Rally for fair taxes.

This year a graduated income tax amendment (known as the Fair Tax) is on the ballot here in Illinois. Right now, our state’s constitution requires us to have a flat tax rate, in which everyone is taxed the same percentage. The proposed amendment would repeal that requirement, opening the door for a tax rate that changed based on your income.

Happy Wednesday!

We had a LOT of questions about taxes after last week's newsletter on tax inequity. And I get it – taxes are still confusing to me, honestly. It's hard enough to know how to file them effectively, let alone how to dismantle its racist foundation. Today, Jami highlights the tax amendment on the ballot in Illinois this election and uses it as a benchmark for how we can change state taxes when we have a chance.

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Nicole

ps – tonight Kamala Harris will face Mike Pence in the VP Debate. Consider how the "angry Black woman" trope we unpacked in a previous newsletter may come into play in the news Thursday.

pps – I had to remove the sharing assets from these emails, as they're making many go to spam. Instead, snag them from our Facebook or Instagram accounts.

TAKE ACTION

If you are in Illinois, vote for the Fair Tax (also known as the Graduated Income Tax Amendment)
Use the Who Pays? analysis from the Institute of Taxation and Policy to find out how inequitable your state’s tax policies are. Who benefits from the policies? Who is harmed?
If you are financially comfortable, check out Resource Generation to learn about how and why you could redistribute some of that wealth to others. Uprooted & Rising provides a Mutual Aid Plug In Guide, an excellent step-by-step worksheet.

GET EDUCATED

By Jami Nakamura Lin (she/her)

Like many people, the extent of my knowledge about taxes has to do with inputting my information into TurboTax or H&R Block’s free tax software and either being pleasantly surprised at my tax refund or despairing about how much I owe. Our convoluted tax system in America means that we outsource the preparation to professionals—or, increasingly, software—and the extent of our interest extends to how the rules affect us individually, rather than seeing the bigger picture.

This year, though, a graduated income tax amendment (known as the Fair Tax) is on the ballot here in Illinois. Right now, our state’s constitution requires us to have a flat tax rate, in which everyone is taxed the same percentage. The proposed amendment would repeal that requirement, opening the door for a tax rate that changed based on your income. While effects can vary depending on a lot of individual factors, in general, if you belong to the 97% of Illinoisans that make less than $250,000, your taxes will decrease (Chicago Sun-Times). (You can check how it will affect you personally at the Illinois Fair Tax Calculator.)

I know most of you don’t live in Illinois, and you might be asking: why does this matter to me? You might not be able to vote for this specific resolution, but sooner or later, you’ll have to vote on tax-related changes in your area, and taxes greatly affect wealth inequality. While Americans are now much more wealth inequality in general, we sometimes overlook how taxes contribute to that disparity. According to leading economists, tax policy is one of the four primary reasons that between 1980 and 2007, the 1% most wealthy people in America doubled their total income share (Journal of Economic Perspectives). More recent data shows that even after the Great Recession, income concentration has continued to rise at the top (Center on Budget and Policy Priorities).

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Nearly every state government, including local governments, collects more taxes from poor families than from high-income families relative to their incomes, and more taxes are generally collected from middle-income families than high-income families.
Palma Joy Strand and Nicholas A. Mirkay in Racialized Tax Inequity: Wealth, Racism, And The U.S. System of Taxation

Our federal tax policies are geared towards letting the already wealthy accumulate more wealth and pass it down to their children. But even those of us who are not millionaires benefit disproportionately. Many people who consider themselves middle-class benefit from tax-preferred 401k pension plans, tax-deferred 529 college savings accounts, and mortgage deductions. Such policies and problems might look like a divide amongst the rich and the poor—issues of class, rather than race. But in America, “investigators of inequality… have documented that the rich tend to be White and the poor tend to be people of color” (Northwestern Journal of Law & Social Policy).

