[Senate Hearing 117-383]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-383

               COMBATING INEQUALITY: THE TAX CODE AND 
                RACIAL, ETHNIC, AND GENDER DISPARITIES

=======================================================================

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2021

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT                                   
                                    

            Printed for the use of the Committee on Finance

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
48-847-PDF                 WASHINGTON : 2022                     
          
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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                  (ii)
                                  
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Crapo, Hon. Mike, a U.S. Senator from Idaho......................     2

                               WITNESSES

Brown, Dorothy A., Asa Griggs Candler professor of law, School of 
  Law, Emory University, Atlanta, GA.............................     4
Desai, Mihir A., Ph.D., Mizuho Financial Group professor of 
  business, Harvard Business School; and professor of law, 
  Harvard Law School, Harvard University, Cambridge, MA..........     5
Rao-Potlapally, Himalaya, managing director, Black Founders 
  Matter Fund, Salem, OR.........................................     8
Hawkins, Shay, co-founder and president, Opportunity Funds 
  Association, Washington, DC....................................    10

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Brown, Dorothy A.:
    Testimony....................................................     4
    Prepared statement...........................................    41
    Responses to questions from committee members................    44
Crapo, Hon. Mike:
    Opening statement............................................     2
    Prepared statement...........................................    46
Desai, Mihir A., Ph.D.:
    Testimony....................................................     5
    Prepared statement...........................................    47
Hawkins, Shay:
    Testimony....................................................    10
    Prepared statement...........................................    83
    Responses to questions from committee members................    86
Rao-Potlapally, Himalaya:
    Testimony....................................................     8
    Prepared statement...........................................    90
    Responses to questions from committee members................    93
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    94

                             Communications

Baker, Vania K...................................................    95
Balcerak, Amy....................................................    96
Bruckner, Caroline...............................................    97
Buzatu, Anne-Marie Yarbrough.....................................   100
Center for Fiscal Equity.........................................   105
de Bruin, Sylvia.................................................   110
Dymkowski, Christine.............................................   111
Holt, Elizabeth..................................................   113
Lee, Nicholas Matthew............................................   114
Moskowitz, David.................................................   116
Professional Managers Association................................   116
Public Citizen...................................................   119
Stop Extraterritorial American Taxation (SEAT)...................   121
Walther, Ronald..................................................   123
Williams, Susan P................................................   124
Windsor, Genelle.................................................   125

 
                         COMBATING INEQUALITY:
                        THE TAX CODE AND RACIAL,
                     ETHNIC, AND GENDER DISPARITIES

                              ----------                              


                        TUESDAY, APRIL 20, 2021

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:01 
a.m., via Webex, in the Dirksen Senate Office Building, Hon. 
Ron Wyden (chairman of the committee) presiding.
    Present: Senators Stabenow, Cantwell, Carper, Cardin, 
Brown, Bennet, Casey, Whitehouse, Warren, Crapo, Grassley, 
Thune, Toomey, Scott, Cassidy, Lankford, and Daines.
    Also present: Democratic staff: Sarah Schaefer, Senior Tax 
Policy Advisor, Small Business and Pass-Throughs; Joshua 
Sheinkman, Staff Director; and Tiffany Smith, Chief Tax 
Counsel. Republican staff: Gregg Richard, Staff Director; Mike 
Quickel, Policy Director; and Don Snyder, Tax Counsel.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. This morning the Finance Committee will 
examine issues of racial justice and tax code inequality in 
America. Nobody of good conscience wants there to be a race-
based penalty or a discount on taxes. Everybody ought to pay 
their fair share, and everybody ought to have a fair chance to 
get ahead. In practice, the U.S. tax code doesn't always work 
that way.
    If America's busted old tax code excels at anything, it is 
rewarding those who are fortunate enough to already have 
wealth. The lucky few with the top incomes can go years 
deferring their taxes, paying what they want when they want to. 
On the other hand, there is no deferral for a black nurse who 
pays taxes out of every paycheck, or a Latina small business 
owner who pays taxes quarterly.
    According to a recent survey, a typical white American 
family has eight times the wealth of a typical black American 
family. Some of the cornerstone tax policies in America include 
well-
intentioned tax incentives for home ownership, education, and 
retirement savings. Those incentives only really work for 
people who can afford to buy homes and set aside money for 
education and retirement. Those people are much likelier to be 
white.
    The committee is going to hear a lot more examples like 
those today illustrating how the tax code adds to inequality in 
America. The fact is, some recent changes have made the 
situation worse. An estimated 80 percent of the individual 
benefits of the Trump tax law went to white Americans. Even the 
benefits that went only to the top 1 percent of taxpayers were 
skewed the same way.
    The American Rescue Plan enacted in March begins to change 
the math of racial injustice and tax code inequality. It 
expanded the Earned Income Tax Credit for millions of working 
people. It expands the Child Tax Credit and makes sure millions 
more working families will receive the full amount available. 
Too often, families and individual workers with lower incomes, 
particularly black and Latino, haven't had access to those full 
benefits.
    Those expansions are going to be game changes for workers 
and families in Oregon and across the land. They ought to be 
permanent, and I am working with members of this committee to 
make that happen.
    Now, inequality is not just about race. It is about gender. 
Women business owners, particularly women of color, are 
underrepresented, under-capitalized, and underappreciated. The 
share of business revenues that go to women-owned businesses 
hasn't budged in 20 years. It is stuck now at 4 percent.
    Along with Senator Cortez Masto and Senator Hassan, Senator 
Cardin and I are introducing the PROGRESS Act that is going to 
help boost that figure. Our bill is all about promoting 
investment in women- and minority-owned businesses, and helping 
them to grow and to hire more workers.
    Finally, policy-makers need better confidential data on how 
tax laws affect Americans of different races. Other Federal 
agencies collect that type of demographic information, and 
policy-makers can use it to improve them. The IRS does not.
    The fact is, the tax code is not strictly about government 
funding. Congress decided long ago to use the tax code to 
tackle major social and economic challenges. The words black or 
white or Asian or Latino or Native American do not have to 
appear anywhere in the tax code for tax laws to affect those 
groups differently. Too often those differences are adding to 
inequality.
    Now, the IRS needs to meet a higher standard of 
confidentiality due to its history and the sensitive nature of 
taxpayer information. That said, it makes no sense to blind 
lawmakers to the key data that would illuminate injustice in 
our tax laws. It is time for more tax data transparency. This 
committee is going to make sure that happens in a manner that 
fully protects the privacy and confidentiality of each 
American's taxpayer information.
    I am looking forward to discussing those issues and more 
today. There is a lot for us to cover. I want to thank our 
witnesses.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Crapo?

             OPENING STATEMENT OF HON. MIKE CRAPO, 
                   A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman, and 
welcome to our witnesses. I look forward to hearing your 
experiences, thoughts, and ideas today.
    There are questions of whether the tax code by itself leads 
to differing impacts across race, gender, age, or geography, or 
whether it is the underlying income, wealth, asset-holding, or 
job type disparities that principally cause these differing 
results. Underlying disparities are key, and it is important to 
know about them. There are a variety of disparities in measures 
of income, wealth, and assets across many dimensions. Examining 
the disparities using statistics shows a variety of results, 
along with changes in results over time. The Pew Research 
Center, for example, recently identified that income inequality 
for Asian Americans rose to become the highest among racial and 
ethnic groups.
    Underlying causes of these disparities are not entirely 
clear, since causality is difficult to establish. As a result, 
there are different views. Some views focus on government 
policies, while others stress inequities in opportunities for 
education and asset building, along with changing patterns of 
family formation and institutions like marriage.
    Today our witnesses will provide perspectives on the income 
tax system, barriers to opportunity, policy solutions and 
issues that we should consider, along with economics.
    Prior to the pandemic, the United States was experiencing 
one of the strongest economies across demographics in decades. 
With the Tax Cuts and Jobs Act in place and an agenda focused 
on smart regulation, we saw progress among many dimensions, 
including record low unemployment rates for African Americans, 
Hispanics, and others; 50-year lows in overall unemployment; 
robust wage gains skewed toward lower-wage earners; record high 
household incomes; and record low poverty.
    The TCJA included a number of provisions to make the 
personal income tax system more progressive, addressing these 
inequalities, including doubling the Child Tax Credit, nearly 
doubling the standard deduction, and features such as 
Opportunity Zones to inject more financial capital into 
distressed communities.
    It will be interesting and increasingly challenging to 
return to an economy as robust as we saw before the pandemic, 
with the endless streams of tax hikes and regulation that the 
current administration continues to propose.
    Going the opposite direction of combating inequality in the 
tax code are efforts like trying to roll back the cap placed by 
the TCJA on State and local tax, or the SALT deduction. I 
expect some of the proposals we will hear about today will have 
promise, and others may not actually get to the root of the 
problems we are addressing. I am eager to hear more.
    Whatever we consider, it will be important that the 
policies are developed on a bipartisan basis. No one party has 
a monopoly on good ideas, and any work on persistent barriers 
to opportunity will ultimately fail if done in a partisan 
fashion.
    I look forward to our hearing today, Mr. Chairman, and 
thank you.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo. I look forward to 
working with you and our colleagues on these issues.
    Now I would like to introduce our four witnesses.
    Professor Dorothy Brown is a professor of law at Emory 
University School of Law, where she teaches tax. She is a 
nationally recognized scholar in the areas of race, class, and 
tax policy.
    Dr. Mihir Desai is an economist and professor of finance at 
Harvard Business School, and a professor of law at Harvard Law 
School.
    Our next witness, Ms. Himalaya Rao, is the managing 
director of Black Founders Matter Fund and is a fellow 
Oregonian.
    Our final witness is Mr. Shay Hawkins, president and CEO of 
the Opportunity Funds Association. Mr. Hawkins previously 
served on the Finance Committee as the Staff Director for the 
Subcommittee on Energy, Natural Resources, and Infrastructure, 
of course with our colleague Senator Tim Scott.
    Thank you all for coming. As is customary, your prepared 
statements will automatically be made part of the record. 
Please use your 5 minutes to summarize.
    Please proceed, Professor Brown.

STATEMENT OF DOROTHY A. BROWN, ASA GRIGGS CANDLER PROFESSOR OF 
       LAW, SCHOOL OF LAW, EMORY UNIVERSITY, ATLANTA, GA

    Ms. Brown. Thank you. Thank you for inviting me to share 
these views on how our tax system perpetuates racial 
inequality.
    In my testimony today, I will draw on research in my book, 
The Whiteness of Wealth: How the Tax System Impoverishes Black 
Americans--And How We Can Fix It. I plan to discuss three tax 
policies that are more likely to provide tax breaks for white 
Americans than black Americans when they engage in the same 
activity.
    But if there is one thing that I hope you remember from my 
testimony today, it is that racial inequality is baked into how 
our tax laws operate, not because the Internal Revenue Code has 
separate rate schedules by race, but because American taxpayers 
bring our racial identities onto our tax returns. That not only 
harms most black taxpayers, but inevitably some white taxpayers 
as well.
    Understanding how this racial disparity happens is 
difficult, because the Internal Revenue Service does not 
publish statistics by race. I have had to become a detective of 
sorts.
    Another piece to unraveling the racial disparities is 
understanding the role of history. Many of our current tax 
provisions date back to a time when separate but equal was the 
law of the land. I begin with the joint return that entered the 
code in 1948.
    The joint return is a tax cut for marriages where one 
spouse earns roughly all of the income, while the other spouse 
works in the home. Census Bureau data I analyzed show that 
white married couples were more likely to be found in marriage 
bonus households than black married couples.
    That means that when white Americans marry, they are more 
likely to get a tax cut, but not black Americans. Married black 
Americans are more likely to be found in two equal wage earner 
households, and do not get a tax cut. In many instances, the 
joint return has led to married black couples paying higher 
taxes. And there has always been a percentage of married white 
couples who also need two incomes to make ends meet. My 
solution is a return to individual filings and a repeal of the 
joint return.
    The second provision is the exclusion of gains on the sale 
of homes for up to half a million dollars if you are married, 
or $250,000 if the taxpayer is single. The tax treatment for 
gains dates back to 1951. Losses on the sale of homes, on the 
other hand, are not deductible.
    Research shows us that the greatest appreciation in our 
homes comes when we live in neighborhoods which are 
overwhelmingly white with very few black neighbors. As the 
percentage of black homeowners in the neighborhood increases, 
the value of the homes decreases. Most white homeowners live in 
mostly white neighborhoods, while most black homeowners live in 
racially diverse or all-black neighborhoods. As a result, white 
homeowners, but not most black homeowners, are more likely to 
sell their homes at a large tax-free gain.
    Research also shows that the homeowners most likely to sell 
their homes at a non-deductible loss are black. Tax subsidies 
for home ownership create white tax winners and black tax 
losers. The Federal Government should stop subsidizing a racist 
home ownership market.
    The final area I want to highlight is the tax break for 
employer-provided retirement accounts. The tax break traces its 
roots to 1942. Amounts set aside in retirement accounts by 
employees--and if there has been an employer match, amounts set 
aside by their employers--are not taxable to the employee until 
their expected withdrawal at retirement.
    If any amounts are withdrawn prior to the age of 59\1/2\, 
they are subject to an additional tax penalty. Black Americans 
are less likely than white Americans to work for employers that 
provide retirement accounts. And further, black workers, 
regardless of income, are more likely than all other racial and 
ethnic groups to take an early withdrawal and pay a tax 
penalty.
    Given that less than half of white workers, a little over a 
third of black workers, and a quarter of Hispanic workers in 
the private sector participate in their retirement accounts, 
tax subsidies should be withheld until the private sector 
increases their employee participation rates.
    In The Whiteness of Wealth, I discuss many other areas 
where our Federal tax policies disadvantage black Americans, 
but they all lead to the conclusion that our tax laws need a 
fundamental overhaul that places racial equity at the center.
    I look forward to your questions.
    [The prepared statement of Ms. Brown appears in the 
appendix.]
    The Chairman. Which you will hear in a few minutes.
    Our next panel member will be Professor Mihir Desai, an 
economist and professor at Harvard Law School. Sir, welcome.

  STATEMENT OF MIHIR A. DESAI, Ph.D., MIZUHO FINANCIAL GROUP 
 PROFESSOR OF BUSINESS, HARVARD BUSINESS SCHOOL; AND PROFESSOR 
 OF LAW, HARVARD LAW SCHOOL, HARVARD UNIVERSITY, CAMBRIDGE, MA

    Dr. Desai. Thank you for the opportunity to participate in 
these hearings. I want to use this opportunity to make five 
points that are elaborated in my written testimony.
    There is a staggeringly persistent and large correlation 
between race and income, savings, wealth, and mobility. 
Addressing these correlations should constitute an essential 
ambition for all policymakers. The tax system, in an effort to 
isolate the ability to pay, employs income and the returns to 
wealth to raise revenue in an efficient manner.
    The returns to wealth are often granted preferential 
treatment relative to labor income in order to encourage 
certain behaviors, or to offset the lock-in effect associated 
with the realization-based system.
    Looking at certain preferences in isolation will yield the 
conclusion that these preferences have a disparate impact on 
racial subgroups. This statement, as far as it goes, is 
incontrovertible. Indeed, it is unsurprising when one considers 
the correlations discussed already.
    The remaining three issues raised by this result are far 
less straightforward. Specifically, is this analysis complete? 
What should we take away from this analysis? And might such an 
analysis lead us astray?
    The result that specific provisions, when considered in 
isolation, impact racial subgroups differentially is a 
qualified one and can be highly incomplete when handled 
loosely. In particular, when analyzing the intersection of tax 
policy and racial justice, three errors should be avoided.
    The first issue is that analysis of tax policy should trace 
through the incidence of benefits or taxes beyond the claimants 
of any particular benefits. The ultimate beneficiaries of tax 
policies are rarely only nominal claimants. I provide an 
example in my testimony of the LIHTC, an important provision 
that would yield nonsensical results if analyzed in the manner 
described above.
    The second issue is that revenue neutrality is an important 
discipline on tax analysis. Isolating a preference to benefit 
the subgroup is not enough to assert that it should be 
repealed, because that preference exists in a larger system 
that requires financing. The discipline of revenue neutrality 
can yield counterintuitive results. My testimony provides an 
example of how the repeal of the mortgage interest deduction 
could result in a less, rather than a more progressive system.
    The third issue is that the broader tax system must be 
considered in examining the impact on racial subgroups. Given 
the correlations of wealth and race identified above, it is not 
surprising that preferences for the returns to wealth may have 
a disparate impact on racial subgroups.
    It would also not be surprising if progressive income tax 
rates and refundable tax credits would also have a disparate 
impact on racial subgroups in a distinct direction. Said 
another way, it is critical to consider the totality of the tax 
system if one is to assess the racial impacts of the system.
    Given data I provide on the progressivity of the tax 
system, it would be unwise to extrapolate from an analysis of 
savings preferences to the whole tax system. Tax analyses that 
consider race can also go astray. When seeking solutions to 
these problems, analysts have dismissed tax credits and 
progressivity in support of radical solutions, including 
blowing up the tax code and starting from scratch.
    These claims can be self-defeating for the cause of racial 
justice because they underemphasize the role of current 
provisions in advancing the agenda of racial justice. The real 
promise of this hearing, and of an increased emphasis on race, 
ethnicity, and gender, is to reorient our policy debate away 
from its current obsession with inequality broadly, and toward 
a sharper focus on those in our country in deep need.
    Over the last 20 years, academic studies that claim sharply 
rising levels of income and wealth inequality have become 
accepted as fact, and undergird much policy discussion today. 
Related studies claim that the tax system does little to 
address inequality, and that novel instruments are required to 
address these issues. These studies and the obsession with 
rising inequality are problematic for many analytic reasons 
that cast the results in doubt.
    Moreover, they are problematic because they orient 
attention to the very rich and away from the other parts of the 
income distribution, particularly the bottom quintiles of 
income distribution. It is curious that many of the efforts do 
not mention or measure the Earned Income Tax Credit in their 
discussions of economic justice, despite its role as a critical 
anti-poverty program.
    In this sense, the broader inequality debate obscures the 
readily available solutions for racial and economic justice--
the EITC and more progressive rate structures--and focuses our 
attention incorrectly on issues of corporate taxation, the 
possibility of wealth taxation, greater middle-class tax 
relief, and broad-based entitlements.
    Expanding the EITC in two directions, with a refundable 
minimum credit, and with a larger childless EITC, would be 
enormously beneficial to the causes of economic, racial, and 
gender justice. Over time, providing more income to those at 
the bottom income distribution will allow them to begin saving 
and building wealth.
    Reparations would seem best suited to address the question 
of the racial wealth gap. It is worthwhile noting that 
comparable efforts at reparation, including those for Japanese 
Americans, payments to Holocaust survivors, the Truth in 
Reconciliation Commission, and local American efforts such as 
those in Rosewood, FL, did not employ the tax system. That is, 
I believe the reparations debate should be initiated in earnest 
and could address the racial wealth gap in interesting ways. 
But there is no clear, obvious reason to operate it through the 
tax system.
    The true payoff of this hearing will be if the underlying 
correlation of race with income, wealth, savings, and mobility 
regains its status as a question of central importance to the 
future of the country.
    I very much hope you all find the courage and wisdom to 
address these questions as directly as one can in the tax code 
and otherwise.
    [The prepared statement of Dr. Desai appears in the 
appendix.]
    The Chairman. Professor, thank you; thank you very much. 
And wisdom is certainly in need on Capitol Hill right now, and 
we thank you for being here.
    Our next witness is Ms. Himalaya Rao, one of my neighbors 
in Portland. And we are so glad that you are here, Ms. Rao, and 
please proceed.

