WASHINGTON - Â As they decide whether to extend the Bush-era tax cuts, members of Congress and the Obama administration need to consider the different effects those tax policies have on white Americans and people of color, according to the Experts of Color Network, a national multi-racial, multi-ethnic network of economic experts.
In 2007, the typical African-American family owned 10 cents of wealth, and Latino families 12 cents of wealth, for each dollar of wealth owned by the typical white American family. For African Americans, that was a decline from the 12 cents they owned in 2004, a decrease caused, in part, by the Bush tax cuts.
Too little notice has been paid to the growth of the economic divide between whites and people of color, in particular the decimation of the black middle class, leading up to and during the Great Recession, said the Insight Center for Community Economic Development’s Experts of Color Network.
“It’s not just a matter of higher unemployment and poverty rates,” Meizhu Lui, director of the Insight Center’sClosing the Racial Wealth Gap Initiative and its Experts of Color Network, said in a Nov. 12 letter to Congress and the White House. “The staggering loss of wealth in communities of color has been allowed to happen as if by accident.
“One of those ‘accidents’ has been tax policies in general, and those in 2001 and 2003 in particular, that provide more subsidies to whites in building assets than they provide to those with low incomes and people of color,” Lui said in the letter written on behalf of the Experts of Color Network.
The network includes more than 150 of the nation’s leading Native American, Asian-American, African-American, Latino and Native Hawaiian scholars, advocates, policy analysts, researchers, practitioners, private-sector leaders, philanthropists and government officials in the asset-building field.
The tax code incentivizes wealth building by lowering or deferring income taxes on a person’s specific asset-building expenditures. The Bush-era tax cuts enacted in 2001 and 2003 subsidized wealth-building for the already wealthy. They allowed taxpayers in the bottom quintile to save $80 a year while the top 1 percent saved $42,618 annually. Very low-income people got nothing. Given their disproportionate share of those in poverty and in lower-income brackets, people of color were left even farther behind.
To address these inequities, the network of economic experts recommends Congress and the administration:
Let the Bush-era tax cuts on income earned through investments expire
“Of the tax expenditures to incentivize savings and investment in 2009, $89.5 billion was spent on reduced tax rates on dividends and long-term capital gains. African Americans were 23 percent and Hispanics 28 percent less likely than all families to own direct or indirect holdings of publicly traded stock,” Lui’s letter said. “As a nation that values hard work, income from wealth should not be taxed at a lower rate than income from work.”
Keep the estate tax, lower its exemption level, raise its rate and make it more progressive
“While 1 in 4 white Americans will receive an inheritance, only 1 in 20 African Americans will; and they will receive only 8 cents to the white inheritor’s dollar,” the letter said. Instead of eliminating the estate tax and helping “the children of the richest 1 percent of our population become even richer,” the recommended changes could ensure all of the nation’s children benefit from estate tax revenues, it said.
Supplement tax deferments on retirement and college savings accounts to ensure racial equity
“Tax deferments on retirement and college savings accounts are not the most effective savings incentives for many people of color,” the letter said. “While these do help middle-income Americans, other mechanisms Â scholarships and matched retirement accounts Â need to supplement these tax policies to ensure racial equity in access to higher education and retirement security.”
Reform subsidies for homeowners
“While not part of the Bush tax cuts, re-examination of these subsidies is overdue,” the letter said. “Bringing down these subsidies for high-cost homes and second homes and using those dollars to instead help those without homes or who have lost homes would help close the racial wealth gap.” In the run-up to the housing crisis, people of color were three times more likely than whites to be steered into sub-prime loans, and have higher foreclosure rates.
The experts also called for more transparency in detailing the effects of tax cuts and tax expenditures by race, gender, family status and age.
“Using tax policy to incentivize asset-building is a good idea,” said Darrick Hamilton, assistant professor at Milano - The New School for Management and Urban Policy, and a member of the experts network. “Replacing the Bush cuts with new ones designed to assist low- and middle-income people - a reimbursable rental deduction, for example - would help rebuild the middle class, reduce racial disparities and stimulate our economy.”
The Insight Center for Community Economic Development is a national research, consulting and legal organization dedicated to developing and promoting innovative solutions that help people and communities become, and remain, economically secure. It is leading a national effort to close the racial wealth gap in the United States for the next generation.