From the days of slavery to the 21st century rebirth of the poll tax, our tax system has been concentrating wealth at African-American expense, as legal scholar Andre Smith details in a timely new book.
The concept of institutional racism, thanks to the Black Lives Matter movement, is moving right onto America's political center stage. The institution under the brightest spotlight? That has to be America's criminal justice system. But considerable attention has also focused on other institutions as well, most notably education and the financial industry.
But one institution hardly ever comes to mind when talk turns to institutional racism: our tax system. Most of us simply do not think about racism when we think about taxes. Andre Smith does.
Too Much: At its core, American slavery before the Civil War operated as a system of forced labor that expropriated the wealth that people of African descent created. But that expropriation, your new book relates, had a powerful tax component as well. How did taxes intensify the exploitation that slavery represented?
Andre Smith: Suppose we play Monopoly and one of us isn't allowed to move around the board while everybody else can make money and buy up the best properties. Then, after twenty rolls of the dice, the other players allow the excluded player fully into the game. Is the game suddenly fair? Of course not.
The privileged players would have, by then, more wealth and property at their disposal. The disadvantaged player would have to somehow make do with low-value properties like Baltic and Mediterranean - and will likely end up bankrupt and out of the game.
Slavery and Jim Crow-style peonage after the Civil War essentially represented a 100 percent tax on black labor, the proceeds of which were redistributed to every corner of American society. Then, after segregation, blacks were finally allowed to play the game under substantially the same rules as everyone else, but without the financial, intellectual, and social capital whites in the United States had accumulated over the previous several hundred years.
Slavery as a 100 percent tax on labor remains a principal reason why blacks in America remain disproportionately without wealth to this day. The billions of dollars extracted from slave labor represent tons of missing wealth from the black balance sheet.
TM: What happened to those billions?
Smith: Those billions of dollars did not disappear. Local, county, and state taxes on the profits from slavery redistributed those billions throughout American society. The proceeds were spent on schools, roads, and other programs that, of course, excluded blacks from their benefits.
Even the federal tariff on foreign goods before the Civil War had a racial component. With this tax on imports in place, New York manufacturers could "overcharge" the South for the goods the region needed. Slave-owners complained bitterly that at least half of the profits from slavery were ending up in the North.
Remember, slaveowners had the Supreme Court's Dred Scott decision in their pocket, as well as the Fugitive Slave Act, and Congress had not actually threatened to end slavery in the South. Therefore, the federal tariff was perhaps the only significant reason for the Confederate states to secede.
Free blacks before the Civil War, meanwhile, faced prohibitive and oppressive taxation. Whites feared that free blacks like Denmark Vescey and Nat Turner would inspire slaves to revolt. And poorer whites considered free blacks labor competition. So whites taxed them heavily and often called for special taxes dedicated to shipping free blacks back to Africa.
Many abolitionists, for their part, wanted to tax slavery out of business, and they petitioned state legislatures for such tax laws. But almost uniformly they also wanted to use the proceeds from such taxes to return freed slaves to Africa.
Those free blacks who couldn't pay their taxes were often re-enslaved. Many impoverished free blacks in that position sought out another free black or a friendly white person to "buy" them at auction. But most states had laws prohibiting free blacks from owning slaves, else that ownership would put them on the same social status as whites.
Taxes reflected the new social, racial order. Discriminatory state poll or head taxes, for instance, imposed the highest flat rates on black men, with black women second and white men next. America's first instances of affirmative action, in fact, involved exemptions from tax laws designed to attract white men to the South to serve as overseers, vigilante patrolmen, and the like. There were other laws that required a certain number of white men to be hired per certain number of slaves purchased or utilized.
TM: After the Civil War, poll taxes would help lock in place a new system of labor relations that kept African Americans from accumulating wealth. How did these poll taxes work?
Smith: Atiba Ellis at the West Virginia University School of Law has done tremendous work in this area. During Reconstruction, right after the Civil War, blacks voted in droves. But the backlash beginning in the 1890s - represented most obviously by Plessy v. Ferguson, Birth of a Nation, and Woodrow Wilson's presidency - sought to remove blacks from the political process and eliminate the means by which blacks could correct markets rigged against them.