STATEMENT OF HIMALAYA RAO-POTLAPALLY, MANAGING DIRECTOR, BLACK 
                FOUNDERS MATTER FUND, SALEM, OR

    Ms. Rao. Thank you so much, Chairman Wyden, Ranking Member 
Crapo, and members of the committee. Thank you so much for the 
opportunity to present to you today.
    My name is Himalaya Rao, and I am the managing director of 
the Black Founders Matter Fund, which is a venture capital firm 
based out of Portland, OR, investing in black entrepreneurs 
throughout the United States.
    We are an early-stage fund, which means we invest right 
alongside, or right after angel groups, which is really early 
in our founders' journey. They may have some initial traction 
like a minimum viable product (MVP), or some initial customer 
validation, but we are really the ones who are giving them both 
the capital and the resources to be able to grow and scale 
their businesses.
    As you might notice, I do not look like someone who would 
be the typical face of someone in venture capital. There are 
very few women in this space, and even fewer women of color. I 
am also a first-generation immigrant to this country, and my 
career actually started out in the Bronx as a school social 
worker working with children and families--so, very far from 
venture capital. No one in my immediate family has actually 
gone into business, so I went to get my MBA so that I could 
learn the language on how to navigate this space effectively.
    And it was there in my MBA program that I first was 
introduced to entrepreneurship and venture capital. And to me, 
venture capital is the perfect merger between social work and 
business, because every single day I get to be part of the 
redistribution of wealth from very wealthy individuals to 
founders on the ground who are working tirelessly to create new 
and innovative solutions to small and systemic problems.
    When I started out my career, I positioned myself as a 
venture capital consultant. And in the first few years, I had 
the opportunity to work across seven different funds. This gave 
me a unique vantage point to be able to see how different firms 
operate in this space. But it also made me realize that even 
when there is a huge amount of willingness to invest in diverse 
founders, there are significant barriers to actually achieving 
that outcome which, for the most part, haven't changed in the 
last 10 years.
    And so, as I reflected on what those challenges are, I 
reduced it down to three central issues that I have elaborated 
in my testimony, which I will present to you today.
    The first is that investors engage in a pattern-matching 
behavior to evaluate startups. So what that means is that we 
utilize our past experiences to determine the propensity for, 
if a founder or a venturer has the ability to be successful. 
And that is an entirely normal way for humans to process 
information, but it really poses a threat to equity in this 
space. And that is because historically venture capital--and 
entrepreneurship--has only been an option for a small subset of 
wealthy white men.
    So, if you think about it like an algorithm, all the inputs 
we are using to determine what success looks like are based on 
an incomplete data set that is also not representative of the 
types of ventures or founders that are present today in the 
United States.
    The second issue is that we also engage in homogeneous 
groupthink. Oftentimes in this space, there are a lot of 
initiatives to try to promote demographic diversity. And while 
that is absolutely critical and foundational to creating 
representation in this space, we also often overlook the 
absolute necessity to include people with different values, 
different socioeconomic statuses, and different education, to 
create a true environment where there are people with different 
lived experiences, and therefore the inclusion of people who 
have different ideas about what success can look like.
    And the final issue is that there are not currently enough 
on ramps for different types of individuals to become investors 
and participate in this space. I have laid out several key 
recommendations in my written testimony, like tax incentives, 
investor reeducation, student loan credits, and changes to 
legislation on who can participate in this space.
    I encourage the committee to consider ways in which we can 
support the greater participation along three stakeholders. 
That would be BIPOC founders, BIPOC emerging fund managers, and 
BIPOC investors, to be able to then create a better environment 
where investors and fund managers like myself can be better 
representatives of founders and Americans at large.
    We all have implicit bias in our decision-making process, 
but if we can create a broader sense and a broader level of 
representation and participation in this space, we can actually 
start to create a more equitable space for all founders to have 
equal access to capital and growth.
    Thank you again for giving me this platform to advocate for 
founders and the inclusion of diverse and BIPOC founders.
    As a first-generation immigrant, I believe that our 
differences are what make us and this country continue to stand 
at the forefront of innovation. I am honored to be a part of 
that solution, and invite any questions you might have.
    Thank you.
    [The prepared statement of Ms. Rao appears in the 
appendix.]
    The Chairman. Ms. Rao, thank you very much for excellent 
testimony. I also want to note at this point that your 
highlighting the shortcomings of algorithms in some of these 
issues is critically important.
    I am the sponsor, along with Congresswoman Clarke and my 
colleague Senator Booker, of the Algorithm Accountability Act. 
So we are going to want to follow up with you on your important 
points there.
    Our final witness is an alum of the Senate Finance 
Committee, Mr. Shay Hawkins, formerly with our colleague, Mr. 
Scott. Welcome, sir.

