Building a tax system for all Minnesotans
Advocacy
Robert Doty, Minnesota Department of Revenue commissioner | December 2021/January 2022 Footnote
Editor's note: Updated November 29, 2021
The Department of Revenue serves a range of communities, from individual and business taxpayers, to tax professionals and other partners, to policymakers and the public. Members of these communities have varying — often complex — tax situations, economic realities and perspectives.
Reflecting these complexities, our state tax system is shaped by myriad needs, interests and values that can provide pathways to financial security and a thriving economy. The system provides resources for crucial investments in our residents and communities, and it can address economic gaps for underserved taxpayers and families to advance financial equity for everyone in Minnesota.
The department is working to advance equity in how we administer taxes, contemplate and put forward policy solutions. This starts by understanding the historical and current disparities in wealth, income and opportunities that undergird our society.
Cumulative effects
Discriminatory laws, policies and practices have set back many families, spanning decades and even generations. Too many low-income families and people of color have been denied wealth-building opportunities enjoyed by many of us. Among them:
- Home ownership and equity. Households of color are less likely to own their homes; when they do, their average home equity is lower. In 2019, Minnesota Compass found that 25% of our state’s Black households owned homes, compared to 77% of white households, a wider gap than the U.S. overall. A 2018 study from the Center for American Progress (CAP) found that Black homeowners averaged $45,000 in equity compared to $92,000 for white homeowners.
- Stable, well-paid jobs with retirement benefits. The CAP study (Systemic Inequality) found that about one-third of nonretired African Americans had retirement savings in 2016 compared with two-thirds of whites. Median retirement savings for African Americans ($23,000) were around one-third that of white people ($67,000).
- Household wealth and generational transfers. The Federal Reserve’s 2019 Survey of Consumer Finances found average wealth for Black families ($142,500) and Latino families ($165,500) is 15–17% that of white families ($983,400). And an Urban Institute study found that Black and Latino families are five times less likely to receive large gifts and inheritance than white families (Private Transfers, Race, and Wealth, 2011).
These inequities build on each other, amplifying their impact. Renters cannot deduct mortgage interest on returns, nor benefit from increasing equity or home values. Workers without retirement benefits miss out on tax-deferred savings or pensions that help build wealth and provide a comfortable post-career life. This leaves fewer assets to pass on to the next generation, perpetuating the wealth gap.
Tax inequities
Our federal and state tax codes provide substantive benefits to wealthy families. The federal tax changes in the 2017 Tax Cuts and Jobs Act (TCJA) provide a recent example.
The TCJA provided $275 billion in individual tax cuts. A report by Prosperity Now and the Institute on Taxation and Economic Policy (“Race, Wealth and Taxes,” 2018), found that:
- About 72% ($200 billion) of the tax cuts went to the highest-paid 20% of households, and 80% ($218 billion) to white households.
- The average tax cut was $2,020 for white households, $970 for Latino households and $840 for Black households.
- More than 40% of all tax cuts went to white households in the top 5% of earners, who represent less than 4% of all tax returns.
This trend is not new. Emory University law professor Dorothy Brown writes that the tax code is optimized for white people, yet our ability to directly understand it is limited because the IRS doesn’t account for race when analyzing tax data.
Brown shows the impact of gaps like those highlighted in her book, “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — and How We Can Fix It.” Most importantly, she argues, we must change our understanding and the narrative around existing biases, and the connections between tax policy and race.
Moving forward
At Revenue, we seek to understand, discuss and address these issues in our work. This includes:
- Increasing awareness and understanding of how tax policy relates to the racial wealth gap.
- Working with stakeholders to consider possible law or policy changes to address racial inequities — through outreach events like an upcoming panel discussion with Professor Brown on Jan. 24, 2022. We’re co-hosting this event with the Center for Economic Inclusion and Minnesota Budget Project. You can find details and register at www.centerforeconomicinclusion.org/center-events.
- Developing and embedding equity benchmarks and guidelines into processes and decision-making across the agency.
- Enhancing data analysis capabilities to increase understanding of how Minnesota’s tax code benefits different demographic groups.
- Reviewing issues of access to — and narratives around — refundable tax credits and strengthening relationships, trust, communication, and outreach to increase access and use of these credits.
- Documenting our progress and successes in making our work more equitable.
- Increasing access to department decision-makers for communities of color and immigrant communities.
Understanding how our tax laws and procedures can impact certain communities — and addressing these inequities — will help open more economic opportunities to more Minnesotans. Their successes will be a win for all of us.
We hope you’ll join us in these important efforts.
Robert Doty is commissioner of the Minnesota Department of Revenue.
