The US tax system influences who gets to build wealth, support their families, and access opportunity. Provisions like the mortgage interest deduction, tax-free education savings accounts, and charitable giving incentives may look race-neutral, but they distribute benefits in ways that reflect and reinforce long-standing racial and economic disparities.
Tax policy does not have to reproduce these gaps. With the right reforms, it can be reshaped as a tool for equity. Scholars argue that these features are not accidental but show how the tax code has long operated as part of a racially unequal system, and structural racism continues to shape who is able to benefit today. Dedicated researchers are studying how tax policy works beneath the surface in order to understand why certain groups benefit more than others. They are asking a crucial question: how do tax advantages align with income, wealth, and family structure?
Why Tax Policy Isn’t Neutral
Even though the IRS does not take race into account when analyzing its trove of tax data, the tax code nevertheless produces unequal outcomes. To understand how, one can look at tax policy’s provisions.
What the Tax Code Has to Do With Race
The tax code produces different outcomes for different racial groups, even though the IRS does not ask about race specifically. This happens because tax benefits tend to reward behaviors that are more common among higher-income households, such as saving for retirement or owning a home. These behaviors are shaped by access to wealth, which in turn reflects a long history of discriminatory policies and practices in this country that have long inhibited racialized minorities’ access to wealth.
Dorothy A. Brown, author of The Whiteness of Wealth: How the Tax System Impoverishes Black Americans—And How We Can Fix It, explains: “Race affects where we go to college and how we pay for it. Race influences where we work and how much we are paid… all of this also determines how much we pay in taxes… As in so many parts of American life, being black is more likely to hurt and being white is more likely to help.”
Who Benefits From Tax Breaks
Households that earn more money and already have savings or property are more likely to benefit from tax breaks that reduce what they owe. For example, tax breaks for mortgage interest and reduced taxes on capital gains – the profit made from selling stocks, homes, or other investments – mostly benefit people who already have the means to buy property or invest. Because white households are more likely to be in that position, they tend to receive more of these benefits.
For example, when Congress expanded tax breaks for charitable giving and education savings in 2025 (discussed further below), the change showed how tax policy can widen gaps if structural inequality is ignored. Both provisions mostly benefit families who already have disposable income and the ability to save or give, which means the biggest benefits go to households already better off financially.
Lower-income families, on the other hand, are more likely to benefit from refundable tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The EITC provides money back to working people with low or moderate incomes, especially those raising children. The CTC helps families with the costs of raising kids by reducing their tax bill or giving them a refund. These credits play an important role in supporting families with fewer resources, but they are usually smaller than the benefits higher-income households receive from tax deductions and exclusions tied to things like homeownership or investments.
These patterns reveal how policies that appear neutral on their face can engender unequal outcomes in practice.
Three Examples Revealing Hidden Inequities in Tax Benefits
Some of the most significant tax provisions in the federal code reward activities that are more accessible to people with higher incomes and more financial stability. Here are three examples that show how race-neutral tax policies contribute to unequal outcomes, which are discussed in the 2024 report ‘A Guide to Understanding Racial Disparities in the Federal Individual Income Tax System’:
- Mortgage Interest Deduction:
- What it is: This deduction allows homeowners to subtract the interest they pay on their mortgage from their taxable income.
- How it works: In 2024, nearly 75 percent of the benefits from the mortgage interest deduction went to households with incomes above $200,000, who tend to have larger loans and higher tax rates. Renters, who are more likely to be people of color, don’t benefit. Even among homeowners, white households are more likely to qualify for and use this deduction because they have higher rates of homeownership and more expensive properties. These patterns are the product of long-standing barriers such as redlining, exclusionary zoning, and unequal access to credit, which kept many Black families from buying homes or limited them to lower-value properties. As a result, the mortgage interest deduction provides the greatest benefits to households with greater financial resources.
- Education Savings Accounts:
- What is it: These accounts let families save money for college or K-12 tuition without paying taxes on the earnings.
- How it works: In theory, anyone can open an education savings account. But in practice, the accounts mostly benefit families with disposable income and access to financial planning. Families who use these accounts are disproportionately white and higher-income. Families with lower incomes often can’t afford to put money aside in these accounts, which means they miss out on the tax benefits.
- Charitable Giving Provisions:
- What is it: Tax deductions for charitable donations reward people who give to nonprofits.
- How it works: The deduction only applies to people who itemize their taxes, something more common among higher-income households. As a result, the tax code provides the most support to wealthier donors and to the organizations they choose to support. This can skew public support toward larger, well-established institutions and away from smaller, community-based or grassroots organizations.
These examples highlight how widely available tax benefits often favor those who already hold wealth, reinforcing racial and economic gaps. While these provisions are available to all, researchers find they are not equally useful in practice. Equal access does not guarantee equitable outcomes when wealth and opportunity are unequally distributed. Addressing these disparities requires policy changes that respond directly to structural inequality.
Paths to a Fairer Tax Code
Researchers have identified effective reform efforts, and many recommend shifting away from tax breaks that reward existing wealth and embracing credits that support those with the least access to economic opportunity.
Several approaches include:
- Convert deductions into refundable credits: Deductions for mortgage interest, charitable contributions, and education savings often benefit high-income filers the most. Making these into refundable credits — which means people can receive the full value even if they do not owe much or anything in taxes — would give more people a fair share of the benefit, especially those with lower incomes who are often left out under the current rules.
- Reconsider tax preferences for wealth: Tax breaks for profits from selling investments, like stocks or property, mostly help wealthy households and contribute to racial wealth gaps. One option is to reduce or remove these benefits for people with the highest incomes.
- Improve data collection and analysis: The IRS does not track race in tax filings. Linking tax data to other sources, or using proven statistical methods, would allow researchers and agencies to better understand how tax policies affect different groups.
- Expand and simplify income-based credits: Strengthening credits like the EITC and the CTC would help them reach more of the households they are meant to support.
- Create a renter’s credit: Homeowners get tax breaks, but renters get nothing. A refundable renter’s credit would help families who face high housing costs but do not benefit from the mortgage interest deduction.
- Strengthen estate and inheritance taxes: Wealth that is passed down across generations is a major driver of racial gaps. Estate and inheritance taxes are meant to make sure some of that wealth contributes back to the public, but they have been weakened over time. Reinforcing them would help limit how much inherited wealth adds to existing racial gaps.
These reforms would reduce racial disparities in tax outcomes and strengthen the system’s role in supporting broad economic security. By rethinking how tax benefits are designed and distributed, policymakers can move the tax code away from reinforcing inequality and toward promoting fairness and opportunity.