     STATEMENT OF SHAY HAWKINS, CO-FOUNDER AND PRESIDENT, 
         OPPORTUNITY FUNDS ASSOCIATION, WASHINGTON, DC

    Mr. Hawkins. Thank you so much, Chairman Wyden, Ranking 
Member Crapo, and members of the committee. It is a pleasure 
for me to be with you today. This is my third time I have 
testified before Congress, but my first time testifying before 
the Senate. So I thank you for having me.
    I am the co-founder and president of the Opportunity Funds 
Association. And this morning I would like to share a few 
success stories from Opportunity Zones. I would like to discuss 
ways to build wealth through expanded retirement savings. I 
would like to remind the committee of the ways tax reform made 
the tax code more equal. And finally, I would like to suggest a 
couple of policies to get investment capital into the hands of 
minority entrepreneurs.
    Prior to co-founding OFA, I served as Tax Counsel to 
Senator Scott, where I helped him champion Opportunity Zones. 
And in Opportunity Zones we are seeing wealth being built 
through diverse projects and diverse leaders.
    Quinn Palomino was born in Vietnam right at the end of the 
Vietnam War. She grew up in refugee camps that the U.S. had set 
up at Fort Chaffee, AR. Today, Quinn leads Virtual Partners, a 
global private equity firm that was active in social impact 
prior to Opportunity Zones, but has raised $100 million across 
four Opportunity Funds to build a combination of commercial 
real estate and affordable housing nationwide.
    Two weeks ago, I was in Panama City, FL, where Jorge 
Gonzalez of the St. Joe Company broke ground on a waterfront 
hotel and stand-alone restaurant on the Panama City Marina. 
This project will create 150 direct jobs for current residents 
and rebuild a portion of Panama City that was completely 
devastated during Hurricane Michael.
    Alex Bhathal, managing partner of RevOZ, a leading real 
estate investment firm specializing in Opportunity Zones, will 
cut the ribbon on an 11,000 square foot office project. This 
facility will house San Bernardino County's Children's 
Department of Behavioral Health, providing mental wellness care 
to some of the most vulnerable and underserved members of that 
community.
    We can also build wealth through retirement savings. 
According to the Federal Reserve, the bottom 50 percent of 
American families hold less than 2 percent of total U.S. wealth 
and have a median retirement savings balance of zero. This 
committee did great work towards helping to mitigate that when 
this committee developed the SECURE Act.
    Another promising way to address this challenge was 
outlined in a recent paper from the Economic Innovation Group 
by a bipartisan pair of economists, Teresa Ghilarducci and 
Kevin Hassett. The authors propose a new program modeled after 
the highly successful Thrift Savings Plan. This would be aimed 
specifically at helping lower-income workers build wealth and 
retirement security. If it is properly designed, a program like 
this could go a long way towards narrowing the racial wealth 
gap.
    And finally, Congress should do no harm. In tax reform, we 
placed a cap on the State and local tax deduction. We doubled 
the Child Tax Credit. We doubled the standard deduction. And we 
put a limitation on the home mortgage interest deduction.
    And so particularly, when we are looking at the State and 
local tax deduction, we should not lift that cap. 
Representative Alexandria Ocasio-Cortez recently called SALT 
``a gift to billionaires.'' And I cannot say that I agree with 
the Representative often, but on this issue the math is on her 
side. And uncapping SALT is a non-
starter for those concerned with income inequality in the tax 
code.
    I also look forward to discussing ways that we can use the 
tax code to draw money into the hands of minority 
entrepreneurs, and I will address that in the Q&A.
    Thank you.
    [The prepared statement of Mr. Hawkins appears in the 
appendix.]
    The Chairman. Let me begin, if I might, with you, Professor 
Brown. Let's see where you are, Professor Brown; very good.
    Your testimony makes clear that by giving tax breaks to 
those who are already wealthy, the tax code perpetuates 
longstanding inequality.
    It seems to me it is even worse than that. The black family 
with the exact same pay stub as a white family is less likely 
to own stock than the white family. Can you briefly describe 
your research with respect to stock ownership by black 
households, and how that plays into their ability to benefit 
from the capital gains tax rate?
    Ms. Brown. So research shows that black Americans, pretty 
much regardless of income or wealth, are less likely to own 
stock than white Americans. In fact, there was a study of the 
top 5 percent of black wealthy Americans, and it showed they 
were less likely to have stock than white Americans. And the 
benefit of owning stock in the current tax code is, tax rates 
are much lower.
    So if I had a choice, I would rather have my wages taxed at 
the low preferential rate that currently stocks are taxed at. 
So because black Americans are less likely to own stock, they 
are less likely to take advantage of that tax break.
    The Chairman. Now, it seems to be compounded by the fact 
that billionaires do not need to sell their capital assets. 
They can avoid paying any tax at all in the deferral loopholes 
in the tax code.
    Does the ability to defer taxes on capital assets, 
sometimes indefinitely, add to the racial wealth gap, in your 
view?
    Ms. Brown. Absolutely, because what a wealthy parent can do 
is buy stock, have it appreciate significantly, and not sell 
it. When they die, they leave it to their child as an 
inheritance, and the child gets it tax-free with a stepped-up 
basis, which, you know, means something to those on the 
committee, but people hearing it may not know. So let's say my 
parents--well, not my parents--let's say some parents bought 
stock at $10,000, and when they die, their stock is worth 
$100,000. Their child inherits the stock, $100,000, tax-free. 
The next day, the child sells the stock for $100,000. They have 
no taxable income because our tax laws give them a $100,000 
basis equal to the fair market value. So that taxable gain will 
never be taxed by anyone.
    So yes, wealth is transmitted through gifts and 
inheritances, and white Americans are more likely to receive 
that than black Americans.
    The Chairman. Thank you very much, Ms. Brown.
    Let me turn to my Oregon neighbor, Ms. Rao, if I might. We 
are interested in your highlighting what you consider to be the 
top challenges for minority and female entrepreneurs in 
obtaining capital. And we are introducing some legislation 
today that is going to begin to speak to this, but I would be 
interested in what you think the top challenges are to getting 
capital.
    Ms. Rao. Thank you, Senator. So one of the top challenges 
that I noticed in my career in venture capital is that, even 
when there are platforms for black and brown founders to be 
able to pitch their ideas, there is a lack of representation on 
the investor side to be able to understand and articulate the 
strengths of those individuals who are pitching.
    And so early in my career, what I started to do was to be 
the translator between those black and brown founders and 
investors. And so investors are looking at a fixed set of 
criteria in order to consider a company investment, and what I 
would do is to be able to formulate the ideas of black and 
brown founders in a way that captures what investors are 
looking for.
    And I believe that with greater representation of different 
lived expierences on the investor side, that there will also be 
a greater propensity towards seeing what different models of 
success can look like, and thereby increase capital assets to 
black and brown founders.
    The Chairman. Now today, several of my colleagues--Senator 
Cortez Masto, Senator Hassan, Senator Cardin, and I--will be 
introducing two new tax incentives, trying to flow benefits 
into the hands of minority and female business owners.
    The first is a tax credit for hiring, first, an employee--
an incentive to hire that person. And the second is an 
investment credit to encourage investments in the smallest of 
the small businesses, those owned by individuals earning less 
than $100,000 per year.
    In your view, would these credits help with the challenges 
that you are describing for women- and minority-owned 
businesses?
    Ms. Rao. Thank you, Senator. I absolutely agree that the 
two proposals that you mentioned will help to funnel in capital 
and, more importantly, will help to increase the participation 
of different types of investors, to be able to funnel in money 
into different types of businesses.
    Oftentimes, that representation is overlooked, and I do 
think that both those proposals for the first employee credit, 
as well as the investor credit, will help to incentivize 
participation.
    The Chairman. Well, thank you, Ms. Rao. My time is up, but 
we are really appreciative of having an important Oregon voice 
on this. We know we have a lot of heavy lifting to do in this 
area, and we look forward to working with you and all of our 
very good witnesses today.
    It is now Senator Crapo's turn.
    Senator Crapo. Thank you, Mr. Chairman.
    I am going to go first to you, Professor Desai. We have 
heard a lot lately about income and wealth inequality. And it 
is a very critical issue. Some have recently claimed that the 
Federal tax system may have become regressive, despite the 
longstanding and overwhelming evidence to the contrary.
    In fact, even progressive economist and former Treasury 
Secretary Larry Summers commented recently on some of the 
recent analysis, saying that it is, quote, ``substantially 
inaccurate and substantially misleading.''
    A question that I have for you is, we have heard today that 
there is inequality caused by the joint filing allowed for 
people who are married, by the mortgage interest deduction for 
people who own homes, and for those who are investing in their 
retirement savings. So you have marriage, home ownership, and 
retirement savings as the target for changes in the tax code.
    If those changes were made, if those deductions were 
disallowed and removed, I understand that that would cause 
those who are married, and those who own homes, and those who 
have retirement savings, to pay more taxes. But would it reduce 
the burden on those who do not, on those who are truly at the 
lower income quartile and do not have as much access to home 
ownership and retirement savings?
    Dr. Desai. Thanks, Senator Crapo. So yes, first I think, on 
this industry of folks who are suggesting that the tax system 
is regressive and it has become less progressive over time, I 
provide evidence in my testimony that suggests that is just 
wrong. And I think it is very problematic. You know, it is 
problematic because it shifts attention away from what we 
should be thinking about. It makes us think that we can solve 
our problems by taxing billionaires, and by supposedly getting 
hundreds of billions of dollars that are in offshore tax 
havens, neither of which I think is true. It is distracting to 
the plight of people on the bottom two quintiles.
    It is very important for wealthy Americans and corporations 
to pay their fair share, but fundamentally I think this is 
distracting. And in that process, we lose sight of the 
instruments that will actually help us and help the folks who 
we really, I think, want to try to help on the bottom two 
quintiles.
    To your question about the specifics on marriage, and home 
ownership, and retirement accounts, you are exactly right to 
say that perhaps narrowly this could help in some way. But in 
the context of the overall tax system, one has to ask, well, 
where would those revenues go? How would they be used? Who 
would benefit from them? And maybe more importantly, it does 
not really address the underlying problem which was, I think, 
in the colloquy between Senator Wyden and Himalaya, about 
building wealth at the lower end of the income and wealth 
distribution. That I think is a much more interesting 
discussion than the discussion of looking at particular 
preferences on savings and suggesting they have a disparate 
impact on racial subgroups.
    Senator Crapo. Well, thank you. I agree with you. And my 
next question will be directed at you, Mr. Hawkins. But before 
I give it, I really think we ought to be focusing on things 
like strengthening and enhancing the EITC, strengthening and 
enhancing Opportunity Zones, strengthening our access to 
retirement savings so that people can get into the business of 
putting some money away for retirement savings.
    And Senator Warner and I worked on a piece of the capital 
access in one of the last bills, where we helped to give 
significant expansion to our Community Development Financial 
Institutions, encouraging and incentivizing access to capital 
in those areas. Those are the kinds of solutions that it seems 
to me we should look at.
    Mr. Hawkins, my question for you is, the Tax Cuts and Jobs 
Act did a number of things to simplify and increase 
progressivity of the personal income tax system, and I am going 
to just list a few: doubling the standard deduction; expanding 
the Child Tax Credit; expanding the alternative minimum tax 
exemption; enacting Opportunity Zone incentives; passing the 
SALT deduction; capping the mortgage interest deduction; and 
limiting the exclusion for 
employer-provided fringe benefits.
    Do you agree with the Joint Committee on Taxation analysis 
showing that the TCJA made the personal side of the income tax 
code more progressive? And do you think that any of the list of 
provisions I just identified, including the cap on SALT 
deductions, should be rolled back?
    Mr. Hawkins. You know, it is clear. I do agree with the 
Joint Committee on Taxation. It did make the tax code more 
progressive. And none of those items that you mentioned should 
be rolled back, particularly the SALT cap. I mean that is 
objectively oriented toward the absolute 1 percent, and should 
absolutely not be repealed.
    Senator Crapo. Thank you. Thank you, Mr. Chairman.
    The Chairman. Members to ask questions, we have our 
colleague Senator Stabenow and then Senator Scott.
    Senator Stabenow?
    Senator Stabenow. Well, thank you very much, Mr. Chairman. 
And thank you to everyone for really important testimony today. 
This is such an important topic. It is interesting to me that 
when we discuss tax policy, and just as an editorial comment, 
our colleagues, our friends on the other side of the aisle, 
view tax policy, tax cuts, really as a primary solution to so 
many issues, but will only talk about this one, and tax policy 
is not viewed as a part of the solution, which I find 
interesting.
    As chair of the Democratic Policy and Communications 
Committee, last year at the beginning of the pandemic, after 
the first couple of months, I released a report on the 
disparities, the impacts of the pandemic on minority 
communities, in health care, which were obvious, and housing 
and small business, and who our essential workers were. But we 
did not really focus on tax policy, which is why I think this 
is such an important discussion.
    I wonder, Professor Brown, if you would want to talk any 
more about the tax code and your efforts and seemingly neutral 
terms and items that actually create disparities. I know you 
have spoken about this, but in the context of the last 
questioning on whether or not this tax code is important to 
address, if you might just say a few words about that.
    Ms. Brown. Thank you so much. I think it is important that 
we focus on racial disparity impacted by our tax laws, and I do 
not think it is enough to say you cannot do it in isolation. 
Because my argument is that we should not do it in isolation. 
We should look at everything.
    And what is really important is, my research shows this is 
not a function of class. It is not only that black Americans 
pay more taxes because they are disproportionately poor, it is 
black Americans at all income levels. If we want to talk about 
wealth building, who is better able to build wealth? Those with 
higher incomes.
    But our tax laws disadvantage black Americans at all income 
levels when we are doing the same thing our white colleagues 
do. So I think it is important to talk about race and taxes, 
and I applaud the committee for this hearing.
    Senator Stabenow. Thank you so much. And also I would throw 
this question, Professor Brown, to you as well, but also Dr. 
Desai. Recently President Biden signed an executive order 
creating a cross-agency group with a mandate, as you know, to 
address systemic racism in the U.S. Government, which would 
include gathering data to track the effects of policies on 
disadvantaged groups.
    And although the government analyzes discrimination, again 
in lending and housing and employment and so on, it generally 
does not focus on tax policies. And so what challenges do you 
and other researchers face in studying the effects of tax 
policies on households and businesses, and what steps can 
Congress take to ensure on the front end that tax policies do 
not enforce or exacerbate wealth disparities?
    Ms. Brown. So, as I said in my testimony, I have had to 
become a detective of sorts, because I could not go to the 
statistics of income at the IRS and see which taxpayers paid 
and which got exemptions. So it has been really hard. It has 
taken me a couple of decades. I am glad we are on the other 
side of it, and I hope going forward that it changes.
    So, yes, there is the executive order that put together a 
data group, but we have to see what fruit that bears. I think 
Congress, going forward, could make a point of putting together 
a racial impact statement, for example, for any proposed tax 
provision to see how we would expect it to impact Americans by 
their racial identities.
    Senator Stabenow. Thank you.
    Dr. Desai?
    Dr. Desai. Yes, thanks for that question. And I think, you 
know, Professor Brown has done decades of research on this, and 
it has been difficult. I think the issue today is about 
collection of data and analysis of data.
    So the first thing on the analysis of data is, we actually 
know many things from her research and many other researchers 
about disparate holdings of wealth, about income levels, that 
one could use to make this analysis happen. So I am not sure 
there is a need for additional collection of data.
    Second, I just think it is worth, again, saying that we 
would want to think about the totality of the tax system in 
doing that analysis.
    And then finally, I would say my big concern would be kind 
of the politicization of the analysis done by the JCT and 
others, which is so valuable for tax policies. And in 
particular, for many provisions--I give the example of the Low-
Income Housing Tax Credit--it would be very, very difficult to 
analyze the racial impact. And it will require really heroic 
assumptions. And the collection of additional data will not 
necessarily help with that.
    So I think this is an incredibly important agenda. But to 
me, I think a lot of the data is in place to do what we need, 
if we want to do that.
    Senator Stabenow. Thank you. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague for her good questions. 
And I think, Professor Brown, what you are saying is, it is 
time for a bit more tax transparency to make it a little bit 
easier for those in the detective business. I thank you for 
your important points.
    Our next colleague will be Senator Scott.
    [No response.]
    The Chairman. Is Senator Scott here?
    [No response.]
    The Chairman. Okay; our next colleague will be Senator 
Cantwell, followed by Senator Thune.
    [Pause.]
    The Chairman. All right; next we have Senator Carper, and 
then Senator Toomey.
    Senator Carper?
    Senator Carper. Yes, Mr. Chairman. Good morning.
    The Chairman. Good morning.
    Senator Carper. Good morning, and hello to all of our 
witnesses. Thank you very much for joining us today.
    When I was Governor in Delaware from 1993 to 2001, what we 
focused on for those 8 years, among other things, we focused on 
how do we strengthen the basic building block of our family 
structure. And that is what we did for 8 years, and we created 
something called the Family Services Cabinet Council. We 
started literally from birth. And we--I think we made great 
progress. The current Governor has picked up the Family 
Services Cabinet Council. He used to be a member of my cabinet, 
and we still have the Family Services Cabinet Council, seven 
departments within State government that work together to help 
families through the life of kids and families.
    One of the things that I have always focused on, as some of 
my colleagues know, is root causes--not just the symptoms of 
problems, but root causes. And I asked my staff to dig up some 
information looking at the number of children who live in 
single-parent homes in our country, and to do that by race; 
also, to analyze what percentage of families are led by solo 
parents. It is pretty interesting information when we think 
about root causes.
    And I do not think we are focusing as much on root causes 
as maybe we could or should. Out of all solo parents, 42 
percent of those are led by a Caucasian--42 percent of the 
families with solo parents are Caucasian--28 percent are black; 
24 percent are Asian; and 3 percent are Hispanic.
    And there is a different way to ask the same question. The 
question is something like this: with respect to percentages of 
children who live in single-parent homes by race--I will say it 
again--percentage of children in single-parent homes by race, 
15 percent are Asian; 24 percent are Caucasian; 42 percent are 
Hispanic or Latino; and 64 percent are African American.
    And I think those sets of data are worth our consideration 
as we focus on not just the symptoms of problems, but how to 
deal with them as we think about root causes.
    I also asked my staff to help me actually analyze the ways 
we try to help lower-income families--Latino, white, black, 
Native American, whatever--and the ways that we are trying to 
help incent work and to help in capital formation.
    And among the programs that we were looking at were the 
Earned Income Tax Credit--which has been discussed here--hugely 
important; retirement programs that actually allow people who 
have very low income to sign up almost from Day 1 when they 
start their employment, the kind of stuff they do in Oregon, as 
the chairman knows, in a very good program out there; 
Opportunity Zones; the CHIP program, the Children's Health 
Insurance Program; tax breaks to incent marriage; child care 
funding. And we are doing a whole lot of that, actually, 
through the ARP: student debt repayment assistance; Affordable 
Care Act, the tax credits in the Affordable Care Act; the money 
that we are providing for food banks across the country through 
all of our COVID packages.
    WIC, the WIC program, and SNAP, that used to be food stamps 
and now it is SNAP; Medicare Part D, drug assistance for folks 
on Medicare; Medicaid expansion. We used to be down about 70 
percent. Now we are up to like 130 percent for Medicaid 
expansion States.
    Child Tax Credit, which we have expanded in the most recent 
package; GI bill. When I was coming home from Southeast Asia 
and enrolled in the business school at the University of 
Delaware, the GI bill was about $250 a month. Today, the GI 
bill provides tuition free and a housing allowance for GIs and 
their families, anywhere from $1,000 to $2,000 a month. 
Delaware Tech in my State, they have a C program. Anybody who 
graduates, I think, with a C-plus or more from Delaware high 
schools can go to Delaware Tech tuition-free for 2 years. And 
Delaware State University--which is the third-ranked HBCU in 
America out of all the public HBCUs--Delaware State University 
is ranked number three.
    They have a scholarship program, I think it is worth about 
$4,000 a year in tuition assistance. The majority of folks who 
receive that are students of color. I mention those things just 
to toss out a little bit of background, to put this in context 
as we think, not just about the symptoms of problems and how we 
deal with those.
    I want to come back to Opportunity Zones. I would ask our 
friend, our last witness, to just go back and just tell us 
again what more can we do to improve and better target 
Opportunity Zones so that they actually do help minority 
families, minority businesses?
    Mr. Hawkins. Well, thank you, Senator. You know, one thing 
that we can do to help target Opportunity Zones to minority 
businesses--there are three levels of benefit associated with 
Opportunity Zones. And one level is to allow for a 100-percent 
step-up in basis on the capital gains on the business that was 
started within an Opportunity Zone.
    And so, for the purposes of that benefit, we can allow non-
capital gains to be invested. If folks want to hold the 
investment for 10 years plus, and then move forward and sell 
that business, then they will be able to sell that business 
capital gains tax free.
    In the original Investing in Opportunity Act, the 
legislation which Opportunity Zones are based off of, that was 
a feature. And for scoring purposes, it was difficult to put it 
in in tax reform. However, allowing non-capital gains to be 
invested long-term for 10 years plus, with a 100-percent step-
up in basis if that business is sold, would bring a lot more 
capital into Opportunity Zones, and a lot more into the hands 
of minority entrepreneurs who are less likely to have access to 
investors with capital gains tax liability.
    The Chairman. We are going to have to move on, Senator 
Carper.
    But I know our next questioner, Senator Scott, will 
probably be interested in the very question you have been 
talking about. So we will continue this dialogue.
    Senator Scott. Thank you, Mr. Chairman. Thank you to 
Senator Carper for making it easy for me to transition into my 
questioning on Opportunity Zones of Mr. Hawkins.
    Mr. Hawkins, I was going to ask you a question about 
Opportunity Zones later on during the process here, but let us 
just continue the conversation that Senator Carper was so 
gracious to begin.
    I will say without any question, if you look at the 
commitments, the dollar amount commitments from the private 
sector to some of the most distressed communities in our 
country through the Opportunity Zones legislation, it is over 
$70 billion in my understanding. Is that about right, sir?
    Mr. Hawkins. That is about right. What you have seen is 
about $15 billion that has been committed to the Opportunity 
Fund, the actual vehicle that makes the investments, and then 
that money is then levered up when it is invested into the 
actual Opportunity Zones, sometimes two, three, four to one.
    Senator Scott. Would you also agree, Mr. Hawkins, that 
Opportunity Zones, while one of the more important parts or 
aspects of the legislation is to bring private capital into 
distressed communities, another very important feature is not 
to gentrify those neighborhoods? And thus far, we have seen in 
the single digits gentrification. Is that still accurate?
    Mr. Hawkins. That is still accurate. So about 2 to 3 
percent of the designated Opportunity Zones that Census tracks 
that were eligible for this type of investment were on an 
Opportunity Zone trend prior to being designated as an 
Opportunity Zone. And so we have seen that gentrification so 
far in the designated zones is no more severe than it was in 
the trends that existed prior to being designated.
    Senator Scott. That is incredibly important, because I have 
said this several times: if the definition of creating better 
communities is to run people like me out, as a person who grew 
up in poverty in a single-parent household, if the definition 
of improving a neighborhood is to push me out, that does not 
work for me.
    So I am very pleased and excited to hear that Opportunity 
Zones continue to produce more opportunities for typically 
majority minority areas in a way that does not necessarily lead 
to gentrification.
    Mr. Hawkins. Absolutely. And one of the key things that we 
need in order to maintain that trend is we need--I would love 
to see you reintroduce your IMPACT Act, which provides 
reporting and transparency for what is happening in Opportunity 
Zones. And so in that way, we will understand the direct jobs 
that are created, and the economic impact on the communities 
that have been designated. And you all will have the tools to 
make any adjustments to Opportunity Zones that are necessary to 
make sure that the existing residents of Opportunity Zones 
benefit.
    Senator Scott. Well, thank you very much, Mr. Hawkins, for 
that last comment. Because it is really important for us to be 
able to measure the success of the zones. And one of the ways 
that we do that is by having the reporting requirements that 
require all funds to report on their activity. And that kind of 
information will help us understand if we are actually helping 
the community, or if we are only helping investors. Because my 
goal is to help the community first and, by default, let 
investors benefit from doing good and making a decent--not a 
great, but a decent ROI.
    Finally, Mr. Hawkins, as you know and I know, but others 
may not know, you served as my tax counsel during the tax 
reform. And I am thankful that you helped us write that tax 
bill and, frankly, I am happy to report that doubling the Child 
Tax Credit, working on lowering the small business burden by 20 
percent, lowering the corporate tax from 35 to 21 percent, all 
those features have had a tremendous impact on lowering 
unemployment, closing the income gap, closing the wealth gap. 
And frankly, I saw a report that the lowest level of poverty in 
the country's history since they started tabulating in the 
1950s was 2019 or so, or pre-pandemic.
    Mr. Hawkins. Sure. Oh yes; absolutely. And if you look at 
the different aspects--one of the things I always joked about 
when I was working for you was actually I loved having a boss 
who actually in his past career had signed the front of a 
check, not just the back. And so I thought so much about how 
the 20-percent reduction in the pass-through rate would have 
benefited you when you were at Allstate, and that those 
businesses that you passed on to other minority entrepreneurs 
will benefit from that pass-through deduction. So there is so 
much that was done in that bill that benefits minority 
entrepreneurs and that makes our tax code more fair. I am very 
proud of the work I was able to help you with.
    Senator Scott. Well, thank you, Mr. Hawkins.
    And, Mr. Chairman, thank you for your timeliness of having 
Senator Carper go right before me so that we could continue the 
conversation on Opportunity Zones. That is pretty good 
leadership.
    Thank you, Mr. Hawkins.
    The Chairman. I was not able to go foreordain it, but I am 
glad that our members are getting recognized. The next two will 
be Senator Toomey and Senator Cardin.
    Senator Toomey. Thank you, Mr. Chairman. Thanks for having 
this hearing. I hope that there is a universal acknowledgment 
that there has never been--and certainly in the tax reform we 
did--any pernicious racial intent in the sense of trying to 
benefit a given group at the expense of another. Such a 
suggestion would be untrue and, frankly, offensive.
    The idea behind the tax reform, which is the dominant 
discussion about the tax code as it is today, one of the 
central ideas--there were several--but one of the central ideas 
was to lower the after-tax costs of deploying capital, with the 
notion that if we did that, we would get an increase in the 
deployment of capital that would help improve productivity 
because, really, capital is the tool that is necessary for 
