Wealth, Inequality, And Taxes In The U.S.

Professor Goldburn P. Maynard Jr. of the Indiana University Kelley School of Business discusses the U.S. tax code’s effect on wealth inequality and how race has shaped the distribution of wealth.

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: wealth and inequality.

The ever increasing wealth of millionaires and billionaires and how to tax it has dominated the national debate even more so since the pandemic. Since the stock market lows of March 2020, the wealth of U.S. billionaires has grown 70 percent. To put that in perspective, billionaires collectively hold two-thirds more wealth than the bottom 50 percent of all households in the United States, according to an analysis by the Institute for Policy Studies.

And when you look closer at wealth inequality in the U.S., the extent of the racial wealth gap becomes clear. According to Brookings, the net worth of a typical white family was nearly 10 times greater than that of a Black family in 2016.

This week’s episode is part of a series we’ve done examining how tax rules affect marginalized groups. We’ll include links in our show notes to our previous episodes on the intersection of tax and racial inequality, LGBTQ rights, feminism, and diversity in international tax policy.

Today, we’re discussing the racial wealth gap and the role tax policy plays in this centuries old issue. Joining me now is Tax Notes contributing editor, Joseph Thorndike. Joe, welcome back to the podcast.

Joseph J. Thorndike: Thanks, Dave. It’s always great to be here.

David D. Stewart: Now, I understand you recently spoke with someone about this issue. Could you tell us about your guest?

Joseph J. Thorndike: I talked with Goldburn Maynard. He’s a professor at the Kelley School of Business at Indiana University, where he teaches in the department of Business Law and Ethics. But he’s also taught at a number of law schools, including the University of Louisville, Florida State, and Washington University.

David D. Stewart: Could you give us a quick overview of what you discussed?

Joseph J. Thorndike: Maynard has written extensively about wealth and inequality, so we quite naturally centered our conversation around that issue. But we also focused on the ways in which race has shaped the distribution of wealth in America, the policies surrounding inequality and how we try to deal with it, and the scholarship around both those subjects. This took us through discussions of his own important work, but also Dorothy Brown’s recent blockbuster book, The Whiteness of Wealth.

David D. Stewart: All right. Let’s go to that interview.

Joseph J. Thorndike: Welcome to the podcast, Goldburn. It’s really great to have you join us here today.

Goldburn P. Maynard Jr.: Thank you for having me. It’s a pleasure.

Joseph J. Thorndike: I’d like to start our discussion today in a place that makes room for all sorts of other interests — on Twitter, which is where I first encountered you. You go by the handle of @DeathnTaxesProf. That’s a good username to describe your academic interests. But it’s maybe a little misleading if you’re looking for a sense of your Twitter presence, because on Twitter you engage a really wide range of topics, especially for a tax professor. Everything from the obvious, like tax policy, to pop culture, to sports, to the Royal family.

But I’ve also seen you comment on the joys of teaching in a business school. Could you say a little bit more about that?

Goldburn P. Maynard Jr.: I don’t think that I’d ever intended to work at a business school. I always saw myself as a law professor at a law school. However, at a point in my career where I was ready to consider going somewhere else, the Kelley School of Business at Indiana University found me.

They were doing a search and I think that they wanted to have an open pool. They tried to look outside of the usual places they would look. The chair of the committee reached out to me to see if I was interested. I spoke to mentors. I wasn’t sure, I thought it could be a trap. That I would be going to a business school where I would be treated horribly. But mentors signed off. I then went and met the people in the department, etc. My heart was set at ease and I decided to come.

Joseph J. Thorndike: What do you teach there? What’s your day to day?

Goldburn P. Maynard Jr.: I have changed from teaching courses in taxation and wills and trusts, to now teaching a course on business ethics. Currently that is all I’m teaching. I’m teaching three sections of a business ethics course, which I find fascinating and I love.

Joseph J. Thorndike: That sounds great. Speaking of your Twitter feed, which, honestly, I love, so that’s why I keep talking about it. But I saw that just recently you tweeted that you’d finished and submitted an essay on racial equity. Can you tell us more about that essay?

Goldburn P. Maynard Jr.: Yes. It’s an essay that I’ve been working on all summer for the Yale Law Journal forum, their online publication. They’d solicited a number of essays on the Biden stimulus.

