In America, there’s a chasm between the wealth of white and Black families. It didn’t happen by mistake.
A combination of societal discrimination, government programs that benefited white families and excluded Black Americans, and outright theft of property in places like Tulsa has made it hard for Black families to move up the economic ladder and amass the real estate, cash, investment accounts, and other assets that make up the wealth of white families.
A spotlight on this disparity has led to a growing movement to close the racial wealth gap. And one group of lawyers has a proposal to do just that: Use the tax code to generate funds for reparations and pay back the government’s debt to its Black citizens.
3 lawyers see a path to start closing the racial wealth gap
American College of Trust and Estate Counsel
Sarah Moore Johnson, an estate planning lawyer who works with ultra high net worth individuals and a founding partner at Birchstone Moore in Washington DC, became president of the Washington, DC Estate Planning Council three weeks after George Floyd was murdered in 2020.
Moore, who is white, wanted to do something to increase diversity in her profession. So, she joined the diversity committee of the American College of Trust and Estate Counsel (ACTEC). Then, during a meeting that was, she says, “getting kind of raw and very emotional,” she had an idea: Use the federal estate tax proceeds ($17.6 billion in 2020) to pay reparations to Black Americans.
Moore soon connected with Ray Odom, a Chicago estate and tax planning attorney who works at Northern Trust and is an ACTEC fellow. Odom, who is Black, had been researching reparations.
“My major opposition to the concept of reparations was never its legitimacy or necessity,” he says. “My objection was, they haven’t made that much money yet.” It’s an objection that others have raised: Where will the US Treasury find enough money to repay the enormous debt owed to the descendants of formerly enslaved people and those affected by institutional discrimination in the years since?
Odom brought Phyllis Taite, another ACTEC fellow and a law professor at Oklahoma City University, into the conversation. Taite, who is Black, has studied the foundations of the racial wealth gap enshrined in the US tax code.
40 acres and a mule: How the racial wealth gap was built
At the end of the Civil War, the US government promised formerly enslaved people 40 acres and a mule to give them a foundation for starting life as free people. But this became the first in a long line of broken promises to African Americans. Though some of the parcels were given out, Andrew Johnson rescinded the order granting this restitution after Abraham Lincoln’s assassination and took back the land.
Since that time, Taite notes, the government has written laws that have kept the gap between the wealth held by Black and white families wide. For example, the mortgage interest deduction is a government expenditure where the government willingly gives up revenue to subsidize homeownership. Yet, she says, “The people who benefit the most are the ones who need the least amount of assistance.”
A 2021 report by the National Low Income Housing Coalition estimated that the equitable share of this benefit that should flow to Black households based on population proportion is 12.5%, but the actual proportion is less than two thirds of that — just 7.7%.
And a 2020 Federal Reserve study found that the difference between the median wealth of white households ($188,200) and Black households ($24,100) was $164,100. The same study found that Black families had the lowest rate of homeownership of any racial or ethnic group in the US, at least partly due to a history of government redlining. That means capital gains exemptions for the sale of a home and property tax deductions are other tax benefits designed primarily to benefit wealthier, white Americans and exclude Black Americans.
Plus, the legacy of housing discrimination continues: A 2018 Brookings study found that homes in Black neighborhoods were undervalued by an average of $48,000 compared to similar homes in majority-white areas, reducing the value of what is most families’ largest asset. (“The Case for Reparations,” Ta-Nehesi Coates’ 2014 Atlantic article, is essential reading for a a moving and detailed examination of the effects of housing discrimination and other obstacles to wealth creation on Black families.)
Tax breaks on housing aren’t the only benefits where Black families are shut out. For example, Social Security was created to deliberately exclude most Black workers from the system.
“There’s a government responsibility to make this right because the government has played a role in creating this problem,” Taite says, adding that she is investigating “all the different ways in which the government has systematically kept Black wealth from generating while facilitating white wealth.”
How changing the tax code could help close the racial wealth gap
The proposal from Odom, Johnson, and Taite would add several elements to the tax code to generate funding for reparations.
First, they would dedicate the proceeds of the estate and gift tax to reparations. Odom points out that the estate tax was created during the Gilded Age to prevent the accumulation of wealth in a few families. “In free market capitalism, you need to have wealth flowing based on efficiencies, talent, and work,” he says. “You can’t have wealth that flows and gets aggregated in family lines but never reenters the broader market or society.”
The estate tax has been altered and amended over time, undermining its original purpose of preventing the concentration of wealth. In 2001, the amount someone could pass to their heirs before the 40% estate tax kicked in was $675,000 (a bit over $1 million in today’s dollars). Today, the first $12.06 million passes untaxed (though Johnson notes that this exemption will be cut in half in 2026 when tax cuts passed in 2017 expire).
Still, the origin of the estate tax as a way to redistribute wealth makes it an ideal vehicle to fund reparations. Though the total proceeds of $17.6 billion (for tax year 2020) are likely a tiny fraction of the amount needed to repair the harms done to Black Americans, Odom and Johnson feel it’s an excellent place to start. (Taite supports the idea but objects to tying the estate tax directly to reparations because, she says, “The next thing you’ll see Congress do will be to abolish the estate tax.”)
But the group’s proposals don’t end with the estate tax. They envision a new type of charitable organization: a 501(c)40 (a nod to the promised 40 acres). Nonprofits established under the new code section would take on various reparative activities, including direct payments, scholarships, and other programs. To incentivize these donations, they propose that the government increase the percentage of income someone can donate tax-free from 60% to 100%.
Johnson explains the reasoning behind this incentive: “It’s not exactly a charitable contribution — it’s paying down a government obligation.” Therefore, she says, it makes sense for the government to give up extra revenue in exchange for these donations.
Another part of the proposal would grant wealthy people another dollar to pass to their heirs without estate or gift tax for every dollar donated to a 501(c)40 organization.
And individuals could set up untaxed 501(c)40 accounts similar to the 529 plans used to save for college. Johnson envisions private citizens using these accounts to transfer up to $160,000 — the amount of the racial wealth gap — to people harmed by American slavery and its aftereffects. For example, if someone discovered that their ancestors had owned humans, they could use this type of account to transfer money to descendants of those enslaved people.
Senior Editor, Digital Manager, Blogger, has been nominated for awards several times as Publisher and Author over the years. Has been with company for almost three years and is a current native St. Louisan.
