Tax Code Must Promote, Not Hinder, Fairness for Black Taxpayers

This week, we celebrate Juneteenth, a reminder that news of Black Americans’ emancipation arrived two years late. Let us honor the holiday by boosting awareness of how the Internal Revenue Code denies Black Americans tax fairness.

As the Tax Cuts and Jobs Act’s temporary provisions approach their 2025 end, Congress faces a crucial decision. It must either extend provisions that worsen income and wealth disparities and race injustice or enact reforms that promote tax fairness.

The argument that the tax code mistreats Black Americans isn’t a new one. In 1996, William Whitford and I showed how the tax code treats Black taxpayers more harshly than white taxpayers who share the same relevant characteristics for taxation, such as income, marital status, and family size. A year before that, Melvin Oliver and Thomas Shapiro explained how the tax code builds on past racial discrimination to increase both income and wealth disparities.

The tax code was harsh in the mid-1990s, but the TCJA is even worse in 2024. Even provisions meant to help poor families intensify income and wealth disparities while helping white taxpayers more than their Black and Hispanic peers.

The child tax credit is a prime example. It is generally believed to have been created along with the additional child tax credit and the family credit to ensure that American children—especially poor children—thrive.

On the surface, Congress achieved its goal. Jacob Goldin and Katherine Michelmore found that 90% of families get some benefit from the TCJA’s changes to the CTC. But poor, Black, and Hispanic families get less. And our poorest families get nothing at all.

Most children living in the bottom 10% of household income are completely ineligible for CTC. Virtually all children in the top 50% of income qualify for the full $2,000.

Three-quarters of white and Asian children get the full $2,000 credit. Only half of Black children make the cut. Black children make up 25% of ineligible children, although they are only 14% of all children.

Eleven million children live in poverty, so why does our government give higher-income parents larger child related subsidies than it sends to poor parents?

Beyond growing income and wealth inequality, the credit also fuels racial disparities.

Black children are more often ineligible because they are more often poor. And they are poor at least partially because of past and present race discrimination. Keeping Black children out of a program meant to safeguard all children resembles the dawn of Social Security, which originally excluded the jobs Black people held as domestic and farm workers.

To understand how the CTC hurts poor and minority children, you first need to know that a tax credit reduces tax liability dollar for dollar. For those who owe no taxes, a tax credit is worthless.

To solve that problem, a refundable tax credit gives a person with no tax liability a refund instead. Credits are the equivalent of the US giving a taxpayer cash through a reduced tax bill. The refundable part of a credit does the same but with a refund check.

Next, you need to know that through 2025, the TCJA doubles the maximum CTC to $2,000 per child to families who owe at least that much tax. A family with two eligible children and a $5,000 tax bill will get a $1,000 bill instead.

But what about people who owe little or no tax?

For taxpayers who owe less than $2,000 per child in tax liability, the additional child tax credit provides up to $1,400 per child in refundable credits, but a family must have at least $2,500 of earned income to get that credit.

Here come the problems.

First, the TCJA caps the ACTC’s refund at $1,400 per child. That means a family with at least $2,000 of tax liability can get a $2,000 benefit, but a family with no tax liability receives $1,400 at most. Next, families must show $2,500 of “earned” income to collect the refund. Families with no wages get no credit.

Together, the two restrictions often make the poorest children ineligible. That exacerbates income and wealth inequality.

The TCJA is full of provisions that increase wealth and income disparities as well as racial inequities while fueling the deficit. Congress should find and cut them all.

This Juneteenth, as we celebrate the ongoing fight for equality, Congress has an opportunity to work toward reforms that address the historical and ongoing economic disadvantages Black Americans face. The child tax credit shows how seemingly neutral policies have unequal impacts. By understanding these disparities, Congress can create a tax code that promotes fairness and economic growth for all Americans.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Beverly Moran is professor emerita of law at Vanderbilt University and an expert on race and tax, legal education, comparative law, US tax, economic development, and tax havens.

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