Compared to white Americans, a far smaller percentage of Black and Brown people own their homes or possess such accounts. They do not benefit from such tax breaks. Meanwhile, income disparities amongst Black and white people have increased since 1979. On average, white households are ten times richer than Black households and eight times richer than Latinx ones (Northwestern Journal of Law & Social Policy). A shocking 2016 study from the Federal Reserve and Duke University shows that in Boston, the median wealth of a white family was almost $250,000, while the median wealth of a non-immigrant Black American family was $8 (Federal Reserve of Boston). Eight dollars.

This is why a progressive income tax matters. In Illinois, the average income of the top 1% of families is over 65 times larger than the average income of the bottom 99% (Illinois Economic and Policy Institute). Yet the poorest 20% in Illinois pay 14.4% of their income in taxes, while the wealthiest 1% pays 7.4% (Shriver Center on Policy and Law). Illinois and other states with flat taxes are part of the Terrible Ten, “states that tax their poorest residents — those in the bottom 20 percent of the income scale — at rates up to six times higher than the wealthy” (Institute on Taxation and Economic Policy).

So if you cheer when you get your tax refund, make sure to also remember that taxes don’t affect everyone equally. Our tax policies are designed to benefit the rich. A progressive income tax is only a small reform in a system that needs an entire haul, but it is a tangible, if limited, way to fight against wealth inequality. And, as always, while fighting for policy change, we can also directly make change on the ground. If you are able, commit to redistributing some of your income or wealth every month.

KEY TAKEAWAYS

On average, the 20% of Americans with the lowest incomes pay a state and local tax rate 1.5x higher than the 1% of Americans with the highest incomes (Institute on Taxation and Economic Policy).
Tax inequity is one of the driving factors in wealth inequality in America (Journal of Economic Perspectives).
White households are, on average, 10x wealthier than Black households and 8x wealthier than Latinx ones (Northwestern Journal of Law & Social Policy).
In Illinois, voting for the Fair Tax will support tax equity.

RELATED ISSUES

9/28/2020 | Fight racial tax inequity.

9/30/2020 | Close the racial wealth gap.

6/11/2020 | Support black-owned businesses.

PLEDGE YOUR SUPPORT

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Nicole Cardoza 9/28/20 Nicole Cardoza 9/28/20

Fight racial tax inequity.

Happy Monday! The NYTimes released Trump's taxes and I'm sure we'll be hearing a LOT about it this week. As you follow the news (or tune it out, your choice) consider how racism and racial bias have helped to craft a tax system that enables some people to struggle with tax debt and others to avoid paying taxes at all.

And hello new faces! Here's quick links to learn more about the ARD, read the archives, follow us on Instagram, and switch from daily to a weekly digest 👋🏾

Thank you for all your support! If you enjoy this newsletter, consider giving one-time on our website, PayPal or Venmo (@nicoleacardoza), or subscribe for $5/mo on our Patreon.

– Nicole

TAKE ACTION

Explore how racial disparities affect the income tax system in this interactive Form 1040, via the Tax Policy Center.
Review the tax policies of both Presidential candidates
Consider: How has generational wealth impacted your life today? What experiences would change based on your family's generational wealth?

GET EDUCATED

By Nicole Cardoza (she/her)

Yesterday the New York Times released President Trump’s tax information. The comprehensive report leads with news that Trump paid $750 in federal taxes in 2016 and 2017 (NYTimes). In a press conference response, Trump called these allegations a lie and that the “IRS does not treat me well” (NYTimes). But when we zoom out at the history of federal taxes in the U.S., I think it’s more accurate to say that “the IRS does not treat” marginalized communities well, not billionaires. And part of this is because of the racism embedded in our tax code.

Let’s start with our federal tax. Generally speaking, it reduces racial disparities by taxing the wealthy more than the poor and investing tax revenue into programs that support lower-income communities. But the apportionment of these taxes is rooted in slavery. Back then, to determine the number of seats per state in the House of Representatives, the Framers recommended apportioning them based on population size. This put the North and the South in conflict because population sizes varied greatly in each area. Many citizens were living in the North – consisting of urban areas with a high density of people. In contrast, the South had fewer free people spread across high-acreage farms.