I decided to write one on racial equity because the Biden administration, right at the beginning, set out this executive order saying that they were going to be advancing racial equity. I wanted to see what efforts in that stimulus bill could be seen as racial equity efforts, analyze those, and then also analyze the pushback that some of those efforts have already received from federal courts.

Joseph J. Thorndike: What sort of pushback has that been so far?

Goldburn P. Maynard Jr.: Well, some of the most promising programs on the racial equity front, like the loan forgiveness for disadvantaged farmers, has been halted by federal courts. Several federal courts have issued injunctions. There have been very well-organized conservative groups who have challenged these parts of the stimulus bill. Conservative judges that were appointed by Republican presidents have found that yes, in order to protect the rights of white men, they have decided to put a halt to these programs.

Joseph J. Thorndike: That sounds fascinating and like a good start for our conversation about inequality and about the racial wealth gap in particular.

In recent months, I think we’ve all been bowled over by Brown’s blockbuster of a tax book, which is really more than a tax book, The Whiteness of Wealth. I want to throw out an idea to you and then see what you think about it. It’s my idea about why I think the book has made such a splash, and you tell me if you agree.

For the nontax people of the world, I think they had no idea that the tax law was injecting itself into so many aspects of American life and perpetuating the inequalities and racist hierarchies in American society. They just didn’t know what tax was doing. For them, taxes were something altogether simpler, more straightforward, and probably very irritating.

But for tax people, I think the book was also a revelation because these tax people knew all about these tax law provisions that Brown writes about, but she asked people to look beyond the surface of these provisions and to look beyond their apparent neutrality, to see how they actually operated. I think that was a revelation in some ways for tax people who thought they knew a lot about the way the tax system worked, but weren’t thinking about it in racially sensitive terms.

What do you think of that? Does that capture why you think the book made a difference? 

Goldburn P. Maynard Jr.: I think that you are kinder than I am. I agree with your assessment of why it made that kind of impact on the public. Because yes, ultimately the intricacies of tax law and their effects, other than kind of the immediate effects on your own tax bill, don’t really play into the minds of people that much. Other than on the broad level of, “Well, the rich should be taxed more.”

I don’t agree with the assessment on the scholarly community, at least in terms of the tax law scholarly community, because that’s a different story. That’s a story of Brown coming in more than two decades ago and saying some of the same things and it being not only ignored, but furiously fought against and rejected and marginalized. It shouldn’t have been a revelation in that sense, in that Brown had been writing this kind of thing for many years.

As she tells the story herself, she in some ways had to leave the tax world and even law academia to find sympathetic ears. It’s fascinating because it’s in this sense of having to leave your home to be loved and for those at home to respect you and that’s kind of what’s happening now. It’s coming around full circle. 

There are newer scholars who accept her work, but there are also older scholars who are now accepting some of her work because people outside of tax have accepted it.

Joseph J. Thorndike: I guess that’s really the issue. Maybe what I was doing was conflating all these different academics into one community when they really aren’t one community. The critical tax community, which has existed for a while now, my sense is that they’ve been pretty supportive of this sort of an approach for some time. But that’s been a sort of marginalized group within the tax academy itself. That group has not exactly been in the mainstream of the tax academy, even though it’s been around for, I don’t know, probably 20 years now.

I think you’re right to say that I’m being too nice there. That probably, honestly, that may reflect the fact that I’m not actually a member of the tax legal community. I pretend to be, but I’m a historian.

For me, the critical tax world always had a foot in the history world. Much of Brown’s book is very historically rooted. It’s very easy for me to look at tax and my head goes to the history part and the history part is always contextualized in these social issues.

But you’re absolutely right, I think, that the mainstream tax legal community didn’t traditionally look at tax in those terms. That makes perfect sense to me about how it was marginalized for so long.

What changed it in your view? What came around that brought it inside? That made her get a better reception? Because she does seem to be getting a better reception now, yeah?

Goldburn P. Maynard Jr.: Yes. For sure.

I think she did go outside of the tax world, and the law world even, to get some validation and realize that there were scholars in the academy who very much were receptive to her work. She also now has a record of excellent publication that is able to back her up.

