White families are reaping more than 90% of the benefits from this powerful tax rule

Tax season is begin for all Americans — but tax code rules play out very differently for white families than for families of color, new research says.

The tax benefits from some of the most favorable sections of the federal income tax code accrue disproportionately for white families, according to Treasury Department results that reveal the broader implications of the tax rules. dried.

White families are getting more than 90% of tax benefits coming from lower taxes on capital gains, more than 90% of tax benefits from itemized charitable deductions, and 90% of deductions minus tied to qualifying business income — all of which represent an estimated 67% of families, the researchers said.

In the tax breaks for home ownership, the researchers say, white families get 84% of the tax benefit from the mortgage interest deduction. Tax Analysis Office of the Ministry of Finance.

For the Earned Income Tax Credit (EITC), a tax credit for low- and middle-income working families, Hispanic households make up 15% of the total, but receive 28% benefits of EITC. Black households make up 11% of all households, but receive 19% of the EITC benefits.

IRS tax forms do not collect data on race and ethnicity, so the researchers used predictive and estimation models based on tax return data samples to arrive at their findings. The article’s authors emphasize that they are not arguing for or against certain tax rules, but are trying to shed more light on the unequal impact of the tax code from a racial and ethnic standpoint .

The analysis is the first of its kind, according to an online post from Lily Batchelder, assistant secretary for tax policy, and Greg Leiserson, deputy assistant secretary for tax analysis. They said that no confidential data was revealed during the study.

The rules associated with long-term capital gains are particularly noteworthy, the researchers say. When a taxpayer holds a capital asset – like a stock or a bond – for more than a year, that gain is taxed at a lower rate than ordinary income such as wages. Depending on income, this rate typically ranges from 0% to 20%, but the IRS says it is 15% for most households.

Treasury researchers estimate $135 billion of the $146 billion in tax spending tied to preferential rates on capital gains and qualified dividends will go to white families. Meanwhile, Hispanic families will receive $4 billion, Black families will receive $2 billion, and other demographic groups will make up the rest.

Of course, the capital gains rules can apply to anyone – but taxpayers need capital assets to get started.

“Taxpayers bring their racial identity to their 1040. You don’t stop being Black, Hispanic, or white just because you fill out a tax return. You are black in a society with a racist system. You are Hispanic in a society with a racist system. Dorothy Brown, author of “The Purity of Wealth: How The Tax System impoverished Black Americans — and How We Can Fix It,” told MarketWatch.

The report cited Brown’s research, and the Georgetown Law professor said its findings were a “really good start” that confirmed much of what she had researched on terms including capital gains. and deduct mortgage interest.

Read more: ‘There’s a punishment for Blacks’: How racism today has devalued Blacks and their property – and what to do about it

It also reaffirms her position that the best solutions to tax code disparities are extremely simple rules and minimal deductions to avoid special treatment and exceptions. , said the professor. Brown is a member of the Treasury Department’s Racial Equity Advisory Committee, but was not involved in writing or researching the report.

‘It is essential that America’s tax system changes so that it reflects our true values, rather than continually prioritizing wealth over work.’

— Beverly Moran, professor at Vanderbilt University Law School

Even among the top 5% of households, white households receive an average of $24,300 in taxes annually from the incentive, compared with $20,600 for the incentive, the new Treasury report says. Black households with similar income and $16,900 for Hispanic households.

Part of the difference, Brown says, is that “Wall Street doesn’t see black Americans as potential customers.” Another component is the higher likelihood that higher-income black Americans are more likely to financially support other members of their family – which leaves them with less money to invest in. the stock market or elsewhere, Brown added.

Nearly six out of 10 people (58%) last year said they owned stocks, according to Gallup. Among owners, 64% are white and 46% are black, the pollsters said, noting that “stock ownership is strongly correlated with household income, formal education, age and race.” (Shares ownership counts as direct holdings, through mutual funds or retirement account portfolios.)

Beverly Moran, a Vanderbilt University School of Law professor whose research on the interplay between race and taxes was also cited in the Treasury Department report, told MarketWatch in an email that it was “absolutely true that it is.” these tax rules favor whites over blacks, but that’s only half the story.”

“The bigger story is that these rules favor those who make money from assets over those who make a living by work,” says Moran. “How is this possible in the United States, where we pride ourselves on our large middle class and work ethic? What is needed is that America’s tax system changes so that it reflects our true values, rather than continually prioritizing wealth over work.”

These findings add context to who will gain or lose when this tax season kicks in. 2022 is a bad year for the stock market due to high inflation, rising interest rates and fears of a recession. Dow Jones Industrial Average
S&P 500

and Nasdaq synthesis

back to their worst performance since 2008.

But investors who sell at a loss can use the tax provisions to offset the gains, then reduce their earnings by as much as $3,000 and apply the remaining losses to future tax years. The strategy of “exploiting tax losses” has brought added value in market conditions, experts said.

On the other hand, payments from the earned income tax credit are returning to smaller quantity for childless workers this tax season. The maximum payout dropped from about $1,500 to $500 after the pandemic credit expires.

Likewise, the 2021 temporary improvements to the child tax credit have come and gone. That year, the credit increased from $2,000 per child to $3,600 for children under age 6 and $3,000 for children ages 6 to 17. Democrats have pushed to restore the credit at a higher payout.

The most recent attempt has arrived in the negotiations on Capitol Hill on a year-end spending deal last month. Democrats have tried to tie the higher credit payments to proposed tax changes for corporate research and development costs. Higher payment for credit did not implement it in the agreement, nor does it amend the tax rules on corporate spending.


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