The Whiteness of Wealth: How the Tax System Impoverishes Black Americans--and How We Can Fix It

by Dorothy A. Brown Narrated by Karen Murray

Overview

A groundbreaking exposé of racism in the American taxation system from a law professor and expert on tax policy

NAMED ONE OF THE BEST BOOKS OF THE YEAR BY NPR AND FORTUNE ¿ “Important reading for those who want to understand how inequality is built into the bedrock of American society, and what a more equitable future might look like.”-Ibram X. Kendi, #1 New York Times bestselling author of How to Be an Antiracist

Dorothy A. Brown became a tax lawyer to get away from race. As a young black girl growing up in the South Bronx, she'd seen how racism limited the lives of her family and neighbors. Her law school classes offered a refreshing contrast: Tax law was about numbers, and the only color that mattered was green. But when Brown sat down to prepare tax returns for her parents, she found something strange: James and Dottie Brown, a plumber and a nurse, seemed to be paying an unusually high percentage of their income in taxes. When Brown became a law professor, she set out to understand why.

In The Whiteness of Wealth, Brown draws on decades of cross-disciplinary research to show that tax law isn't as color-blind as she'd once believed. She takes us into her adopted city of Atlanta, introducing us to families across the economic spectrum whose stories demonstrate how American tax law rewards the preferences and practices of white people while pushing black people further behind. From attending college to getting married to buying a home, black Americans find themselves at a financial disadvantage compared to their white peers. The results are an ever-increasing wealth gap and more black families shut out of the American dream.

Solving the problem will require a wholesale rethinking of America's tax code. But it will also require both black and white Americans to make different choices. This urgent, actionable book points the way forward.

Editorial Reviews

Publishers Weekly

01/11/2021

Emory University law professor Brown debuts with an illuminating exploration of how U.S. tax policies exacerbate the Black-white wealth gap. She begins with tax benefits afforded to married couples, explaining that single-earner households, which are statistically more likely to be white, pay less taxes than households in which both spouses work, which is more common in Black families. She also shows that Black homeowners accrue less wealth overall due to the lower cost of homes in majority-Black neighborhoods, examines how income inequality and different tax policies for for-profit and nonprofit schools make it difficult for Black Americans to pursue a college education, and suggests that Black employees who have access to a retirement account contribute less than their white colleagues because they are supporting other family members disadvantaged by systemic inequality. Brown’s suggested reforms include reducing the number of deductions and exclusions in the tax code, and implementing a progressive tax rate for wealthy individuals and lower rates for those earning less than a living wage. Brown enriches her detailed data analysis with personal anecdotes and brisk history lessons. Policymakers will benefit from this expert look at a rarely discussed, yet seemingly fixable, piece of the racial inequality puzzle. (Mar.)

From the Publisher

In The Whiteness of Wealth, Brown brings the American tax code to life. Hands shape it and wield it like a shield in the defense of the most powerful among us. The tax code tells a story about American priorities. The news isn’t good, Brown writes, but there’s still time to change the future.”—New York

“[An] accessible and lively . . . primer on how wealth works in America.”—Bloomberg Businessweek

“This enlightening book is a vital companion to The New Jim Crow, The Color of Wealth, and Evicted, for how it reimagines everything you thought you knew about U.S. social policy.”—Tressie McMillan Cottom, MacArthur Fellow and author of Thick: And Other Essays

“This book is a tour de force. With clarity and conviction, Dorothy Brown reveals how U.S. tax policy sustains and deepens the wealth gap between black and white Americans. As I read The Whiteness of Wealth, I found myself shaking my head as I eagerly turned the pages and shouting ‘damn’ with each revelation. If we are finally to address the long history of racism in this country, we must grapple with the arguments of Brown’s powerful book. This is a MUST read for these troubling times.”—Eddie S. Glaude Jr., New York Times bestselling author of Begin Again and Democracy in Black

“I couldn’t put it down! Dorothy Brown skillfully weaves her analysis of the racial bias in tax law with compelling personal stories of both Black and White taxpayers as well as policy recommendations for how to bring equity to our tax system.”—Beverly Daniel Tatum, PhD, New York Times bestselling author of Why Are All the Black Kids Sitting Together in the Cafeteria?

“At once passionate and analytical, The Whiteness of Wealth is a bracing contribution to the history of policy racism that takes us to the heart of taxation’s effects on patterns of economic distribution.”—Ira Katznelson, author of When Affirmative Action Was White

“In this urgent account, Dorothy Brown incisively unpacks how racism is embedded in our nation’s tax system, enhancing White wealth at the expense of Black Americans.”—Ibram X. Kendi, #1 New York Times bestselling author of How to Be an Antiracist and Stamped from the Beginning

“An eye-opening look at race-based economic biases, with reasonable steps to undo them."—Kirkus Reviews

“An illuminating exploration of how U.S. tax policies exacerbate the Black-white wealth gap.”—Publishers Weekly

“Brown . . . writes brilliantly and lucidly on systemic racism and injustice within the American tax system. [The Whiteness of Wealth] is an eye-opening, well-sourced and -argued account of tax law and economic policy at the intersection of racism and social history.”—Booklist (starred review)

Library Journal

03/01/2021

Brown (law, Emory Univ. School of Law; Critical Race Theory) details how America's tax system disadvantages Black Americans by mining publicly available data. Readers might be surprised to learn the IRS does not collect information on tax payments and race. With clarity and focus, Brown delivers a shocking look at the racial inequalities of America's tax system. White people benefit disproportionately from favorable tax laws, allowing them to accumulate and pass on wealth at higher levels than many Black Americans. Brown's final chapter proposes several policies that would level taxation disparities and begin to close the wealth gap. Her proposals include taxing all forms of income and the elimination of property tax funding as the main source of income for schools. She also advocates for a reparations credit: a race-based tax credit that can begin to make up for the centuries of slavery and discrimination suffered by Black Americans. The inequities of the American tax system are laid bare for all to see, along with the ongoing negative effect on Black income and wealth. VERDICT Readers interested in racial, social justice, and financial issues will not want to miss this eye-opening title.—Chad E. Statler, Westlake Porter P.L., Westlake, OH

Kirkus Reviews

2020-12-25
Black Americans endure endless injustices and indignities—not least of which are the inequities built into what is supposed to be a neutral tax system.

Brown went into tax law, she writes, because she imagined that “as far as tax law was concerned, the only color that mattered was green.” Her effort to escape racism didn’t work as expected. Over the years, she has worked to uncover biases—both intentional and not—in the federal tax system. For instance, the joint tax return system was the product of a ploy on the part of Henry and Charlotte Seaborn, a wealthy White couple who filed a suit that went all the way to the Supreme Court. They lived in a community property state, and when Henry declared that half of his income was his wife’s and their marginal tax rate should be half what it was, the IRS rejected the claim until the justices ruled in the Seaborns’ favor. But what of states where community property was not the law? “This was a violation of the horizontal equity principle underpinning the progressive tax system,” Brown writes, and it penalized Black married couples who, unlike Whites, earned roughly equal pay and could not lower their tax burden by transferring it to their partner. Similarly, notes the author, mortgage interest deductions benefit White holders disproportionally, in part because home values are lower in marginalized communities. “Homeownership is not a straightforward wealth builder for black families,” writes Brown, “because the only guaranteed return on their investment is to buy in a community where they will be a small and vulnerable minority.” School loans are another realm of difference, leading Brown to propose that wealthy institutions such as Yale be taxed to fund scholarships. Among her other remedies are taxing inheritances and, more daringly, eliminating exclusions so that “all income is taxable,” thus doing away with inequitable shelters that favor White over Black taxpayers.

An eye-opening look at race-based economic biases, with reasonable steps to undo them.

Product Details

BN ID:	2940177061153
Publisher:	Penguin Random House
Publication date:	03/23/2021
Edition description:	Unabridged
Sales rank:	793,366

Read an Excerpt

One

Married While Black

Most Americans believe that getting married means paying lower taxes. And one thing my parents could have used was a tax cut. When Mommy and Daddy got married in 1956, they didn’t have money for a fancy wedding reception or a honeymoon; my mother made the potato salad they served to their guests, and they wouldn’t take a vacation together until decades later. Money was so tight that after a couple of months of paying $25 per week for their own apartment, they moved into the spare room in my paternal grandmother’s—Grandma Bertha’s—apartment. (You can imagine how much fun that was for a couple of newlyweds.) And they stayed there after my sister and I were born, because they simply didn’t have the resources to leave.

Like most couples, my parents started filing their tax returns jointly the year after they got married. When I was young they used a tax preparer, but later they happily handed over the responsibility to me. Even with all that education, I assumed that filing jointly was the best thing for my parents, since filing separately was likely to result in fewer tax breaks. Nearly 95 percent of all married couples file jointly, and those who don’t typically choose to file separately to avoid liability for a spouse’s potential tax problems. (A well-known example is the late senator John McCain, and his wife, Cindy, who inherited ownership of the third-largest Anheuser-Busch distributor in the country. Before they got married, they signed a prenuptial agreement that included a requirement that they would file separate tax returns.)

Conventional wisdom assumes the tax subsidy for marriage benefits all married Americans equally, and doesn’t give much consideration to its effects across race and income groups. When I saw that my parents’ two incomes added up to a higher tax bill than had they remained single and filed individually, I started to question the conventional wisdom—and found that while in theory the provision should affect everyone equally, regardless of race, in practice it has a disproportionately detrimental impact on black couples. How a tax provision used by almost all married couples—the joint return—came to harm black families and their ability to build intergenerational wealth tells us much about American tax policy, its history, and its intentions.

