A proposal by the Trump administration to reduce taxes on capital gains would exacerbate an already yawning racial wealth gap say experts, and almost solely benefit the wealthy.
Minorities are far less likely than whites to be in the higher income brackets that would benefit the most from the lower taxes, U.S. Census Bureau data shows, and they are far less likely to be subject to capital gains taxes.
The Treasury Department disclosed last month that it was considering taking inflation into account when taxing capital gains — profits from the sale of stocks, real estate, art and other assets. Currently, when a person sells an asset the gain from the sale is calculated as the difference between the amount a person paid for the asset, called the basis, and what the asset sold for. Under the new proposal, the basis would be adjusted for inflation, making the cost of the investment higher.
For long-term investments, this could mean a sizeable decrease in any profit, and therefore the amount of taxable income.
Chuck Marr, director of federal tax policy at the Center for Budget and Policy Priorities, a left-leaning public policy think tank based in D.C., said 86 percent of the benefit from indexing capital gains to inflation would flow to people in the top 1 percent wealth category. “It doesn't affect most people. It just affects the very top,” he said.
The Congressional Research Service, which provides policy and legal analysis to Congress, estimated 90 percent of the benefits would go to the top 1 percent.
Because those earning more than $100,000 would benefit most from the change, a disproportionate number of whites compared with minorities would see their incomes increase. Almost 9 percent of whites make more than $100,000, but only 2.6 percent of Hispanics and 3.1 percent of blacks do, according to 2017 Census Bureau data. The disparity is even more stark for the top 1 percent, Marr said.
That would cause an already disparate gap in racial incomes to widen further.
In 2016, the median household income for white families was $65,041, about 65 percent more than black households’ median income of $39,490, and 36 percent more than Hispanic households, who earned $47,675, according to the Census Bureau’s Current Population Survey. The gap improved from 2015, when the median household income for whites was 70 percent more than black households and 39 percent more than Hispanic households.
This proposal is “just something that's for the highest income people, which tend to be disproportionately white people,” Marr said.