The US Department of the Treasury estimates that 92 percent (PDF) of the tax value of the preferential rates on long-term capital gains and dividends went to White families in 2023. Recent research shows that capital gains have helped widen the racial wealth gap since the 1980s.
To help ensure tax policy doesn’t further exacerbate racial disparities in wealth and income, policymakers could tax all capital gains, including inherited assets, at the same rates as income from wages and salaries.
2. Target homeownership tax subsidies toward first-time homebuyers and taxpayers with low incomes.
In the US, homeownership is one of the most common ways families build wealth. Several tax breaks are designed to reduce the cost of homeownership, such as deductions for mortgage interest payments and local property taxes, and an income exclusion for profits made selling primary residences.
Because of racial and ethnic disparities in homeownership, these tax breaks end up disproportionately benefiting White families. In 2022, 73 percent of White families owned homes, compared with 51 percent of Latine families and 46 percent of Black families. And homes owned by Black families are valued lower than those owned by White families.
Today’s racial homeownership gap reflects centuries of racist policies and practices—such as residential segregation, discriminatory government and private-sector lending practices (PDF) against Black residents, the murder and displacement of Native Americans, and laws prohibiting Asian immigrants from purchasing land—that have severely limited access to homeownership for families of color.
Evidence suggests these tax subsidies have likely not increased homeownership. Instead, they have supported those with middle and higher incomes who are already more likely to own homes and spend more on housing.
To advance racial equity and help families of color build wealth through homeownership, policymakers could consider targeted income tax breaks for first-time homebuyers and taxpayers with low incomes.
3. Make tax credits for families more inclusive.
Each year, the child tax credit (CTC) and the earned income tax credit (EITC) lift millions of people out of poverty, delivering thousands of dollars in tax refunds to eligible families. Combined, these credits disproportionately benefit families of color (PDF).
However, these credits could deliver more benefits to families with the lowest incomes. Both credits are designed to phase in with earnings and phase out as income rises. The CTC also has a minimum earning requirement of $2,500. Families with complex living arrangements and mixed immigration statuses can face added barriers in qualifying for the EITC.
In 2022, nearly 19 million children did not receive the full CTC ($2,000 per child) because their families earned too little. In effect, the minimum earning requirement and phase-in of benefits act as a form of work requirement—often reflecting racially biased ideas of poverty and “individual deservingness.” These design choices can prevent grandparent caregivers, parents with disabilities, and parents unable to access child care from receiving CTC benefits.
