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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. (see, e.g., Blanton 2023; Collyer, Harris, and Wimer 2019; Fields, Perry and Donoghoe 2023; Cale et al. 2018; Holtzblatt, McClellan, and  Garriga 2024; and Wiehe et al. 2018.)

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.

Background

The Tax Cuts and Jobs Act (TCJA) of 2017 transformed the Internal Revenue Code. For individuals, the TCJA temporarily changed income tax rates, and dropped some deductions, credits, and exemptions, while substantially changing others. For businesses, the TCJA temporarily lowered effective tax rates for pass-through entities, changed corporate deductions and credits, and permanently cut the corporate tax rate. For multinational enterprises (MNEs), Congress made substantial changes to the international tax system, moving MNEs away from a citizenship-based model and toward a territorial tax system.

When Congress enacted the TCJA, the Joint Committee on Taxation (JCT) estimated that it would reduce federal revenues by $1.46 trillion, including $653.8 billion in tax benefits to businesses, $1.13 trillion in benefits to individuals, plus $324.4 billion in increased tax revenues from international tax reform (Congressional Research Service 2018). Beyond revenue effects, the JCT also concluded that the law would help high-income taxpayers most, providing them with the largest percentage increase in after-tax income, especially taxpayers in the $500,000 to $1 million annual income range. Further, the JCT estimated that, for low-income taxpayers earning $40,000 or less, the TCJA would reduce after-tax income in 2023 and beyond, and for those earning $75,000 or less, the TCJA would reduce after-tax income by 2027 (CRS 2018).

The tilt of the TCJA’s benefits towards higher-income Americans, and the JCT’s finding that after-tax income would decrease for lower-income taxpayers, are driven primarily 1See, e.g., Blanton 2023; Collyer, Harris, and Wimer 2019; Fields, Perry, and Donoghoe 2023; Gale et al. 2018; Holtzblatt, McClellan, and Garriga 2024; and Wiehe et al. 2018. by five factors (CRS 2018). First, although the law temporarily increased the standard deduction and doubled the Child Tax Credit, those provisions expire after 2025. Second, the law included a permanent change in how the Internal Revenue Service (IRS) adjusts tax provisions for inflation, which tends to increase tax burdens over time, especially for lower-income taxpayers (CRS 2014). Third, the changes to the deduction for pass-through business income, which expire in 2025, mostly benefited high-income Americans. Fourth, the permanent reduction in the corporate tax rate primarily went to high-income taxpayers (CRS 2017).

Finally, the after-tax income reductions for the lowest-income Americans are complicated by the TCJA’s elimination of the fee for failure to carry health insurance (commonly referred to as the Individual Mandate), which the Affordable Care Act (ACA) established in 2014 (Kaeding 2017; CRS 2020). The JCT hypothesized that fewer taxpayers would buy insurance on public health insurance exchanges, reducing the government’s expenditures for health insurance subsidies for lower- and middle-income taxpayers. Thus, although the penalty elimination looks like a tax cut, it is more than offset by the loss of government subsidies. For example, in 2017 alone, the Congressional Budget Office (CBO) estimated the government subsidies to help individuals purchase health insurance at $5,550 per person (2017). In the same year, the average reported Individual Mandate penalty was $788 (Ashe 2021, Table 1). The difference between the two is a $4,712 loss of government benefits per person.

History shows that the JCT’s estimates were overly optimistic. Instead of TCJA giving away $1.46 trillion of federal tax revenue by 2027, as early as April of 2018—just four months after the law went into effect—the CBO opined that revenues would fall $600 billion more than the original JCT estimate. The biggest reason for these larger losses were falling tax revenues from corporations and pass-through businesses (Page 2019).

From 2018 onward, the TCJA gave taxpayers in the lowest quintile a whopping extra $70 per year (Tax Policy Center 2017). That $70 does not include the $4,712 loss per person of government benefits resulting from the end of the Individual Mandate. Because the lower subsidies affected this income group most, the TCJA did not help this group at all (Marr, Jacoby, and Fenton 2024). In fact, in this income category, the TCJA likely harmed more people than it helped. Not far behind, households in the second quintile gained $390 per year from the TCJA (or between 0.7 percent and 1.4 percent of income, depending on where the taxpayer fell in the quintile) while the middle quintile received $910 (between 1 percent and 1.7 percent of income) (Marr, Jacoby, and Fenton 2024). Black households are overrepresented in these three income groups: In 2021, median Black household income was $48,297; two-thirds of all Black households fell under $75,000, and three-quarters made less than $100,000 (Semega and Kollar 2022; Guzman and Kollar 2023, Table A-2). Based on income distributions alone, Black taxpayers did not thrive under the TCJA. 