This work came at a perfect time. She’d set up her scholarly reputation, and then she was wise in realizing that instead of pushing this just from a scholarly perspective, she needed to reach out to the public at large and explain the story to them in a way that was more relatable.

I think that that along with there being a new generation of scholars who are a lot more open to these ideas and also world events and protests, George Floyd, etc., have all led us to a moment where people are more receptive to her work. I don’t know if this moment lasts, but we do have a moment now.

Joseph J. Thorndike: That makes sense to me that there has been an opening these last couple of years. I want to come back to that too, because I’ve seen you make comments like that in your own writing.

I just have to say that that her book certainly opened my eyes to some things that I had not really contemplated either. For instance, she added a discussion of horizontal equity that I found pretty compelling, where she made a case for why horizontal equity doesn’t work so well when you add race to the equation and that two families with equal incomes, one Black and one white, are not equally situated. She makes that a very compelling argument for why that’s true.

I have always been somewhat suspicious of the concept of horizontal equity, but for other reasons, and a variety of other reasons. But I thought that was such a great point to make and one that I thought was sort of long overdue in tax policy circles.

To me, again, living sort of on the periphery of the tax legal academy, dipping my toe in once in a while, that to me was wonderful because it problematized what is supposed to be a neutral concept and showed that that neutrality is actually loaded with all sorts of non-neutral assumptions. That was eye-opening and the whole book was very welcome for me.

Brown offers a few proposals for changing the tax system, especially in her last chapter. She has three very broad proposals to help close the racial wealth gap. Then she has a lot of smaller, more specific ones, about say penalties for 401(k), premature withdrawals, and the deductibility of student loan interest.

But her big ones are to publish tax data by race, to return the tax system to a simpler time, as she puts it, when there were no exclusions, or at least to bring it to a point where there would be no exclusions, no deductions, no preferential rates. Then her last, to establish a credit to compensate for historical legal racism that has driven so much of the modern, current-day inequality.

What are your thoughts about those proposals? Do you have others like them?

Goldburn P. Maynard Jr.: I think the first starting point is to connect it to a previous discussion that I was having about the stimulus bill and the place of the courts in all of this.

The way that the Constitution has been interpreted is that it would be extremely difficult to show that the tax system is discriminating on the base of race and is unconstitutional because you would have to show some very specific evidence. At least getting some data on race would at least go towards us getting some more specific data on the ways in which the tax system harms Black people in America.

Having said that, there’s still this huge missing piece that you would have to show that there was intent on the part of legislators to discriminate against African Americans. That’d be virtually impossible to do. On the other hand, if you were to try to ameliorate some of these disparities through the tax system by explicitly using race, that would definitely, almost surely, be found to be unconstitutional because the bar on using race in any kind of program is just that high.

The starting point there is that Brown is first accepting that she has to reach out for a second best solution because you cannot use race because of the courts and the way that they’re interpreting the Constitution. That in itself is bothersome that you have to start from a secondary standpoint.

But once we get past that, I think that her ideas are definitely worthwhile. The stripping of the preferences would definitely help to give us a baseline to work from. This kind of wealth-based credit would definitely, since those on the lower end of the income scale tend to also disproportionately be Black, Latino, etc. This would end up helping those individuals as well.

They sound like good proposals. I don’t think that our problem is a proposal problem, but we have a political will problem.

Joseph J. Thorndike: That makes sense to me. To me also, some of it is a dynamics problem too. Let’s just say it is a proposals problem. Let’s say that it is return the tax system to a simpler time, for instance.

I’m wondering how you make that stick? Let’s imagine you had the will to do that. How do you keep the will to do that? That’s the historian in me that looks at it and is like, “How do you freeze it in time once you do something like that?”

Because to me, the reappearance of exclusions and deductions and preferential rates or whatever, and the forces behind that, the lobbying forces, the entrenched hierarchies, and power structures that want those things are still going to be there looking for all those things to come back.

That’s my problem with proposals, actually, most tax reform proposals, is that I don’t see how you protect them from subsequent undoing when it’s the hierarchies behind them that don’t change. The dynamics don’t change. The politics don’t change, which is sort of, I think, the same point you’re making that there’s a political will issue. There are broader political issues that make those all difficult. Right?

Goldburn P. Maynard Jr.: I think you’re exactly right about that. This is difficult to do because it complicates scholarship quite a bit. It’s hard to think about the future as this dynamic future.