workers to become more productive. And that would enhance the 
economy overall, but especially for middle- and lower-income 
workers who would benefit from that.
    And that of course is exactly what happened. I think it is 
very, very important to underscore that it was almost 
immediately after we passed the tax reform that we had the best 
economy of my lifetime. Now you might think that is just a big 
coincidence. I do not think so. I think it worked exactly as we 
had hoped. The capital investment did in fact create a boom. 
Workers became more productive.
    And, Mr. Hawkins, I do not know how closely you have looked 
at this data, but if you have, could you comment on the 
acceleration of wages which reached an extraordinary level just 
before the pandemic hit in 2019, and the wage gains that were 
strongest for the lowest-income workers?
    In fact, isn't it true that since wages were growing 
fastest for low-income workers, we were narrowing the income 
gap? We were narrowing the racial disparities in incomes by 
virtue of the powerful economic growth we had?
    Mr. Hawkins. Absolutely. And so we saw wage growth--I mean, 
that wage growth is a direct result of a tightening labor 
market. When you have record employment rates for Asians, for 
Hispanics, for African Americans, for women, when you have 
these record employment rates, it tightens the labor market and 
employers have no choice but to pay more to draw people to 
their firms.
    Senator Toomey. Right, right.
    Mr. Hawkins. And we were pleased to see that a 
disproportionate amount of the benefit of those wage gains came 
at the lower end of the income spectrum.
    Senator Toomey. Right. So I would just suggest--and I wish 
this were not controversial--but I would suggest we try to get 
back to the best economy of my lifetime. I would suggest we get 
back to record low unemployment. I would suggest we try to get 
back to narrowing the income gap. Those are really good things, 
and we were there just a little over 1 year ago.
    But if we unwind the pro-growth features in our tax reform, 
we are not going to get back to those days. And instead--
actually one of the central ideas that some of our Democratic 
colleagues have, is to do something that is the exact opposite 
of helping low-income workers, by eliminating or dramatically 
lifting the SALT cap, the deduction for State and local taxes, 
of $10,000. That is already a lot. You know, if you have 
$10,000 in State and local taxes, you probably have more than 
the median income in the United States. If you get rid of that 
cap entirely, the benefit flows overwhelmingly, massively, to 
the top 1 percent. It is a big subsidy from working Americans 
to the richest Americans.
    Mr. Hawkins, do you see it differently? Or is that what 
lifting the cap on the SALT tax would do?
    Mr. Hawkins. It is exactly what it would do. And that is 
how I see it. That is how the Brookings Institution sees it. 
You know, they noted that if the cap was lifted, 96 percent of 
the benefit of the SALT cap repeal would go to the top 
quintile; 57 percent would go to the top 1 percent; and 25 
percent would benefit the top .1 percent. And those people in 
that category would get a tax benefit of nearly $145,000.
    And so there is no intellectually honest argument to raise 
the SALT cap if your goal is to eliminate income inequality in 
the tax code.
    Senator Toomey. No, it certainly makes it worse. And 
finally, let me just point out, it is not only in how it 
affects people, but it is the nature of the deduction. This is 
an arbitrary subsidy for people who choose to live in high-tax 
jurisdictions. That is what it is.
    In those jurisdictions, you often get more services. If you 
choose to pay for those services, whether it is trash removal 
or whatever else it might be, you pay for it in the form of a 
property tax very often, where constituents in a place that 
does not have as high a tax may just have to contract 
separately.
    When they contract separately for those services, they do 
not get to deduct that payment. But if you increase the SALT 
tax deduction, they can.
    So I think I have been through most of my time, Mr. 
Chairman. Thank you.
    The Chairman. Okay; Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman. And let me thank 
all of our witnesses. I particularly want to thank you for your 
leadership in regards to dealing with the inequities in our tax 
code.
    There are two aspects to this. Professor Brown, I 
appreciated your analysis of the discriminatory nature of the 
tax code itself as it relates to many of the provisions. But it 
is compounded by the challenges we have had on discretionary 
domestic spending, where we have not been able to move forward 
on a lot of important issues, and we use the tax code as an 
effort to try to make up for those inequities.
    I want to just share with you a meeting that I had with the 
Industrial Area Foundation--that is our BUILD organization 
locally--talking about affordable housing and economic 
development and the challenges we have today. And I pointed to 
the fact that, yes, I would like to see things on the 
discretionary spending side, but we also need to recognize that 
we have tools available under the tax code, and we need to make 
those tools even more effective.
    We talked about the Opportunity Zones, but I want to 
mention the New Markets Tax Credits that I partnered with 
Senator Blount to make permanent. That was very helpful in 
Baltimore, not to mention many of the areas of revitalization, 
including Remington Way, that would not have been possible 
without the New Markets Tax Credits I just mentioned, the 
historic tax credits that have been very helpful, and we are 
trying to improve the historic tax credits.
    I want to thank Senator Portman. We are working together on 
the Neighborhood Investment Act, a new effort to deal with the 
appraisal gaps in lower-income communities in efforts to 
renovate their homes and the housing stock in low-income 
communities. These are all areas of effort to try to improve 
the effectiveness of these tools.
    The point that was brought up to me by the BUILD 
organization is that there is not one tool available that can 
make the renovation of a community feasible under the tax code. 
They have to put together so many of the different tools and 
private-sector development, et cetera.
    So, Professor Brown, I would just like to give you an 
opportunity to talk about how we can improve the tax code in 
dealing with the housing crisis we have in America by fine-
tuning the tools that are currently available, including the 
Low-Income Housing Tax Credit that Senator Cantwell has been so 
actively engaged with, in order to try to deal with inequities 
through the tools available.
    Ms. Brown. So I would say that with the subsidizing 
activity, whether it is home ownership, or whether it is 
affordable housing, we have to think about who we are going to 
help and who we are going to hurt, right?
    So the problem with affordable housing transcends the code 
in this sense. There are so many requirements that are anti-
affordable housing; there are developers who want a certain 
return on their investment and are reluctant to invest in those 
neighborhoods. And if you want to encourage that, I do not know 
if the best way is through the code or direct spending.
    So you want to also talk about existing home ownership 
rates among low-income Americans. One of the biggest barriers 
to home ownership with respect to black Americans is the down 
payment. And there is nothing the code can do to provide a down 
payment. Direct spending could, but nothing in the code.
    So there is often a mismatch between the goal that you 
want, which is to spur investment in distressed communities, 
and the chosen means, which is Opportunity Zones, which tend to 
benefit wealthy white developers as opposed to the members of 
the community.
    Senator Cardin. And I agree with you. But if you look at 
the trends over the last several decades, you see the amount of 
public support for affordable housing under the tax code 
increasing, whereas under direct spending, it has been reduced.
    I certainly do not want to reduce the tools we have 
available under the tax code. I would like to increase the 
opportunities under direct spending. That is not always 
politically possible. So I think we have to look at what is 
reality.
    One additional point, if I might, and that is the paid 
preparers. I mentioned that at our last hearing. The low-income 
families are the ones being victimized the most under changes 
in the tax code, especially the Earned Income Tax Credit, and 
we have, as you know, no regulatory power right now under IRS 
to regulate paid preparers.
    I think it is in the interest of low-income communities, 
the consumer interests, that we give that power back to the 
IRS. I do not know, Professor, if you want to comment on that 
or not?
    Ms. Brown. Yes, I definitely think that is a start. But 
really the big problem is the complicated nature of the Earned 
Income Tax Credit. So the community of Earned Income Tax Credit 
recipients has a higher percentage who use paid tax return 
preparers than the rest of the population. That is because the 
EITC is just too complicated, and Congress could take some 
steps to simplify it.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. We are having some IT problems. Senator 
Grassley, are you out there?
    [No response.]
    The Chairman. All right, then we will go next to Senator 
Brown, and then Senator Cassidy.
    Senator Brown?
    [No response.]
    The Chairman. Senator Cassidy?
    Senator Cassidy. Good. Thank you.
    Professor Brown, a couple of things. I want to make sure 
the Democrats will speak--hopefully, my Democratic colleagues 
will speak to some of the Republican witnesses, but I want to 
speak to some of the Democratic.
    My Democratic Senate colleagues have made repeal of the 
SALT tax provision kind of like one step over the line, but it 
sounds like you would disagree with your advocacy for this 
since, as Mr. Hawkins pointed out--by the way, great to see 
you, Mr. Hawkins; we used to sit next to each other. As Mr. 
Hawkins points out, the benefit of that accrues to the 
extremely wealthy principally, and those folks typically are 
not African Americans. So would you disagree with my Senate 
colleagues as regards the risk in repealing the SALT tax?
    Ms. Brown. Yes, and I would say to you--you have perhaps 
read my testimony closely. That is exactly what I would do. And 
here is the thing. Right now we have about----
    Senator Cassidy. I have just 5 minutes. I have to go on. I 
just wanted to get that for the record. Thank you.
    Ms. Rao, I am just curious. I am not challenging, but your 
testimony suggests an inability of women and others to raise 
money, people of color. I notice that Ms. Pelosi, the Speaker 
of the House, we see that she has raised $815 million in 
political contributions in 2002. That is a lot of money.
    Could you add a sense of why she can raise so much money, 
and yet your testimony is along the lines of, it is difficult 
for someone like you to raise money. It does not seem as if 
there has been a barrier, if you will, for her.
    Any thoughts on that?
    Ms. Rao. Sure. Thank you, Senator. I think one of the 
fundamental differences is that for people of color and women, 
they need to reach a certain level of notoriety, or a certain 
level in which they are seen as someone who is credible, before 
they can reach that access to capital, whereas, founders who 
are white do not have to reach that level of credibility before 
they are able to access.
    So to your exact point, I think that it has been easy for 
some individuals, some women, to be able to raise capital. But 
for the vast majority of women, for myself as a woman of color 
who is raising a venture capital fund, who does not come from 
generational wealth, it has been extremely difficult.
    Senator Cassidy. I get that. If someone graduated now and 
she is 24 years old and she graduates, or 26 and she graduates 
from Harvard Law, or she has a Harvard MBA, or a Stanford MBA, 
do you feel as if that would be the ticket, the contact that 
she would need to have, et cetera, that would allow her to 
raise more successfully?
    Ms. Rao. I think that there are certainly 
intersectionalities between race and education and 
socioeconomic status. As I pointed out in the testimony, that 
will allow and enable some women and some people of color to 
advance further, and maybe quicker. But my point in that is 
that maybe we need better representation of different types of 
diversity, and----
    Senator Cassidy. I get that. I get that. I accept that, 
believe me. But it does seem as if, if you subtracted out the 
role of gender and race and you inserted, say a Barak Obama 
graduating from an Ivy League school, that maybe you would have 
the range of contacts that others would have.
    I have to move on. I apologize.
    Professor, one more time--and by the way, Shay Hawkins, I 
loved your testimony. I am going to pin it on my bulletin 
board. So much so that that is why I am talking to the others.
    Professor, one, I agree with you about the step-up basis. I 
once wondered why did the Kennedy family continue to have so 
much wealth, when I do not see any of them doing the same 
entrepreneurship that Joe Kennedy did way back when--loosely 
defining entrepreneurship. And then I realized that it is that 
stepped-up basis for the inheritance and their foundations.
    So again, we have a point of agreement there as well. But 
let me ask you about something that Dr. Desai mentioned, 
alluded to--and I may not get this right, Dr. Desai, so I 
apologize. You focus on the privileges, if you will, of folks 
with more income in the tax code, but Dr. Desai--whether he 
said this or not, this is what I drew from it based on my own 
experience--pointed out that many other programs have an 
inverse effect.
    I am a doctor. I worked in Louisiana's Charity Hospital 
System for the uninsured, the poor, and the majority of my 
patients, 80 percent, were African Americans. They were on 
Medicaid. More were on TANF, more in public schools supported 
by tax dollars as opposed to non-African American children who 
were having to pay for their own education in parochial or 
private schools.
    In your analysis, do you look at the mirror image where 
there are a heck of a lot of benefits that accrue to those of 
color or those who are less well-off, disproportionately? Not 
because it is necessarily designed that way, but inherent in 
addressing the issues such as health care for the uninsured, 
you are going to capture more of those folks who are, again, 
less well-off no matter what their color, but 
disproportionately they are of color?
    Ms. Brown. I am not sure I am tracking the question. That 
was a long one.
    Senator Cassidy. If you look at it, African Americans are 
more likely to be on Medicaid, more likely to receive EITC, not 
in absolute numbers but as a percent of their total population.
    And so that is a benefit which accrues to those who are of 
color, which is financed, if you will, by those who would not 
be of color.
    Does your analysis look at that?
    Ms. Brown. So I would say, my response would be, when we 
think about white Americans who may pay less in taxes but are 
reliant on a court system, I do think there is a connection 
between taxes and services. But I think at the basis would be 
the information----
    Senator Cassidy. I have to stop you there, because that is 
off point. And I will finish with this, Mr. Chairman. If we are 
going to say that the benefits of the exemptions benefit those 
who make more money and they just happen to be white, then it 
is probably fair to say that the benefits of these social 
safety net programs accrue to those of color; frankly, not 
because they are of color, but because they meet the need 
otherwise. But the mirror image does seem to be something which 
your research appears to ignore. And whether Dr. Desai meant 
that when he alluded to it, I do not know, but that is how I 
took it.
    Thank you, Mr. Chairman.
    The Chairman. The time of my colleague has expired.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman. I really appreciate 
it.
    Mr. Hawkins, it is good to see an Ohioan before this 
committee. I appreciate our work together on civil asset 
forfeiture when you were working in the Senate with my friend, 
Senator Tim Scott. So I thank you for that.
    Professor Brown, my questions are mostly for you. Thank you 
for being here today and for calling attention to the 
intersection of racial equity and tax policy. You have done 
that I think better perhaps than anybody in the country. They 
are far more connected than most people think. I am glad we are 
having this hearing to examine that.
    Not only do we need a tax code that would be far more 
equitable, we need an IRS that administers and enforces that 
tax code fairly. When the IRS Commissioner was before this 
committee and Chairman Wyden just a week ago--or actually when 
he was here the first time last summer--I asked if he could 
assure us that IRS audit rates do not disproportionately affect 
black and brown tax filers. He said, yes, he could assure us 
that audit rates do not have a disproportionate effect. But 
given that IRS does not collect race data, and that the Census 
Bureau does not generally share data with IRS, I question 
whether the IRS really knows the extent to which its 
enforcement activities have a racially disparate impact.
    So my question is this, Ms. Brown. What are your thoughts 
on this? What would responsible IRS guard rails be to prevent 
disproportionate impacts? What would they look like to you?
    Ms. Brown. Well, they would look different than what we 
see, right? So we saw, or ProPublica published research that 
shows the significant percentages of black EITC claimants in 
the south that are being audited. So we would want to collect 
more data on EITC audits so that we could compare them to the 
tax-paying population to see if there were any differences.
    It all goes back to data. That is really important, and not 
withstanding what I have heard, we do not have the data.
    Senator Brown. Do you have ways you can suggest to this 
committee that IRS adjust their practices?
    Ms. Brown. Do I have ways? Well, yes. It would be not 
overly auditing low-income taxpayers, and auditing high-income 
taxpayers. That would be one place to start.
    Senator Brown. Let me--thank you. I do not mean to 
interrupt, but let me--well I guess I do mean to interrupt, but 
I apologize. Let me delve into that. One of the most important 
parts of the American Rescue Plan that Congress passed in 
March--and I remember after voting that day sitting next to my 
friend Senator Casey on the Senate floor, saying this was the 
best professional day of my life because of what we did with 
the Child Tax Credit, the Earned Income Tax Credit, and all the 
things that Senator Casey did with children.
    But we expanded it, unlike the enormous giveaways included 
in the 2017 tax law, which overwhelmingly went to wealthy and 
white tax filers. EITC and the CTC went mostly to low-income 
whites and black and brown tax filers, Asian tax filers.
    For example, the expansion of the CTC is estimated to help 
poverty, we know this, by more than 50 percent, reducing 
poverty by almost that much. The same holds true for EITC. In 
Ohio, 15,000 workers of color over 25 who cannot get any of the 
EITC under current law will benefit from this expansion.
    So we have talked much about EITC. We also, as the chairman 
does, talk about CTC. So should Congress--my question, Ms. 
Brown, and I think I know the answer, but that is how we do 
things--should Congress make the Child Tax Credit, the EITC, 
permanent?
    Ms. Brown. Yes.
    Senator Brown. I figured you would say that. The last thing 
is, I want to ask the panel about the tax gap. Just a ``yes'' 
or ``no'' on this one.
    We know of $400 billion that is legally owed to the IRS 
each year but not collected. This tax avoidance robs our Nation 
of much-
needed revenue. It undermines trust in government.
    Who benefits the most from inadequate enforcement of our 
tax law? Who stands to lose the most from the revenue we lose? 
Just real quickly, we just have 1 minute left. Give me a very 
concise answer, starting again with you, Ms. Brown, if you 
would.
    Ms. Brown. So I would say the wealthy white taxpayers who 
are currently not being audited stand to gain the most from the 
dysfunctional system that we have now that targets 
disproportionately blacks' EITC.
    Senator Brown. Dr. Desai?
    Dr. Desai. I think more enforcement resources for the IRS 
is a terrific agenda. I do not think it is entirely clear where 
that gap is, and who would end up funding it. But I think 
greater enforcement dollars is a wonderful agenda.
    Senator Brown. Mr. Hawkins?
    Mr. Hawkins. Greater enforcement dollars is absolutely a 
wonderful agenda. And it is something that would make sense and 
make our tax code more fair.
    Senator Brown. Ms. Rao?
    Ms. Rao. This is not--I am not a tax expert, but certainly 
greater incentives for participation as an investor certainly 
would increase the representation that is seen in venture 
capital.
    Senator Brown. Thank you all for your conciseness.
    Mr. Chairman, thank you.
    The Chairman. Thank you, Senator Brown. Now in order of 
appearance, Senator Bennet, Senator Lankford, and Senator 
Casey. I do not see Senator Bennet, so that would mean our next 
two would be Senator Lankford and then Senator Casey.
    Senator Lankford?
    Senator Lankford. Mr. Chairman, thank you. To all of our 
witnesses, thank you very much for your work on your testimony 
and for bringing all these different ideas to our conversation 
today.
    Mr. Hawkins, I want to ask you about Opportunity Zones as 
well. You spoke about and wrote about democratizing Opportunity 
Zones investment. Can you go a little deeper into that for me?
    Mr. Hawkins. Sure. And so Opportunity Zones basically have 
three levels of possible benefit. You know, once you have a 
capital gain and you reinvest that capital gain in an 
Opportunity Zone, first you get a 10-year, up to a 10-year 
deferral of that capital gains tax liability.
    Second, if you invest for longer periods of time, 5 or 7 
years, then you get what is called a step-up basis, or a little 
bit off that tax bill. You are still going to owe, but you get 
a little bit off that tax bill.
    And the last benefit refers to the investment in the zone. 
So, if I invest in, let's say a Shay Hawkins version of 
Facebook, or something like that, what it says is, if I hold 
that investment for more than 10 years, then I get a 100-
percent step-up basis, or no capital gains tax liability when I 
sell that company in 15 or 20 years.
    So what we can do is, for the purposes of that 100-percent 
step-up in basis, for holding that company for 10, 11, 15, 20 
years, we can allow non-capital gains to be invested for that 
purpose and get the benefit of that 100-percent step-up in 
basis.
    And so what it would do--you know, if there are 10,000 
people in a community who want to come together and give $100 
to make a $1-million investment, to pool their money, people 
would not have capital gains normally and then participate in 
the Opportunity Zone and benefit in one additional way, not 
just with increased property values, not just with increased 
access to goods and services, not just with increased jobs that 
come with the Opportunity Zone, but also they could participate 
in the investment.
    Senator Lankford. Okay; that is helpful as well.
    I have worked extensively on trying to be able to get 
access to retirement money for an emergency fund without a tax 
penalty in the process. It is something I have worked on for 
quite a bit, and I continue to work on a good proposal.
    I want to incentivize more people to be able to save for 
retirement, but I also want to reduce the penalty that people 
pay if they have to pull that out. If your refrigerator goes 
out, or your car has damage, or whatever it may be, very few 
people have an emergency fund. And so they never save for 
retirement because they think they cannot get access to it in 
case of an emergency.
    But to be able to get some access to that--there has been 
some debate on how big that is, because you want to incentivize 
people to save for retirement. It cannot be just an emergency 
fund that you are pulling from, because you are trying to 
incentivize retirement savings, as well as being able to help 
people. But you have to also get access to those dollars so 
that people do not pay a 10-percent tax penalty if they have to 
get to it.
    The question I want to ask you is, what would you suggest 
as the dollar amount that would need to be there that people 
could get access to for an emergency fund and still incentivize 
the saving for retirement? How big should that dollar amount be 
that they are allowed to get for their emergency fund out of 
their 401(k)?
    Mr. Hawkins. You know, it is going to vary for different 
families, but, I think it would need to be set--certainly you 
are looking at thousands of dollars. I would imagine that in 
the $3,000 to $5,000 range would be a threshold that would make 
sense for most families. Because I mean, if you are looking at, 
it could be a basement flooding or any other type of emergency 
you can think of, when you look at how low the savings rates 
are for the people in the lower 50 percent of the American 
income scale, when you look at how low those rates are, with an 
average retirement savings in that group of zero, they are 
going to be reluctant, as you said, to set that money aside and 
say, no, they cannot get their hands on it in the case of a 
temporary emergency.
    Senator Lankford. Does anyone else have an opinion about 
what that dollar amount should be, both to incentivize 
retirement and then to also allow people to get access to some 
of that money for an emergency? Does anyone have a dollar 
amount that you would prefer?
    [Pause.]
    Senator Lankford. I am going to take that as a ``no'' then 
from the panel. Panel, thank you very much for contributing on 
this.
    Mr. Chairman, I will give you 18 seconds back.
    The Chairman. Thank you for your thoughtfulness, Senator 
Lankford.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman, and thanks for this 
hearing.
    I am going to direct my questions to Professor Brown. I 
hope she does not mind that I will have all my questions for 
her. But we are grateful for her scholarship and grateful for 
the new book that she has in the works that is being done on 
the issues we are talking about today.
    I wanted to start with, maybe, at least two questions about 
data, and then also a question about child care.
    Professor Brown, your significant research regarding 
identifying these racial disparities in the tax code is 
critically important. Can you discuss the types of data you 
wish the IRS collected that would help with this research and 
how you worked around the limitations of not having it 
collected?
    Ms. Brown. Yes. I would like to see the specifics of income 
data talked about by race: what percentage of taxpayers have 
this exclusion; what percentage of taxpayers benefit from that 
deduction. So I would basically like all the 1040 information 
for individuals to give race, as it were, to tell us what 
percentage take advantage of which tax breaks.
    And what I had to do was look at other data sets. So there 
was a question earlier that talked about what percentage of 
Medicaid recipients were black. Well, why do we know that? 
Because some government agency publishes it. The IRS needs to 
publish tax data as well. So I worked around it by looking at 
different disciplines, and getting proxies. The Census Bureau 
has proxies for tax return data.
    Senator Casey. And like anything else--I do not know who 
said this--but the old expression is, what gets measured gets 
managed.
    Ms. Brown. Right.
    Senator Casey. We have gone too long, obviously, without 
data. And any changes with respect to tax data will of course 
take some time. I just wanted to ask you this question about 
data.
    In your view, is it possible for Treasury and IRS to 
undertake gender and racial impact analysis by adding or 
inputting statistical data?
    Ms. Brown. So first of all, the IRS has published gender 
and age studies already. They have done the work with respect 
to gender. I certainly think there is the capacity--not 
capacity in terms of people who can do it, but the agency 
should be able, Treasury, IRS, should be able to get this done.
    Senator Casey. And do you think that that could be 
included, that statistical data could be included with a 
reasonable degree of certainty as a part of the policy 
analysis?
    Ms. Brown. I do. I absolutely do.
    Senator Casey. I want to ask you as well about child care. 
We know how critical it is, not only in the midst of a 
pandemic, but child care is essential to our national economic 
infrastructure. It is especially critical now for working 
families.
    We have made tremendous progress in ensuring that all 
families that are eligible can benefit from the Child and 
Dependent Care Tax Credit through the Rescue Plan. As Senator 
Brown mentioned, the great advancement in expanding the Child 
Tax Credit that he worked so hard on with the chairman and 
others, but also the great expansion of the Child and Dependent 
Care Tax Credit, is something so many of us have been pushing 
for years.
    This credit is now fully refundable. Parents can get up to 
half of the cost of child care. According to the National 
Academies of Science, these improvements, making the tax 
credits fully refundable, both the Child Credit as well as the 
Child and Dependent Care Credit, can reduce child poverty 
tremendously, by half or more, if you include both of them. And 
that increases earnings and employment. And I think especially, 
and just proportionately, this will help African American 
families.
    In your view, what are some of the most important 
investments that we can make through harnessing the tax code to 
support economic security?
    Ms. Brown. So, when I think about--well, first I would say, 
tax income from capital at the same rate as income from wages. 
So there is no reason to prefer capital to labor. The tax 
breaks--or put a different way, why should workers not have the 
choice to pay the low preferential rate because they earn 
income as opposed to having their money work for them? So that 
is one of my big-picture suggestions.
    Senator Casey. Thanks very much, Professor, I appreciate 
it.
    Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    Next will be Senator Daines.
    Senator Daines. Thank you, Mr. Chairman. And I would like 
to join my colleagues in highlighting some of the changes we 
made in the tax code in 2017 that helped address inequality and 
disparities. In fact, we lowered rates across the board, 
doubled the standard deduction, doubled the Child Tax Credit, 
capped the SALT deduction, capped the mortgage interest 
deduction, and much more. And we know these policies worked 
because we saw those results in that pre-pandemic economy.
    In fact, if you look past 2017 at just before we hit the 
pandemic, we saw record-low unemployment rates for African 
American workers, Hispanic workers. Labor force participation 
was growing. Poverty rates hit an all-time low. Incomes were 
going up for all workers, but they were growing faster for 
workers at the bottom of the income scale. And to return to 
that robust economy, we do not need to increase taxes across 
the board. We need to build on some of the gains that we made 
with the Tax Cuts and Jobs Act.
    Turning to my questions, I have always been concerned with 
how the tax code looks for Main Street businesses. And that is 
