In the United States, why is wealth—especially financial wealth—held by white households so disproportionately and, in particular, by the most affluent ones? Racial wealth inequality is no accident of history. Rather, it is the intended result of the southern Democrats in Congress who controlled federal tax policy throughout most of the twentieth century. Beginning in the 1930s, champions of white supremacy, such as Senator Pat Harrison (D-MI), Senator Walter George (D-GA), and Senator Harry F. Byrd Sr. (D-VA), turned to an ostensibly race-neutral provision of the US income tax code—the preferential treatment of gains from investment—to uphold their (im)moral economy of “whites-only” wealth. After 1965, these segregationists’ successors—particularly Senator Russell B. Long (D-LA) and Senator Lloyd Bentsen (D-TX)—furtively rebuilt and shored up the structure of racial inequality with additional tax breaks for investors. They erected a vast system of pro-investment “tax expenditures” that immortalized a Jim Crow–era moral economy of “whites-only” wealth.
Tax expenditures—which include deductions, exemptions, exclusions, credits, and reduced (called “preferential” or “preferred”) tax rates—reduce tax liabilities for activities or groups of taxpayers that policymakers aim to encourage or to reward. Tax expenditures that favor investment by households include (in order of size) exclusions for pensions and retirement savings, preferential (or reduced) tax rates on capital gains and dividends, the elimination of capital gains taxes on assets transferred at death, the exclusion of capital gains taxes on the sale of principal residences, and the mortgage interest deduction for owner-occupied homes. In 2019, according to the Congressional Budget Office, the highest quintile of earners in the United States received 63 percent of the benefits attributable to tax-free pensions and retirement savings, 95 percent of the benefits flowing from the capital gains tax preference, 56 percent of the exclusions for capital gains on inherited assets, 84 percent of the tax savings from the deduction of mortgage interest, and 44 percent of the amount households save due to the exclusion of capital gains taxes on the sale of primary residences. Taken all together, tax expenditures that encourage or reward investment by households will total $657 billion in 2022, equaling 49 percent of all federal income tax expenditures, according to Treasury Department data. A full 50 percent of the total benefits of all income tax expenditures accrued to households in the highest decile of the income distribution in 2019.1