However, the South had significantly more enslaved people in the North, and they considered them “valuable property” that could be leveraged for more representation. So, the South fought that free and enslaved people should count towards population size. The North fought to make representation dependent on the size of a state’s free population. Ultimately, the Framers agreed to the “three-fifths compromise,” the abhorrent decision that representation in Congress was based on a state’s free population plus three-fifths of its enslaved population (Britannica).

But this meant that taxes would be applied the same way. So the Apportionment Clause, written by delegates at the Constitutional Convention in 1787, emphasized that “representatives and direct taxes shall be apportioned among the several States” (The Conversation). This meant that even though Southerners may have more people counting towards their representation, their taxes wouldn’t scale significantly because of it. That was a real fear of many people during the time; about 40% of the population were enslaved people (Forbes).

The decision to use apportioned tax regulations to protect Southern states from higher taxes has prevented more progressive tax reform. This same argument has been used to block a federal tax proposal on the wealthy in 1894 and, over 100 years later, question the legitimacy of wealth taxes proposed by candidates in this election (NPR). Some argue that because this apportionment no longer applies, taxes should be redefined to address the wealth gap (Center on Budget and Policy Priorities).

It also enabled significant wealth creation for Southerners that enslaved people. It allowed them to benefit from the labor of enslaved people with marginal tax implications. Economists Emmanuel Saez and Gabriel Zucman argue that this mentality is a driving force of the anti-taxation sentiment present in today’s society, particularly against the wealth (Forbes).

Not only does our current tax code inadequately address the wealth gap, it also doesn’t reflect the systemic racism and discrimination that exacerbates it. Our federal tax liability is influenced by things like our income, savings, and what we spend on a mortgage or education. But the opportunities to spend and earn in these aspects of society aren’t equal. People of color have historically been paid less, are less likely to have savings, often declined from mortgage opportunities, and less likely to be accepted into college – among other things (Center on Budget and Policy Priorities). Our work income is also taxed more highly than our income from wealth, but people of color have been systemically disadvantaged in building wealth throughout their lifetimes.

State taxes aren’t much better. In fact, the report from the Center on Budget and Policy Priorities argues that they increase income inequality. States make most of their money through regressive taxes: taxes that have an increased burden on lower-income communities. These taxes include sales taxes, property taxes, and excise taxes. It doesn’t matter if you make $10,000 or $10million a year, you’ll pay the same amount of taxes*. But its impact is more considerable on those that have less to spend. (Center on Budget and Policy Priorities).

*There’s research that shows that people of color, particularly Black people, often pay more in property tax than their neighbors due to the systemic racism in real estate. But that’s for another newsletter.

Lower-income people are more likely to be audited too. It’s easier than going after wealthy business owners and corporations with confusing (and often evasive) revenue streams and assets (Popular Science). And funding cuts at the IRS have encouraged auditors to choose cases that require less bandwidth. Ironically, these wealthy constituents – who are overwhelmingly white – are the most likely to have unpaid taxes (Center on Budget and Policy Priorities).

To offset this lack of bandwidth, the IRS started a program to outsource tax collection to private firms. These private companies are empowered to act under the IRS to recoup lost revenue from tax payments and get to keep a percentage of what’s earned for themselves. And most of the taxpayers targeted are low-income. A report from the Taxpayer Advocate, an independent organization within the IRS that represents taxpayers, found that 33% of funds collected by private firms in 2017 came from Americans facing “economic hardship” (Washington Post). The IRS has programs designed to protect low-income earners from getting overwhelmed with tax debt, but private companies are financially incentivized to get any dollar they can. And private debt collection has a long history of racial discrimination (ACLU).

But the most shocking part of all this (to me, at least) is that the IRS doesn’t even collect racial data. So although we can infer how the tax codes affect communities of color, there is no hard data, and tax law decisions may not consider these disparities (Popular Science). It might be for the best; you could argue that more discriminatory practices could be applied because of this added information. But on the other hand, it would illuminate more spaces where we can create a more inclusive economic structure that supports us all. Even if the data isn’t captured, it’s clear that racism and racial bias has shaped the tax code we see today.