It’s easier to write scholarship that says, “Well, this is a proposal that needs to be passed and once that proposal is passed, we will move into a better world.” But we all know that’s not what happens. Right away, as soon as that proposal gets passed, then there are alternative proposals, and there’s a fight against that proposal and people change their behavior.

Even if you get one of those moments, it is quite complicated to then defend that moment. Someone like Cornel West would talk about how you have these moments of social change and then the larger or broader, longer lasting periods of time are defensive periods where a lot of the work that you’re doing is to try to defend some of what you were able to accomplish during those moments.

Joseph J. Thorndike: This is starting to sound sort of depressing because it reminds me of a line you had in your recent article on a different nontax topic. It’s “Black Queers in Everyday Life,” which was recently published in the Tulane Journal of Law and Sexuality. You had this line in there that really resonated and said, “The persistence and durability of the American caste system continues to amaze and horrify me.” I was like, “Wow, that’s depressing.” Not that in any sense wrong really, but just depressing.

You also say that there are moments of encouragement you’ve had in the last couple of years. But it’s a little hard to see what’s the way forward? Do you have a way forward? Given those that persistence and that durability, do you see a way forward?

Goldburn P. Maynard Jr.: I think that ultimately I’m still a Black scholar and I come out of a tradition that is used to dealing with some pessimism and impossible odds. It is not that I necessarily carry my work forward because I feel like tomorrow, next year, or even in a decade, these things are necessarily going to change. I just try to make a contribution and hope that other people will pick up some of this work and some of the work will happen later.

In terms of ways forward, I don’t think by any means everything is lost. There are many policy making levers. For example, the executive is still very much committed to trying to do some things on their end in terms of changing rules, changing the ways that they sign contracts, etc., to ensure that there is more racial equity.

So, yes, the courts very much are standing in the way. And yes, 60 votes in Congress stand in the way. And yes, there are many voting shenanigans happening right now that are bothersome. But on the other hand, there is tons of energy and there is a more robust discussion happening right now about wealth inequality, and fighting wealth inequality than there has been in my lifetime. There’s still some hope there beneath it all.

Joseph J. Thorndike: That makes perfect sense to me because I do think that it’s very easy to get overwhelmed. You look at current politics and think, “Ah, nothing ever changes.” Yet, we do lose sight of how much things change.

To go back to that inequality issue that you raised and this new focus on inequality that we do have now, it seems to me that that focus is at least 20 years old and that it has been building over those 20 years. It does also seem to me that some of your work that you’ve done on the estate tax, for instance, or on wealth building, does point a way forward, or what might be a way forward.

I’m thinking particularly, your 2016 article on perpetuating inequality by taxing wealth. You look at the estate tax and try to explain why it’s proven such an easy target for those who want to repeal it and also why it’s proven to be so unpopular with voters, or at least apparently unpopular, if you put stock in poll data, which I think we should actually.

It shouldn’t be so unpopular, right? Why do you think it is? How do you make sense of that?

Goldburn P. Maynard Jr.: I think there are a couple of factors going on on there. There is the story that works against it. That is, the American dream and having wealth, etc., and then having the government at death come in and take some of your wealth that you are going to pass onto your family. It just doesn’t play as a good story.

But it can’t just be story because yes, stories are important, but there’s more to it than that. Along with the stories, there was also a very organized effort against the estate tax. Millions of dollars went into advertising and to frame the estate tax as a death tax. To also make people concerned that the estate tax could be something that could affect their lives, even though it only affects the lives of 0.01 percent of families in the U.S.

Work was put into that as well. I think the third thing that goes into it as well is politicization and polarization in the U.S. You can throw in the least controversial issue, but once you throw it into the grind of politics, it suddenly becomes something that turns into a 50/50 or a 60/40 issue. Thus it becomes that much more difficult to try to overcome that kind of a log jam there.

I think several things have worked against the estate tax, despite the facts seemingly being in the favor of the estate tax.

Joseph J. Thorndike: Do you think it’s salvageable? It’s probably not going to disappear. Or it doesn’t appear to be on the verge of disappearing. 

To frame it a little bit differently, is it an important tool for dealing with inequality? If not, could it be made one? What role for do you see going forward? How do you get it there?