A truly free market requires that everyone is a profit maximizer, everyone can enter or leave markets they choose, everyone has the same access to information and either no or equally burdensome transaction costs. Using poll taxes in the early 20th century to remove blacks from the political process meant that whites in the Jim Crow South could exclude blacks from all lucrative markets (market and housing segregation), exclude blacks from education (educational segregation), and heap society's externalities on blacks (criminalization, drug and violence zoning, environmental racism, etc.). In a sense voting rights are the ultimate precept towards the fair distribution of transaction costs.
Jim Crow poll taxes would sometimes be cumulative and often came with no advance notice. Officials would sometimes refuse to accept payment, and blacks also had to worry whether lawless whites would allow them to vote even if they paid their poll taxes. State laws often required blacks who wanted to vote to pass literacy tests and other hurdles.
But poll taxes weren't actually invented for the exclusion of blacks. They were originally designed to exclude the poor. Slaveowners in the 18th and 19th centuries didn't want poor whites voting because they tended to want to vote to tax slavery out of business.
Again, slaves were market competition to poor whites. If a slaveowner is hiring out a slave to be the town blacksmith, then the poor white guy can't be the blacksmith, because slave labor will almost always be cheaper. Slaveowners with big plantations also ate up all the land and made buying land more expensive for yeomen farmers.
So slaveowners insisted on "security" clauses in state constitutions to prohibit legislatures from taxing slave ownership any higher than other articles of commerce.
Twentieth century poll taxes, by contrast, exempted poor whites for the most part. After the Civil War and Reconstruction, poor whites in the Jim Crow South aligned themselves with property owners to subordinate black economic and social and political aspirations. That alignment promised Southern poor whites social superiority, while wealthy whites maintained their superior economic status.
TM: The civil rights movement in the mid 20th century added just one amendment to the Constitution, the 24th amendment prohibition against poll taxes. Do you see the recent state surge of "voter suppression" laws as a reincarnation of the poll tax?
Smith: Absolutely. In one court case, in Indiana I believe, a $10 fee for a voter ID card has already been disallowed as an unconstitutional poll tax. But some of our Supreme Court justices do not see heavy administrative burdens and incidental costs relating to voting as a tax. So state legislatures, especially in the old Jim Crow South, are pushing further and further to see how onerous they can make voting for blacks and the poor and sometimes the elderly.
We now have states like Alabama requiring state IDs for voting and then closing down, in minority areas, the government offices that issue them. Yet the right to vote is supposed to be a "fundamental" right in the United States.
It causes one to consider how important racial subordination and the privileges associated with being in the majority is to some, that they would demean the very concept of democracy to obtain it. This is partly what exposes racism as economically driven.
TM: Could the 24th amendment become an effective hammer for beating down voter suppression?
Smith: In theory, it could. But under the current composition of the Supreme Court, that seems somewhat unlikely. Justice Kennedy, who is often the swing vote, will probably get to decide the issue.
TM: This past March, Harry Alford of the National Black Chamber of Commerce and Robert Johnson, the founder of Black Entertainment Television, called on Congress to repeal the federal estate tax. The Congressional Black Caucus, meanwhile, is advocating a stronger estate tax. How do you feel repealing the estate tax would impact the racial wealth gap?
Smith: If to be "black" is to be subject to or combative of white socio-political-economic supremacy, then BET is as black as Fox News. They both seem intent on promoting the myth of black inferiority.
Repealing the estate tax would exacerbate the Monopoly game situation I described earlier. A player who has amassed considerable cash and property has a distinct advantage over a player who was just let into the game and only collects $200 every time he passes go.
For capitalism and meritocracy to go hand in hand, we must have freedom of movement from top to bottom and bottom to top. In a just society, deservedness has to be the major factor in this movement. The estate tax is a mechanism for restricting the ability of the non-meritorious to rest on the laurels of their recent ancestors.
Or in terms of a truly free market, intergenerational wealth hording assails free competition, because some have much more capital to enter markets than other. Some can afford information, while others can't. Some can use their wealth to avoid transaction costs and externalities, while others can't. These are market failures, the rents of which inure to wealthy, of which black people constitute a disproportionately small percentage.
