The Tax Code Perpetuates Inequality: 1 Percent of Taxpayers Receive More Than the Bottom 80 Percent

Janine Jackson: The group ProPublica has exposed how efforts to make paying your taxes easy and free with a pre-filled filing from the government, as is done in parts of Europe, have been repeatedly derailed by vigorous lobbying from H&R Block and the makers of TurboTax. It’s a kind of icing on the cake of a tax system that many suspect is unfair and slanted against the little guy. But while we complain about tax policy as bureaucratic or baroque, the impact of that policy goes well beyond irritation.

Given its crucial place in US society, the tax system should be transparent. But when those who are able to, really look at the system and its societal impact, what do they find? Jeremie Greer is vice president of policy and research at the Corporation for Enterprise Development, and part of CFED’s Turn It Right-Side Up campaign. He joins us by phone from Washington, DC. Welcome to CounterSpin, Jeremie Greer.

Jeremie Greer: Thanks for having me, Janine.

Before we talk about taxes per se, could you speak a little about the difference between income and wealth, and how that picture breaks down racially in this country?

So we think about income, and when we think about the interplay between income and wealth, there’s a saying that we use here at CFED quite often: Income helps you get by, but wealth helps you get ahead. Wealth is the thing that really provides security for your family; it allows your family to think forward to the future, like thinking about your child’s education, their higher education, thinking about retirement, what are you going to do when you stop working. So while income is important, it provides the resources for you to do that, wealth is something that really provides you that security to think long-term.

How that breaks down across the country as it relates to racial groups, you know, we did a study recently with the Institute for Policy Studies called “The Ever-Growing Gap.” And what we found is there is an incredible and really pervasive racial wealth divide, and much more divided than when you look at it by income. If we were to do nothing to change our policies or stop the trajectory, it would take African-American families 228 years to reach parity in wealth with white families, and it would take almost 80 years for Latino families to reach parity with white families. So we have a huge wealth divide that is even larger for households of color than there even is when you look at income.

I think some might think that the tax code favors the wealthy. But you say it’s more than that, that the tax code drives inequality. How is that?

It does. The tax code is really one of the mechanisms in which wealth is distributed across various income groups, and across various ends that the country likes to see. Just in 2015, the federal government spent on wealth-generating activities through tax expenditures, through expenditures through the tax code, about $660 billion. To give you a sense of the scale of that, that is more than the combined budgets of 14 cabinet level agencies. When you break that down and say, well, who’s getting that wealth, what you find is that the top 1 percent of taxpayers from an income standpoint receive more than the bottom 80 percent of taxpayers combined. And we think that’s upside-down. That is not how we think about how we make our investments.

So where are these investments being made? They’re being made in things like home ownership. You know, when you think about housing subsidies in this country, we tend to think about programs at the Department of Housing & Urban Development, HUD, public housing, Section 8, things like that. But actually the largest housing subsidies come through the tax code. A little over $200 billion a year in housing subsidies are provided through the tax code to families, and most of them on the very high end. Things like the mortgage interest deduction, which accounts for about $100 billion in spending every year, and state and local tax deductions, which account for a good share of the spending every year.

So when you think about what’s driving inequality, I would say a federal system that is subsidizing the income and expenses and wealth at the high end, at the expense of not investing at the low end, is really exacerbating that divide.

What’s behind it, what’s driving that policy?

I would say the major thing that’s driving it is special interests. When you look at our tax code system, and you look where those benefits are being driven, it’s in the places where there is a lot of lobbying dollars behind it.

There’s two major ways that people earn income in this country. You earn it by wages. You know, you go to your job, you get paid by an employer, and that’s the exchange. Another way that people earn income in this country is through investment. You take your money, you put it in certain types of interest-bearing accounts, and you get a return on that investment, and that income comes back to your family.

Well, the tax code taxes that in different ways. They tax your income at the high end at about 40 percent, and they tax that investment at the high end at about 20 percent. So basically what we’re saying is that we will prioritize tax benefits to people that get investment income. And essentially, that is at cost to the government. So why is that? Well, people that get investment income happen to be on the high end. Only about 1 percent of the country makes investments in the stock market other than through their retirement, and those are the people that are in Congress lobbying to make it that way.

So when you think about prioritizing investment income over wages, a lot of that has to do with who’s lobbying the Congress to make it that way.

Right. And low-income taxpayers don’t have, first of all, that access and that power, but also we have this president who says, I don’t pay any taxes and that makes me smart. Obviously, if you can afford lawyers and accountants, that plays into it too.

Yeah, that’s right. And from our standpoint, the way to change that dynamic is, you know, families aren’t going to be able to outspend the special interests. I mean, nor should they. They’re worried about putting food on the table, putting clothes on their kids’ backs, sending their kids to college. Those are the things that they’re thinking about investing their money in.

But what they can do is, they can have a voice in the conversation. And the way to have a voice in the conversation is they have to be informed, they have to understand why it is the tax system is the way it is, and begin to understand it. And there’s a role for us in Washington, and that’s really what the Turn It Right-Side Up campaign is about. It’s really educating everyday folks about why the tax code is important, what role it plays in your life. You know, if you feel like you spend too much money for your housing, there’s a role that the tax system plays in creating that dynamic. If you feel like you don’t have the ability to pay for your kids’ college and get them to college, there’s a way that the tax code can have an impact on that. And really, our hope is that if we can educate everyday folks around why this is important and how they can engage, we can start to begin that conversation so that the people that we send to Congress hear from more than just the special interests.

Well, Jeremie, how can folks learn more about the Turn It Right-Side Up campaign?

It’s very simple. If you go to, they can get more information and join the campaign.

All right then, We’ve been speaking with Jeremie Greer of CFED. Thank you so much for joining us this week on CounterSpin.

Thank you, Janine. It was great to talk to you.