Goldburn P. Maynard Jr.: I think that it remains important in several ways.

One, because it’s constitutionally sound. Any new wealth tax, regardless of how clever they’re designed, we can look to there being some kind of constitutional challenge. We can’t just rely on precedent. The court today looks very different than it once did before. It could be that a wealth tax would be deemed unconstitutional.

We already know the estate tax works. We also have over a century of the IRS dealing with efforts to escape the estate tax and to evade the estate tax. All of that experience can be used to shore up the estate tax.

While I don’t think that it’s playing a major role right now, I think it could easily be made to play a better role and that there are tons of proposals to help it play a better role. I think that we could save it, for example, by having a more concerted campaign on the other side, to show that the estate tax doesn’t hit very much people and that we have made provisions for farmers, small businesses, etc.

But I think part of the problem is that Democrats haven’t shown much of a willingness to fight very hard for making it a better tax. They’ve shown some fight for keeping it around, but not necessarily for making it a better tax. I don’t think that scholars have worked very hard on keeping around the estate tax. I think right now it’s a lot more sexy to talk about a wealth tax or some other kind of tax.

Joseph J. Thorndike: I think that’s true. It’s striking to me that so many people ignored the estate tax for so many decades. Just took it for granted that it was there and it would be fine.

They didn’t adjust the exemption for instance, for decades and decades. I think it really ultimately left the tax vulnerable to attack when the time came. When the forces against it were ready, it was in a weakened state. It was a pretty easy target.

But what you say is right. It doesn’t have the cachet of a wealth tax, even though, as you also point out, the wealth tax is going to have a pretty rough time in the courts by almost any account. There are people out there arguing that it’s constitutional, and they may well be right, but it’s hard to imagine that this Supreme Court is going to believe that it’s constitutional. Whether or not you could make a plausible case for it being constitutional. As a matter of politics and of legal politics, it’s a little hard for me to imagine.

In your article, you talk a lot about the power of storytelling and how it interacts with existing hierarchies and power structures. You do suggest that fans of estate tax need to come up with their own stories to tell. Do you think that that could actually be helpful? I’m interested in this more generally in the way that people make arguments in politics, especially around tax.

Do you think that it’s possible to talk differently about the estate tax and tell a different set of stories? Because as you say, the facts don’t always carry the day, or maybe don’t even usually carry the day. It’s something else. What do you think?

Goldburn P. Maynard Jr.: That’s difficult. Not that it’s difficult to come up with alternative stories. What I think is difficult is that I think that you can win the fight on story and still lose the legislative fight.

I think that the left has been quite successful at leveraging this idea that the rich are getting away with not paying enough taxes. I think that it generally polls well, and yet the 2017 tax cuts were still passed despite that kind of public sentiment.

It’s not that I don’t think that the story of the estate tax couldn’t be changed, is that, as we were talking about earlier, there are other dynamics and other hierarchies and other interests that very much are playing a part and will continue to play a part, even if something changed about the estate tax.

Joseph J. Thorndike: Yeah. We shouldn’t exaggerate the importance of democratic pressure on the formulation of tax policy. A lot of that gets determined, voters be damned. Right?

Goldburn P. Maynard Jr.: Exactly. I’m not a political scientist, but there’s a sense in which there are those really salient issues. Then a lot of tax policy issues get lost in the wash.

Joseph J. Thorndike: Yes. I think that’s right. Voters just don’t engage in a lot of these tax policies in that level of detail.

It’s also striking to me, just to back it up a little bit, that taxing the rich polls very well. The estate tax polls very poorly. I don’t really feel like Democrats and supporters of the estate tax more generally — because we shouldn’t conflate those two.

There are a fair number of Democrats who don’t like the estate tax. There’s a fair number of pivotal Democrats who don’t like the estate tax. Defenders of the estate tax haven’t really wrestled that to the ground yet. They sort of take for granted, and this is again overt focusing on the facts. They’re like, “Well, you people like taxing the rich, why don’t you like the estate tax?”

I feel like a lot of estate tax supporters can never get beyond that conundrum. They get puzzled by that. “I don’t understand why this tax is unpopular when it doesn’t affect any of you and why it’s only the rich people.”

