The Tax Code’s Color Line

The median white family in America has a net worth of about $285,000. For Hispanic families, it's $62,000. For Black families, $45,000. That gap wasn't an accident — it was built by centuries of policy decisions on property, lending, and who got access to what.

The tax code widens it. Not by targeting anyone, but by taxing wealth at a much lower rate than work. If your income comes from stocks and investments, the top rate is 20 percent. If it comes from a paycheck, you can pay nearly double that. The U.S. Treasury found that 92 percent of the benefits from those lower capital gains rates go to white families.

So the families who already have the most wealth get the best tax rates. And the families who depend on wages — disproportionately Black and Hispanic — pay more on every dollar they earn. The tax code doesn't mention race. It doesn't have to. It just rewards what you already have.

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The racial wealth gap. The Federal Reserve's 2022 Survey of Consumer Finances found median net worth of $285,000 for white families, $61,600 for Hispanic families, and $44,900 for Black families. The typical white household had about six times the wealth of the typical Black household and five times that of the typical Hispanic household. While Black wealth grew 61% and Hispanic wealth grew 47% between 2019 and 2022, the dollar gap actually widened by ~$50,000 during the same period. (Federal Reserve; CNN; Brookings)

How the gap was built. The wealth gap is the cumulative result of centuries of discriminatory policy: slavery, Jim Crow, redlining (FHA explicitly refused to insure mortgages in Black neighborhoods from the 1930s-1960s), blockbusting, discriminatory GI Bill implementation, exclusion from Social Security and minimum wage protections for domestic and agricultural workers (disproportionately Black), and ongoing disparities in lending, hiring, and education funding. (Brookings; NEA)

The capital gains tax break and race. The U.S. Treasury's Office of Tax Analysis (Working Paper 122, January 2023) found that white families — 67% of all families — receive 92% of the benefits from preferential tax rates on long-term capital gains and qualified dividends. Only 2% goes to Black families and 3% to Hispanic families. The average family benefit from preferential capital gains rates is nine times higher for white families than Black families and eight times higher than Hispanic families. The total cost of this tax expenditure: $146 billion in 2023, of which $135 billion went to white families. (Treasury OTA Working Paper 122; Treasury FY2025 Budget; Urban Institute; ITEP)

Two tax rates for two kinds of income. Long-term capital gains and qualified dividends are taxed at a maximum of 20% (plus 3.8% net investment income tax for high earners). Ordinary income from wages is taxed at rates up to 37% (plus payroll taxes). This means income from wealth is taxed at roughly half the rate of income from work. Because white families hold a much larger share of financial assets (stocks, bonds, business interests), they benefit disproportionately from this lower rate. Capital gains comprised nearly 8% of white families' income but less than 1% for Black and Hispanic families. (Tax Policy Center; CBO)

The class mechanism with racial consequences. The script's reframe is important: the tax code doesn't target Black families. It targets workers. But because of centuries of policy that determined who got to accumulate wealth, a tax code that favors wealth over work hits Black and Hispanic families hardest. The racial impact is real, but it's downstream of the class mechanism. As ITEP notes: "99 percent of Americans of all races receive little or nothing from the lower rate for capital gains and dividends." The benefits flow overwhelmingly to the richest 1% — who are overwhelmingly white. (ITEP)

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