education, marriage,

home ownership, child bearing, death, and inheritance. Generations of lawmakers have optimized the system for white people, she argues, with the result that in the US is supposedly progressive and race neutral tax code, black people end up paying more

are than white people with the same incomes. The challenge for Brown's research has been all the greater because the I r S doesn't take race into account when it analyzes its giant trove of tax data, so she had to laboriously stitch together information from dozens of other sources to prove her book's thesis. The best evidence that the system is unfair to black people is the sheer size

and persistence of the racial wealth gap. The median white family has a net worth eight times the typical black family's wealth, according to Federal Reserve figures that's the same size gap as in despite higher incomes, educational gains, and extraordinary progress by individual black people, including to the highest

office in the land. The book also serves as something of a primer on how wealth works in America, showing how the rich pass assets to their children and why those starting from the bottom face such a difficult climb. Brown devotes her final chapter to advice for black readers try ring to navigate a system that disadvantages them at every turn. Black Americans need to be defensive players, she writes, choosing strategies in their educations, careers, and family lives that

compensate for oppressive practices and policies. She also pushes for major tax changes to erase biases toward whites and to assist all people, especially black ones, who are trying to build wealth. Never again should politicians discuss tax reform without considering race, she says, I literally want to change how

America talks about tax policy. One afternoon in the early nineties, Brown pulled out an essay she'd been looking forward to reading by her friend and mentor, Jerome Culp, the first professor of color to receive tenure at Duke university's law school. She'd been feeling isolated at her first academic job with white colleagues, who, she says, seemed clueless about race at best. And here was Culp arguing that race should no longer

be over looked in important areas of the law. There may be an income tax problem that would benefit from being viewed in a black perspective, he wrote, by way of example. But until you look, how will anyone know? Brown called Culpe and promised to try. It took several years for her to publish her first research on the question, focusing on the taxation of married couples. Black Americans are more likely to be single, and if they're married, it's

more likely both spouses will be working. These considerations wouldn't have mattered when the income tax made its debut in because all earners were treated the same, regardless of marital status. But in nineteen thirty, a rich white shipbuilder named Henry Seaborne persuaded the U. S. Supreme Court to lower his tax bill by imputing half his income to his wife. Congress eventually went along, and ever since, couples with only one high earner have paid less. Brown realized this policy

had meant higher tax bills for her parents. The tax code is a treats a plumber and a nurse who are paying for childcare and commuting expenses with after tax dollars the same or worse than it does a banker earning their combined salaries whose spouse stays home with the kids. In the next twenty years, Brown went on to systematically catalog other ways in which when black families like her own tried to hoist themselves up the economic scale, the

u S tax system pulled them down. Her colleagues, who were overwhelmingly white, expressed skepticism. However, Dorothy, everybody knows your work is irrelevant because Black people are poor and don't pay taxes, she says, one professor told her rudely, laying bare an assumption she's confronted countless times. Four fifths of

black households don't fall below the poverty line. Brown's early published work cost her lots of professional grief, recalls her friend Michelle Dickerson, a law professor at the University of Texas. At Austin, people thought you were just trying to be controversial, that you're just making stuff up. Those on the left asked if this was about class, not race, Conservatives posed a different question, wouldn't these disparities disappear if black taxpayers

just acted more like white ones. Brown's answer to both is that your class may change, but your race can't, no matter how differently you behave. Blacks graduate from college with more debt, do not get jobs as easily as whites, are not paid the same wages as they're equally qualified. White peers are steered toward lower paying jobs and have an unemployment rate twice that of whites, yet are more likely to provide financial support for extended family, she writes

in her forthcoming book. These present day disparities are piled on top of a shameful history of Black Americans being purposely excluded from landmark federal legislation and programs for whites. There were government interventions that created a middle class, says New School economics professor Derrick Hamilton's, an adviser to Senator Bernie Sanders presidential campaign, who considers Brown on a mentor.

He points to the Homestead Act in the nineteenth century and much of the New Deal and the g I Bill in when blacks were able to amass pockets of wealth it's been vulnerable to confiscation, theft, and terror. He adds, citing the devastation wrought in black neighborhoods by predatory subprime lenders as an example. Brown argues that tax policy adds insult to injury by magnifying the financial toll of blackness.

