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The bias built into tax laws that disadvantages income from labor

MICHEL MARTIN, HOST:

You probably heard about that proposal by Senate Democrats to tax certain assets of billionaires to help pay for President Biden's spending plan. You probably also heard that that was one of the ideas that did not make it into the compromise announced on Thursday. It was stripped out along with popular and controversial provisions, like free community college and paid family leave. And it also came after some of the world's wealthiest people turned thumbs down, calling it stupid and possibly illegal. But our next guest, who has written extensively about the tax code, says it is none of those things. Emory University law professor Dorothy Brown is with us now to tell us more.

Welcome, professor Brown. Thank you for talking to us.

DOROTHY BROWN: It's my pleasure to be here.

MARTIN: I just wanted to get your reaction to this, all the - sort of the back-and-forth and the drama around the so-called billionaire's tax and the fact that it was left out of the president's spending framework. Is there something from the back-and-forth this week that stood out to you?

BROWN: Well, what stood out is more of the same. Billionaires with the greatest ability to pay don't want to pay anything to the federal government. They would rather pay it to their tax lawyers to figure out ways to not pay income taxes. So I wasn't surprised that billionaires pushed back. I mean, so many of them are paying no taxes. And suddenly, the idea that they might have to pay taxes just sent them over the edge. So it was troubling that it was left out of the bill but ultimately predictable because as I write in my book, "The Whiteness of Wealth," wealthy white taxpayers have always been able to work behind the scenes to get tax laws that benefit themselves.

MARTIN: Let's sort of walk through it. I mean, as we said, some of the world's wealthiest people, like Elon Musk, worth some $300 billion, tweeted that Democrats should forget it. The billionaire investor, Leon Cooperman, said in an interview with The Daily Beast, I doubt it's legal, and it's stupid.

So first of all, you say it's not stupid at all. You say that our tax system is built on the ability to pay and the richest among us pay some of the lowest tax rates. First of all, why do such super wealthy people pay the lowest tax rates? Why is that?

BROWN: Because they are in charge of how much income they actually receive technically under our tax laws. So they either take little or no salary. They finance their lifestyle through loans that are secured by their stock investments. And under our tax law, when you get a loan, you have an obligation to repay, and the tax law doesn't see that as income. So they pledged their wealthy holdings in stock to get a loan that finances their daily expenditures, and they pay no taxes. It's a shame.

MARTIN: As many have pointed out, under the new tax rules in this bill, millionaires, the so-called working wealthy, will in most cases pay more in taxes than billionaires and those with dynastic wealth. And why is that? Is it the sort of working wealthy...

BROWN: Work (laughter).

MARTIN: ...Make their money, like the way you and I do, just by working?

BROWN: Yes.

MARTIN: Why is it that the money you earn while you're awake is taxed so much more heavily than the money you earn passively....

BROWN: While you sleep.

MARTIN: ...While you sleep? Yeah. Why is that?

BROWN: Well, it's because there's a bias in our tax laws that advantages income from capital, income from stock and disadvantages income from labor. It's an unfair advantage, but it's a provision that dates back to the 1920s and ultimately came into the tax law because a wealthy white man wanted to pay less in his taxes.

So here we are, you know, decades later, almost a hundred years later still dealing with this. I mean, one of the proposals President Biden originally had was for those making more than a million dollars to pay income on their stock the same way as income on their wages. That didn't make it into the bill.

MARTIN: I think what underlies this kind of visceral reaction to it is, well, number one, as you pointed out, that the extremely wealthy have disproportionately had a lot to say about the way the tax code operates from the very beginning.

BROWN: Yes.

MARTIN: But the broader philosophical issue - I think their argument is that their businesses and enterprises create jobs and generate wealth. And isn't that contribution enough?

BROWN: They don't all generate jobs. What we saw during the pandemic is companies taking loans and firing workers. We see Bezos' tax rate lower than his warehouse workers. We see these billionaires creating problems that the federal government then has to solve, and the billionaires that create the problem don't want to pay their fair share of having created the problem. So, no, there's not this - I mean, that's the rhetoric - right? - that, you know, we do all this good. No, they do good for themselves.

MARTIN: And before we let you go, just for people who haven't read your latest book, "The Whiteness Of Wealth," how does race enter into this?

BROWN: Race is very relevant because when we look at who the people are who are not paying taxes, they are by and large wealthy white Americans. And it's wealthy white Americans who are behind the scenes pulling levers to get tax laws that benefit themselves. And who pays? Black Americans pay higher taxes because wealthy white Americans pay less, as well as middle-class white taxpayers pay more because wealthy white Americans pay less. So it's really important when we talk about taxes to talk about race and tax, something that Treasury and the IRS fails to do but something that I think is critical to the conversation going forward.

MARTIN: Dorothy Brown is professor of tax law at Emory University. Her latest book is "The Whiteness of Wealth: How The Tax System Impoverishes Black Americans - And How We Can Fix It." Professor Brown, thank you so much for talking with us today.

BROWN: Thank you for having me.

(SOUNDBITE OF ALOE BLACC'S "WITH MY FRIENDS") Transcript provided by NPR, Copyright NPR.

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