The Tax Code and Racial, Ethnic, and Gender Disparities

Finance: Combating Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities, April 20, 2021

First, we will review income data by race.

As you know, the IRS does not collect information on race, ethnicity or gender when we file taxes. The best we can do is analyze differences in income by race, as estimated by the Current Population Survey published by the U.S. Census Bureau. From this, we can infer the impact on tax collections. To ease presentation, only two categories are used: white non-hispanic and other. 

There are a total of 128.4 million American households, 8.7 million are in the white middle and upper middle classes (top 10%), with 4.5 million non-whites in the top 10%. There are 76.2 million white and 39.1 million non-whites in the bottom 90% of households.  Here is how income is distributed.

Among Whites, the top 10% of households receive 38% of income within the group and 27% of the total population. Among others, the top 10% receive 29% within the group and 8% of the total. The top 10% in the population receive 35% of income. Whites make up 66% of the population, receiving 71% of the income. 

Over time, this has led to wealth inequality. This table is excerpted from our forthcoming volume on who owns the national debt. For more on the topic of debt as class warfare, see the first attachment. Here is how assets are broken down by race, as estimated using the 2019 Survey of Consumer Finance conducted by the Federal Reserve.

This chart shows the mix between race  and class, with all non-White, non-Hispanics combined into a single class. Understanding this table will give you insight into why poor Whites resent minorities and why these two groups vote in separate parties.

This chart shows why lower income Whites and non-Whites need to find unity.

Next, we will turn our attention to current tax policy. Prior to the American Recovery Plan Act, the tax code was what we inherited from the Tax and Job Cuts Act (not a typo) passed in the 116th Congress. As we detailed at the time, this legislation rewarded the speculative sector, including corporations, while simplifying personal income tax filings (although sole proprietors may not see it that way). The Act was supply side economics run amok. One year after these cuts took effect (giving them time to work their way through the economy), economic growth was down by approximately one percent of GDP. Our analysis of the TCJA can be found in Attachment Two.

In January of 2020, I predicted the failure of mortgage backed securities holding single family home rental properties (which have been sold to Exchange Traded Funds) and cryptocurrency. The Federal Reserve's efforts to back toxic securities due to the pandemic prevented Exchange Traded Funds holding ETFs from crashing. The slowing in the economy prevented mass sales of crypto to the general public.

The ARPA has its pluses and its minuses. On the minus side, families who had adequate income during the pandemic now have money to blow. Instead of spending it they are using it to speculate. Masses of people are about to enter the bottom half of EFT and Crypto markets, which will allow the top tiers of the scheme (whose seed money was provided by the Ryan-Brady-Trump tax cuts) to get out.

The increased child tax credit and its new refundability will provide long term economic security to children and their parents, especially their mothers. For some families, one or the other parent can stay home with the children - including the father. When my daughter was born, my wife had a career position and I did not, so it was a no-brainer for me to stay home to be the nurturing parent. The new provisions will give others that chance - especially if credits are expanded to median income levels.

The new CTC provisions are good for women and racial and ethnic minorities, as well as the White Working Class. Giving everyone a better deal will lower the temperature, provided it does not come with the “stink of welfare.”

There are two avenues to distribute money to families. The first is to add CTC benefits to unemployment, retirement, educational (TANF and college) and disability benefits. The CTC should be high enough to replace survivor’s benefits for children.

The second is to distribute them with pay through employers. This can be done with long term tax reform, but in the interim can be accomplished by having employers start increasing wages immediately to distribute the credit to workers and their families, allowing them to subtract these payments from their quarterly corporate or income tax bills.

Over the long-haul, tax reform is necessary to cement these gains. Please see our tax reform plan in the second attachment. It is designed to provide adequate income and services to families (both with increased minimum wages and child tax credits) through employer-paid taxes, funding government services through a goods and services tax, separating out taxation of capital gains and income from income to an asset value added tax and higher tier subtraction VAT collections on wage income up to the $330,000 level and above, with additional personal income taxation for incomes over $425,000.

The top rates for higher tier subtraction VAT, personal income taxes and asset VAT would all be set to the same rate, say 26%, so that forms of income are not manipulated to avoid taxation. It would also effectively raise taxes on salaried income to 52%, with capital incomes reinvested or investments funded by salary income adding an additional 26% of taxation. Spending money will also trigger taxation.

Adding the effect of lower tier subtraction VAT collection to taxation on business owners and the top marginal rate approaches 90%. Such taxes are meant to prevent payment of extreme salaries rather than maximizing revenue. This provides more wages to the rest of the population, especially to those who are not adequately compensated at lower income levels.

Attachment: The Debt as Class Warfare

Attachment: Tax and Job Cuts Act

Attachment: Tax Reform