The Cumulative Tax Burden of Being Black in the City

Law professor Dorothy Brown breaks down three ways African Americans in urban areas are disadvantaged by the tax code — and some ideas to fix it.

By Brentin Mock for Bloomberg CityLab.

There is a unique emotional and financial burden for African Americans around tax day. If you are not white, married, a man, a homeowner, and/or a wealthy corporate executive, the tax system has historically been a cinder block on your finances. This is a topic examined in great detail in Emory University law professor Dorothy A. Brown’s recent book, The Whiteness of Wealth. Brown writes that U.S. tax policy has hampered, and at times erased, African Americans’ ability to generate wealth, even when accounting for the various forms of tax reform passed over the years. It’s not that tax policy is written with explicit discriminatory dimensions, but rather it has been drafted in ways that structurally advantage white households, especially those who live outside of central urban neighborhoods.   

“Once I looked at the history of taxation in America, it became clear why so many tax policies have drastically different impacts on Black and white families,” Brown writes in the book. “They were created during a time when Black families paid into the system without having the same legal rights to live, work, marry, vote, or receive an education as their white peers.”

Read more: A Tax Code Optimized for White Wealth Leaves Black People Behind

Looking at Brown’s research, it’s notable how these tax disadvantages are more pronounced for Black people who live in cities. The strikes seem to weigh heaviest upon renters, workers without benefits, single people and working women with children, all traits of typical city dwellers, particularly when race is factored in — African Americans are more likely to live in cities or inner-ring suburbs of cities. 

This is not to say that Black families who live in higher-income suburbs and rural communities are exempt from tax grievances: Brown’s research shows that tax policies hinder African Americans at every income level, no matter where they live. It’s been reported recently that southern Black farmers are audited and foreclosed upon at disproportionate rates. But outside of the agricultural sector, signs point to the city as a locus of tax punishment — and that’s before looking at other penalties such as local property taxes that skew higher in low-income city neighborhoods than in wealthier ones.  

Brown offered the example of her home city of Atlanta as “a microcosm of what is going on nationally.” She writes in her book:

While Atlanta, has a unique history, the struggle of the Black middle class here is representative of national trends. Because of tax policy decisions made long ago, Black married couples start off behind their white peers. … They work in lower-paying jobs than their qualifications would suggest, and they support extended family in ways foreign to most of their white peers. From one generation to the next, Black wealth diminishes, evaporates, and is stolen by systemic racism. Meanwhile, white families continue to receive and accumulate wealth, scooping up tax cuts along the way.

In an interview with CityLab, Brown unpacked three kinds of tax policies that produce these inequities in U.S. cities, and ideas for reform.

Home

One of the starkest distinctions in the federal tax code is between renters and homeowners. “Tax law says you don’t deduct rent because that's a personal family or living expense,” says Brown. “Well, so is a home, but we allow a mortgage interest deduction.” Brown calls for eliminating that deduction. 

The federal mortgage interest deduction allows homeowners — mainly the wealthiest — to deduct the interest paid on a loan from their taxes. There is no apples-to-apples expense to deduct for renters in this equation, because renters don’t typically don’t take out a loan to rent a home (although a few states do offer a rent tax credit for some people). Most people rent because they can’t afford to take out a loan to purchase a home. Either they don’t make enough money to qualify for a loan, don’t have the credit score, don’t have the disposable income or savings for down payments and closing costs, or all of the above. 

In just about every major city, renters make up anywhere from a third to over half of the people living there; in cities like New York City, Miami and Boston, renters are roughly two-thirds of the population. Meanwhile, a higher share of African Americans, Latino Americans and Asian Americans rent homes compared to white Americans. Which means fewer Black, Latino and Asian households are able to take advantage of the mortgage interest deduction on their taxes. 

According to a study from the Center on Budget and Policy Priorities, 77% of mortgage interest deduction benefits went to households with incomes of $100,000 or higher in 2012. Another study from the Tax Policy Center found that the vast majority of the zip codes with the highest rates of households claiming the mortgage interest deduction, 82%, were predominantly white, and only 5% were predominantly Black. 

“The majority of Black Americans are renters, so any tax break that says no deduction for rent, you are disadvantaging the majority of Black Americans,” says Brown. 

Brown says the way to address this is not to give renters a deduction, but rather to eliminate the deduction for homeowners, with an exception for homeowners who live in neighborhoods where their houses have historically been under-appraised due to racial discrimination. 

Work

The tax system gives preferential treatment to many employee benefits, from health insurance, to retirement accounts, to flexible spending accounts for things like child and health expenses. 

However, those kinds of perks are not readily available for lower-salaried and hourly wage jobs and, even if they are, those workers often don’t have enough disposable income to take advantage of them. They’re particularly inaccessible to African Americans. To address this, Brown suggests policies that would tie employer tax breaks to equitable distribution of benefits. 

According to Brown’s research, a great preponderance of those benefits-deficient jobs are found in cities, where some companies are converting full-time jobs into contract work, and workers are increasingly relying on the gig economy (Uber, Lyft, etc.). The fact that African Americans are more likely to live in urban areas means they are often the ones who compete for these low-wage jobs and have to settle for benefits-less gigs.

Brown’s analysis of Department of Labor data found that two-thirds of the employers in the “professional and related occupations” category sponsor retirement accounts, but 80% of those workforces are white, while only 9.4% are Black. Meanwhile, Black workers made up 16% of the health care labor force, but were three times as likely to work as lower-waged health aides compared to white workers.