The tax treatment of housing is a textbook case. Interest paid on mortgages is deductible, but there's no comparable perk for renters who are disproportionately black. Also, white homeowners tend to pocket gains upon resale, which are largely tax free. In contrast, black homeowners are very likely to lose money on their investment because homes don't usually appreciate much in diverse neighborhoods that are shunned by white buyers, and losses

aren't tax deductible or consider tax incentives. The federal government offers on four oh one case and other tie to retirement savings plans, which add up to more than a quarter trillion dollars per year. According to the Tax Policy Center, only about half of US workers have a retirement account,

and they're disproportionately white. Meanwhile, black people are far more likely to have jobs that fail to provide for a one case and other corporate benefits such as healthcare and flexible spending accounts that are heavily subsidized by the tax code. These discrepancies are nothing new. Brown's father, locked out of the plumbing union for the first twenty years of his career, was employed by a small private company that offered no

retirement or healthcare plan. Now, though the gap between different classes of workers might be widening with the rise of the gig economy incorporations outsourcing more worked contractors, Brown is wary of the trend, seeing it as a new form of occupational segregation that's ensnaring a disproportionate number of black workers.

Other factors prevent Black Americans from saving and taking full advantage of perks in the tax code to white parents and checks to their children for college tuition or the down payment for their first home. Money in black families tends to move in the other direction, meaning successful black professionals are far more likely to support parents or other family members. Problems such as these are so pervasive and stubborn that they're invulnerable to magic bullets proposed by both

the left and the right. Brown says policies geared towards boosting black homeownership, for example, could channel even more Black savings into investments that ultimately prove unprofitable. Education, so often floated as the key to economic advancement, can indeed boost earnings, but it also often saddles graduates with debt. According to Federal Reserve data from black non Hispanic households had student loans compared with twenty for white non Hispanic households. Here, too,

tax policy adds insult to injury. While homeowners can usually deduct all their more gug interest, student loan holders can only deduct dollars or zero if their income exceeds eighty five dollars a year. Brown is often asked, does all this mean the writers of these tax laws were racist? The question of intent is really irrelevant, She says, it's

hurting Black Americans, whether Congress meant to or not. For all that Brown knows of racism, the lived and the learned, she can still find herself shocked by the damage it inflicts. One summer afternoon, she was in her three bedroom dream house on Martha's Vineyard, the island get away from many black professionals and celebrities. She was working toward her other dream, the book about the tax code she'd been contemplating for a decade, when she came across a startling statistic, six

of Black Americans who start college never finish it. After seeing the number, she shut her laptop, went to the beach and stared at the ocean for a couple hours. Something about all those dreams denied and the contrast with her own experience hit her hard. This is more messed up than I even knew, and I can't take it, she thought. She almost gave up on the project. When

Browne was growing up, racism was a constant. Given how banks treated black buyers, Purchasing a home would have been impossible for her family if her father hadn't gotten help from his white boss, and the children's educational advancement might have been thwarted had James and Dotty repeatedly blocked on their own career paths not been determined to give their

two daughters a better future. For a while, Dorothy and her sister attended a racially diverse elementary school, where they excelled, But after Dotty learned from another parent that Dorothy's sister wasn't being graded fairly, she lied about their address and had them transferred to another school, where they found more supportive teachers. Something my mother taught us was you're no better than anyone else, and no one else is better than you. Brown says, I didn't feel racism would limit me.

I knew I'd have to deal with it, but I didn't think it was hopeless. Still, she abandoned her original plan to be a civil rights attorney like her hero, Their Good Marshal. She didn't want racism to be the focus of her professional life too. It's too personal, it's too hurtful. It's too painful to hear these stories. I have enough stories. A stroke of luck helped her avoid

the student debt that burdens many other black professionals. Her father, who was eventually hired as a union plumber by the New York City Housing Authority, briefly lost that job during the city's mid seventies fiscal crisis. The layoff helped Brown, who graduated from high school at sixteen, qualify for a full scholarship to Fordham University, which she could attend while

living at home. A law degree from Georgetown University and a degree in tax law from n y U followed a federal clerkship led to a job at a boutique law firm that handled municipal bonds. Then she was hired away by a client, the investment bank Drexel Burnham Lambert. The famously cutthroat and aggressive firm made huge profits on the junk bond boom, and it would later collapse in

scandal after the conviction of executive Michael Milkin. Brown recalls that a managing partner had this piece of advice, Dorothy, if you want loyalty by a dog. Brown moved to Washington, d c. In nineteen eighty nine to work at the U s Department of Housing and Urban Development as a political appointee in the first Bush administration. From the presidential race, she had concluded that neither party was good on race.