why that 20-percent deduction we had for pass-throughs, like 
sole proprietorships, partnerships, LLCs, was such a critical 
part of tax reform.
    And that is why I introduced the Main Street Tax Certainty 
Act with Senators Cassidy, Scott, and Portman, to make that 
section 199A, that 20-percent tax deduction for the pass-
through businesses, permanent. Identical legislation was 
introduced in the House on a bipartisan basis.
    My question for Mr. Hawkins: you mentioned in your 
testimony that minority-owned businesses are more likely to be 
organized as a pass-through entity versus a C corp. Is it safe 
to say that making the 199A 20-percent tax deduction permanent 
will help minority entrepreneurs and help grow our economy?
    Mr. Hawkins. Absolutely, Senator. When you look at the 
structure of most minority small businesses, they are going to 
be sole proprietorships, typically partnerships or LLCs. And so 
the legislation that you introduced to make that 20-percent 
deduction permanent will have a strong targeted effect on 
benefiting minority small business owners.
    One good example--one good example that I am very proud of 
in my home town of Cleveland, OH, there is a minority- and 
veteran-owned small business, Bridgeport Group. They take 
advantage of that 20-percent deduction. And they are also using 
Opportunity Zones to expand their supply chain logistics 
business to serve Cleveland's world-class health-care market.
    And so, I come in contact with minority business owners who 
have a direct benefit from that, from that deduction, and I am 
excited to see the bipartisan support that we saw with the 
introduction on the House side, and----
    Senator Daines. Mr. Hawkins, let me follow that up. The 
Cleveland example is a great example. So is it safe to say then 
that it would help minority entrepreneurs if we made the 
deduction permanent? Would it also hurt them if it were to be 
scaled back or eliminated, as the Biden administration and 
certain members on the other side of the aisle have proposed?
    Mr. Hawkins. Absolutely. You know, like I said, the 
president of the Bridgeport Group, Andre Bryan, is an example 
of someone who will be harmed if we roll it back.
    Senator Daines. Thank you.
    Professor Brown, some of my colleagues on the other side of 
the aisle think that Congress should eliminate the $10,000 cap 
on the State and local tax deduction that was put in place by 
the Tax Cuts and Jobs Act.
    Given that 96 percent of the benefits from eliminating the 
SALT cap would go to the top quintile, with 57 percent going to 
the top 1 percent, do you agree that eliminating the cap on 
this deduction would be bad policy?
    Ms. Brown. I believe all itemized deductions should go, 
including the State and local tax. So I believe the mortgage 
interest deduction should go, the State and local taxes should 
go.
    Senator Daines. So you would support eliminating that 
provision made there on SALT that would actually go--57 percent 
going to the top 1 percent?
    Ms. Brown. No, no. I do not want any taxpayer to be allowed 
to itemize deductions, given that only 10 percent of Americans 
do it. So I think you and I are saying the same thing----
    Senator Daines. Okay; you want to eliminate all deductions. 
You want to keep the SALT cap. Okay; got it.
    On marginal tax rates, there is a long history of 
bipartisan--I see I am out of time here, so I am going to--out 
of respect for the chairman managing the hearing here, I will 
end there.
    So thanks, Mr. Chairman.
    The Chairman. Thank you, Senator Daines.
    Senator Grassley is next, followed by Senator Cantwell.
    Senator Grassley. Thank you, Mr. Chairman, and I have a 
question, to start out with, for Professor Brown.
    I appreciate your candor that you had with Senator Cassidy 
on your opposition to eliminating the $10,000 SALT deduction 
cap. It is clear that repealing that cap would overwhelmingly 
benefit the wealthy. In fact, according to the nonpartisan 
Joint Committee on Taxation, over half of the benefit from 
repeal would go to taxpayers with income exceeding $1 million.
    So the question is kind of like this: would you have 
similar concerns that you expressed to Senator Cassidy about 
SALT, about tax subsidies for high-end car ownership? I will 
give you an example: the $7,500 Federal tax credit for the 
purchase of expensive electric vehicles, given that such a 
subsidy would benefit the wealthy, because Americans often 
drive such cars as a status symbol.
    Ms. Brown. So I have not studied it, but my gut says I 
would not support that.
    Senator Grassley. Well, thank you for that.
    For Mr. Hawkins: the Tax Cuts and Jobs Act provided 
significant tax benefits to low- to moderate-income families. 
It also focused on pro-growth policies, leading to an increase 
in investment and higher productivity, rising wages. There is 
ample evidence that prior to the pandemic it was working: the 
best economy in 50 years. In fact, wage growth was strongest 
for low-income, low-wage workers.
    As a result, the Federal Reserve survey of consumer finance 
income inequality declined between 2016 and 2019. Lower-income 
Americans also saw similar gains in wealth as they did in 
income. Moreover, black and Hispanic families experienced some 
of the largest wealth gains. Median net worth rose 33 percent 
for black families, 65 percent for Hispanic families, compared 
with a 3-percent gain for white families.
    Mr. Hawkins, do you agree that pro-growth tax policies are 
essential if our goal is to improve the well-being of low-
income Americans and reduce economic disparity?
    Mr. Hawkins. Absolutely, Senator Grassley. When you are 
looking at what happened from the Tax Cuts and Jobs Act, what 
you saw was a bill that ignited the economy. And as that 
economy heated up, the labor market tightened. And as the labor 
market tightened, you saw rising wages on the lower end of the 
income scale.
    And again, as you mentioned, there was record employment 
again for the black community, record employment for the 
Hispanic, Asian community, record employment for women. And so 
that is really the key: to ignite the economy, tighten the 
labor market, and get wages rising.
    Senator Grassley. I do not know whether I am running out of 
time, but this is my last question. This is for Professor 
Desai.
    The tax code includes several tax benefits targeted at low-
income households. This includes refundable credits such as the 
Earned Income Tax Credit and the Child Tax Credit. But 
according to the Congressional Budget Office, low- and 
moderate-income workers can experience exceedingly high 
marginal effective tax rates as the benefits phase out, 
regardless of their positive purpose.
    These marginal effective rates can exceed the top statutory 
tax rate of 37 percent, and in some cases exceed 100 percent. 
So to you, Professor, how would you expect these high marginal 
tax rates to effect low-income individuals who may be 
considering working more hours, or increasing their earning 
potential through education?
    Dr. Desai. Yes, exactly, Senator Grassley. You are right 
that the phase-outs associated with some of those credits do 
become manifest in higher marginal tax rates as individuals 
move up the income spectrum. And that is a problem.
    Having said that, it is also the case they are a natural 
part of any phase-out. And in fact, any effort to use credits 
in the ways that I think they should be used will feature this. 
So to ameliorate it, one would want to think a little bit about 
using maybe demi-grants a little bit more, and also making the 
phase-out a little less, both of which could remedy the 
problems associated with higher marginal tax rates.
    Senator Grassley. Thank you, Mr. Chairman. Thank you, 
Professor.
    The Chairman. Thank you, Senator Grassley.
    Senator Cantwell is next.
    Senator Cantwell. Thank you, Mr. Chairman. Thanks for 
holding this important hearing, and thanks to all the 
witnesses.
    I want to look at the question a little differently on the 
issue of just access to capital. Last year, startups raised 13 
percent more from venture capitalists than they did the 
previous year, so that total was $150 billion. And yet we know 
that the share of money going to women and minority businesses 
is just a pittance.
    We know that 2.2 percent of all venture capital raised in 
2020 went to women-funded companies, and just 1 percent--1 
percent--went to investment in tech startups going to black 
entrepreneurs.
    So we know this is a problem, and we know we need to do 
something about it. In Washington, we see this disparity, with 
just 35 percent of all small businesses owned by women and just 
3 percent black-owned, according to our recent analysis in our 
area.
    But the question becomes a priority of--I know the Black 
Founders Matter Fund is trying to take this issue head-on. This 
is an organization that is trying to support entrepreneurship 
out of black-owned businesses.
    So what I think--Ms. Rao, what do we need to do for venture 
capital to play a bigger role in building wealth in these 
communities, and diversity? And what has been your experience 
in trying to raise venture capital funds?
    Ms. Rao. Thank you so much, Senator.
    So first off, I really want to reiterate what you just 
said, which is that there is an extreme disparity when it comes 
to founders being able to raise capital. I think that we can 
all point to outliers of people who are well-known and 
nationally recognized, like Nancy Pelosi and Barak Obama, or 
even Beyonce, who could start a company and raise money within 
minutes, but that is not the experience that average people of 
color or women receive when they are going about starting out.
    A perfect example of that actually is Jewel Burks, who had 
an amazing acquisition by Amazon. We interviewed her, and she 
said that in her first raise she went for over a year trying to 
raise that capital. And it was a successful acquisition in the 
end, but as you can see, there are different barriers that 
women of color, women founders in general have to face when 
they are doing pitches in front of investors. And that is 
because there is a lack of representation, and there is 
absolutely a homogeneous groupthink process.
    So in order for venture capital to be able to actively 
participate in creating a more equitable society, there are a 
couple of things that need to happen. One is a reeducation of 
investors in understanding how to evaluate different subsets of 
founders. I think that that educational piece is critical to 
being able to promote equity.
    The second piece is inclusion of tax incentives as well as 
other programs and scholarships to be able to allow different 
types of people to be at the decision-making table. Because we 
all have our own implicit biases, and we can course-correct 
that with education, as well as understanding how to invest in 
different types of companies. The traditional venture 
capitalist is investing in B2B SaaS, but how do we invest in 
other types of businesses that may be 
minority- and women-owned businesses?
    And so how can we adequately be able to invest in the 
different types of businesses is one. But, two, having 
different types of people who represent different lived 
experiences at the decision-
making table is fundamentally one of the best ways to be able 
to create equity in this space. That is something that 
Professor Brown mentioned. We do not have the same level of 
access to education and resources, and even when we do, we do 
not have the same level of decision-making power and are 
impacted in different ways.
    Senator Cantwell. Well, I see my time is almost expired, so 
I would love it if you could send me some recommendations as it 
relates to tax policy incentives that you think would help in 
this particular area.
    But, Mr. Chairman, this is such an important time period 
for this discussion, because we know, even from the SBA, that 
people were getting left out--businesses were not getting the 
same access to capital from our traditional sources. So these 
private-sector sources also are problems. So I hope we can look 
at incentives.
    Thank you very much.
    The Chairman. A very important point, Senator Cantwell.
    Next in order would be Senator Thune and Senator 
Whitehouse.
    Senator Thune. Thank you, Mr. Chairman, and thank you for 
having this hearing. And I want to thank all our panelists for 
being here today.
    If I might just start by pointing out that some of the 
progress that we have made since passage of the 2017 tax law, I 
think illustrates that if you provide incentives, the right 
incentives, people invest and you get growth in the economy. 
You get better-paying jobs and higher wages, which is exactly 
what has happened.
    And you know, a number of the changes that we made in the 
tax code in the 2017 act were very progressive. We lowered tax 
rates, expanded tax brackets, doubled the standard deduction, 
expanded the Child Tax Credit. And if you look at the results 
of what has happened since, we have had the lowest overall 
unemployment rate in more than 50 years. This is pre-pandemic, 
February 2020: 3\1/2\ percent, record low unemployment rates 
for blacks, for African American workers, and for Hispanic 
workers, and robust job growth.
    And in fact, if you look at where a lot of the income 
growth has occurred, it has benefited lower-income workers the 
most. In fact, some pretty remarkable statistics. The income 
growth in 2019 was the most broad-based ever recorded in a 
single year. And the poverty rate fell the most in half a 
century.
    So, in terms of what we are doing, I do not think we ought 
to be radically changing. In fact, I think that what we were 
doing was working pretty well. And that is why I think, as we 
talk about these issues at a hearing like this, trying to 
figure out how we address income inequality, I think we need to 
remember that the best way to do that is to get growth in the 
economy.
    When the economy is expanding and growing, it is creating 
those better-paying jobs and raising wages for American 
workers.
    So let me just, if I might, ask Mr. Hawkins and Professor 
Desai, can you discuss how the economic growth from the Tax 
Cuts and Jobs Act expanded opportunities for America's lowest-
income workers? And to best protect these gains, are there 
particular tax proposals that you think would be 
counterproductive to low-income workers?
    Mr. Hawkins. So, Senator, I see the gains from the Tax Cuts 
and Jobs Act for lower-income workers coming in three forms. 
Number one is in higher employment among folks on those levels. 
And so, second you are going to see higher wages amongst folks 
on the lowest levels. And third, you are going to see lower 
poverty amongst folks on the lowest income levels. And so, 
those three things coming together, really spoke to a lot of 
what you guys set out to accomplish with the Tax Cuts and Jobs 
Act.
    And so, in terms of counterproductive measures, obviously 
raising the corporate rate will be counterproductive because 
corporations do not pay the taxes. They just pass those taxes 
on to workers in the form of fewer job opportunities, on to 
shareholders, and then finally on to consumers.
    To raise the corporate rate will be counterproductive. 
Eliminating the 20-percent deduction for pass-through entities 
again will be particularly damaging to minority business 
owners, small business owners, because a disproportionate 
amount of their businesses are going to be pass-throughs--as 
opposed to corporations--sole proprietorships, LLCs, and 
partnerships.
    Dr. Desai. I would just add a couple of things to that 
commentary by Mr. Hawkins. First, I think if one is interested 
in the bottom quintiles of the population, the most direct ways 
to assist them include expanding the Earned Income Tax Credit, 
the Child Tax Credit--some of the ideas that I have bounced 
around in my written testimony.
    I think, to reiterate what Mr. Hawkins said, I think it 
would be useful to be careful about heavily raising taxes on 
corporations, and in particular on their global activities. I 
think the notion that somehow there are a lot of revenues to be 
gained, easy money to be gained by changing corporate rates, I 
think is not well-founded and, moreover, it will not redown to 
the benefit of American workers because we know that when 
corporations, the American corporations succeed around the 
world, they succeed at home.
    So I think we need to kind of get away from the idea that 
somehow corporations are the ones who are not necessarily 
carrying their fair share. I think that whole way of thinking 
about the world, as Mr. Hawkins alluded to, does not actually 
reflect the fact that more than half the corporate tax is borne 
by workers rather than capital.
    Senator Thune. Thank you.
    The Chairman. Thank you, Senator Thune. We have had 
Senators going back and forth. At this time, let's let Senator 
Whitehouse go and then Senator Bennet. Is that acceptable to 
you, Senator Bennet?
    Senator Bennet. Sure; thanks, Mr. Chairman.
    The Chairman. Okay. Senator Whitehouse then Senator Bennet.
    Senator Whitehouse?
    Senator Whitehouse. Thanks, Mr. Chairman. I appreciate this 
hearing, and I just wanted to flag the problems of tax 
spending. A couple of things about it.
    First, it is big. The IRS collects about $3.5 trillion in 
income and payroll taxes each year. And the Joint Committee on 
Taxation, using CRS numbers--actually, sorry, vice versa--CRS 
using JCT numbers estimates the tax expenditures for 2021 would 
cost $1.53 trillion. So there is a lot of money going out the 
back door of the tax code. It is big.
    It is also lasting. If you come in and get an 
appropriation, once the appropriation is spent down, you are 
all done. You have to come back and get another. But if you can 
bake something into the tax code, it is there for you and for 
your interests forever.
    So it is big, and it is lasting, and it also, I believe, 
tends to be regressive. As Professor Brown has pointed out, tax 
expenditures tend to disproportionately benefit the very 
wealthy, allowing those who have access to high-priced tax 
attorneys to choose if and when they pay taxes. And of course 
you have to be making a lot of money to make it worth your 
while to spend money on tax savings.
    In that regard, Ms. Brown, I wonder if you could offer a 
brief comment on the extent to which Opportunity Zones run 
counter to that tax spending problem of being big, lasting, and 
regressive, or whether they masqueraded yet another tax 
giveaway to wealthy investors.
    Ms. Brown. So I think Opportunity Zones do make a giveaway 
to wealthy white investors, under the guise of helping 
distressed communities. And I think you can find an anecdote or 
two where you can say, ``It worked here,'' but there are other 
anecdotes that show wealthy investors have influenced which 
areas were even named as Opportunity Zones, and they were not 
necessarily distressed communities, the way the statute perhaps 
should have been written if they were actually interested in 
holding people's feet to the fire.
    So I think there is a lot of leeway in Opportunity Zones 
that make them not as helpful in distressed communities.
    Senator Whitehouse. Thank you.
    So again, back to tax spending; it is big, it is lasting, 
it is regressive. Opportunity Zones probably did not help. And 
some of it is foreign.
    Ms. Rao, you support small businesses. The Ugland House is 
a small five-story building in the Cayman Islands that is home 
to well over 18,000 corporate, quote, ``headquarters,'' and 
nearly half of them were determined by the GAO to have U.S. 
billing addresses.
    So when you are talking about small businesses, and you 
have 9,000 of them in one little building, that is not exactly, 
Ms. Rao, what you have in mind when you are thinking of helping 
small businesses get started, is it?
    Ms. Rao. No. Thank you so much, Senator. So, while I know 
that that exists, actually the founders that I work with in 
early stage, especially primarily BIPOC founders, are not 
necessarily those who have access to capital. And certainly as 
you pointed out, it takes a lot of money to pay those high-
priced lawyers.
    Actually, the capital that is used in these rising founders 
is used in the talent acquisition race. So a lot of issues that 
Founders have in their development of their venture is this 
idea that they cannot access great talent. And so they are 
utilizing the capital that they receive to be able to work on 
their business and to actually scale and grow and be able to 
create that differentiation mode.
    Senator Whitehouse. So the last question: what income 
demographic do you think it is that is taking advantage of 
Ugland House and other offshore refuges to avoid paying taxes?
    Ms. Rao. I would surmise that it would likely be those, as 
Professor Brown suggests, that are already benefiting from the 
tax process that they are in.
    Senator Whitehouse. Stands to reason. I yield back my time. 
Thank you, very much.
    The Chairman. Thank you, Senator Whitehouse.
    Senator Bennet?
    Senator Bennet. Thank you, Mr. Chairman. Can you hear me?
    The Chairman. Yes, perfectly.
    Senator Bennet. Great. Thank you to the witnesses. I am 
very, very grateful that all of you are here today on this 
important topic.
    The United States has one of the lowest rates of economic 
mobility and highest rates of childhood poverty in the 
industrialized world. And childhood poverty is 
disproportionately experienced by children of color. In 2019, 
black and Hispanic children were about three times as likely to 
be living in poverty as white children.
    Professor Brown, as Superintendent of Denver Public 
Schools, I witnessed firsthand the effects growing up poor can 
have on a child's development and opportunity for success later 
in life.
    For those reasons, I wrote the America's Family Act, along 
with my colleague Senator Sherrod Brown, and have been pushing 
to expand the Child Tax Credit to make it fully refundable for 
many years. And I am very pleased that we just passed this 
expansion of this part of the American Rescue Plan that will 
cut childhood poverty in this country by almost half this year. 
Ninety percent of children will benefit from the expanded CTC, 
but it will have disproportionately large effects on children 
of color, reducing poverty for black children by more than 50 
percent, for Hispanic children by nearly the same, and for 
Native American children by more than 60 percent.
    Professor Brown, I would like to hear your thoughts on the 
importance of the expanded Child Tax Credit and how this part 
of the American Rescue Plan will make our tax code more 
equitable for families of color.
    Ms. Brown. That was a sea change. Being able to have low-
income families get fully funded Child Tax Credits was a 
significant advancement in the legislature. And I can just--
because I have written about this--I can just think about the 
decades where that was not true.
    So when we talk about statistics about single families in 
poverty, part of why that existed was because before now, 
Congress had not allowed Earned Income Tax Credit families to 
be fully seeing the benefit of a Child Tax Credit for each of 
their children.
    Senator Bennet. And I assume that you think it would be 
helpful if we could find a way to make this permanent?
    Ms. Brown. You are correct. Yes.
    Senator Bennet. Thank you; I appreciate that.
    And, Dr. Desai, the American Rescue Plan also temporarily 
tripled the Earned Income Tax Credit, which you have been 
talking about today, for low-paid workers without dependent 
children in their home. This change will boost incomes for an 
estimated 17 million workers, workers who disproportionately 
come from communities of color and are in the early years of 
their careers.
    How will the EITC expansion promote racial equity and 
financial opportunity for young workers? And do you believe 
that making this 1-year EITC expansion permanent would help our 
tax code better promote racial equity for workers?
    Dr. Desai. Thanks, Senator Bennet. Yes, I think the 
expansion of the EITC was a wonderful move. I think we could do 
more. I think we could make it bigger. I think we could expand 
it to the childless. And I think we could make it permanent. 
And I think that is the way forward on this general agenda.
    I think in particular, as I lay out in my testimony, 
thinking about the exclusion of capital gains on primary 
residences or retirement buildup, I do not think is as 
effective as being laser-focused. And I think this is precisely 
why this hearing is so important, because it might reorient our 
attention towards these kinds of questions like the Child Tax 
Credit. Those are where we have the potential for the greatest 
gains for the bottom quintile.
    Senator Bennet. I really appreciate that testimony. Mr. 
Chairman, I have no idea whether I am out of time or not.
    The Chairman. My colleague has a minute left.
    Senator Bennet. Okay; I have one last question. Data from 
the Small Business Association indicates that people of color 
are significantly less likely to own a business than white 
individuals in the U.S. Among those who do, more than 90 
percent of all black- and Hispanic-owned businesses are owner-
only firms. And owner-only firms tend to have significantly 
smaller profits than larger firms with multiple employees on 
the payroll.
    Do you think the tax code should provide a level playing 
field for small minority-owned businesses which already face 
greater challenges in securing capital than white-owned 
businesses? According to the Joint Committee on Taxation, the 
design of the pass-through deduction in the 2017 Tax Cuts and 
Jobs Act means the smallest businesses will receive the 
smallest benefit.
    Professor Brown, do you believe the pass-through deduction 
in the 2017 tax law was well-designed to help small minority-
owned businesses succeed compared to their larger, often white-
owned competitors?
    Ms. Brown. No, I do not.
    Senator Bennet. Thank you, Mr. Chairman. I yield back.
    The Chairman. I thank my colleague.
    Senator Warren?
    Senator Warren. Thank you, Mr. Chairman.
    So, nearly every component of tax law has a racial equity 
impact, but it is not just about what tax laws are on the 
books. It is also about how they're enforced.
    So last week, the IRS Commissioner told this committee that 
the tax gap--the amount of taxes owed but not paid--could 
exceed a trillion dollars every year. The top 1 percent of 
Americans account for more than a third, and potentially as 
much as 70 percent, of the taxes owed but not paid.
    But the IRS's efforts to enforce our tax laws, including 
these audits conducted to check whether or not a taxpayer is 
following the law, don't focus on these wealthy taxpayers. In 
2019, low-income families claiming the Earned Income Tax Credit 
made up nearly 40 percent of all IRS audits.
    So, Ms. Brown, we audit a lot of lower-income taxpayers, 
rather than focusing on the wealthiest people. What does that 
mean for the racial impact of our tax enforcement strategy?
    Ms. Brown. It means that it is being borne on the backs of 
black Americans and not where the true gap is, with higher-
income white Americans who have access to tax attorneys who 
apparently the IRS would prefer not to push back against. So 
they go after low-income EITC claimants who do not have access 
to tax attorneys to push back. It is very unfair.
    Senator Warren. That is right. And, Professor Brown, am I 
right that you have looked at what the most-audited counties in 
America are?
    Ms. Brown. Well, ProPublica did research on that, and of 
course I am familiar with that, yes. And they are in rural 
black communities in the south. And in the south--there is a 
disproportionate number of black Americans living in the south.
    So they have been black Americans in the south who filed 
the EITC who have been targeted, when research shows over 50 
percent of EITC claimants are white.
    Senator Warren. Thank you. I appreciate it, Professor 
Brown. As your research shows, one reason why is implicit bias: 
politicians and bureaucrats embracing harmful stereotypes about 
black Americans that can lead them to single out EITC 
recipients.
    But there is another piece here too. After years of 
Republican budget cuts, the IRS targets the people who are the 
cheapest to audit. And that is low-income taxpayers, many of 
them people of color. It is cheap and easy for the IRS to blast 
out letters to intimidate EITC recipients, but rich people use 
complicated tricks to evade taxes. So those investigations 
require time and money and expertise, things that the IRS is 
short on.
    In fact, a recent report from the Treasury Inspector 
General found that the IRS is not even working on the cases of 
the highest-income taxpayers who do not file taxes at all, but 
who collectively owe more than $45 billion.
    So, Professor Brown, if we gave the IRS a big pot of money 
and mandated that the IRS spend it on auditing the wealthiest 
taxpayers and the biggest corporations--targets where we know 
there is a huge amount of money going uncollected--could that 
help reduce the racial disparities in the tax system?
    Ms. Brown. Absolutely. Absolutely. It would make who pays 
taxes a lot fairer.
    Senator Warren. Good. So, thank you. You know, there is a 
lot we need to do to make our tax system less racist. And one 
easy place to start is by making sure that the IRS has the 
resources and clear direction to go after the biggest tax 
cheats.
    I am really glad that Commissioner Rettig supports the bill 
that I am working on to provide a new targeted mandatory 
funding stream for the IRS so that the agency has a 
predictable, sustained, and protected pot of funds dedicated to 
ensuring that the wealthy and the big corporations are paying 
their fair share. It would give us a better, stronger, and more 
equitable tax system for all Americans. Thank you, Mr. 
Chairman.
    The Chairman. I thank my colleague. Are there any other 
Senators who would like to ask any questions?
    [No response.]
    The Chairman. Okay, hearing none, let me just check. Are we 
sure that there are no other Senators who have questions? Okay.
    Let me close by saying that today's hearing is the first 
hearing of the Senate Finance Committee to look at racial, 
ethnic, and gender disparities under the tax code in decades, 
if not the first-ever hearing on this critically important 
issue.
    And it seems to me some important ideas are reflective of 
witnesses of differing views coming together. For example, 
after this massive cut in tax enforcement in the last decade, I 
have heard witness after witness saying you have to beef it up. 
And one of the reasons that I asked the IRS Commissioner last 
week about the tax gap is that I knew that it was far bigger 
than what was actually a matter of official records, and I knew 
that the central problem was that too many cheats were getting 
away with it without any consequences when they chose to ignore 
the law.
    So I am going to close by touching on a point that 
Professor Brown made hours ago when she said that you have to 
be a detective to find data about these critical issues that we 
have been talking about. I believe it is long past time to make 
it easier to obtain the key tax data that will illuminate the 
injustices in our tax laws. I believe this could be done in a 
manner that protects the confidentiality and privacy of all 
taxpayers, and I am going to be asking Senators on this 
committee to work with me to implement this long-overdue and 
essential transparency reform.
    With that, I want to thank all our witnesses again. Ms. 
Rao, you reflected very well on our State this morning.
    And with that, the Senate Finance Committee is adjourned.
    [Whereupon, at 12:03 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


