This post was authored by Ayana Prewitt and Joey Katzenell.
The US tax code was created to make the wealthy pay their fair share for the First World War, but soon soon after its conception, it was transformed to benefit a small demographic of white individuals that fall within the wealthy class. With the 2025 tax debate coming upon us, it is our duty to change the tax code to create a system that works for everyone. In order to create positive change, we must first equip ourselves with the knowledge of how the tax system has failed to consider all residents. The Trump tax law is set to expire in 2025, bringing an opportunity for change. The Tax Cuts and Jobs Act of 2017 reduced ordinary income tax rates for most of the top 10% of earners, but only for about 20% of the bottom 90% of earners. This act further introduced a new special tax break for the wealthy. This tax break benefits “business income” claimed on individual income tax returns, and it more than doubled the estate tax exemption to $27 million today, up from $11 million in 2017, in addition to lowering the corporate tax rate from 35% to 21%. Essentially, under the Trump plan, the more money you make the more likely you are to get a tax break. Due to an extremely small percentage of Americans who fall within the demographic bracket of the ultra wealthy, the plan is not conducive to benefiting the working people and we must call attention to the disparities it causes.
In 2022, Take on Wall Street hosted a fireside chat with Dr. Dorothy A. Brown, author of The Whiteness of Wealth and Professor of Law at Emory University, Dr. Darrick Hamilton, who is now director of the Institute for Race, Stratification, and Political Economy at the New School. The conversation was a deep dive on viewing the tax code through an intersectional racial lens. As Dr. Hamilton explained, there is “no silver bullet policy, but there’s a silver bullet framing – and that is one of inclusive economic rights, one of us ensuring that there’s a base level of resources that empower people to be self-determined.”
One example of how the tax code favors the white and wealthy is marriage tax breaks. Dr. Brown and Dr. Hamilton talked of Henry and Charlotte Seaborn, a wealthy and influential white couple in the early 1920s that discovered that if they could shift half of Henry’s income to Charlotte, they would each be in a lower tax bracket and could pay less than if the entire income was his own. The courts allowed this, thereby opening a new can of worms—creating a systemic inequity for Black families where the married couple’s incomes tends to be more similar, given that Black women, on average, contribute to 40% of their household income whereas white women tend to contribute to about 29% of their household income. This all goes to show that our tax system has always had loopholes within it, however, not all have accessibility to reap the benefits, especially those from dual-income households.
The tax code we have now not only incentivizes marriage, but it also rewards those with disposable income they can invest in stocks, bonds, and rental properties. The US taxes income from labor at a lower rate than income from capital gains, which are accumulated through assets like stocks, bonds, and increased property values, so this disproportionately disadvantages renters. This means those who cannot afford to buy a home often pay proportionally more in taxes while those who can afford to buy a home essentially get paid to simply be the property owner and derive passive income, while paying proportionally less in taxes. In a country where the white homeownership rate is 29% higher than the Black homeownership rate (73% versus 44%), this goes to show how our tax code favors upper class wealth-building over working class economic stability. This is a glaring example of wealth extraction in a financialized economy.
Taxing income from labor more than passive income like capital gains is not the only way our tax code is framed to favor the white and wealthy. To exemplify the unfavorable tax code, simply look at how the top corporations dodge paying their fair share of taxes. In a report by Americans for Tax Fairness and the Institute for Policy Studies, they found that 35 of the top US corporations paid more to their top executives than they did in federal income taxes from 2018 to 2022. While they paid $9.5 billion to their executives, they actually received $1.8 billion in tax refunds. Essentially, they owed negative taxes and instead, the rest of us paid them. We pay for these corporate subsidies by levying sales taxes, excise taxes, fines, and fees instead, all of which cost lower- and middle-income families more and widen the racial wealth divide.
Now more than ever, given the corporate billionaire love affair between our Congress and President Elect, who has openly, repeatedly promised to give more tax breaks to his rich friends and now his cabinet members, it is important to loudly advocate for change within our tax system. Black and white working class families deserve a fair tax code, and the wealthy corporate elite must pay their fair share. Rolling back Trump’s tax policies from his time in office is a crucial first step, but it is not enough to undo the racism ingrained in the code. We must remember that our tax system has not been built on the principles of equity and inclusion, but rather on capitalism’s tendency to put profits over people. This includes fanning the flames of and institutionalizing racism, discrimination, and inequality by not making needed adjustments to a deeply inequitable system.
This year, we’re fighting for a tax code that supports necessary investments in working peoples’ security and prosperity – taxing capital gains at the same rate as wages, bringing in more revenue by requiring the ultra-wealthy to pay their fair share, and ending loopholes that allow corporations to hoard wealth. This is how we create faster and more inclusive economic growth in service of a fair economy.
As we go into this tax fight, it is imperative that Drs. Brown and Hamilton’s message – that we must critically examine the tax code through a racial lens–is at the forefront of our minds.
Leave a Reply