It doesn't come up much here, as I use this blog to focus more on matters of religion and worldview, but I am an accountant by trade. And on some occasions, the two worlds intersect.
In this case, the issue at hand is racism and the United States Internal Revenue Code, which sets the laws for taxation at the federal government level.
Full disclosure: I don't specialize in tax directly. It's not my specialty or field of interest. Nevertheless, I am a CPA (certified public accountant) and an EA (enrolled agent), so I have to maintain a working knowledge of tax law and practice. I know enough to be dangerous.
And so when an issue ties taxation with worldview, I may have some thoughts and insight (at least hopefully).
The Tax Code Is Racist?
The question of racism in the tax code has come up recently, especially in the last year following the death of George Floyd.
For me, it was first brought to my attention by an unusual source: The Cloud Accounting Podcast with Blake Oliver and David Leary (which I highly recommend for accountants or those with business interests). The podcast tends to be largely apolitical, at least beyond more technical questions of tax policy and the like. The main focus is typically on developments in the world of cloud accounting applications.
However, this was in the summer of 2020, when you couldn't go to lemonade stand on the sidewalk without a discussion of systemic racism popping up.
This particular episode, from June 8, 2020, did not actually spend much time on the topic. Nevertheless, it did raise some questions. Namely, they addressed the home mortgage interest deduction and called it racist. Because one must own a home to use it, one needs a certain level of wealth to benefit from it. And because those who are white (or Asian, Indian, or Middle Eastern) tend to be wealthier than those who are black, Latino, or Native American, those in the latter group are less likely to benefit from the deduction, and therefore it is racist.
Expanded (and Diluted) Definitions of Racism
At the time, my main problem with what they said was the idea that it is rightly called "racist" for something to benefit those with more wealth when the law is racially neutral and anyone of any race who meets the objectives can benefit from it. There are a lot of poor people who white, and any person of color who has a house is just as able to take the deduction. Form 1098 Mortgage Interest Statement only cares about the dollars paid.
If one were to follow this logic, we would have to say that any inequality between those with more wealth and those with less would be inherently racist. And as I have found since I heard this podcast episode. there more than a few people who actually make this claim about racism explicitly. In due time I will need to address this broad, progressive definition of racism in more detail.
Nevertheless, even at the time, I recognized right off the bat that such a definition greatly dilutes the meaning of racism; rather than being an inherently evil and irrational mistreatment of people for an immutable and morally neutral part of their identity, it now needs to have nothing directly to do with race at all. By this definition, life itself would be inherently racist, since the inequality between wealthy and poor is a universal part of human life. This aspect of human existence, that the wealthy have many advantages over the poor, is not a creation of civilized society. Rather, it is something that civilized societies attempt to mitigate.
It is perhaps because of how widespread and natural the inequality between the wealthy and the poor is that some see racism in so many aspects of society. After all, if people of color tend to more frequently be poorer, and being poorer almost always leads to worse outcomes, then there will more often be worse outcomes for people of color for this reason alone.
That particular issue also raised the greater issue of how directly does a policy have to based on race in order for it to be considered racist? Does the law have to explicitly discriminate based on race? Such laws are now exceedingly rare due the 13th, 14th, and 15th amendments to the United States constitution, as well as decades of civil rights legislation at the federal level (as well as in states). It's hard to argue that the law in any part of America is all that racist by this strict standard.
However, most would recognize that there can be racism in laws, policies, and institutions even if they do not single out races specifically. For example, if one day the HR department at a company prohibited African-style braids, such a rule would technically apply to all, but the impact obviously would fall primarily on those most likely to have African-style braids (i.e. African-Americans).
Most would agree that such a policy is racist, although even among those who do, there is a further disconnect: does intent matter? In the African-Style braids example, it is so heavy-handed that it is hard to imagine that it is not a thinly veiled attempt to discriminate against black people. But what if a policy affects certain races negatively without any obvious intent to do so?
The intent question can be very important, since the whole idea that anything is racist if it benefits the wealthy because wealthy people tend to be white - and, again, those of several other non-white races - requires that the outcome alone be sufficient to make something racist.
In the case of the mortgage interest deduction, since white people (i.e. everyone not black, Latino, or Native American) tend to be wealthier, they are more likely to have a house and get the benefit whereas poorer people who pay rent for their homes do not get any tax benefit. Therefore, the tax code is racist, regardless of the intent of the law - at least if one follows this broad, progressive definition of racism.
That said, it turns out there is a deeper flaw in the accusation that the tax code is racist because of the mortgage interest deduction, one that applies even if you take the more extreme view that anything that benefits the wealthy is racist.
Saying The Tax Code Is Racist Ignores Much of the Rest of the Tax Code
The reason why appealing to the mortgage interest deduction fails to demonstrate that the tax code is racist is because it ignores the rest of the tax code, which has largely the opposite effect. Much of the US tax code gives additional benefit to those who are less wealthy. Does that make it anti-racist and/or racist against white people?
For our purposes, I will reserve for another day the thorny question of whether it is good and right to change the historically understood definition of the term "racism" from any discrimination against someone because of their race to now requiring that it be done by those in the majority race in a society against minorities, making it impossible for white people to every be victims of racism in the US.
