Rise & Shine - April 14

3 Certainties in Life: Death, Taxes, and Racial Inequality

The Rise and Shine discussion group meets Sunday mornings at 9:00 am in the Parlor. Adults from the 8:00 & 10:00 services gather for discussions that are relevant to their lives through the lens of a current topic and scriptural references. This week's discussion outline can be read or downloaded below.

Click HERE to download a copy of this week's discussion outline

Rise & Shine, April 14^th

Unfair Tax Codes Exacerbate Racial Inequality

As Americans rush to file their taxes by deadline day, many of them will take advantage of the tax breaks afforded them by the U.S. government. The government allows us to reduce our tax burden by taking deductions for things such as home mortgage interest and individual retirement accounts. But these benefits won’t help all Americans. These benefits may have value — such as encouraging Americans to save and invest — but those benefits disproportionately help whites and provide less to people of color.

Racial disparities in tax treatment begin at home. For most homeowners, their home is far and away their biggest and most important financial asset. However, racial minorities are less likely to own a home, and, if they do, tend to own one of lower value. In 2012, three-fourths of white families owned a home, compared to less than half of blacks and Hispanics. The median home value among white homeowners is $45,000 more than that among black homeowners.

These racial differences in home ownership are due in part to past federal policies that codified real estate discrimination. The National Housing Act of 1934, for example, openly denied federal backing for home loans to black families while helping low-income whites. Although legal housing discrimination was outlawed in 1968, discriminatory lending practices still exist today. Racial minorities were much more affected by subprime loans during the housing crisis. Furthermore, after the housing crisis home values in communities that are majority black have been slower to recover, and slower to receive the re-valuations from lenders that help decrease home-owners tax liabilities.

The federal government’s spending patterns reinforce, rather than combat, the racial housing divide. In 2015, more than twice was spent on the home mortgage interest and property tax deductions than was allocated to Department of Housing and Urban Development, whose major programs assist low-income homeowners. Moreover, there are no federal tax breaks for renters, who are disproportionately black and Latino.

Racial inequalities in tax benefits also extend into the workplace. In the United States, a worker’s economic security depends a great deal on access to employer-provided social insurance. The two largest tax breaks are for employer-based health-care insurance and pension plans. These programs cost the federal government over $300 billion dollars in 2015.

Both programs disproportionately benefit whites. The Kaiser Family Foundation found that 71 percent of whites were covered under an employer-based health-care plan, compared to only 47 percent of black workers and 39 percent of Latino workers. The modal worker who receives an employment-provided pension is a white male earning a higher-than-average income in a large corporation. White workers also receive larger tax subsidies since they earn more (and therefore have higher marginal rates) than minority workers, on average.

Studies show that historically, and even to this day, persistent job discrimination is partially responsible for racial differences in unemployment levels, full-time employment and total salary. Latino families may also face additional barriers due to immigration laws that restrict their rights in the workplace.

Of course, the tax code also contains provisions intended to benefit lower-income people. One is the Earned Income Tax Credit (EITC). The EITC encourages work by offsetting federal taxes and offering tax refunds for families that earn between $40,000 and $53,000. The EITC is credited with helping lift more than 6 million people above the poverty line.

But even among the EITC-eligible population, nearly half are white. Lower-income people with only high school degrees — who are disproportionately non-white — are less likely to know if they are eligible for the program. Also, those receiving EITC are more likely to be targeted by the IRS for audits. Of the five most heavily audited counties in the country, all were in the South, all were poor, and all were majority African-American.

Regressive state and local tax codes are also worsening both income inequalities and widening racial income and wealth gaps by requiring communities of color to contribute a larger share of their income in taxes. Nationwide, the lowest-income households contribute, on average, 11% of their income in state and local taxes while the top 1% of households contribute just 7 percent of their income—that’s a tax rate that is 50% higher for families working hard to make ends meet than for the wealthiest 1%.

For example, although Florida ranks 50th nationally in taxes collected as a share of personal income, it is the ninth highest-tax state for low-income families. Florida is the 3^rdworst state in terms of the disparity in taxes paid as a share of income by the wealthiest compared to low- and middle-income families. The poorest Floridians contribute nearly 13% of their income in state and local taxes while the wealthiest contribute just 2% of their income.

In Contrast, California’s racial income gap is still evident (white households are nine times more likely than Black households and seven times more likely than Latino households to be among the wealthiest 1% of taxpayers), but the state’s more progressive tax code does less to worsen existing inequities. In California, the lowest-earning bracket contribute 10.5% of their income in state and local taxes while the wealthiest 1% percent contribute 12.4% of their income. Like Florida, Black and Latino households are underrepresented in the wealthiest top 1% of Californians. But unlike Florida, California’s tax code slightly improves income inequality, as the wealthiest 1% pay a larger share of their income in taxes than those with the lowest incomes.

More on this story can be found at these links: