How the tax code preserves past racial discrimination : The Indicator from Planet Money Although there is no mention of race in the U.S. tax code, tax law professor Dorothy Brown believes race and taxes are closely intertwined.

Race, racism, and tax law

  • Download
  • <iframe src="https://www.npr.org/player/embed/1087942481/1087951484" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

ADRIAN MA, HOST:

Ever since she was little, Dorothy Brown dreamed of someday becoming an attorney.

DOROTHY BROWN: I wanted to be a civil rights lawyer like Thurgood Marshall, who was one of my heroes.

STACEY VANEK SMITH, HOST:

But, you know, life sometimes has a way of making us reconsider our hopes and dreams. And Dorothy says, by the time she got to college...

BROWN: I decided I wanted to be a lawyer, but I didn't want it to have anything to do with race. I decided it would be too painful for me to deal with racism every day as a Black woman and then have to go to work and deal with the substantive law that dealt with racism.

MA: So she went searching for a new dream and found it, of all places, in a tax accounting class.

BROWN: And that's when the lightbulb went off. Oh, my God, I love this. I want to do tax law 'cause the only color that matters is green.

MA: The IRS has reams of rules and regulations governing who pays for what and how much, and race never enters the equation - at least, that is what Dorothy thought.

(SOUNDBITE OF MUSIC)

MA: This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.

VANEK SMITH: And I'm Stacey Vanek Smith. It is tax season. And even if you find yourself plowing through pages and pages of mind-numbing forms, you will not be asked to tick a box declaring your race or ethnicity. But Dorothy, who teaches tax law at Emory University, has come to believe that race and tax are closely intertwined. She wrote a book about it called "The Whiteness Of Wealth." And when we return, Dorothy explains how taxes and race intersect.

(SOUNDBITE OF MUSIC)

MA: It took years for Dorothy to even consider studying the relationship between taxes and race. She had already gone to law school, got a special degree in tax law, became a tax attorney. And then she read an article by a mentor of hers, a law professor named Jerome Culp.

BROWN: And in his article he said, how do you know there isn't a race and tax problem if you don't look? And I thought, what? - race and tax? So I picked up the phone, and I called him, and I said, Jerome, I'm going to do something about race and tax. I have no idea what it's going to be, but I'm going to do something. And he said, good for you.

VANEK SMITH: So Dorothy hangs up and starts looking for data.

BROWN: And that's when I found out the IRS doesn't publish statistics by race. And it was like, I'ma (ph) do what?

MA: Yeah. So as Dorothy found out, the IRS isn't like, say, the U.S. Census or the Departments of Justice or Education or Housing. Those agencies need to collect info on race and ethnicity because it helps them enforce civil rights laws, and that just was not the mandate for the IRS. So she had to get creative, piecing together whatever she could find from other agencies and researchers on race and taxes. And eventually, a pattern started to emerge.

BROWN: So what my research showed, provision after provision after provision, is these tax subsidies were made with white taxpayers in mind and not Black taxpayers in mind.

VANEK SMITH: A prime example of this is the joint tax return for married couples. This provision can be traced back almost a century ago to a wealthy white couple from Seattle named Charlotte and Henry Seaborn. Charlotte was a stay-at-home spouse. Henry was an executive at a shipbuilding company. And back in the 1920s, they were looking for a way to cut their tax bill.

BROWN: What he decided to do - what he and his tax advisers - let's be clear - decided to do was to shift half of his income to Charlotte. If he was able to shift half of his income to his wife, then the tax rates that each of them would pay would be significantly less than if he was taxed on all of it.

MA: This is just something they decided to do, and it wasn't...

BROWN: There was no legal precedent for this. So the IRS gets it. It said, you can't do that. And they go to court and ultimately go to the Supreme Court. And the Supreme Court said, you know, you can do that. So we get the joint return because Henry and Charlotte decided they didn't want to pay as much in taxes.

VANEK SMITH: I mean, like, who doesn't want to pay less in taxes, right? This is probably a universal human law. But here is the thing - the joint tax return essentially amounts to a marriage bonus, but mainly for couples like the Seaborns where one spouse brings in virtually all the income. And generally speaking, that is less likely to be the situation for Black couples than it is for white couples.

MA: And one big reason for that is that Black people historically have faced discrimination in the labor market. In fact, studies show they often still do. So it's more often the case for Black couples that both partners have to work to make ends meet. And even for higher-income households, Dorothy's data shows Black couples are more likely than white ones to be two-income households. So bottom line - that means Black couples are generally less likely to be able to take advantage of the marriage bonus.

VANEK SMITH: Dorothy saw this mirrored in her own parents' situation. Her dad was a plumber, and her mom was a nurse. And even though they were filing their taxes jointly, Dorothy was confused as to why their tax bill wasn't lower.

BROWN: And it clicked. This is why my parents are paying so much in taxes - because my parents made almost identical amounts of income.

MA: And in her research, Dorothy found other ways the tax code seemed to overlook folks like her parents. Take employer retirement plans - you know, things like 403(b), 401(k)s. These allow employees to sock away money for retirement tax-free. But because of past and present discrimination, Black people are less likely to have the kinds of jobs that offer these plans.

BROWN: And even when they are in jobs that are eligible for those retirement accounts, they don't take advantage of them. And why might that be? - because research shows, for example, Black college graduates are more likely to be sending money to their parents, to their grandparents, to extended family, whereas white college graduates are more likely to receive money in the form of gifts and inheritances from their parents and grandparents. It isn't that Black people are not frugal. It's that we have more financial responsibilities because we have relatives who came up under Jim Crow who, like my father, were denied entrance into the plumbers' union because he was Black. And it wasn't until he got in the plumbers' union that he got a job that came with tax-free retirement benefits.

VANEK SMITH: Systemic racism in housing, education and employment has made it harder for generations of Black families to accumulate wealth. And that means less money to invest in stocks or buy a home, which both come with tax benefits.

MA: And just to be clear - Dorothy is not saying tax laws were necessarily designed to discriminate. She is saying that those rules were written mostly by wealthy white dudes during a time when discrimination was rampant, and so the tax code helps preserve the effects of that historic discrimination.

VANEK SMITH: So knowing that, what should be done to make the system more fair? For starters, Dorothy says, the IRS should collect data on race and ethnicity. This would help the public understand how the tax code impacts different groups.

MA: On top of that, Dorothy argues for simplifying the rules. She says, get rid of provisions that have disproportionately benefited wealthy white people. After all, why should single-income married couples be taxed differently than two-income households?

VANEK SMITH: Why should homeowners get a break and not renters?

MA: Why should income from investments and inheritances be taxed differently from wages? Dorothy says they shouldn't be. And sure - these, of course, would be huge changes to the tax code that would probably get a lot of pushback. But Dorothy says they'd also benefit the majority of taxpayers of all races. Plus, she says, if she could be convinced that this would be a step towards racial justice, maybe others can be, too.

BROWN: I was educated to not think race had anything to do with tax. So, you know, my eyes have been opened. The scales have fallen off. And now the little girl won, right? The little girl in me who wanted to be a civil rights lawyer won out at the end of the day. It just took me a couple of decades to get there.

(SOUNDBITE OF MUSIC)

MA: If you want to go deeper on this subject, check out Dorothy Brown's book, "The Whiteness Of Wealth." I read it, and I can't recommend it enough. This episode was produced by Corey Bridges. It was fact-checked by Taylor Washington. Viet Le is our senior producer. Our editor is Kate Concannon. And THE INDICATOR is a production of NPR.

(SOUNDBITE OF MUSIC)

Copyright © 2022 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.