It is also worth noting that wealth and income are not always the same. Someone with a lot of wealth may not make much money in a given year and would be treated as low-income for tax purposes. But the thing about wealth is that someone, somewhere, already paid the income taxes on it or will in the future. And I don't believe tit is very controversial to say that the correlation between high income and high wealth is very strong.
Regarding the US tax code and how it benefits those who are less wealthy, most notable is the glaring and obvious fact that we have a progressive tax scheme in the United States (at least for federal income tax). The more money you earn, the higher percentage of your income that you pay. Not only will those with lower incomes pay less money in total, but they pay a smaller share of their income than those who earn more. And below a certain amount, you pay no income tax at all. That definitely tends to benefit the poor compared to the rich.
Furthermore, many forms of government welfare are not considered taxable income. Food stamps, Section 8 housing, Medicaid, and various forms of state welfare are all tax free. Such government benefits not only require low income but also low overall net worth as well. Whereas someone who is wealthier has to earn taxable income to pay for their living expenses, those who are poor enough to receive these government benefits receive the money for them and do not pay taxes on that money. This is, of course, aside from the fact that the supposedly racist federal government is providing many of these benefits to the poor (and therefore, disproportionately people of color) in the first place. So if it is racist to benefit the wealthy, is it not anti-racist (and anti-white) to benefit the poor this way?
Many tax credits and deductions have income limits, so those with too high of income do not qualify. These benefits therefore disproportionately benefit lower-income taxpayers, who are disproportionately people of color. Most notable is the earned income tax credit, a credit only available to those with very low income who have earned some income by working. This credit has been cited positively as being especially helpful to women of color (Marr and Huang). Does this mean that the EITC does the opposite of the home mortgage interest deduction? Should we consider it anti-white?
Similarly, one way to help reduce the wealth gap between rich and poor is to facilitate retirement savings. One way that the government does that through the tax code is the Retirement Savings Contributions Credit. The RSCC provides a credit to taxpayers who contribute to a qualified retirement account, but only if their income is very low. Like all of these policies (including the maligned mortgage interest deduction), race is not a factor. However, since (certain) people of color are more likely to be less wealthy and earn lower income, this tax credit applies disproportionately to them.
Similarly, other credits are available to all otherwise-eligible taxpayers, regardless of income, but they have a higher benefit for those below a certain income. For example, the child and dependent care credit begins at 35% of the eligible costs for those below a certain threshold, and gradually decreases to 20% past the top income threshold. Again, those with less income (and therefore, typically less wealth) get the higher benefit from the credit.
Even the mortgage interest deduction itself cuts both ways. This is because the deduction is not unlimited. It only covers the interest on the first $750,000 of mortgage debt. If you borrow $1,500,000 for a larger house, then you can only deduct half the interest. Therefore, it benefits the wealthy over the poor in that those who cannot afford a home do not get it. However, it gives the most benefit to those who are wealthy enough to own a home but are wealthy enough for a home that costs over $750,000 (or at least that requires borrowing that much). So among homeowners, those that get the maximum benefit will tend to be those who are less wealthy, and therefore, more often people of color.
Along those lines, since the deduction is on mortgage interest, those who are privileged enough to be gifted a house (such as through inheritance), or who are wealthy enough to pay in cash, do not get the deduction. I am not saying that we should feel sorry for someone because they received a home without needing a mortgage, but it is one more way out of many that those who are the wealthiest, who are disproportionately white, aren't even benefited by this so-called white supremacist tax provision in the first place.
Conclusion
Needless to say, I do vehemently oppose racism. But I also don't buy into the idea that the mortgage interest deduction is racist just because have to have a certain level of wealth to own a home. And therefore, because I am consistent, I also don't in any way feel attacked for my skin color because those who make less money - who tend to more often be non-white - often pay a lower tax rate and get more tax benefits than I do. I understand that the point isn't to stick it to anyone because of their race, but to ease the burden on the poor. That's the point of a progressive tax system in general; since taxes are a necessary evil, you try to at least minimize the overall pain they cause by demanding more from those who can afford to pay more.
But if this how we're gonna go about it, if we are going to treat wealth level as race and therefore judge laws as discriminatory against one race or group of races solely based on how they impact people based on wealth, then we must be consistent. If one tax provision that benefits those with means is racist since white people tend to be wealthier, then it must follow that the many other tax provisions that disproportionately benefit the less wealthy must be racist against white people (or at the very least, the opposite of racist against people of color). If you are going to judge the tax code on this standard, then you must judge it consistently.
Works Cited
- Oliver, Blake and David Leary. "Is the U.S. Tax Code Racist?" Cloud Accounting Podcast, 8 June 2020. <https://www.cloudaccountingpodcast.com/178>. Accessed 31 May 2021.
- Marr, Chuck and Yixuan Huang. "Women of Color Especially Benefit From Working Family Tax Credits." Center on Budget and Policy Priorities, 9 Sept. 2019. <https://www.cbpp.org/research/federal-tax/women-of-color-especially-benefit-from-working-family-tax-credits>. Accessed 31 May 2021.
No comments:
Post a Comment