Black workers are five times more likely to take out a “hardship withdrawal” from their retirement accounts than white workers.

Even for those African Americans whose jobs do offer perks like retirement accounts, several forces are working against them. 

Brown’s research found that of employees with a retirement plan option, only 36.6% of African Americans participated compared to 45.8% of white workers. Gaps in both participation rates and account balances were found between Black and white workers at every income level, even in instances where African Americans made the same salary as white workers. 

The reason for this? “Negative social capital,” which means that even when two employees have the same take-home pay, they don’t have the same dollars available to them at the end of the day because one has higher living costs and expenses than the other. For African Americans, Brown found that negative social capital often manifests as a Black worker having to take care of extended family members — an additional grandparent, aunt or nephew under their roof — which eats into their income, leaving them with less to put aside for 401(k)s” and flexible spending accounts.  

Prof. Dorothy Brown

Even if you are Black and you do put money into a retirement account, you still are more likely to face a tax burden: Brown found that overall, Black workers were five times more likely to take out a “hardship withdrawal” from their retirement accounts than white workers. Even in the highest income tier, Black workers were six times more likely to take the withdrawal than white workers. These withdrawals come with heavy tax penalties. 

The impacts of all of these factors fall harshest on Black women, according to Brown.

“Why? Because we have a family member in need, because our parents may need something, because our grandparents may need something,” says Brown. “Black women are more likely to have family members in [dire] financial straits because those family members who are older than us lived through Jim Crow when it was legal to pay them discriminatory wages, or, like my father, when it was legal to keep them out of unions.”

Brown recommends that employers take up automatic enrollment for retirement benefits plans and that the federal government withhold retirement account tax breaks from employers whose companies have racial gaps in employee participation rates. Brown also suggests that employers should be required to audit their workforces to see if and how workers of different races are being compensated inequitably. If within a period of, for example, three to five years, wage and benefits gaps persist, “then the employer would no longer be allowed to deduct employee wages on its tax return,” reads The Whiteness of Wealth.

Family

While property and work usually dominate discussions around tax benefits and burdens, Brown’s research places familial status at the forefront. Marriage and motherhood are just as culpable in the tax code’s disadvantages against African Americans, and not for the reasons often cited. It’s not because Black women are unwed or aren’t taking care of their children, as stereotypes might suggest. Actually, as Brown’s research shows, taxes have been just as burdensome for married Black women as single Black women, especially when child care costs are factored in. 

For one, Black wives have historically been more likely to work outside the home than white wives. Black wives also are more likely to earn similar incomes to their spouses, while white wives have historically been more likely to operate as non-working, stay-at-home spouses.

“Even as income rises, the labor gap between white and Black wives widens along with it — meaning that among the highest-earning couples, more Black wives work and more white wives do not,” reads The Whiteness of Wealth.

Those differences remain today and have led to a structural tax advantage for white couples. Brown’s analysis of 2010 census found couples with just one wage-earner were more likely to claim marriage bonuses and credits on their taxes, and those with the tax bonuses were most often white. 

“[I]n fact, we see an even wider gap between Black and white married couples at the highest income levels,” writes Brown. “It’s predictable that any system that taxes dual-wage-earner households more will hit Black married couples harder than their white counterparts.”

That’s because when one spouse is the sole or primary breadwinner, the couple can lower their tax bracket by splitting the income equally between the two of them, while working spouses with combined similar working salaries are taxed at higher income brackets. In short, Black married couples are more likely to be punished at tax time for not having the luxury of a spouse who doesn’t need to work.

“Any system that taxes dual-wage-earner households more will hit Black married couples harder.”

On top of that, because Black couples were historically more likely to have two working spouses, they were more likely to have to pay for daycare for their children. Taking care of children at home — whether directly or even through supervising a nanny or babysitter — is called “imputed income,” which isn’t taxed. While there are tax credits for child care, or, in some cases, flexible spending accounts that allow people to reduce their taxable income for child care expenses, those benefits only cover a portion of many parents’ costs. 

“Unless they make enough to do an itemized deduction, they can’t claim any of it on taxes,” Brown says. “They get the same child-dependent break that white women who stay at home do.” 

As a result, Black married women get stung once for being one of two working spouses, and then stung again should they decide to become parents. Combine that with the prospect of renting and/or having a benefits-deficient job — again, a likelihood if living in the city — and Black households take an even tougher beatdown at tax time.

Brown suggests that the U.S. get rid of the joint-married tax filing system, given that it does not provide equitable benefits across race and class. Dozens of developed countries, including Canada, already use non-joint filing systems. 

Overall, Brown argues in her book for a tax credit that would serve as a form of reparations for African Americans who’ve had to pay higher taxes than white Americans throughout history. Anyone whose wealth falls below the median wealth line— roughly $100,000 in the U.S. — could claim the credit. Brown says this is the “next best thing to a direct tax credit for Black Americans,” since the U.S. Supreme Court would find that unconstitutional. She estimates that such a wealth-based credit would flow to 83% of Black taxpayers. 

“Maybe someday, a different Supreme Court will decide that disparate impact alone will be enough to declare a government policy unconstitutional and allow for a race-based remedy,” writes Brown. “But for now, I’m content with a wealth tax credit that other Black Americans who simply weren’t as lucky will receive as some compensation for the years they struggled as second-class citizens.”