      Prepared Statement of Dorothy A. Brown, Asa Griggs Candler 
           Professor of Law, School of Law, Emory University
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
thank you for inviting me to share these views on how our tax system 
perpetuates racial inequality.

    In my testimony today, I will discuss three ways that tax policies 
are more likely to provide tax breaks for white Americans than black 
Americans. The first looks at the tax breaks for marriage. The second 
looks at tax breaks for sales of homes. The third looks at tax breaks 
for employer provided retirement accounts. But if there is one thing 
that I hope you remember from what I will be sharing with you today it 
is that racial inequality is baked into how our tax laws operate.

    My book The Whiteness of Wealth: How the Tax System Impoverishes 
Black Americans--And How We Can Fix It,\1\ reveals how when black 
Americans engage in the same activity like marriage, home ownership, or 
work, our Federal income tax policies advantage how white Americans 
engage in the activity while at the same time disadvantaging how black 
Americans engage in the activity. As a result, tax policy causes black 
Americans to pay higher taxes than their white peers. The book builds 
upon my prior research.\2\
---------------------------------------------------------------------------
    \1\ Dorothy A. Brown, The Whiteness of Wealth: How the Tax System 
Impoverishes Black Americans--And How We Can Fix It (Crown Publishing 
Co. 2021).
    \2\ Dorothy A. Brown, ``The Marriage Bonus/Penalty in Black and 
White,'' in Taxing America, edited by Karen B. Brown and Mary Louise 
Fellows (NYU Press 1996); ``Race, Class and Gender Essentialism in Tax 
Literature: The Joint Return,'' 54 Washington and Lee L. Rev. 1469 
(1997); ``Pensions, Risk, and Race,'' 61 Washington and Lee L. Rev. 
1501 (2004); ``The Tax Treatment of Children: Separate But Unequal,'' 
54 Emory L. J. 755 (2005); ``Race and Class Matters in Tax Policy,'' 
107 Columbia Law Review 790 (2007); ``Pensions and Risk Aversion: The 
Influence of Race, Ethnicity, and Class on Investor Behavior,'' 11 
Lewis and Clark L. Rev. 385 (2007); ``Shades of the American Dream,'' 
87 Wash. U. L. Rev. 329 (2009); ``Teaching Civil Rights Through The 
Basic Tax Course,'' 54 St. Louis University L. J. 809 (2010); and 
``Home Ownership in Black and White: The Role of Tax Policy in 
Increasing Housing Inequity,'' 49 Memphis L. Rev. 205 (2018).

    What my research has revealed is that because systemic racism is 
very real, all American taxpayers bring our racial identities onto our 
tax returns. Understanding how this happens is made more complicated 
because the Internal Revenue Service does not publish statistics by 
race, even though it has by gender and age.\3\ The Federal Government 
publishes a treasure trove of statistics by race--but not when it comes 
to our taxes. That single choice meant that my research might never 
have happened had I not become a detective of sorts looking for proxy 
data by race that might inform my tax analysis.
---------------------------------------------------------------------------
    \3\ Jeremy Bearer-Friend, ``Should the IRS Know Your Race? The 
Challenge of Colorblind Tax Data,'' 73 Tax Law Review 1 (2019), https:/
/papers.ssrn.com/sol3/papers.cfm?abstract_id=3231
315.

    My research shows that history plays a part here as many of our 
current tax provisions date back to a time when separate but equal was 
the law of the land, specifically before Brown v. Board of Education 
\4\ was decided and before the 1964 Civil Rights Act, the 1965 Voting 
Rights Act, and the 1968 Fair Housing Act became law. We should not be 
surprised then that our tax policies were created to benefit white 
Americans. Another part of how we got here can be explained by the 
reality that although legal Jim Crow has been overturned, we live in a 
society where race unfortunately still matters. Data from the 2019 
Survey of Consumer Finances show that white families have eight times 
the wealth of black families.\5\ In 21st-century America, systemic 
racism impacts virtually every societal function--including how much we 
pay in taxes.
---------------------------------------------------------------------------
    \4\ 347 U.S. 483 (1954).
    \5\ Neil Bhutta, Andrew C. Chang, Lisa J. Dettling, and Joanne W. 
Hsu with assistance from Julia Hewitt, ``Disparities in Wealth by Race 
and Ethnicity in the 2019 Survey of Consumer Finances,'' Sept. 28, 
2020, https://www.federalreserve.gov/econres/notes/feds-notes/
disparities-in-wealth-by-race-and-ethnicity-in-the- 2019-survey-of-
consumer-finances-20200928.htm.

    Tax policies around marriage are more likely to benefit white 
---------------------------------------------------------------------------
married couples.

    Our joint return operates in such a way that certain marriages get 
a tax cut called a marriage bonus, others pay higher taxes called a 
marriage penalty and a small percentage see no change in their taxes. 
Marriage bonus couples are those where one spouse earns roughly all of 
the income while the other is a stay-at-home spouse and works in the 
home. Marriage penalty couples are those like my parents--my mother was 
a nurse and my father was a plumber--and each worked full-time and 
contributed about 50 percent to household income. Census Bureau data I 
analyzed show that white married couples were more likely to get a 
marriage bonus, while black married couples were more likely to pay a 
marriage penalty. But there has always been a certain minority of white 
married couples whose marriages look like most black marriages and 
therefore pay higher taxes when they marry.

    What we know of as the joint return did not exist at the beginning 
of our progressive tax system because taxpayers were taxed on their 
income as individuals. But in 1927, a rich, white couple Charlotte and 
Henry Seaborn along with their lawyers took matters into their own 
hands effectively creating a joint tax return for themselves. Henry 
shifted half of his income to Charlotte which lowered the overall taxes 
they paid. The Internal Revenue Service objected, but the Seaborns took 
their case to the Supreme Court which rewarded their self-help with a 
win.\6\ That led eventually to Congress creating a joint return in 
1948. But even in 1948 a higher percentage of black wives worked 
outside of the home than white wives which meant it was entirely 
predictable that the joint return would lead to lower taxes for more 
married white couples than married black couples.\7\ It is referred to 
as equitable when we tax two households with $100,000 of income the 
same whether that is the result of two wage earners or one. Systemic 
racism in the labor market however means that it often takes two 
married black workers to equal one single wage earner. Those households 
should not pay the same amount in taxes in a progressive tax system.
---------------------------------------------------------------------------
    \6\ Poe v. Seaborn, 282 U.S. 101 (1930).
    \7\ Claudia Goldin, ``Female Labor Participation: The Origin of 
Black and White Differences, 1870 and 1880,'' 37 Journal of Economic 
History, 87-108 (1977).

    While the Tax Cuts and Jobs Act temporarily eliminated marriage 
penalties for many,\8\ the marriage bonus remains in our tax code today 
and continues to disadvantage married black couples. My solution: a 
return to individual filing like at the beginning of our modern 
progressive tax system.\9\ Not only will it help dual wage earner 
couples, but it will also help America's singles as well.
---------------------------------------------------------------------------
    \8\ Marriage penalties still exist for married couples eligible for 
the Earned Income Tax Credit and for high-income households, where 
black couples are still more likely than white couples to pay a 
marriage penalty.
    \9\ Anthony C. Infanti, ``Decentralizing Family: An Inclusive 
Proposal for Individual Tax Filing in the United States,'' 2010 Utah 
Law Rev. 605 (2010), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1503543.

    Hidden within the marriage bonus/penalty discussion is the single's 
penalty. A single taxpayer that makes $100,000 of income will pay more 
taxes than a married single wage earner couple with $100,000 of income. 
According to the 2019 Census Bureau, 56 percent of white Americans are 
married, compared with almost 38 percent of black Americans. Most black 
Americans are single along with a significant percent of white 
Americans. Single Americans are a growing demographic in this country 
---------------------------------------------------------------------------
and a return to individual filing will also help them.

    Tax subsidies for home ownership are more likely to benefit white 
homeowners.

    The second area that I want to touch upon are tax subsidies for 
home ownership. The majority of white Americans are homeowners while 
the majority of black Americans are renters. According to the Census 
Bureau in the Fourth Quarter of 2020, the highest rate of home 
ownership was for white Americans at 74.5 percent and the lowest rate 
was for black Americans at 44.1 percent. As a result, all tax subsidies 
for home ownership will disproportionately benefit white Americans the 
most and black Americans the least. Home ownership has been 
historically and remains an asset tied to racial identity. Recent data 
show that roughly 1 in 10 Americans itemize deductions and those are 
disproportionately Americans with higher incomes.\10\ The mortgage 
interest deduction, which can only be taken if a taxpayer itemizes 
their deductions, is becoming increasingly irrelevant to most 
homeowners.
---------------------------------------------------------------------------
    \10\ Tax Policy Center Analysis of 2018 Tax Return Data, https://
www.taxpolicycenter.org/model-estimates/impact-itemized-deductions-tax-
cuts-and-jobs-act-jan-2018/t18-0001-impact-number.

    There are other tax subsidies for home ownership however, that 
includes the tax treatment when we sell a home at a gain. Gains on 
sales of homes can escape taxation for up to $500,000 if the taxpayer 
is married or $250,000 if the taxpayer is single.\11\ Losses on the 
sale of homes on the other hand are not deductible.\12\ The special tax 
treatment for gain dates back to 1951. By 1950, 55 percent of white 
Americans had become homeowners--just a decade earlier only 44 percent 
of white Americans were homeowners. That explosive white home ownership 
growth was aided by low-cost, long-term, fixed interest rate mortgages 
insured by the Federal Government that largely excluded black 
Americans.\13\ From its origins, the tax break for gain on home sales 
was designed to benefit white homeowners.
---------------------------------------------------------------------------
    \11\ Internal Revenue Code section 121.
    \12\ Internal Revenue Code section 165(c)(3).
    \13\ Richard Rothstein, ``The Color of Law: A Forgotten History of 
How Our Government Segregated America'' (Liveright Publishing Co., 
2017).

    Established research shows us that the greatest appreciation in our 
homes comes when we live in neighborhoods which are overwhelmingly 
white with very few black neighbors.\14\ As the percentage of black 
homeowners in the neighborhood increases, the value of the homes 
decrease particularly because white home buyer preferences, as the 
majority of home buyers, help establish the market prices. While most 
white homeowners live in neighborhoods with very few black neighbors, 
the majority of black homeowners live in racially diverse or all black 
neighborhoods with many black neighbors. As a result, white homeowners 
but not most black homeowners are more likely to sell at a large tax-
free gain. Research also shows that the homeowners most likely to sell 
their homes at a non-deductible loss are black.\15\ Tax subsidies for 
home ownership therefore create white tax winners and black tax losers. 
The Federal Government should stop subsidizing a racist home ownership 
market.
---------------------------------------------------------------------------
    \14\ Dorothy A. Brown, ``Home Ownership in Black and White: The 
Role of Tax Policy in Increasing Housing Inequity,'' 49 Memphis L. Rev. 
205, 214-221 (2018).
    \15\ Sandra J. Newman and C. Scott Holupka, ``Is Timing Everything? 
Race, Home Ownership and Net Worth in the Tumultuous 2000s,'' 44 Real 
Est. Econ. 307, 309 (2015).

    Tax subsidies for employer-provided retirement accounts are more 
---------------------------------------------------------------------------
likely to benefit white workers.