She says she gravitated to the Republican Party because it called for shrinking the role of government, and she believed the government was one of the more racist actors out there. Her dalliance with the GOP carried on for years before she switched parties to support Barack Obama's election in two thousand and eight. Brown's first academic job was at George Mason University's right leaning law school, now named for the

late Supreme Court Justice Antonin Scalia. Working on predominantly white campuses, Brown says she has dealt with disparaging comments from faculty, disrespectful students, and other instances where she felt treated differently because of her race. In two thousand and one, when she was up for a job at Washington and Lee University, a Virginia institution named for a Confederate general, she presented her work and was interrupted so many times that faculty

members later apologized for their colleagues rudeness. Dorothy, you were mugged, but you managed to hang onto your purse, said one friend who was there. In past jobs, Brown says the profit motive, the fact that she could help close a deal or untangle attacks quandry had seemed to moderate her coworkers racial biases. Academia felt different, but she couldn't always be sure when the friction had something to do with her race, and if it did, when to say something,

and when to bite her tongue. Brown calls this racism triage, where you reserve your energies only for the worst incidents. To cope, she relied on a small network of black women law professors at other schools, whom she'd call asking is this me? Or is this messed up? When incidents occurred, Brown pushed back, using the political and strategic savvy she'd

learned in earlier jobs. It would take two rounds of voting by the Washington and Lee faculty, but she eventually got the job there, and she thrived those opposed to her out of themselves early on. She says, I didn't ever have to worry about them again. In two thousand seven, Brown jumped to Emory University in Atlanta, a more prestigious school that also had a complicated history on race. Tenure protection allowed her to push forcefully for more diversity in

the law school. I'm always the woman from the South Bronx, she says. I am very direct. I don't put up with a lot. I don't really care if you don't like the tone. In twenty thirteen, Brown was recruited for a powerful job in Emery's administratation, and, though reluctant to give up her research and teaching, she served for three stressful years. In the wake of protests from students demanding,

among other things, more faculty of color. She ran a fund to hire diverse faculty and set up initiatives to mentor them. Colleagues say they recognize that Brown's outspokenness can be balanced by a measured approach to important and difficult work. She may seem impatient, but she also believes in taking it one step at a time, says Claire Stirk, who recently stepped down as Emory's president. By the end, she can make an argument that becomes very hard for people

to not accept. Biden's election could allow Brown to take her research to a new level. Just hours after being sworn in on January, the President signed an executive order creating a cross agency group with a mandate to address systemic racism in the U. S. Government. Their duties will include gathering data to track the effects of pol sees on disadvantaged groups. There's no reason this should remain in the dark, ages, says Brown. Strict rules should be put

in place to make sure the data isn't misused. She adds she's also clear to that end that she isn't advocating for the I R S to add a race checkbox to the ten forty form. There are workarounds, such as using surveys and matching anonymized data sets with the right data and the right priorities, says Brown, The U. S could do a better job of using its tax code to help close the racial wealth gap. Other policymakers

are thinking along the same lines. You've got this tool that is potentially powerful for reducing inequality, including racial disparities, says In y Ushang. One of the questions she's asking is why isn't it doing more. Brown's own reform plan would strip the tax code of exemptions and deductions that steer advantages to white Americans. All income should be taxable, she says, no more exclusions for gifts inheritances or property sales. Proceeds from investments should be taxed at the same rate

as wage income, and marital status shouldn't affect taxes. There's only one deduction that she would add to the code, a living allowance deduction that would prevent or cut taxes on low earners. By requiring everyone else to pay progressive tax rates on all their sources of income. The U S could afford to lower rates and get the same revenue.

The Supreme Court would probably strike down any race based tax credit introduced as a form of reparation to descendants of slaves, Brown says, so her next best choice is an annual tax credit for taxpayers whose wealth is below

the US median. The credit would help all poorer Americans trying to build wealth in a country where it's gotten more difficult to move up the economic ladder on earnings from work alone, But because the typical black family has a net worth of twenty four thousand dollars compared to a median wealth of one two thousand dollars for all Americans,

it would disproportionately aid Black Americans. None of Browne's favored remedies look likely to become law in a Congress where Democrats barely have a majority, but after watching attitudes toward racial justice shift last year, she's optimistic. We are well positioned to start making the kinds of demands that the wealthiest white Americans have made for decades, she says. In the meantime, Brown's new book has plenty of practical pointers

for Black Americans. Take advantage of a four oh one k if you have one, If you'd rather buy a home in a diverse neighborhood, which is understandable, Try not to sink your entire nest egg into that purchase investing in stocks is likely to provide a better return despite a racist financial system that hasn't seen Black Americans as potential customers. Finally, don't despair or blame yourself for failing

to get further along financially. The reality of how ordinary white Americans build wealth is hidden, leaving black families bewildered about their inability to achieve the financial security of their white peers. She writes why wealth snowballs over a lifetime. A tuition payment by dad, a job at the family business, a small inheritance from Grandma, and soon even apparently middle class young adults have amassed enough that they're able to return the favor to their children as they age. This

system has been humming along for centuries. As Brown puts it, whiteness itself and the legacy of advantages that comes with it is the magnet that attracts wealth. And that's this week's cover story. It's an especial edition of Bloomberg Business Week magazine devoted to equality, looking at it from all

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