The panel responsible for the nation’s first state-level exploration of reparations for black Americans discussed an important question this weekend: How will the state pay for reparations?
The California Reparations Task Force listened to expert testimony suggesting possible sources of compensation after previous meetings discussed the potential of hundreds of thousands of dollars in monetary reparations for specific damages. The experts’ suggestions included taxing the wealthy, such as through a state tax or a “gentleman’s tax”; incentivizing the wealthy to help fund reparations by offering tax breaks, similar to how charity minimizes one’s tax burden; or helping all taxpayers with wealth below the median through a tax credit, which in turn would help black households.
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Suggestions from the expert testimony given at the task force meeting at San Diego State University on Friday could be incorporated into the body’s final recommendations to the state legislature, expected this summer.
“This is incredibly enlightening and provocative,” said Lisa Holder, a member of the task force. “It gives us food for thought.”
The experts’ suggestions about potential funding sources were based on their testimony that current U.S. tax laws favor the wealthy — who are likely white.
“Our tax laws as drafted have a disparate impact,” said Dorothy Brown, a tax professor at Georgetown Law and author of the book “The Whiteness of Wealth: How the Tax System Impoverishes Black Americans and How We Can Fix It.” She said, “Black people are likely to pay higher taxes” because they are less likely to access the same tax breaks as their white peers.
Brown said what would be ideal is a reparations tax credit designed to compensate black taxpayers, but she thinks it will face legal challenges. So she said the next best thing would be “a wealth tax credit that applies to all taxpayers in households with wealth below the median.”
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“Given the racial disparity in wealth, this will result in a disproportionate percentage of black households receiving the credit,” she testified.
A few wealth planners who testified introduced the idea of taxing “bloated” wealth to replace “stolen” wealth, showing that the racial wealth gap widened after 1981 — when the largest tax cut in U.S. history was passed. They cited 2019 Federal Reserve figures showing that the average white household had $812,000 more wealth than the average black household.
One of their suggestions for sources of money for reparations is a state tax. (Under federal law, this year’s lifetime property tax exemption is $12.9 million for individuals.) Their other suggestions are: a mansion tax, a tiered property tax — which they acknowledged may not be likely in California because Proposition 13 imposes property taxes on based on their value when they were sold – or even a tax on the fledgling ‘metaverse’.
Sarah Moore Johnson, co-founder of Washington, D.C.-based Birchstone Moore, is one of the wealth planners who testified. She proposed a state-sponsored reparations tax fund that could receive charitable contributions.
“Charitable contributions are currently allowed to the state or federal government, but only for public purposes,” she said. “If race restoration is recognized as a public cause,” it could be tax-deductible in the same way as charitable contributions, she said.
Recognizing that the idea of reparations remains controversial, the task force asked state Sen. Steven Bradford the experts whether they think wealthy people, such as their clients, would oppose such ideas.
“What I hear from my clients is a sense of guilt about being able to give so much money to their heirs,” said Moore Johnson. “From where I sit and what I see, I see some support.”
Raymond Odom, an estate tax attorney and director of Wealth Transfer Services at Northern Trust in Chicago, who co-hosted with Moore Johnson, echoed that sentiment.
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Odom said he has helped “concentrate wealth” for decades, and how that happens is through very wealthy people creating foundations and charities that allow them to evade taxes. “It’s a joy to be able to talk to people who can change that,” he said, adding that he’s “talked to rich white people who are behind this.”
“I can tell you unequivocally: Very wealthy people have a lot of trouble figuring out what to do with their wealth,” Odom told the task force.
Don Tamaki, member of the task force, spoke about the possibility of relying on charitable sources and said, “I can’t argue that charity is not reparations. But in my humble opinion, we should explore all financing options.”
Wherever a potential fee might come from, Brown, the tax professor and author, had two key suggestions for the task force. First, she said reparations should not be treated as taxable income, citing precedents such as tax-exempt treatment of Holocaust payments and Japanese-Americans receiving compensation for their mass incarceration during World War II. And her second suggestion was that black Americans should not have to pay for their own reparations, which she said would be “completely contrary to the intent and spirit of the task force’s goals.”
The nine-member task force, established by a 2020 law and responsible for studying and developing reparations for black Americans from slavery, released a preliminary report last year. It is on the verge of disbanding when it submits its final report and recommendations to the state legislature before the July 1 deadline, but on Saturday the task force voted to remain intact for another year — until July 1, 2024 — to help in the implementation of its proposals, despite questions from some of its members about the authority to decide to do so.
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The task force also voted to change the dates of its next meeting, previously scheduled for late February. March 3 and 4 will be the last face-to-face meeting in Sacramento before the report is due.