TM: What sort of changes, beyond the estate tax, could make our current tax system an instrument for narrowing the racial wealth divide?
Smith: Because African American and Latinos rely more on ordinary income than the wealthy, reducing or eliminating the tax code's preferential treatment for capital gains income could narrow the racial wealth divide.
Critical race tax scholars also typically identify deductions -the home mortgage deduction, for one - that subsidize white households more than black. There is an argument that eliminating many or all deductions unrelated to the production of income would make the tax code both simpler and fairer to racial minorities, who are in the aggregate less wealthy than whites and, as a result, less subsidized by the deductions and other tax benefits in the code.
A third change relates not to the tax code itself, but to the inefficient use of the tax laws by African Americans and other racial minorities: We tax lawyers should be reinvigorating the entrepreneurial spirit by increasing the frequency with which African Americans convert their hobbies into "activities engaged in for profit" or to a "business," the expenses relating to which can be deducted somewhat against one's ordinary income as a professional.
For example, wealthy people don't have large backyards, they have vineyards and tree farms, so they can deduct the expenses and strive to make more money in the long run. Similarly, people of more moderate means, especially African Americans, who like movies, for example, need to become movie critics, so they can deduct the expenses of movie-going and set themselves up as full-blown entrepreneurs. The cost of establishing a commercial website and a limited liability company for this purpose is almost negligible. Essentially, tax lawyers should be seeking to help black professionals become more efficient with their spending.
Hopefully, that initial step also leads to a continuing, mutually beneficial business relationship as the activity becomes more successful and the client's legal needs become more sophisticated.
TM: Centuries ago, a number of pre-colonial African states had highly developed systems of taxation. Can we take any lessons from these systems as we go about creating fair-minded tax systems for our own age?
Smith: One amazing feature of pre-colonial African taxation was its "reciprocal" nature. Central authorities in African states had as much right as any other in the world to collect taxes, the difference being the ruler was obligated to re-distribute that which was collected back to the people, whereas the central authority in other states of antiquity often used taxes simply as a means of enriching the ruling class or ethnic group.
American tax scholars typically ignore the redistributive aspect of taxes. They assume that everyone benefits pretty much equally from having a functioning government. They do not consider the possibility that government can be "captured" and conscripted to serve the needs of one group, as we saw most dramatically during slavery and Jim Crow apartheid.
Critical race tax theorists take the redistributive aspect of taxes more seriously. So, in my new book, I try to identify how the imposition and collection of taxes in the 18th, 19th, and early 20th centuries disadvantaged blacks - and how governments then spent tax revenue on infrastructure and anti-poverty programs designed exclusively or predominately for whites.
The success of Edward Kleinbard's new book, How the Government Should Spend Our Money, may signal that the academy will be focusing more on how tax collection policies relate to public spending policies. If we were to follow pre-colonial African tax systems, we would be more concerned with what taxpayers are getting in exchange for their obedience to tax laws, and whether tax revenue gets fairly redistributed among discrete groups in a pluralistic society.
TM: The latest studies show clearly that the racial wealth gap in the United States remains staggeringly wide. An American family headed by a black college graduate, a recent Federal Reserve Bank of St. Louis study reports, has less wealth on average than a family headed by a white high school dropout. What started you thinking about the tax system as a key driver of this deep-seated inequality?
Smith: I've always been interested in the economic effects of racism and discrimination, and I've come to understand race as an economic construct, thanks to scholars like the late Rhonda Williams at the University of Maryland and Samuel Myers at the University of Minnesota and the theories of analysts like Gary Becker, Derrick Bell, and Richard McAdams.
So it was quite natural for me, I think, as I progressed in my legal studies and law teaching to start noticing what others didn't about the relationship between taxes and race and racism.
Despite the influences of American media, I have never thought black people were inherently inferior, so that forced me to figure out why black people all over the world are in a degraded economic state. Ultimately, subordination through taxation is but one phenomena out of many aspects of Eurocentric hegemony. Like education, entertainment, labor, law, politics, sex, religion, war, etc., taxation is simply not exempt from racial politics.
Once my curiosity was piqued and my research started, most of the information relating to taxes and slavery and Jim Crow and pre-colonial Africa was hiding in plain sight.