Meet Henry and Charlotte Seaborn, the rich, white society couple whose lawsuit led the Supreme Court to establish the joint tax return in 1948. Henry and Charlotte were married in 1902, before we even had a progressive income tax system. As noted in the introduction, when that system was enacted in 1913, taxpayers were required to file as individuals. That meant the same rate schedule applied whether you were married or single. There were different exemption amounts for individuals and married couples—$3,000 versus $4,000, on the grounds that it cost less to maintain one household for two people, than two separate households—which had the potential to provide a small tax cut when you got married. In 1913, however, only 1 percent of Americans had income high enough to have to pay taxes. By 1930, exemption amounts had been lowered, requiring around 5 percent of Americans to file tax returns, including Henry and Charlotte, respectively the vice president of the Skinner & Eddy shipbuilding company and his socialite stay-at-home spouse.

According to court records, in 1927 Henry had taxable income of just under $38,500 (about $500,000 today, adjusted for inflation). More than half of that income came from investments. (That’s a whole other piece of tax policy, but we’ll get to that in chapter 5.) The exemption amount, which had been $20,000 in 1913, had been lowered to $2,000 in 1917—which meant not only did Henry have to pay taxes, but he had to pay a lot in taxes. By 1927, the Seaborns were fed up. They decided to use their considerable resources to reduce their tax bills—and succeeded, with a little help from the United States Supreme Court. The Seaborns lived in Washington, a “community property” state, which gave Charlotte equal legal ownership of whatever income her husband received during their marriage. When they filed their taxes for 1927, Charlotte put half of Henry’s income (and expenses) on her tax return, and Henry did the same. The married exemption was $3,500 that year, and the Seaborns each decided to take half of it—$1,750 each.

Here’s how this worked, in practice—and for simplicity, let’s count only Henry’s wage income, not his investments. So Henry has income of $15,000, and Charlotte has none. If he’d obeyed the law, as a married taxpayer filing a joint return, he would subtract the personal exemption of $3,500 and have taxable income of $11,500. That would result in a $370 tax bill—roughly $5,400 in today’s dollars. His marginal tax rate was 6 percent—the highest rate his last dollars of income were taxed at.

Henry, however, chose not to obey the law, and allocated half his income to Charlotte for tax purposes. Each spouse thus reported net income of $7,500—and because there was no option for a person with no income, like Charlotte, to file a return, the Seaborns invented one, and deducted half of the married exemption from each income. That would put their taxable income at $5,750 each, with a resulting tax bill of $112.50 for each Seaborn. Under this scenario, their highest marginal tax rate was only 3 percent.

Henry and Charlotte might have been charged with tax fraud, but their “ingenuity” was rewarded. When the IRS initially audited the Seaborns’ tax returns and rejected them, arguing that all of the income (and expenses) should have been included on Henry’s tax return because he was the sole wage earner and sole owner of the investments, Henry paid the extra taxes ($703.01, roughly $10,000 today) and then sued for a refund so that he could take his case to federal district court. With the help of Donworth, Todd & Holman (the precursor of Perkins Coie LLP, currently the largest law firm in the Pacific Northwest), the Seaborns won—first at the district court, and then, after another appeal from the IRS, at the Supreme Court. They were able to split Henry’s income, using their wealth to get a permanent tax cut that would enable them to accumulate even more wealth.

In doing so, the Seaborns not only set a precedent for helping rich couples in community property states pay less tax but also made other wealthy Americans aware of the potential to change the laws in their favor. Initially, only couples in community property states, like Washington, could benefit from marital income splitting; in most states, income earned during the marriage belonged to the spouse who earned it. Before Poe v. Seaborn, the 5 percenters who lived in separate property states had tried to find another way of reducing their tax burden, splitting their income by entering into contracts where the sole wage earner (the husband) transferred a half interest in his income and other property to his wife. That case, too, had gone all the way to the Supreme Court; unlike in Poe v. Seaborn, the rich white married couple lost. The Supreme Court reasoned that in separate property states, “he who earns” the income is the one who will be taxed on it.

The Supreme Court thus created a situation where married couples with identical income and expenses but who lived in different states would pay different federal income tax bills. However, this was a violation of the horizontal equity principle underpinning the progressive tax system—and still only the 5 percent wealthiest Americans were paying in. They were determined to make a change.

One approach was for husbands and wives to form family partnerships and “split” their incomes equally. Family partnerships mimicked small businesses, such as two-person law firms or retail stores; these are classified as “pass-through” entities in which each individual partner pays taxes on their share of the income. (The spousal approach ignored the fact that no legitimate business partnership agreement would be formed solely to award half of the income from the earner to the nonearner.) When family partnerships weren’t challenged by the IRS, the couple got the same result as the Seaborns, and a lower tax bill. When they were challenged, sometimes the taxpayer won and sometimes they lost. This approach was case by case, expensive, and unpredictable.

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