How to pay for reparations in California? ‘Swollen’ wealth could replace ‘stolen’ wealth through taxes

Suggestions from the expert testimony, given at the task force’s meeting at San Diego State University on Friday, could be incorporated into the body’s final recommendations to the state legislature, which are due this summer.

“This is incredibly insightful and provocative,” said Lisa Holder, a task force member. “It gives us lots to think about.”

The experts’ suggestions about possible sources of funding were based on their testimony that current U.S. tax laws favor the wealthy — who are most likely to be white.

“Our tax laws as written 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 gain access to the same tax breaks as their white peers.

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Brown said what would be ideal is a reparations tax credit designed to compensate Black taxpayers, but she thinks it would face legal challenges. So she said the next best thing would be “a wealth tax credit applicable to all taxpayers in households with below median wealth.”

“Given the racial wealth disparity, this will result in a disproportionate percentage of Black households receiving the credit,” she testified

A pair of estate planners who testified introduced the idea of taxing “swollen” wealth to replace “stolen” wealth, and showed that the racial wealth gap widened after 1981 — when the biggest tax cut in American history was enacted. They cited Federal Reserve figures from 2019 that showed 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 estate tax. (Under federal law, the lifetime estate-tax exemption is $12.9 million for individuals this year.) Their other suggestions include: a mansion tax, a graduated-property tax — which they acknowledged may not be likely in California because Proposition 13 taxes properties based on their value when they were sold — or even a tax on the fledgling “metaverse.”

Also: California reparations push could give Black residents hundreds of thousands of dollars — here’s what they say they would do with it

Sarah Moore Johnson, founding partner at Washington, D.C.-based Birchstone Moore, is one of the estate planners who testified. She proposed a state-sponsored reparations tax fund that could receive charitable contributions.

“Charitable contributions are currently permitted to the state or federal government, but only for public purposes,” she said. “If racial repair is recognized as a public purpose,” it could be tax-deductible in the same manner as charitable contributions, she said.

Acknowledging that the idea of reparations continues to be controversial, task force member State Sen. Steven Bradford asked the experts whether they think wealthy people, like their clients, would be opposed to such ideas.

“What I hear from my clients is a level of guilt about being able to give this much money to their heirs,” Moore Johnson said. “From where I sit and what I see, I see some support.”

Raymond Odom, an estate tax lawyer and director of Wealth Transfer Services at Northern Trust in Chicago who co-presented with Moore Johnson, echoed that sentiment.

Odom said he has helped “wealth get concentrated” for decades, and how that happens is through very wealthy people setting up foundations and charities that allow them to avoid taxes. “It’s a joy being able to talk to people who could change that,” he said, adding that he has “talked to wealthy white folks who are behind this.”

“I can tell you unequivocally: Very wealthy people have lots of trouble figuring out what to do with their wealth,” Odom told the task force.

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Addressing the possibility of relying on charitable sources, task force member Don Tamaki said, “I can’t argue with the fact that charity is not reparations. But in my humble opinion, we need to explore every avenue of funding.”

Wherever any possible compensation comes 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 precedent such as tax-free treatment of Holocaust payments, and Japanese-Americans who received compensation because of their mass incarceration during World War II. And her second suggestion was that African-Americans should not have to pay for their own reparations, which she said “would be entirely inconsistent with the intent and spirit of the task force’s goals.”

See: Historic report lays out case to compensate descendants of slaves in California

The nine-member task force, established by a 2020 law and responsible for studying and developing reparations for African-Americans because of slavery, released a preliminary report last year. It is set to disband when it submits its final report and recommendations to the state legislature by its July 1 deadline. But on Saturday, the task force voted to remain intact for another year — until July 1, 2024 — to help with the implementation of its proposals, despite questions from some of its members about whether it had the authority to decide to do so.

The task force also voted to change the dates of its next meeting, which was previously scheduled for the end of February. In what could be the final in-person meeting before the report is due will be held March 3 and 4 in Sacramento.

Related: Reparations task force also wants to change California policies