CBx Daily

Here’s Why Taxes Are Still A Sunken Place For African Americans

May 17

By CultureBanx Team

  • Over 40% of Black Americans make less than $30K per year, putting them at an income disadvantage if taxes are not filed correctly
  • Ordinary income, like wages, tend to be taxed between 10% to 37% depending on the amount

It's tax day folks and the process of preparing them can be difficult if not arduous, even though for several years now the IRS has advocated for a free filing system to make it easier for Americans to complete them. Over 40% of Black Americans make less than $40,000 per year, putting them at an income disadvantage if taxes are not filed correctly, as tax policy adds insult to injury by magnifying the financial toll of Blackness. However, with the adoption of new tax legislation in 2019 the filing process is destined to stay complex, becoming a win for the tax preparation industry, while keeping Black people in a sunken tax place.

Why This Matters: Local taxes tend to be flatter, eating up more money from lower-earning households as a proportion of their income. Not to mention that Black taxpayers also face tax rules that, some observers say, keep the gap between Black and white wealth wide. “The tax code amplifies those disproportionate gaps that already exist, based on the way our economy works and the way our society treats African Americans,” said Wilton Hyman to MarketWatch.

Here’s the kicker, ordinary income, like a wage, is taxed between 10% and 37% depending on the amount. Capital gains, such as stock sale proceeds, are taxed between 0% and 20%, with some exceptions. Lower rates are a good deal for those playing the markets, and white stock market investors are more common than their Black counterparts. In fact, 64% of white participants in a Gallup Poll said they owned stock, compared to 42% of Black and 28% of Hispanic people.

Additionally, it's important to note that people who claim the Earned Income Tax Credit (EITC) that helps low- and moderate-income households, are more likely to get audited. The U.S. census found that in 2018, the EITC, combined with the child tax credit, kept 8.9 million people out of poverty.

Specifically, for this tax year, the maximum credit ranges from $529 for a taxpayer with no qualifying children to $6,557 for those with three or more. Black and Latinx taxpayers combined are 40% of all those who are eligible for the credit, according to the Brookings Institution.

Situational Awareness: Even if more Black people were able to tap into the aforementioned tax saving opportunities, the 2019 Taxpayer First Act prohibits the IRS from creating a free online filing system. If a free tax system was established people of color could be alleviated of this burden, possibly with a sizable return. Tax industry giants H&R Block and Intuit, Turbo Taxes parent company, brought in $2.6 billion and $7.7 billion respectively in revenues during their fiscal 2020 year. The more complex the tax filing process becomes, the more revenue that can be generated, and these companies have been making bank while keeping some in a very sunken place.

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