In 2018, 80 percent of all TCJA tax benefits went to white households (Wiehe et al. 2018, 5). On average, white households received more than twice as many tax cuts as black households. Among the top 1 percent, the black/white difference was even greater: Wealthy white households gained $52,400 per year from the TCJA, while wealthy black households received just $19,290 (Wiehe et al. 2018).

Black America and the Internal Revenue Code

Unfortunately, it does not “go without saying” that black America is not intractably indivisible and uniform. In this study, I look at black people as taxpayers. I begin the investigation based on income groups, and then ask:

1. How will the TCJA changes affect the entire income group regardless of race?

2. Do black people in this income group differ from other taxpayers in a way that might make IRC changes more (or less) impactful for black America?

Consider the home mortgage interest deduction. The TCJA temporarily reduced the value of the deduction for high value homes (Harrison 2021). Holtzblatt, McClelland, and Garriga (2024) surmise that the home mortgage interest deduction under the TCJA helps black families about half as much as the “average.” Yet it gives white families a 21 percent boost in tax savings over black and Hispanic families that will continue even when the reduction in the home mortgage interest deduction reverses in 2026. (Their estimates are based on the 2019 TCJA’s lower income tax rates, higher standard deduction, and $10,000 cap on state and local tax deductions.)

Why does the home mortgage interest deduction help white taxpayers twice as much as it helps black taxpayers? The home mortgage interest deduction only aids taxpayers who(1) own a home, (2) pay mortgage interest, and (3) use itemized (Schedule A) deductions rather than the standard deduction—all traits that are more likely to apply to white taxpayers than black taxpayers.

Black people are less frequent homeowners. Although the US homeownership rate increased to 72.7 percent in 2021, the rate among black Americans was only 44 percent (National Association of Realtors 2023). The 28.7 percent gap between the black ownership rate and the white ownership rate is the largest black-white homeownership rate gap in a decade (NAR 2023). Black people are less likely to own homes than white people for a variety of reasons, including lower income and wealth (Oliver and Shapiro 2006; Perry, Stephens, and Donoghoe 2024; US Department of Labor n.d.), racial discrimination in the housing market (Massey and Denton 1998), racial discrimination in lending (Martinez and Kirchner 2021), and residence in banking deserts (Havard 2020). Further, Black people are less likely to marry (JBHE 2022; Horowitz, Graf, and Livingston 2019), and marriage is highly correlated with home ownership (Peter 2023). 2 Their estimates are based on the 2019 TCJA’s lower income tax rates, higher standard deduction, and $10,000 cap on state and local tax deductions. 

Black people are also less likely to itemize deductions. Especially since the TCJA—but even before, and most likely after—most taxpayers favor the standard deduction. Only high-income taxpayers are more likely to itemize than not (TPC 2024a). In 2020, more than half of all tax returns with an adjusted gross income (AGI) over $500,000 itemized deductions, compared with 11 percent of tax returns with an AGI between $50,000 and $100,000 and just 2 percent of returns with an AGI under $30,000 (TPC 2024a). Ninety percent of individual returns did not itemize in 2020 (TPC 2024a).

The home mortgage interest deduction helps high-income taxpayers more than any other income group (Glaeser and Shapiro 2003). Indeed, almost half of all mortgagors receive no tax benefit at all from the home mortgage interest deduction (Fischer and Huang 2013). Those homeowners are mostly in the lower-income quintiles (Fischer and Huang 2013).

In 2022, black households had a median annual income of $52,860 (Peter G. Peterson Foundation 2023). Only 25 percent of black households earned more than $100,000 and only 6 percent made more than $200,000 (Guzman and Kollar 2023). In contrast, white households had a median household income of $81,060 (Peter G. Peterson Foundation 2023). Thus, we would expect all people in the lower income quintiles to receive small or no benefits from the home mortgage interest deduction regardless of race. Nevertheless, low-income black people are even less likely to receive a benefit than their low-income white counterparts.

Notwithstanding Holtzblatt, McClelland, and Garriga’s (2024) findings, and all of the reasons black taxpayers as a group get little from the home mortgage interest deduction, the Office of Tax Analysis found that the deduction favors upper-middle income black and Hispanic families relative to white families (Cronin, DeFilippes, and Fisher 2023). Although the authors did not explore why their study showed that the home mortgage interest deduction favors high-income black and Hispanic taxpayers, they suggest that black and Hispanic homeowners face higher interest rates or have higher debt-to-value ratios than white families with similar incomes (Cronin, DeFilippes, and Fisher 2023). Another difference between white and black homeowners is that black people pay higher property taxes than white people (Fields, Perry, and Donoghoe 2023). Any of these factors would produce higher mortgage interest and state and local tax payments, and so greater itemized deductions.

