Black Tax

What Is the Black Tax?

The Black tax refers to the financial burden borne by Black people who have achieved a level of success and who provide support to less financially secure family members. These monetary transfers are generally made between middle class and well-to-do Black people and relatives who are struggling to make ends meet.

The term encompasses not only the financial transactions but also the toll that it takes on the well-off family member, who may be unable to build wealth in the same way as their White peers who don’t share the same financial obligation.

Understanding the Black Tax

The Black tax, a term that originated in South Africa, is the financial responsibility placed on family members who experience upward mobility to help out their relatives who are less fortunate. Often, the successful person is the first one in a poor family who graduates from college or attains a high-paying job.

While there is no actual rule, there is often a sense of obligation to assist struggling family members. One study reveals that individuals who are considered their family’s breadwinner are burdened by the responsibility, and their ability to save is impacted.

The Black tax sheds light on the high cost of long-term discrimination, which leads to Black people paying more than White people for the same opportunities. For instance, researchers have found that Black borrowers pay more in mortgage rates and mortgage insurance than their White peers, and that more than $65,000 of the wealth differential at retirement can be attributed to these factors.

What’s more, homes owned by Black and Brown people are often undervalued due to historic discrimination and ongoing redlining.

A home is one of the most commonly owned assets, and home equity is the single largest contributor to household wealth, according to a Pew Research Center report on wealth gaps among Whites, Blacks, and Hispanics. Families of color don’t always reap the benefits. This is a factor in the Black tax, since it impacts wealth building.

How the Black Tax Works

In poorer families, it’s customary for everyone to come together to ensure that certain members can realize their goals of financial success. That could mean everyone pitching in to ensure that a talented football player gets to practice with the equipment that he needs, or everyone contributing to a bake sale for a local dance team to compete.

Nobody really forgets the sacrifice that loved ones make for the sake of their success, and conversely, they don’t forget how hard their family members have worked for very little pay. That is why Black people end up stretching their finances further than they should to help family members who don’t have as much. This might help explain why the rate of default on student loans among Black students is five times what it is for White students. This burden is also felt by Black adults with family members in Africa and the Caribbean who see American living as a sign of wealth.

The Origins of the Black Tax

The origins of the Black tax in the United States lie in the enslavement of Black people, who were forced into labor for the benefit of White families. Slavery is also at the foundation of the 228-year wealth gap between Black and White families. At the end of slavery, slaves weren’t equally set free around the country, and while some White slaveholders were given reparations for losing their workforce, emancipated slaves weren’t given any reparations for their enslavement.

The promised “40 acres and a mule” were rescinded by President Andrew Johnson after Abraham Lincoln’s assassination, leaving most newly freed slaves without any starting income. On top of that, a number of states, including Virginia, enacted laws that made it possible to arrest anyone who seemed not to be working. Those jailed people were then used as unpaid labor yet again.

The historic wealth gap has been further exacerbated by economic systems put in place that prevented Blacks from advancing. For example, after World War II, Black veterans were unfairly treated despite their wartime service and unable to take advantage of many programs that would have provided them and their families with financial security. The GI Bill, signed in 1944 by President Franklin D. Roosevelt, offered veterans college or vocational training funds, unemployment insurance, and access to affordable starter homes.

These funds were handled at the local level, and Black veterans were subject to segregation, redlining, and discrimination, which denied them access to these life-changing benefits. While White veterans could come home and start over with an advantage, returning Black veterans were left in the same place where they had started.

The U.S. government has a history of offering reparations to other groups, including Japanese families who were forced into internment camps. Native Americans have received billions of dollars over the years, in recompense for genocide and other atrocities.

Many attempts to address and study the benefits of reparations to the descendants of Black slaves have been made, as recently as 2021, when the House Judiciary Committee approved a bill to consider remedies for slavery, including reparations. However, no such funds have been provided by the federal government to date.

Attempts to Fix the Black Tax

Fixing the Black tax is complicated, since it lies with individuals and their families. However, closing the wealth gap could alleviate the need for such financial transactions. On a larger scale, there have been efforts put forth to reduce the wealth gap. For instance, some cities are taking it upon themselves to offer reparations to descendants of slaves.

St. Louis, for instance, is one of 11 cities across the country that offer a reparations program through property taxation. Individuals are allowed to voluntarily contribute to a reparation fund. In Evanston, Ill., grants of up to $25,000 for each qualified applicant can be used toward home purchase, mortgage assistance, or home repairs in lower-income neighborhoods.

Government Help

Several government programs, which aren’t specifically for Black families, are helping to knock down the barriers that could prevent lower-income families from building wealth. The Federal Housing Administration (FHA), for example, offers help obtaining loans for those hoping to buy their first homes. This could be the tool that helps a middle-aged or older Black person buy a home that they can leave to their children.

The earned income tax credit (EITC) has given lower-income families relief and a cushion, and Medicaid expansion in many states has provided people with affordable healthcare, helping relieve them of the burden created by illness.

Individual Help

The main way that the average person can help close the wealth gap is through shopping at Black-owned businesses and paying fair wages regardless of skin color. The gap is perpetuated to this day with unequal pay, and with Black business owners being less likely to get venture capital funding. Only about 1% goes to Black entrepreneurs. This means that venture capitalists and banks are in a unique position to close the gap by funding the dreams of business owners.

For business owners, adopting diversity, equity, and inclusion (DEI) practices can improve the quality of jobs for employees from marginalized backgrounds. DEI initiatives can also help Black candidates find roles for which they are qualified.

The Bottom Line

The Black tax is a term used to describe a very real problem. Those in the Black community can empower themselves and, through strategic planning, work to ensure that their giving back doesn’t significantly impact their ability to save and build generational wealth. However, the onus for solving the inequities that lead to the Black tax ultimately lies with leaders who can create opportunities to close the wealth gap among Black, Brown, and White Americans.