When Tax Policy Discriminates: The TCJA’s Impact on Black Taxpayers

Introduction

In 1986, the Internal Revenue Code (IRC) changed so much that even its name went from Internal Revenue Code of 1954 to the Internal Revenue Code of 1986. Its modifications included taxing capital gains at the same rate as ordinary income, ending the interest deduction for personal loans (including interest for credit card debt and education loans), an accelerated depreciation system that was so generous that it returned more in tax benefits than the depreciated items cost, a drop in the top tax rate for individuals from 50 to 28 percent coupled with a rise in the bottom rate from 11 to 15 percent, and increased amounts for personal exemptions and the standard deduction. The 1986 Code also introduced inflation adjustments, strengthened the alternative minimum tax, reduced the corporate tax rate (from 50 to 35 percent) reduced certain business expenses (such as business meals, travel, and entertainment) and restricted others (Winfrey 2023).

In the 1990s, William Whitford and I studied the IRC of 1986 to see if it taxed black people more harshly than white people. When we first proposed our study, we received the harshest blowback of our careers. We were mocked by nearly every reviewer: How could a neutral law have any racial effects? Civil rights laws had racial implications, of course, but that is where it stopped, and we were fools to think otherwise. Tax returns do not code for race. So, why would anyone study race and the IRC? 

This was at the beginning of the critical race theory (CRT) movement. At that time, CRT relied a great deal on storytelling as a way of exposing hidden racial discrimination, and certainly we could have drawn on our own and others’ stories to illustrate our points. But instead, we were determined to do a study that was so strong and careful that the worst racist could not challenge our findings. We used the Survey of Income and Program Participation (SIPP)—a notoriously difficult database to work with—to construct tax returns for a wide variety of people who were the same in terms of their marital status, number of children, education, urban or rural location, and a host of other factors. 

We found that black taxpayers who looked like their white counterparts in terms of these and other demographic factors paid higher taxes because the IRC favors certain behaviors and benefits that are closed to black people. For example, black people were then (and are now) less likely to receive valuable employer-provided tax benefits such as the opportunity to save for retirement tax-free, up to $50,000 of tax-free life insurance, and reimbursement for employee business expenses. A long history of federal government actions created and sustained redlining, making black people less likely to own homes and thus barred from receiving the home mortgage interest deduction and the deduction for state and local taxes, while also making it more difficult for black taxpayers to escape the standard deduction to get the benefit of other itemized deductions through IRS Form 1040 Schedule A. A long American history gave white people wealth while it made black people property, and so kept the benefits of the capital gains rate from Black taxpayers. The list of inequalities was extensive and, in the end, we inspired a generation of scholars to produce quantitative research on racial tax disparities.¹ 

The IRC changed dramatically again when Congress passed the Tax Cuts and Jobs Act (TCJA) in 2017. I believe that the only reason the TCJA did not become the Internal Revenue Code of 2017 is that so many of its provisions were intentionally written to expire in 2026. We should remember, however, that the Bush tax cuts were also set to expire but never did. Instead, they blew a hole in federal revenues that never healed (Horton 2017). Now, it appears that the TCJA has done even more damage to the deficit than the Bush tax cuts and might follow its lead and stick around. Even if all the provisions that are set to expire do, the TCJA has a host of permanent provisions that increase income and wealth disparities while also worsening race and class injustice.

Below is the story of the TCJA, told through the work of a host of scholars dedicated to the ideal of producing work so exemplary that even the worst racist must stand down.

The TCJA And Black Taxpayers: A Summary

The TCJA is a poisoned tree planted in poisoned ground. As William Whitford and I demonstrated in 1996, the 1986 IRC was rife with rules that harmed black taxpayers. This brief shows that the TCJA just made things worse.

Footnotes and Suggested Citation