The Office of Tax Analysis study’s finding that high-income black people are tax advantaged by the home mortgage interest deduction illustrates the importance of looking at tax provisions by income groups, and of studying black taxpayers within each group. Nevertheless, the Office’s findings that high-income black people are tax advantaged by the home mortgage interest deduction is not enough to turn this provision into a pro-black taxpayer Code section.

Most black taxpayers do not itemize. Oddly enough, the same is true for other Americans outside of the wealthiest 20 percent. Homeowners in the bottom three quintiles, black or white, often get no benefit from the home mortgage interest deduction. Therefore, from a class perspective, most Americans are not served by the home mortgage interest deduction. Add that most black people do not own their own homes and it becomes clear that black taxpayers as a group are not getting enough out of the home mortgage interest deduction to make it a hill for policymakers to die on—even if some high-income black people are advantaged.

One criticism of a research approach centered on the ways specific tax benefits do (or do not) benefit black taxpayers is that it will lead to recommendations that advantage black people over their white counterparts. But that is not the intent—rather, the point is to recognize that black people live with economic disadvantages that are not of their making, and that the public does not support. To the extent that the tax system is one of those disadvantages, it is worth understanding it and considering alternatives. It is also worth noting that there is great income and wealth inequality in the United States (CBO 2021; Urban Institute 2024; Chancal et al. 2022), (Between 1979 and 2018, average income, both before and after means-tested transfers and federal taxes, grew for all quintiles, but it increased most among households in the highest quintile.) and because this analysis focuses on the lower three income quintiles, its insights provide direction on how the IRC can avoid making those problems worse for everyone.

To read the full report, including Provision by Provision Changes Click HERE

Conclusion

In a “Black Critique of the Internal Revenue Code,” William Whitford and I (1996) hypothesized that a black Congress would not have passed the many provisions we identified that led to a higher tax burden for black taxpayers. Today, I must ask: Why is Congress treating everyone below the top 1 percent so poorly? When we look only at howblack taxpayers fare under the IRC, we could believe that the reason for tax burden disparities is that white legislators do not know how black people live—that they shape tax laws for their (majority) white constituents, and that there are too few black representatives and senators to make a difference. But what politician, even from Beverly Hills, Fifth Avenue, or the Gold Coast, represents only 1 percent? Whenthe trickle-down theory first took off in the 1980s, the argument was that tax cuts lift all boats. After 50 years, no one can continue to make this claim—yet they still do. At the end of the last century, William Whitford, and I predicted that racial income and wealth inequality would spread to the rest of the nation, because black people are the canaries in the coal mine. When we wrote, white couples were more likely to have a marriage bonus than a penalty. That has changed as more married white women entered the labor market. When we wrote, white taxpayers still received help from itemized deductions in a way that far fewer white taxpayers benefit from today. Thus, there should be more political support for ending the itemized deductions for the benefit of the deficit and for tax simplification. When we wrote, the idea of black/white wealth disparities was just being introduced. Now, these disparities, as well as wealth disparities in general, are common knowledge. Thus, another opportunity for political change.

I am sorry to learn we were right about the inequities in the IRC spreading out to other taxpayers. Still, the country is much more aware of income and wealth disparities than it was when we first entered this field. Even the Treasury Department now recognizes the many ways that the IRC and the tax collection and auditing system hurt black Americans. With this expanded knowledge base, Americans must finally demand that our legislators create tax laws that support us as a whole,

Beverly Moran is professor emerita at Vanderbilt University, senior fellow at the Roosevelt Institute, and Paulus Endowment senior tax fellow at Boston College Law School. Her work focuses on various aspects of federal income taxation, including individuals, partnerships, tax-exempt organizations, and corporations. A leading authority on US tax law, Beverly has testified before the House Ways and Means Committee on the proliferation of US tax havens and the Black Congressional Caucus on the race impacts of the Internal Revenue Code. Her work is extensively cited in the recent Treasury report on the race aspects of US tax laws.

Beverly’s interdisciplinary and multidisciplinary work encompasses topics ranging from legal philosophy (“Capitalism and the Tax System: A Search for Social Justice“), critical race theory (“A Black Critique of the Internal Revenue Code”), legal education (“Revisiting the Work We Know So Little About: Race, Wealth, Privilege, and Social Justice”) and more. Over the course of her career, she has won a number of teaching awards and grants, including a Fulbright award and grants from the Annie E. Casey Foundation, the Rockefeller Foundation, International Rotary and the Ford Foundation. Beverly holds a master of law degree (LLM) in taxation from New York University School of Law; a JD from the University of Pennsylvania, Carey School of Law; and an AB from Vassar College.

The author thanks Leon Trakman and Catherine Deane for their feedback and insights. Elizabeth Pancotti, Elly Kugler, Sonya Gurwitt, Oskar Dye-Furstenberg, and Aastha Uprety also contributed to this brief.

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