Institutional Racism & Our Tax Laws
Hi, I’m Alyssa Maloof Whatley. I’m an Atlanta based tax attorney and legal educator.
I spend a lot of my time educating my fellow colleagues on the law and I thought it would be a great opportunity to help some of you understand institutional racism, specifically in tax.
Why I Created This Video
I was inspired to create this video because I had seen other professions, such as the medical profession share their experiences of how people of color are affected in their areas of practice and what we can do to help educate ourselves about that disparity and how people of color are treated in our institutions.
400 Years of History
In order to talk about institutional racism, specifically in tax, we have to go back about 400 years to look at the history of our laws and how they have changed for people of color. So, sadly in America we have has a history of slavery, and this has still created issues for people of color today. And in order for us to connect all those dominoes we have to see how the law has changed and evolved from being overtly racist to covertly racist.
And so, when we’re talking about overtly racist, right we started out with slavery and then we got the 13th amendment to abolish slavery, but in that they left a small prevision that people could be forced into work if they were in prison, I would encourage anyone, if you haven’t see 13 on Netflix by Ava DuVernay… I watched it last night and it was amazing and it helps explain how all these little things are connected.
With each step, we become less overtly racist and become more overtly racist, and it’s embedded in our laws and is very difficult to see. For example in constitutional law, if we had a law that was overtly racist, that would be easy to challenge. So when we make changes to the law that are just specific enough to cause a disparity in the result, that is where we are having an issue and further dividing the gap between white Americans and people of color.
Laws That Create Disparities
Specifically when President Nixon was involved. This is when you can really see that it’s not explicit. They’re not saying they are doing this to hurt people of color. The laws in themselves create disparities that hurt people of color.
President Nixon’s advisor, he says specifically in the Nixon campaign of 1968, that they had two enemies, “the anti-war left and black people. We knew that we couldn’t make it illegal to be either against the war or blacks, but getting the public to associate hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities.” This is an example where you see something, they’re not overtly saying it, but if we become tough on crime and we criminalize certain communities, certain groups of people, the end result is that they are harmed. It’s not overtly racist, it’s covertly racist.
And this continues through Reagan’s election. I think what really bothered me, and again I was listening to these people, they are quote on the video, you can hear them say these things, and they didn’t know that these things were going to come out eventually, but one of the ones that really bothered me was Lee Atwater, who worked on Reagan’s campaign, and this is what he specifically said, and it impacts me and it all goes back to tax.
He says “racial slurs could be used to describe black Americans, but then that backfired”, so it wasn’t enough, we didn’t have slavery anymore, they could use that, they couldn’t use racist slurs, that backfired. He said “it requires you to use abstract language. Now you are talking about cutting taxes and all those things that are totally economic things, and a byproduct of them, blacks get hurt worse than whites.”
Right? And so now you are starting to make these connections. It’s not overt. It’s covert. Right? And it seems like we’re just talking about the economy and economic policies but the truth is, it creates disparities. And so, what I love about The Tax Policy Center and Urban Institute and The Brookings Institute, is we don’t specifically ask people’s race when they fill out a tax return. But they were able to take date and piece it all together, between people’s tax returns, their race, ethnicity, their household size, their incomes, and put all this data together in an easy, and concise, simple chart and graph and dialogue to help people see laws that are covert have an impact on people of color.
How Tax Law Impact People of Color
Let’s take a look at the Tax Policy Center study of how our tax laws specifically impact people of color and encourage wealth and income inequalities between whites and people of color. And so what they did is they just used a simple 1040 form, and if you don’t know what a 1040 is, it’s the personal income tax return form that you file with the IRS every year. And there’s all these different boxes, and obviously we don’t have time to go through a 1040 and how each specific line impacts people of color.
We’re just going to focus on some of the larger ones. And the first one would be marital status. Generally speaking, people who file, “married, filing jointly”, get a better tax benefit than people who file “married, filing separately”, better than people filing “head of household”, and generally better than people filing “single.
Now I say “generally” because each person’s circumstance is different, but marital statistics show that whites, in fact, with just over half of all white households are married, and we are going to compare that to 27 percent of black households, and 48 percent of Hispanic households. So being married, whether you are “married, filing jointly” or “married, filing separately” or filing “single” or “head of household”, all those have an impact on how much money you pay in taxes.
And so, since people of color historically are not married, and let me go back, it’s not a cultural thing, a lot of people of color, the study found, were not married because they cited financial instability as a major reason for not getting married. So already they are financially unstable and then they lose the tax benefit of being married. So that creates even more disparity.
