Race and Taxes

The systemic inequality in our tax code.

What do people mean when they say the tax code is racist?

Saying that the tax code is racist might strike some people as a rather odd statement. After all, taxes are imposed universally on everyone, and there are no race-based categories in the U.S. tax code. But I think this is a great example of exactly how inequality is systemic and built-in rather than individual and intentional.

Image from news.berkeley.edu
Graphic from Zillow, with Data from the U.S. Census

Mortgage Interest Deductions

How does all of the above relate to taxes? In the U.S. tax code, there’s something called a mortgage interest deduction — homeowners can deduct the interest they pay on the mortgage on their house. This deduction serves to amplify virtually all housing-related racial issues. When minorities do own homes, those homes are, on average, lesser value than the homes owned by white Americans. This means the mortgage interest that even minority home owners can deduct is lower. Which means that minority home owners deduct less on their taxes, accumulating even less wealth with the lower-value home that they own, possibly leaving them unable to afford additional property. On the other hand, wealthier home owners can deduct more on their taxes, accumulate even more wealth with the higher-value home that they own, which potentially allows them to afford additional property. It becomes a spiral in both directions, beating down lower-income homeowners.

Property Taxes

While property tax policies vary by state and county, in general, they are a percentage of a home’s value, and these property taxes are then used to determine public school funding. Not only are minority homeowners unable to leave as much property value for their children, but the value of that same property can also determine the quality of their child’s education. It is not necessarily the case that limited education resources will limit a child’s intelligence or skillset. However, the layers of prestige at play in education— does the school offer IB/AP classes, is there access to the right kind of standardized testing, are the right extracurriculars offered — these can make it either possible or extremely difficult to catapult the child into a prestigious university. And that, in turn, can have a dramatic effect on future occupation and income. (I know this well myself, having attended public school and then MIT.)

Charitable Deductions & Dependents

Though this is somewhat separate from the issue of housing, the way that dependents and charitable deductions are set up in the U.S. tax code greatly disadvantages immigrants from all nations. Often, immigrants will have out-of-country dependents, people to whom they send significant remittances to support, and there is no way to claim a deduction for this in the U.S. tax code. The dependency rules for in-country dependents are actually rather generous; taxpayers are able to claim dependents for any relative they fully support or anyone at all who lives with them the full year and they support. (Obviously, if you don’t own a home or have less space in a rented apartment, this may impact your ability to provide for adult dependents.)

Taxation Without Representation

Finally, I know. Someone’s going to say it. Of course we could have had this conversation simply using the words “low income” and “high income” and ignoring race, and all of it would still be true. But it would be ignoring a whale in the room to ignore the effects that America’s racialized history, from slavery to the Chinese Exclusion Act to Japanese interment camps, has had on wealth, property ownership, and taxes. Acknowledging the racial aspects of this issue is important, because really, what we’re seeing here was literally once the impetus for the American Revolution — taxation without representation. Racial minorities may be minorities, but they are still not proportionally represented in their government. There are not enough representatives that are effective in advocating for their interests. And so, we end up with a tax code and other economic policies that do not prioritize them.

…and what about other “taxes”?

Often, when people talk about a “tax”, it’s not just about literal taxes. There are also economic inequalities that people are asked to “pay for” every day, whether for their gender, race, or sexual orientation.

  • The “pink tax”, where women face dramatic price differences for products designed for them. There’s an average price difference of 13% for women’s personal care products compared to men’s. Of course, menstrual products are still literally taxed in many states despite being a basic necessity akin to food and other untaxed products.
  • The “poverty tax”, also related to wealth distribution by other demographic factors. The “poverty tax” is when a person does not have enough money saved to save money — they cannot buy bulk household items at a lower cost, or better quality clothing at a lower cost-per-wear, because they are unable to afford the up-front cost of paying for these items. It’s not always only people in abject poverty, but also those living paycheck to paycheck who may not be able to afford these higher up-front costs.
  • We can observe an intersection with the wage gap. There is not only a male/non-male wage gap in aggregate, but also differences in wage by race and at the intersections of race and gender. Lower wages, of course, amplify the effects of the “pink tax” and “poverty tax”.

What Now?

I don’t mean for this article to make certain types of people feel bad or provoke some sort of negative response. I actually do not believe that focusing on navel-gazing self-flagellation is productive.



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