    The final area I want to highlight are tax subsidies for work, 
specifically employer provided retirement accounts. Retirement accounts 
as a tax benefit traces its roots to 1942, when price and wage controls 
along with an excess profits tax, encouraged employers to provide non-
wage benefits like retirement accounts. Amounts set aside in retirement 
accounts by employees (and if there's an employer-match amounts set 
aside by their employer) are not taxable to the employee until their 
expected withdrawal at retirement. If any amounts are withdrawn prior 
to the age of 59\1/2\ they are subject to an additional tax penalty. 
Black Americans are less likely than white Americans to work for 
employers that provide retirement accounts.\16\ In the private sector, 
for workers aged between 21 and 64, 56 percent of white workers work 
for an employer that offers a retirement plan compared with 50 percent 
of black workers, and almost 35 percent of Hispanic workers. Almost 46 
percent of white workers, almost 37 percent of black workers, and 25 
percent of Hispanic workers actually participate in their private 
sector employer provided retirement account. Research also suggests 
that black workers are more likely than all other racial and ethnic 
groups to take an early withdrawal regardless of income and pay a tax 
penalty.\17\ One potential explanation could come from research that 
shows black college graduates are more likely to send money home to 
their parents and other family members in financial distress, while 
white college graduates are more likely to receive money from their 
parents and other family members that enable them to be able to save 
more and build wealth.\18\ Black college graduates have to make their 
dollars stretch farther than their white peers which makes it less 
likely for them to be able to contribute to their retirement accounts 
and more likely to withdraw what they may have been able to contribute. 
Given that less than half of white workers, a little over a third of 
black workers and a quarter of Hispanic workers in the private sector 
participate in their retirement accounts, tax subsidies should be 
withheld until the private sector increases their participation rates.
---------------------------------------------------------------------------
    \16\ Craig Copeland, ``Employment-Based Retirement Plan 
Participation: Geographic Differences and Trends,'' 2013, Employee 
Benefit Research Institute, No. 405 October 2014.
    \17\ The Ariel/Aon Hewitt Study 2012, ``401(k) Plans in Living 
Color,'' at 11.
    \18\ Tatjana Meschede, Joanna Taylor, Alexis Mann, and Thomas 
Shapiro, ``Family Achievements?: How a College Degree Accumulates 
Wealth for Whites and Not for Blacks,'' Federal Reserve Bank of St. 
Louis Review, First Quarter 2017, 99(1), pp. 121-37, https://files.
stlouisfed.org/files/htdocs/publications/review/2017-02-15/family- 
achievements-how-a-college-degree-accumulates-wealth-for-whites-and-
not-for-blacks.pdf.

    The Whiteness of Wealth discusses many other areas where our 
Federal tax policies disadvantage black Americans, but they all lead to 
the conclusion that our tax laws need a fundamental overhaul that 
places racial equity at the center.

Solutions

    No single change will be sufficient to address all the ways that 
racial inequality is embedded in our tax laws. My recommendation for a 
first step however would be to have the Internal Revenue Service 
publish statistics by race. In addition, every future congressional 
proposal for tax reform should come with a racial impact statement. In 
Chapter Six of The Whiteness of Wealth I outline my ideal tax system, 
but the point I wish to focus on here is that all income should be 
subject to the same progressive rate system. I am generally skeptical 
of deductions, exclusions, and loopholes because they tend to leave 
behind black Americans. I advocate for a wealth tax credit for all 
taxpayers in households with below median wealth. It would 
disproportionately benefit black taxpayers because of the racial wealth 
gap, but it would also benefit all taxpayers regardless of race and/or 
ethnicity with below median wealth. This proposal seeks to directly 
help those with the least wealth.

    I will note in closing that other organizations have begun to 
highlight racial and other disparities found in our tax laws including 
the National Women's Law Center's report on Tax Justice is Gender 
Justice: Advancing Gender and Racial Equity by Harnessing the Power of 
the U.S. Tax Code \19\ and the Center for Budget and Policy Priorities' 
How the Federal Tax Code Can Better Advance Racial Equity.\20\ Congress 
can and must do better in order to achieve racial equity in the 
operation of our tax laws. As I wrote recently in The New York Times: 
``Black taxpayers should not be required to finance our own 
subordination.''\21\
---------------------------------------------------------------------------
    \19\ https://nwlc.org/wp-content/uploads/2019/11/NWLC-Tax-
Executive-Summary-Accessible.
pdf.
    \20\ https://www.cbpp.org/research/federal-tax/how-the-federal-tax-
code-can-better-advance-racial-equity.
    \21\ Dorothy A. Brown, ``Your Home's Value Is Based on Racism,'' 
New York Times, March 20, 2021, https://www.nytimes.com/2021/03/20/
opinion/home-value-race-taxes.html.

                                 ______
                                 
         Questions Submitted for the Record to Dorothy A. Brown
                 Questions Submitted by Hon. Mike Crapo
    Question. Income disparities exist across individuals and 
households, not all of which should be a reason for a particular tax 
policy concern. While there is concern, today's U.S. Federal income tax 
system is a progressive system, with more of Federal tax burden borne 
by higher-income households than for lower-income households. The Tax 
Cuts and Jobs Act included a number of provisions to make the 
individual income tax system even more progressive, including doubling 
the child tax credit, nearly doubling the standard deduction, and 
features such as Opportunity Zones to inject more financial capital 
into distressed communities.

    There are also genuine policy concerns about wealth disparities 
among individuals and households.

    Do you believe the income-tax system is the best thing to modify if 
the objective is to alter wealth disparities?

    Answer. Given my research that shows the income tax system 
disadvantages black taxpayers, which impacts the racial wealth gap, I 
think reform of the income tax system is a necessary step and the best 
way to address the issue.

    Question. Your work emphasizes the tax code and economic 
disparities primarily between black or African American and white 
taxpayers. Others have emphasized the tax code and disparities felt by 
Hispanic taxpayers or disparities felt by Asian taxpayers. The common 
thread seems to be low income, wealth, and opportunity, and that it is 
desirable to look carefully at the tax code and at populations with low 
income, wealth, and opportunity.

    Your recommendations seem to assert that disparities, and how 
persistent they have been, vary across groups, but whomever is facing 
low opportunity deserves attention. And I think we can all agree on 
that.

    Do you believe there to be any extra gain from Congress making tax 
provisions dependent of a taxpayer's claimed identity, or whether it is 
best to focus on improving opportunity for prosperity independent of a 
taxpayer's identity classification?

    Answer. Tax law currently impacts taxpayers based upon their racial 
identity. Today many black Americans pay higher taxes than their white 
peers. Changing that should be paramount for those who believe in equal 
opportunity for all.

    Question. Wealth disparities that have been analyzed by some of our 
panelists include retirement wealth. Congress has worked over time to 
remove barriers to retirement savings. Last year, for example, the 
SECURE Act was signed into law.

    Efforts have focused on making it easier for businesses, and small 
businesses in particular, to set up retirement savings plans for their 
workers, expanding opportunities for retirement savings for workers, 
including those who work part time, and enhancing portability of 
pensions given that workers often change jobs.

    Meanwhile, over the past few decades, it has become easier for 
individuals to set up retirement accounts, and fees associated with 
those accounts have fallen.

    We still see, however, that take-up of retirement plans can 
sometimes be low, even where a plan is offered by an employer and 
sometimes even when there is an employer match. And there are 
disparities in take-up rates that don't seem to be explainable by 
expected factors such as retirement-plan access and job type.

    Do you have thoughts and policy ideas that you view as useful to 
help increase savings for retirement over a worker's life cycle, 
particularly for low-income workers in jobs where employers may not 
offer plans?

    Answer. As I write about in my book The Whiteness of Wealth, I have 
several suggestions: automatic enrollment for eligible employees; 
repealing of the penalty for early withdrawal from retirement accounts; 
and ensuring that employers notify employees who are not maximizing 
their participation in their retirement plans.

    Question. One recommendation that you have put forward for 
consideration is to remove most deductions, exclusions, and the like 
and start over to put a better tax code in place to even out 
disparities and assist in providing more opportunity. Many others have 
put forward similar recommendations. For example, in the past a Growth 
and Investment Tax Plan was put forward during President George H.W. 
Bush's presidency to vastly simplify the code and provide greater and 
wider opportunities for savings, investment, and wealth building. 
President George W. Bush emphasized an American Ownership Society to 
similarly expand opportunities.

    Challenges arise with fundamentally restructuring the tax system, 
but any lasting reform must have bipartisan support.

    Do you believe that fundamental changes to the tax system stand the 
best chance of long-lived success if done in a bipartisan fashion?

    Answer. My research shows that currently black Americans pay higher 
taxes than white Americans. That needs to stop. Whichever way reform 
can come sooner, is what I believe. If that is through bipartisan 
agreement fine. But if bipartisan agreement cannot come--or cannot come 
quickly, then actual reform that can help the financial futures of 
black Americans must trump the idea of bipartisanship.

    Question. There is a long history of bipartisan interest in 
removing high effective marginal tax rates associated with the various 
silos of low- and moderate-income support programs, which often have 
benefit cliffs or steep phase-outs. The nonpartisan CBO has issued 
numerous reports on those very high tax rates in the past.

    What is your view on how we could make the varied low- and 
moderate-income support programs work better systemically to provide 
support without having extremely high effective marginal tax rates.

    Answer. I have only studied this issue in the context of the earned 
income tax credit. I would recommend a repeal of the joint filing 
requirement so that the current significant marriage penalties found in 
the earned income tax credit would be eliminated.

                 Question Submitted by Hon. Todd Young
    Question. I am greatly concerned by President Biden's income tax 
proposal to allow for the unlimited deduction of State and local taxes. 
I have heard a number of my Democratic colleagues claim that repealing 
the cap on State and local taxes, also known as the SALT cap, is an 
important piece of relief for middle-class families. This could not be 
further from the truth--in fact, a recent study found that 96 percent 
of the benefit from repealing the SALT cap would go to the wealthiest 
Americans.

    Especially as the Nation continues to recover from a pandemic that 
has disproportionately impacted small businesses and working-class 
families, do you believe it is wise to move forward with a proposal 
that will give middle-class families $10 or less in relief?

    Answer. As I have already testified, I am opposed to the repeal of 
the SALT cap.

                                 ______
                                 
                Prepared Statement of Hon. Mike Crapo, 
                       a U.S. Senator From Idaho
    Welcome to our witnesses. I look forward to hearing your 
experiences, thoughts, and ideas today.

    There are questions of whether the tax code by itself leads to 
differing impacts across race, gender, age, or geography, or whether it 
is underlying income, wealth, asset-holding, or job-type disparities 
that principally cause differing results. Underlying disparities are 
key, and it is important to know about them. There are a variety of 
disparities in measures of income, wealth, and assets across many 
dimensions. Examining the disparities using statistics shows a variety 
of results, along with changes in results over time. The Pew Research 
Center, for example, recently identified that income inequality for 
Asian Americans rose to become the highest among racial and ethnic 
groups.

    Underlying causes of these disparities are not entirely clear, 
since causality is difficult to establish. As a result, there are 
different views. Some views focus on government policies, while others 
stress inequities in opportunities for education and asset building 
along with changing patterns of family formation and institutions like 
marriage.

    Today, our witnesses will provide perspectives on the income tax 
system, barriers to opportunity, policy solutions we should consider, 
and economics.

    Prior to the pandemic, the United States was experiencing one of 
the strongest economies across demographics in decades. With the Tax 
Cuts and Jobs Act in place, and an agenda focused on smart regulation, 
we saw progress along many dimensions, including: record low 
unemployment rates for African Americans, Hispanics, and others; 50-
year lows in overall unemployment; robust wage gains skewed toward 
lower-wage earners; record high household incomes; and record low 
poverty.

    The TCJA included a number of provisions to make the personal 
income tax system more progressive, including doubling the Child Tax 
Credit, nearly doubling the standard deduction, and features such as 
Opportunity Zones to inject more financial capital into distressed 
communities. It will be increasingly challenging to return to an 
economy as robust as we saw before the pandemic with the endless 
streams of tax hikes and regulation that the current administration 
continues to propose.

    Going the opposite direction of combating inequality in the tax 
code are efforts to roll back the cap placed by TCJA on the State and 
local tax--or SALT--deduction. I expect some of the proposals we will 
hear about today will have promise, and others may not actually get to 
the root of the problems we are addressing. I am eager to hear more.

    Whatever we consider, it will be important that policies are 
developed on a bipartisan basis. No one party has a monopoly on good 
ideas, and any work on persistent barriers to opportunity will 
ultimately fail if done in a partisan fashion.

    I look forward to our hearing today, Mr. Chairman, and thank you.

                                 ______
                                 
  Prepared Statement of Mihir A. Desai, Ph.D., Mizuho Financial Group 
 Professor of Business, Harvard Business School; and Professor of Law, 
                Harvard Law School, Harvard University *
---------------------------------------------------------------------------
    * I thank Suzanne Antoniou for excellent research assistance and 
Jacob Bastian, James R. Hines Jr., Wojciech Kapczuk, Louis Kaplow, 
Youngme Moon, and Matthew Weinzierl for helpful conversations. All 
views expressed, and any errors, remain my own.
---------------------------------------------------------------------------
    Chairman Wyden, Ranking Member Crapo, and members of this 
distinguished committee, it is an honor to participate in these 
hearings on ``Combating Inequality: The Tax Code and Racial, Ethnic, 
and Gender Disparities.'' I am the Mizuho Financial Group professor of 
business at Harvard Business School, a professor of law at Harvard Law 
School, and a research associate at the National Bureau of Economic 
Research. I have also taught at the Columbia and NYU Law Schools.

    While equity is commonly understood as a guiding principle of tax 
policy (along with efficiency and administrability), the specific 
issues raised in this hearing--the role of race, ethnicity, and 
gender--are important considerations that have not received the 
attention that they deserve. I applaud your willingness to engage these 
questions and, in particular, I'm delighted to share this opportunity 
with Professor Dorothy A. Brown, who has done so much to advance the 
agenda around race, in particular.

    My comments will emphasize race--rather than ethnicity and gender--
but this emphasis merely reflects my limited ability in this 
constrained time frame. Race occupies a particular importance in our 
history and in this moment so I hope that my emphasis will not be 
misunderstood as reflecting the unimportance of ethnicity and gender or 
the racial subgroups that I neglect below. Some of my comments will 
generalize to ethnicity and gender and others won't. I look forward to 
other hearings and other efforts to fully explore these issues.

    My remarks are divided into four parts.

    First, I want to establish some facts around the correlation 
between race and income, savings, wealth, and mobility. Given that the 
tax system uses income and the returns to wealth as important inputs to 
taxing decisions, it is useful to consider the degree to which the tax 
system is ``racist.'' In this first section, I also hope to establish 
the degree to which the views that are sometimes loosely grouped 
together as ``critical tax theory'' are well-founded and extremely 
valuable.

    Second, I want to explore the degree to which ideas around taxation 
and racial justice can easily be elaborated incompletely. Specifically, 
this second section considers how analyses that outline the racial 
implications of tax laws should fully incorporate considerations that 
are typically ignored.

    Third, I want to explore the degree to which analyses of race and 
tax policy--and of redistribution and progressivity more generally--may 
not just be incomplete but also self-defeating for the causes that many 
of us would like to advance--the situation of the least well-off and 
the cause of racial justice.

    Finally, and more constructively, I want to explore the most 
meaningful ways to advance the goals of racial justice through the tax 
code. Racial justice is an important goal for many Americans today and 
pursuing this goal effectively through the tax code has several 
implications, some of which I will outline in this section.
          i. race and income, savings, wealth, and mobility--
                      implications for tax policy
    Appendix A provides my understanding of the current data on the 
relationship between race and income, savings, wealth, and mobility 
with a particular emphasis on housing and the Global Financial Crisis 
(GFC). It is far from complete or definitive but it provides a useful 
foundation for subsequent questions.

    While I encourage the reader to examine Appendix A in detail, the 
headline is straightforward and unavoidable: there is a staggeringly 
persistent and large correlation between race and income, saving, and 
wealth. For wealth, this correlation shows up in median and mean wealth 
levels, persists across age levels, has persisted over time, and shows 
up in the propensity and the magnitude of holdings of almost all asset 
types--with particularly important assets such as retirement assets and 
housing showing large differences.\1\ For income, this correlation 
shows up in median and mean income levels and the composition of 
quintiles of the income distribution and has persisted over time.\2\ 
Savings rates--an important link between income and wealth--are also 
distinctive across races and these differences too have persisted over 
time.\3\ Intergenerational dynamics compound these issues as transfers 
of wealth across generations are more likely and are larger for whites 
relative to blacks.\4\ Similarly, blacks experience less upward 
mobility and more downward mobility in income class relative to 
whites.\5\ Finally, the impact of the GFC was distinctive across races, 
with declining wealth levels and home ownership rates for blacks 
relative to whites.\6\
---------------------------------------------------------------------------
    \1\ See ``Survey of Consumer Finances, 1989-2019,'' Board of 
Governors of the Federal Reserve System; Bhutta, Chang, Dettling, and 
Hsu (2020); Choi, McCargo, Neal, Goodman, and Young (2019).
    \2\ See ``Survey of Consumer Finances, 1989-2019,'' Board of 
Governors of the Federal Reserve System; Current Population Survey 
Annual Social and Economic Supplement data available at ``HINC-05. 
Percent Distribution of Households, by Selected Characteristics Within 
Income Quintile and Top 5 Percent,'' United States Census Bureau.
    \3\ See 2019 Survey of Consumer Finances public data with estimates 
inflation-adjusted to 2019 dollars available at ``Survey of Consumer 
Finances,'' Board of Governors of the Federal Reserve System.
    \4\ See Bhutta, Chang, Dettling, and Hsu (2020).
    \5\ See Chetty, Hendren, Jones, and Porter (2020).
    \6\ See Choi, McCargo, Neal, Goodman, and Young (2019); Burd-Sharps 
and Rasch (2015).

    In an effort to isolate the ability to pay, the tax system employs 
income and the returns to wealth to raise revenue in an efficient 
manner. The returns to wealth are often granted preferential treatment, 
relative to labor income, in order to encourage certain behaviors, to 
offset the lock-in effect associated with a realization-based system, 
and to promote savings. The wisdom of these preferences is long-
debated and I won't opine on their suitability here.\7\ For our 
purposes, it is clear that these preferences intersect with the 
correlations discussed above.
---------------------------------------------------------------------------
    \7\ See Graetz, Schenk, and Alstott (2018), pp. 566-575.

    Specifically, looking at certain preferences--such as the partial 
exclusion of capital gains on primary residences, the deferral 
advantage conferred on retirement savings, and step-up basis at death--
in isolation will yield the following result: these preferences on 
returns to savings have a disparate impact on racial subgroups. I think 
this statement, as far as it goes, is incontrovertible. Indeed, it is 
---------------------------------------------------------------------------
unsurprising when one considers the correlations discussed above.

    The remaining issues raised by this result are far less 
straightforward. Does this result constitute racism in the tax code? Is 
this analysis complete? And, what should we take away from this 
analysis? \8\
---------------------------------------------------------------------------
    \8\ These questions are tackled within the literature sometimes 
labeled ``critical tax theory'' which includes, but is not limited to, 
Brown (1997, 2009a, 2009b, 2010, 2012 and 2020), Knauer (2014), 
Martinez (2018), and Wallace (2020). Zelenak (1998, 2020) offers 
thoughtful commentary on this line of inquiry. These questions relate 
critically to broader debates regarding the meaning and role of 
structural racism in today's society.

    The first question is linked to deep questions in law, philosophy 
and sociology that are unsettled and highly contested. The question can 
be distilled crudely to be one of disparate treatment versus disparate 
impact, overt intent versus actual effect, and the underlying meaning 
of neutrality. I think it is both true that (a) there is no overt 
effort to treat racial subgroups disparately and, as such, it is 
racially neutral in its application, and (b) there is an actual effect 
of specific provisions when examined in isolation that leads to a 
disparate impact on racial subgroups. How one characterizes that 
duality in its full complexity is difficult, particularly given the 
omissions in such an analysis that I describe below. I would just offer 
---------------------------------------------------------------------------
that, in this setting, I think broad and pithy labels are unhelpful.