Martial Status Tax Laws
So let’s move on from marital status. So one of the things that I like to talk about is, how do we build wealth in America. How do we uplift people out of poverty? And unfortunately, how most people build wealth in America, the first thing is through home ownership. And on your taxes, you get a huge deduction. The government actually subsidized housing in America, through tax deductions on your Schedule A. You get to itemize the amount of mortgage interest that you pay. And so, for a lot of African Americans, they are not home owners and they cannot take advantage of that, and that goes back to systemic racism and institutional racism, where colored people were not allowed to get loans, banks weren’t lending to them.
And if they were lending to them, they saw them as a threat, they saw them as unable to pay back debts, and would charge them a higher interest rate, which lead them to often times defaulting on loans. So, in order to understand how wealth is built in America, and understanding that home ownership is one of the quickest ways to build wealth, and them not being able to take advantage of that on a tax return is very important. It’s one of those overt things that you are not readily able to see unless you are examining it.
Another one that was brought to the forefront is capital gains and investments. So people can invest their money in the stock market. They can buy stocks, bonds, whatever, and that money is often times taxed at a lower rate than people’s wages. So we let people invest in companies, and that money grows, and they end up paying capital gains which starts at 15%, whereas somebody who is hard working, maybe they have a low income job, or maybe a middle class job, they are being charged a higher tax rate because they worked and earned wages than someone who was passive, doing passive investments.
Now we can make all the arguments in the world that people investing in companies and in our economy raises everyone up, but I think we have seen time and time again that trickle-down economics sometimes dosn’t help those that are the most needy. That creates a problem when the quickest way to build wealth is investments, again retirement accounts. So, a lot of people invest in retirement accounts and that money grows tax free until some people take it out at retirement. Most people of color in their jobs don’t have access to retirement savings that are typically offered through employers. So these are just more ways that Americans build wealth and our tax code congratulates those people, our tax code rewards those people by paying less taxes.
And unfortunately, people of color are unable to a lot of times participate in those rewards and benefits because they do not have access to them.
Institutional Racism & The IRS
So now that we have talked about the Tax Policy Center study, I also want to bring up some other interesting facts that have been found, regarding how the Internal Revenue Service targets low income individuals. I started my tax career as a student at Georgia State University School of Law and one of my favorite things about that program is we operated a low income tax payer clinic and what that clinic did was to provide free legal services to those that are under the poverty line, that needed assistance defending themselves and their rights as a tax payer against the federal government.
That’s when I first fell in love with tax and it really opened my eyes to see that lower income individuals, specifically people of color are often more targeted in audits than higher net-worth individuals, higher income earners, and there is a reason for this.
The reason for this is it costs the government $150 to initiate a correspondence exam for EITC credit, if you don’t know what EITC credit is, it’s the earned income tax credit. And it is a way for people to get refundable credits that work and that have dependants and that credit can often times be a make or break for these individuals they a lot of times don’t have savings, and so getting their refund, their $6000 refundable credit, they use that for emergency savings, they use that for emergency expenses, but the government targets them, because it is cheaper for them to do so.
It only costs them $150 and it only takes them about 5 hours, where if we have an individual with $10million in taxable income it can take the government anywhere from 60 to 251 hours to deal with that audit. Since the government decreased funding for the Internal Revenue Service, what they have been doing is targeting lower income tax payers and correspondence exams because it’s cheaper.
Now let’s sit back and take that in for a minute. Let’s say you are getting a $4000 refundable credit or a $6000 refundable credit, I’m a tax attorney, I guarantee you, I’m one of the lowest cost attorneys in town I would say and I think that all stems back to the tax clinic, but when you are going to pay a tax attorney for an audit, most of my colleagues will just say “six grand”, six grand is our starting line, that what we are going to do the retainer as, well if you are only entitled to a $4000 credit or a $6000 credit, why would you pay an attorney $6000 to challenge that credit? It dosn’t make sense. It’s not financially sound. So what can happen is, the IRS denies the credit, maybe takes away their dependency exemptions, they deny the earned income credit.
