Black Tax | Definition

/blak taks/

Many people of color, members of immigrant families, and first-generation college graduates are juggling their own financial responsibilities while helping their family members. 

Next word Dividend Reinvestment Plan (DRIP) | Definition ᐳ

Did You Know

In 2021, the House Judiciary Committee approved a bill to consider remedies for slavery, including reparations. However, the federal government has not yet offered any such funds.

What is Black Tax?

 

The phrase “Black Tax” was first coined in South Africa. Black Tax is about Black people who have achieved some level of financial success having to support other family members, which in turn becomes a financial burden. 

 

These financial transfers are typically made between Black family members struggling to make ends meet and middle-class and wealthy Black people. When someone is suffering from Black Tax, it often hinders them from saving money or gaining wealth because they always give their money to others in their family.

 

Black Tax Awareness

 

In low-income families, it’s common for family members to feel entitled to another family member's salary if they helped in some way to get them to their next phase in life, like graduating college and landing a well-paying job.

 

Black man on college campus

 

However, no one should feel guilty or shame because they don’t have the means to comfortably help their family. But frequently, Black families are subject to Black Tax because their family feels compelled to have a portion of their salary. Consequently, the Black Tax can deter people from building wealth for their own families.

 

What is Wealth?

 

Wealth is the difference between a family's gross assets and liabilities. A 2019 Survey of Consumer Finances showed a median wealth of $24,100 and a mean wealth of $142,500, Black families' wealth is less than 15% of that of white families. This is compared to white families, with the highest median and mean family wealth levels, between $188,200 and $983,400.

 

Black people pay more than white people for the same opportunities, which is made clear by the Black tax, highlighting the high cost of long-term discrimination. For instance, researchers have discovered that Black borrowers pay higher mortgage rates and insurance than their White counterparts, which accounts for more than $65,000 of the wealth gap at retirement.

 

The Black population in the United States (U.S.) has been unable to amass wealth due to racially provoked practices like segregation, discrimination, and redlining. Additionally, due to these historical facts about redlining, homes owned by Black and Brown people are frequently undervalued.

 

According to a Pew Research Center report on wealth inequality among whites, Blacks, and Hispanics, a home is one of the most frequently owned assets, and home equity is the most significant contributor to household wealth. However, since Black people more often get the short end of the stick when it comes to redlining and appraisal discrimination, the advantage of creating wealth is almost nonexistent.

 

Recommended Read: America’s Black Homeownership Gap Continues

 

Making Sense of Black Tax

 

In families with lower incomes, it is typical for everyone to work together to ensure that some family members can achieve their money goals. That could entail everyone chipping in to ensure that a gifted football player has access to the necessary equipment for practice or that everyone contributes to a college fund to ensure the designated family member completes college without student loan debt.

 

Recommended Read: How to Pay for Your College Education with Scholarships

 

The Effects of Black Tax

 

Due to the never-ending cycle of supporting less fortunate family members, Black people often spend more money than they can afford. 

 

Statistics show that Black students default on student loans at a rate five times higher than white students.

Black adults who live in America but have relatives in Africa and the Caribbean also experience the Black Tax burden.

 

Couple paying family members medical bills

 

Recommended Read: Equity vs. Equality and Why African Americans Deserve Both

 

History of the Black Tax

 

The origins of the Black Tax in the United States can be traced back to the enslavement of Black people who were forced to work for white families. When slavery in the U.S. was officially abolished, enslaved people were not equally set free equally across the country. While some white slaveholders were compensated for the loss of their workforce, those who were enslaved were not compensated for their enslavement.

 

After Abraham Lincoln's assassination, President Andrew Johnson rescinded the promised "40 acres and a mule," leaving most newly freed slaves with no starting income. Furthermore, several states, including Virginia, enacted legislation allowing the arrest of anyone who appeared to be unemployed or who appeared to be “loitering.” Black people who had been wrongfully imprisoned were then used as unpaid labor.

 

The historic wealth disparity has been exacerbated by economic systems that have prevented Blacks from advancing. For example, following World War II, Black veterans were mistreated despite their wartime service. They were unable to participate in many programs that would have provided financial security to them and their families. President Franklin D. Roosevelt signed the GI Bill in 1944, providing veterans with access to starter homes at reasonable prices, college or vocational training funds, and unemployment insurance.

 

Black veterans were denied access to these life-changing benefits because these funds were handled locally, and they were a target of discrimination, redlining, and segregation. Returning veterans who were Black were left in the same position as opposed to white returning veterans, who could start over with an advantage.

 

The American government has previously given reparations to other groups, such as Japanese families who were compelled to live in internment camps. Over the years, Native Americans have gotten billions of dollars in compensation for genocide and other atrocities imposed on their racial group. 

 

As recently as 2021, when the House Judiciary Committee approved a bill to consider remedies for slavery, including reparations, numerous attempts to address and study the advantages of reparations to the descendants of enslaved Black people were made. However, the federal government has not yet offered any such funds.

 

Recommended Read: Past and Present Impact of Redlining on Black Homeownership

 

Black Tax Reform

 

Black Tax doesn’t have a one-size fits all solution for every Black family across the globe because every situation is different. 

 

However, one solution collectively stated by Black people in the U.S. and their white peers is to give Black people reparations to assist in closing the racial wealth gap. Some cities across the U.S. have made an effort to compensate the descendants of the formerly enslaved. St. Louis is one of the 11 cities that offers a reparations program through property taxation. In Evanston, Illinois, grants of up to $25,000 can be used for home purchases, mortgage help, or home repairs in low-income areas for each qualified applicant.

 

The Money Wrap-Up

 

Although there were and are many racially-driven discriminatory practices against Black Americans, there are some internal things to consider to empower oneself. One solution to help Black people not overextend their funds is to budget their money and understand that they must help themselves first before helping anyone else. 

 

Charitable giving shouldn’t affect someone’s capacity to save and create wealth for future generations. 

Since significant change often comes through political and economic forces,  it is ultimately up to those in power to open doors to reduce the racial wealth gap.

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