The federal income tax does not explicitly take race or ethnicity into account; any two tax filing units with identical sources and level of income, deductions, and credits will face the same tax liability, regardless of group identity.
But there still may be disparate outcomes across groups because factors that affect liability may be correlated with group identity. For example, Black, Hispanic, and white households have different marriage rates, number of children, labor earnings, and wealth accumulation patterns, and these differences translate directly into income tax differences.
White households receive higher income, on average, and thus, in a progressive system, they pay a higher share of their income in taxes. At the same time, most exemptions and exclusions from income – such as housing, unrealized capital gains, and other preferential treatment of capital incomes – disproportionately benefit white households.
Relative to other low-income households, low-income Black households are more likely to file taxes as head-of-household and low-income Hispanic households are more likely to file married filing jointly and to have more dependents. Both sets of conditions reduce taxes for those groups relative to low-income white households.
Relative to other high-income households, Black households receive more of their income in the form of fully taxed labor earnings (wages, social security, etc.) and less in the form of tax-preferred or tax-exempt capital (business income, unrealized capital gains, imputed rental income, etc.). As a result, among high-income groups, Black households face higher tax rates than other groups.
Tax reform that broadens the base to include capital income and reduces tax rates will tend to help Black and Hispanic families relative to white families, as will expanding refundable credits for children and work. As a result, the Tax Cuts and Jobs Act in 2017 had little effect on racial/ethnic tax disparities by income class (although on an overall basis, it benefited white households disproportionately), whereas the American Rescue Plan Act of 2021 provided large benefits to low-income Black and Hispanic households.
Authors
Related Content
The Brookings Institution is committed to quality, independence, and impact.
We are supported by a diverse array of funders. In line with our values and policies, each Brookings publication represents the sole views of its author(s).