Targeting People of Color
These people actually end up owing tax because the already got the refund and they spent it and now they are having to challenge the federal government but they don’t have the resources to do so, or the money to fight for their rights as a tax payer, and that’s really hard for me as a tax attorney to have to see individuals where it’s just not worth the cost, they can’t afford the cost, and again that’s where the low income earner tax payer clinic comes in, but there’s a lot of people that are in this, you know they are not below the poverty line but they are not wealthy by any means, but they still can’t afford proper representation, and a lot of my colleagues that are not lawyers, I would say tax resolution companies, these nationwide companies target people of color, unknowingly, the people that are listening to these ads don’t know they are targeting them, but when I am driving around Atlanta and listen to HOT 107.9 or 97.9, that are predominantly people of color, rap, local Atlanta artists, they are targeting ads to people of color with tax problems, with the intent of charging them so many fees, they say “oh, you just pay us $250 a month and we will take care of your tax issue” and by the end of it they have paide eight or ten thousand dollars for representation that they never received.
And so its a whole system, this whole system that is disproportionately affecting people of color versus white people and I see it every day in my industry, and I as a white person use to just be like, well it’s fine, because I’m not racist, I represent tax payers, I represent people of color, I do this work every day. And now we are to a point where it’s no longer enough. It’s not enough for me to sit here and say that just because I represent people of color and I defend people against our government every day, that I am doing enough.
So I want to take my role as an attorney, people trust me, they say that they believe that I understand the tax code, that I am a knowledgeable tax attorney, obviously, or they wouldn’t ask me to speak at these conferences, and teach other lawyers. So I wanted to take this time to use my knowledge and resources to help others understand, even though you can’t see it, it exists.
The Right To Fight For What You Believe In
I would encourage all other professionals in any other area of law, any other professions, to take the time to make a video for your community for people to understand how people of color are disproportionately affected in your industry and help people get educated on this topic.
And I’m just going to leave you with one last story as an attorney, about one of my most reticent cases, I could almost cry, he came to me, and it’s about having the rights to fight and having the resources to fight. So this tax preparer came to me and he was charged with wilful tax preparation.
The government claimed that he had fraudulently prepared tax returns wilfully to get refundable credits for people and he did not have the proper knowledge that these people were entitled to the credits, therefore costing the government a lot of money. My client had been fighting this battle on his own for a year. He had gone to the audit himself and what ended up happening was the government assessed him the tax, it’s a civil penalty without giving him due process. He never had an opportunity to challenge the tax, and he had filed his own petition with the United States Tax Court and that’s when he came to me.
They had filed a 75 page motion for summary judgment against him. There was no way that man could answer that motion for summary judgment himself and honestly when I looked at his file I didn’t think I was going to win either. I did not want to take his case, but he called me every day begging him to take his case and eventually I was like fine, if nothing else I will learn from this experience and grow as an attorney. So I took his case and one of the first things I recognized was when I called chiefs council’s office to discuss this case they did bring up the fact that my client was of a certain nationality, I don’t know if they intentionally did that by my client was a person of color from Nigeria.
They seemed to insinuate that because my client was from Nigeria and that because Nigerian people have a long history of lying and doing things fraudulently that my client had lied and done things fraudulently and at that moment I knew that I was going to take this case whether that client paid me a dollar or never paid me again because that is not fair, it’s not right, it’s not right to make assumptions, he said well, have you seen this guy, the way he runs his business, he doesn’t even keep good records, just because someone is a bad business owner, doesn’t make them a liar.
It’s as simple as that. And so I really worked with this tax payer, the government office was assuming that my client had lied, that he did receive the right to a due process hearing, he did receive the letter, that they sent it, they knew they sent it but they didn’t have any proof that they actually sent my client the letter with his due process rights, and we ended up winning that case, it took me hours and hours of unpaid work to win that case but at the end of the day my client, all of his penalties were abated on the fundamental argument that my client was not entitled to due process, they did not access the tax correctly, and therefore it was invalid.
It’s Time To Speak Up
And that was one of the biggest lessons I think I’ve ever learned as an attorney, that the government saw my client as someone who comes from a community that must be a lier, there were all these underlying assumptions that were not spoken, kind of spoken, kind of understood and I wasn’t going to let that stand and I think now it’s time for everyone in every industry, even as a parent, as a mother, to take the time to talk about these issues in your own industry, in your own circles, with your own family and with your children. So, if I can ever be of service to you, please reach out if you want to talk about these issues more. I’m happy to talk about them with you.
Again I just want to say now is the time to speak up if you have been silent before like me, please take a moment to make a video, to say something, and really communicate your feelings, because it’s never going to be bad to be on the right side justice, and to advocate for your fellow human being, so thank you for watching, thank you for taking the time to be here and please use this as inspiration to make your own resources in your community.
Articles Discussing Audits:
Regional Bias in IRS Tax Audit Selection
IRS Audits Target the Wealth-Depleted Southern Black Belt