Race and Taxes
— MY MOTHER owns her own tax and accounting business, and so in a funny way, tax policy was a regular dinner time discussion topic in our household. My mother explained to me the ways in which things like the Affordable Care Act affected tax policy when it was passed, and how tax policy was tied with politics. But beyond that, it often struck me how much my mother, a tax preparer and an accountant, had to be involved in other people’s lives. Everything shows up in your taxes and finances— marriages, divorces, deaths, births, family conflicts. She was often pulled into jobs that she did not sign up for, such as being a mediator, translator, business advisor, and an advocate for people who often had trouble advocating for themselves. My mother ended up finding a niche serving lots of small Asian businesses, and through that network, many Asian individuals too. Both the individuals and business owners sometimes struggled with English, especially when it came to legal or official documents and processes.
Through helping out with our family business, and as I entered adulthood and the tax code began to affect me personally more and more, I learned how tax policy, as dry and boring as it might seem, was made up of a lot of different levers that targeted specific groups of people. Like any system built in this country long ago and modified slowly over time, there is a lot of inequality built into these levers. I wrote in “Dear Vincent” (a sort of open-letter about structural inequality) that when we make any kind of infrastructure, it’s not as though it simply disappears or automatically changes when social values change (the relatively recent legalization of same-sex marriage, for example). The old way of thinking is still built into the system. We have to hunt for those leftover structures in order to dismantle and rebuild them.
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.
I’m going to assume that you’ve already heard about the racial property ownership gap — the fact that minorities and especially Black Americans own less property (mainly houses) than white Americans. I’m also going to assume you understand how that relates to slavery and generational wealth, because of course, when it was illegal for someone to own property (or when they were considered property themselves), it was impossible for them to pass down property to their children. Sure, slavery ended in 1865, but we did not even begin to fully acknowledge the full rights of Black Americans until 1954 — without even considering all those “built-in” inequalities that were not yet dismantled and had to be progressively fought over time, including now. All the while, white families were accumulating property and wealth.
Of course, though it’s perhaps easiest to explain the gap through the lens of Black America, by no means does the issue only affect Black Americans. In fact, Asians, a diverse group that sometimes has “good” statistics compared to whites because the data is not disaggregated, still trail dramatically in homeownership rates. Time is an enormous advantage when it comes to property ownership, and white Americans as a group have had the most time to accumulate property.
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.
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.)
Outside of full out-of-country dependents, many immigrants also send smaller remittances to more distant relatives or other family members in their home countries. The value of these remittances are so great that they can be a significant percentage of another country’s GDP — remittances were 23.2% for Haiti’s GDP in 2019; it was 13.9% for Guatemala, though this includes remittances from all foreign countries and not only the United States. However, with remittances practically doing half the work of U.S. Aid (potentially more effectively), it seems bizarre to me that it cannot be taken as a charitable deduction, where donations to international NGOs can.
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.
If the government actually looked like America (meaning, was proportional to its demographics) there would be 71 Black congress members, 32 Asian congress members, 7 Indigenous congress members and at least 1 Pacific Islander. Currently, there are 54 Black congress members and 20 combined AAPI representatives and 4 indigenous members — and these are record-breaking, recent numbers. Again, the importance of time — there has not been enough time yet for even these existing representatives to build the interests of their communities into laws, codes, and policies.
…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”.
Invisible Women - 99% Invisible
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I see this issue not only in economics but in engineering, medicine, and virtually everything. The bigger problem is who we assume to be the default. Everything is designed and built for this default image of a person, which is too often assumed to be a straight white male. Invisible Women is an eye-opening (and enraging) book detailing all the different ways that women are literally forgotten about. The author, Caroline Criado Perez, appeared on 99% Invisible to discuss how women are more likely to die from heart attacks (medical professionals are not trained to recognize female heart attack symptoms) and car accidents (car safety tests use crash dummies based on the 50th percentile male build.) This is one example using gender, but we can find similar patterns all over.
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.
Rather, I hope in discussions of systemic racism, we can feel that we’re off the hook. You, me, us — for the most part, we didn’t do anything. We were simply born into this. The question is not who exactly our ancestors were or how bad we should feel about it. The question is, what will you do, now, with the life that you’ve been given? What will I do, what we will all do, to understand how our society has been constructed and work to change it? It doesn’t always have to be exhausting, intense, political work. For me, it’s writing this blog post. For you, maybe it’s mutual aid in your community or just voting for the right thing. In Massachusetts, I am grateful that renters at least get a significant state tax deduction. This time, someone else had built that policy for me, and other people had voted on it.
It is a benefit I am fortunate to inherit.