To me, progressives are missing the point there. They’re missing something and they need to figure out what that is. As you point out, even if they figure it out and they figure out how to appeal to voters, it may not matter. Much of the tax policy formulation is going to go on anyway, regardless of what the voters think. But it’s also true that you can’t lose the voters all the time on these issues. It doesn’t strike me that they’ve ever figured out how to win the voters on this particular issue, at least on the estate tax.

Goldburn P. Maynard Jr.: In some sense, sometimes that’s the problem with the estate tax because historically at no point has the estate tax accounted for more than 2 percent of government revenue. There’s a sense in which you say, “Well, why are people spending so much time fighting about this tax because it’s so small.” Then on the other hand, you say, “Well, let’s not spend any time on this.”

I think sometimes Democrats are guilty of the latter of just saying like, “Let’s not spend so much time on this because there are other parts of the tax system that bring in a lot more money in and are a lot more important.”

Joseph J. Thorndike: I think honestly the last Democratic politician to really take it seriously was probably Franklin Roosevelt. I’m not kidding. Like he was the last person to really put it front and center for at least a little while. Even then, it was a little flash in the pan. Even for him it didn’t last very long. Maybe that’s just the way it is.

All right. When it comes to addressing wealth disparities and racial wealth disparities in particular, do you have any proposals in particular that you would advance, that you think might be helpful? Don’t be constrained too much by political realities here.

Goldburn P. Maynard Jr.: On the one hand, there are just justice claims. Those have to with reparations and slavery and Jim Crow. But I think that those are specifically justice claims. Regardless of whether there was wealth inequality or not, those justice claims should be taken care of.

In terms of wealth inequality, I’m not necessarily tied to any one proposal. I think there are many good ones out there. The economists right now have been pushing for something that they’ve been calling “baby bonds.” It’s something similar to what I have proposed as well. Some kind of account or investment vehicle for every child, so that we’re building wealth for them from the get go. I think you’d both want to think about the leveling down of wealth.

We need to do more on the wealth taxation side — and this has already been stripped from the Democrats’ bill — whether it is taxing capital gains at death or something else, we need to do more of that. We also need to do more on the leveling up of wealth. Helping communities build more wealth. 

I was hoping that we would see more investment in minority communities, etc., through the Biden administration’s racial equity programs. I think they’re attempting to do that. It’s just that they also have to deal with the courts. I think they’re being careful in how they approach that.

Joseph J. Thorndike: It is certainly seems true that some of the most dramatic proposals in the current pending legislation, especially from the leveling down side of things, have been non-starters. I guess that’s not surprising. But it is striking that a lot of the stepped-up basis proposals and such have had such a hard go of it on Capitol Hill.

Goldburn P. Maynard Jr.: The way that the political cycles work, it just makes you the thing that, “OK, so that’s probably it until 2025.” Because the way it’s playing is just like the first year in the presidency that they can pull off something like this.

Joseph J. Thorndike: It’s not easy. Of course these are extremely narrow margins on the Hill right now, which probably made it a pretty heavy lift from the beginning, but it is going to be a hard sell.

I think, as Brown’s book makes clear, and as your own work makes clear, that these things are always going to be a hard sell because the structures supporting the existing hierarchies are powerful. It’s not ever going to be easy to disrupt them.

That is the part where you say that you’re struck by the persistence and the durability of these structures, and I am too. The historian in me says change happens just like continuity. They both happen. But the change can be very slow to come, especially when it’s money behind a lot of it. It can be really difficult to change.

I think if there’s anything else that we’ve become acutely aware of, it’s that a lot of the racism that has been a factor in American society since the beginning is not going to be overturned by legal changes. The great achievements of the Civil Rights Movement left a lot of the basic attitudes and the racism untouched, and that’s I think become abundantly clear over the decades since.

Anyway, it’s been delightful to ask you all these questions. Do you have anything else you want to leave our Tax Notes listeners with?

Goldburn P. Maynard Jr.: I just appreciate the opportunity to be able to speak to the listeners. I appreciate how much we are talking about wealth and equality right now. I’m looking forward to seeing what else the Biden administration is able to come up with. They seem to have been pretty clever at trying to find ways around some of these very thin margins on the Capitol and also the federal court.

Thank you so much for having me.

Joseph J. Thorndike: Well, thank you so much for joining us. We really appreciate it.