    Before turning to the limitations of this analysis (including how 
it can be self-
defeating), it is worth acknowledging the significant, overall value of 
this line of inquiry. If nothing else, reasserting the importance of 
addressing these underlying correlations as a policy agenda is 
incredibly useful and should be applauded. Addressing these persistent 
and large correlations between race and income, wealth, savings and 
mobility should constitute a central ambition for all policy-makers. 
That, however, does not mean that the analysis is fully correct nor 
does it mean that the tax system is a mechanism that has caused these 
correlations, that exacerbates these correlations nor that it should be 
the domain for remedying them.
                   ii. analyzing race in the tax code
    Analysis of the type alluded to above--of a preference for certain 
returns to wealth relative to labor income--can yield the implication 
that these preferences have a disparate impact on racial subgroups. As 
with many such assertions in tax policy, this conclusion is a qualified 
one and can be highly incomplete when handled loosely. In particular, 
if analyzing the role of tax policy in impacting racial justice is a 
primary goal, then one would want to avoid three critical errors that 
can occur in this space. These three cautionary notes are not 
particular to the analysis of race but rather they are part and parcel 
of analyzing tax policy generally.

    First, any analysis of tax policy needs to trace through the 
incidence of benefits or taxes beyond the claimants of any particular 
benefit. For example, tracing through the consequence of the low-income 
housing tax credit on racial subgroups is not straightforward. The 
actual claimants are largely financial institutions. Analyzing the 
impact of that benefit on racial subgroups would require one to make 
assertions about the division of that benefit on the side of the 
claimants (between capital, labor and customers of these banks as 
claimants) and on the side of the residents of low-income housing.\9\ 
This is a very difficult exercise but required for understanding the 
racial impact of LIHTC. If one were to pursue a broader racial analysis 
of the tax code, these efforts could yield interesting additional 
insights but the direction and magnitude of all of these effects will 
require heroic assumptions that will not be remedied by collecting data 
on race on tax forms. Indeed, data about race on tax forms would not 
illuminate this question at all. The point is broad and applies equally 
to preferences on the returns to wealth, including on owner-occupied 
housing--these preferences will be capitalized into house prices, 
attenuating their effects, and may also be manifest in rental yield 
ratios and that impact will differ by race given lower home ownership 
amongst Blacks. In the case of housing preferences, these effects may 
not overturn what an analysis of claimants would suggest but in the 
case of LIHTC claimants, it most likely would. The ultimate 
beneficiaries of tax policies are rarely only nominal claimants.
---------------------------------------------------------------------------
    \9\ See Scally, Gold, and DuBois (2018); Freeman (2004); U.S. 
Department of Housing and Urban Development: Office of Policy 
Development and Research (2018).

    Second, revenue-neutrality is an important discipline on tax 
analysis as it insists on considering how any policy change will be 
financed, including through borrowing, or spent. This discipline can 
yield surprising and counterintuitive results.\10\ One such example 
pertains to repealing preferences for owner-occupied housing via the 
mortgage interest deduction. While the beneficiaries of the mortgage 
interest deduction are concentrated in higher income brackets, if these 
policy changes use the revenue from the repeal to reduce taxation in 
proportion to overall tax liabilities, then a repeal of the mortgage 
interest deduction can be a net benefit to higher-income tax 
payers.\11\ In short, isolating a preference that benefits a subgroup 
is not enough to assert that it should be repealed because that 
preference exists in a larger system that requires financing--the 
discipline of revenue neutrality ensures that we think through its 
effects more broadly in a standardized way. It also prevents an analyst 
from making claims about particular provisions without considering the 
context of the broader tax system.
---------------------------------------------------------------------------
    \10\ See Griffith (1989).
    \11\ See Hemel and Rozema (2017). See the table below from JCT 
(2021) for the degree to which the tax system relies on the top 1.3 
percent of returns with 21.3 percent of income to provide 70.5 percent 
of individual income taxes.

    Third, the broader tax system is critical to consider in examining 
the overall impact on racial subgroups. Given the correlations of 
wealth and race identified above, it is not surprising that preferences 
for the returns to wealth may have a disparate impact on racial 
subgroups. By that exact logic, given the correlations of income and 
race identified above, it would not be surprising if progressive rates 
and refundable tax credits would have a disparate impact on racial 
subgroups as well. How all of these provisions interact is complex but 
it would seem to be clear that a full accounting of the impact of the 
tax system--as in the recent JCT document entitled ``Overview of the 
Federal Tax System as in Effect for 2021''--would reveal the degree to 
which the current tax system is redistributive in a progressive manner. 
The degree to which this level of redistribution is appropriate is not 
our topic today. But, any analysis of the impact of the tax system on 
racial subgroups should include some overall assessment of the effect 
---------------------------------------------------------------------------
of the tax system in toto on racial subgroups.

[GRAPHIC] [TIFF OMITTED] T2021.001


    .epsThese cautionary notes on studying tax policy and race do not 
suggest that efforts to think about race and tax policy are not 
worthwhile. To the contrary, these notes simply make clear that 
observations about claimants of certain preferences are not a 
sufficient method to think through the racial impact of tax policy. 
And, tracing through and incorporating the effect on ultimate 
beneficiaries, incorporating financing considerations, and framing 
these within the overall tax system will be a critical step in any such 
analysis.

    Finally, some analysts consider collecting data about race on tax 
forms a critical next step in furthering this analysis.\12\ Putting 
aside the sizable practical considerations that such an effort would 
face, there are two additional considerations that apply in this 
debate. First, analysis that incorporates existing information about 
the distribution of income and wealth could be integrated into analysis 
of tax policy without additional collection of information. Such an 
effort would be incomplete but given the practical considerations 
associated with putting race on tax forms it would seem to be useful to 
focus attention where it will likely be most effective. Second, and as 
indicated above, collection of data at the taxpayer level won't assist 
in the harder questions required to think through racial justice in the 
tax code.
---------------------------------------------------------------------------
    \12\ See Bearer-Friend (Fall 2019); Brown (2021); Knauer (2014).
---------------------------------------------------------------------------
 iii. the self-defeating potential of analyses of race in the tax code
    Tax analyses that consider race can also go astray. For example, 
analysts that note the differential impact on racial subgroups of the 
tax treatment of marriage have suggested flat rates be employed to 
resolve the well-understood ``trilemma'' of progressivity, marriage 
neutrality, and couple equality.\13\ Analysts in this literature have 
also dismissed the role of the Earned Income Tax Credit in the debate 
on racial justice by claiming that ``whites disproportionately benefit 
from the EITC'' and that ``the greatest beneficiaries of the Earned 
Income Tax Credit were white.''\14\ Finally, when seeking solutions to 
these problems, analysts suggest radical solutions that amount to 
effectively blowing up the tax code and starting from scratch.\15\
---------------------------------------------------------------------------
    \13\ See Brown, p. 129 in Infanti and Crawford (2009).
    \14\ See Brown (2009a), p. 580; Brown (Fall 2012), p. 54.
    \15\ See Brown (2021), pp. 200-225.

    These claims can be self-defeating for the cause of racial justice 
because they underemphasize the role of current provisions in advancing 
the agenda of racial justice. Specifically, undercutting the 
progressivity of rates and tax credits that disproportionately benefit 
lower-income individuals derails the consensus that should be building 
around their expansion. And, suggesting a clean slate for the tax 
system naively assumes that the hard-won victories that are embedded in 
the tax code that redistribute income and that serve disadvantaged 
communities will be somehow mirrored in this idealized future. Radical 
reform efforts could just as easily be captured by forces that would 
reduce the racial justice of the tax code. More narrowly, as one 
example, rather than abandoning all savings incentives, we should 
consider narrowing some and expanding others. Idealized and radical 
reforms can be enjoyable intellectual exercises but they can also be 
distracting diversions from the hard work of revising the tax code in 
---------------------------------------------------------------------------
the real world.

    In a related vein, a singular focus on racial justice can also lead 
us astray. Perry and Romer (2021) advocate for the cancellation of 
student debt without means-
testing specifically because it would address the racial wealth 
gap.\16\ First, their contemplated reform does not impose revenue-
neutrality raising the questions above on what taxes would be raised to 
finance this reform. More importantly, such a reform would be 
remarkably regressive, as demonstrated by the work of Catherine and 
Yannelis (2021).\17\ I don't mean to judge that particular reform, but 
it is worth noting how any tunnel vision about a particular issue 
obscures important collateral consequences that must be considered in 
any serious policy analysis.
---------------------------------------------------------------------------
    \16\ See Perry and Romer (2021).
    \17\ See Catherine and Yannelis (2021).

    This potential to be led astray is manifest more broadly in tax 
policy discussions today. The real promise of this hearing and of an 
increased emphasis on race, ethnicity and gender is to reorient our 
policy debate away from its current obsession with inequality broadly 
and toward a sharper focus on those in our country in deep need. Over 
the last 20 years, academic studies that claim sharply rising levels of 
income and wealth inequality have become accepted as fact and undergird 
much policy discussion today. Related studies claim that the tax system 
does little to address inequality and that novel instruments are 
---------------------------------------------------------------------------
required to address these issues.

    First, it is little acknowledged how contested and controversial 
these underlying studies are. Various new studies have called into 
question the magnitude of these changes using the same data and using 
alternative data.\18\ Specifically, these inequality studies contain 
important assumptions about the distribution of tax avoidance, the 
changing role of pass-throughs and business income in measured changes 
in inequality, and are interpreted as factual when, in fact, they 
feature many contested imputations and assumptions. My reading of this 
literature suggests that while inequality has increased modestly over 
the last several decades, it is far exaggerated in the popular 
imagination because of inattention to these considerable questions. 
These studies, and the obsession with rising inequality, are 
problematic for several reasons. They orient attention to the very rich 
(the top 0.1 percent or the top 400) and away from other parts of the 
income distribution. As one example, they distract attention from the 
fundamental role of pass-throughs in altering measured income 
distribution and the taxation of capital and labor income. More 
perniciously, they distract attention from the important questions of 
what we can and should do for the bottom quintiles of the income 
distributions by emphasizing what is happening to the top 400 
taxpayers.
---------------------------------------------------------------------------
    \18\ See Auten and Splinter (December 2019); Auten and Splinter in 
Furchtgott-Roth (2021); Auten and Splinter (May 2019); Smith, Yagan, 
Zidar, and Zwick (2019); Smith, Yagan, Zidar, and Zwick (December 22, 
2019); Smith, Zidar, and Zwick (April 2020); Bricker, Krimmel, 
Henriques, and Sabelhaus (Spring 2016).

    More dangerously, these studies pretend that the tax system that we 
have does little to no redistribution and that levels of redistribution 
have been declining.\19\ The Congressional Budget Office makes clear 
that average tax rates have been evolving over the relevant period and 
that the tax system is doing more redistribution than in the past.\20\ 
Advocates for more redistribution who deny this reality don't serve 
their cause via their obfuscation.
---------------------------------------------------------------------------
    \19\ See Saez and Zucman (2019).
    \20\ See Gale (2019) and Splinter (December 2020).

    Rather than consider the success in reducing average tax rates for 
the bottom quintile and raising the average tax rate for the top 
quintile, this literature encourages us to refocus our attention on the 
purported hidden hundreds of billions in offshore tax havens. Those 
estimates of hidden billions are vastly exaggerated. Most broadly, they 
feed a common and mistaken narrative today--that somehow responsible 
fiscal policy is just about getting the rich and corporations to pay 
their fair share via novel instruments including a wealth tax and 
multilateral cooperation on corporate tax policy.\21\ And, they allow 
the middle of the income distribution to feel that they are getting 
cheated by the tax system and they too deserve more relief.
---------------------------------------------------------------------------
    \21\ See Desai, Mihir A. (March 2021); ifo Institut--Leibniz-
Institut fur Wirtschaftsforschung an der Universitat Munchen e.V. 
(March 2021).

[GRAPHIC] [TIFF OMITTED] T2021.002


    .epsIn the process, these efforts obscure what the real agenda 
should be--how should we get more resources to the bottom two 
quintiles, which should be the goal of those seeking greater economic 
justice. It is curious that many of these efforts don't mention (or 
measure) the Earned Income Tax Credit in their discussions of economic 
justice despite its role as a critical anti-poverty program. Similarly, 
it has become fashionable to discuss a universal basic income or to 
generously extend the Child Tax Credit well beyond the bottom two 
quintiles rather than expand the Earned Income Tax Credit in a 
significant way. The scholarship on low-income families is clear--
expanding Child Tax Credits is far less beneficial than expanding the 
EITC, expanding the EITC dominates any idea of UBI, and the EITC is a 
powerful tool in promoting all kinds of good outcomes.\22\ In this 
sense, the broader inequality debate obscures the readily available 
solutions to issues of racial and economic justice--the EITC and more 
progressive rate structures--and focuses our attention incorrectly on 
issues of corporate taxation, the possibility of wealth taxation, 
greater middle-class tax relief and broad-based entitlements. To be 
clear, ensuring that the very wealthy and corporations comply with tax 
laws and that they pay their appropriate share is critical and could 
provide some incremental revenue but these obsessions have come to 
eclipse many more important issues.
---------------------------------------------------------------------------
    \22\ See Hoynes (2019); Hoynes and Rothstein (March 2016); Hoynes 
and Rothstein (2019); Bastian (2020); Bastian and Michelmore (2018); 
Bastian and Lochner (January 2021); Bastian, and Jones (April 2021).
---------------------------------------------------------------------------
                           iv. moving forward
    As I stated previously, the real promise of this hearing and of an 
increased emphasis on race, ethnicity and gender is to reorient our 
policy debate away from its current obsession with inequality broadly 
and toward a sharper focus on how the tax system can serve those who 
need the most help. This requires pragmatic thinking, adherence to 
tested policy tools and data-driven analyses that consider what will 
impact the welfare of the populations that we most need to focus on.

    With that frame, it seems clear that expanding the EITC in two 
directions would be enormously beneficial to the causes of economic, 
racial and gender justice.\23\ The EITC for 2021 by earned income, 
drawn from JCT (2021) is provided below:
---------------------------------------------------------------------------
    \23\ See Appendix B for more information on the EITC.

    [GRAPHIC] [TIFF OMITTED] T2021.003
    

    .epsOne could provide a refundable credit amount of $4,000 at all 
income levels so that it would be unconditional, effectively shifting 
these curves, including the plateau region, up. This would preserve 
work incentives but do the work of the child credit in a more targeted 
way. Second, one could expand the childless EITC to make it more 
meaningful.\24\ This change could be financed through the progressive 
rate structure. The notion described above that this would not help 
black women disproportionately is not correct. According to the 
American Community Survey, white women are a lower share of EITC 
recipients than they are of the overall share of the population and 
they constitute the same share of women under the poverty line and 
those under the poverty line that qualify for the EITC. The slightly 
lower marriage rate and slightly higher number of children of black 
women relative to white women suggests that EITC benefits will be 
larger for blacks as well. And, Jones (2014) indicates that take-up 
rates for blacks are slightly higher than for whites.\25\
---------------------------------------------------------------------------
    \24\ See Hoynes and Rothstein (March 2016) for elaboration on this.
    \25\ See Jones (July 11, 2014).

    Expanding the EITC does not have the drama of tearing up the tax 
code, eliminating all savings preferences or demonizing corporations 
and the very wealthy. But, it would appear to be the simplest and most 
straightforward way to improve the racial justice of the tax code on 
the terms described by analysts who have led this effort to incorporate 
race into an analysis of tax policy. Similarly, the recently authorized 
child credit expansion, though not sufficiently well targeted from an 
income perspective in my view, is projected to provide the largest 
reduction in black child poverty in the history of antipoverty policy-
making, clear evidence that race-neutral policies can be very effective 
---------------------------------------------------------------------------
at improving outcomes for black Americans.

    Such expansions may not directly address the concerns over the 
racial wealth gap. But, over time, providing more income to those at 
the bottom of the income distribution will allow them to begin saving 
and building wealth. More broadly, it is worth acknowledging how 
difficult it is to provide wealth to the bottom of the income 
distribution in the context of our current income tax. It is 
conceivable that targeted saving incentives with sharp phase-outs could 
also help, though it is not clear a priori what the magnitude or sign 
of the change in racial wealth gaps will be, given the current 
inability to target these incentives based on race.\26\
---------------------------------------------------------------------------
    \26\ See Appendix C for a crude exploration of policies that treat 
ethnic subgroups differently and a particular experiment with gender in 
India.

    Reparations would seem best suited to address the question of the 
racial wealth gap.\27\ It is worthwhile noting that comparable efforts 
at reparations--including those for Japanese-Americans, payments to 
Holocaust survivors, the Truth and Reconciliation Commission in South 
Africa, and local American efforts such as those in Rosewood, Florida--
did not employ the tax system (other than the question of whether those 
reparation payments would be taxable). That is, I believe the 
reparations debate is a very important one to initiate in earnest and 
it could address the racial wealth gap in interesting ways--but there 
is no clear, obvious reason to operate it through the tax system.
---------------------------------------------------------------------------
    \27\ See Desai, Page, Antoniou, and Fan (2021) for a history on 
reparations, the example of the Tulsa Massacre, and information related 
to the current reparations debate in the U.S. at https://
courseware.hbs.edu/public/tulsa/.

    Most broadly, this hearing will succeed not by emphasizing how and 
why the tax system may or may not exacerbate racial justice. The true 
payoff of this hearing will be if the underlying correlation of race 
with income, wealth, savings and mobility regains its status as a 
question of central importance to the future of the country. Even if I 
disagree with particularities of their analysis, I wholeheartedly 
appreciate and admire the efforts of Professor Brown and others to 
emphasize these issues. And, I very much hope you all find the courage 
and wisdom to address these questions as directly as one can, in the 
tax code and otherwise.

                               Appendix A

 The Correlation Between Race and Income, Wealth, Savings, and Mobility

Income
            Before-tax family income
        -  The median before-tax family income of white, non-Hispanic 
        households in 2019 was 70 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the median before-
        tax family income of white, non-
        Hispanic households has been consistently greater and ranged 
        from 69-164 percent greater. [``Survey of Consumer Finances, 
        1989-2019,'' Board of Governors of the Federal Reserve System, 
        https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racec
        l4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.004
        

        .eps-  The mean before-tax family income of white, non-Hispanic 
        households in 2019 was 106 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the mean before-tax 
        family income of white, non-Hispanic households has been 
        consistently greater and ranged from 85-141 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:
        all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.005
        

            .epsIncome quintiles and top 5 percent of income
        -  In 2019, 56.3 percent of those in the lowest income quintile 
        were white alone, not Hispanic and 22 percent were black alone. 
        In the highest quintile, 74.8 percent were white alone, not 
        Hispanic and 7 percent were black alone. In the top 5 percent, 
        78 percent were white alone, not Hispanic and 5 percent were 
        black alone. [Current Population Survey Annual Social and 
        Economic Supplement data available at ``HINC-05. Percent 
        Distribution of Households, by Selected Characteristics Within 
        Income Quintile and Top 5 Percent,'' United States Census 
        Bureau, https://www.census.gov/data/tables/time-series/demo/
        income-poverty/cps-hinc/hinc-05.html.]

        [GRAPHIC] [TIFF OMITTED] T2021.006
        

        .eps-  In 2002, 64 percent of those in the lowest income 
        quintile were white alone, not Hispanic and 20 percent were 
        black alone. In the highest quintile, 82 percent were white 
        alone, not Hispanic and 6 percent were black alone. In the top 
        5 percent, 84 percent were white alone, not Hispanic and 5 
        percent were black alone. [Current Population Survey Annual 
        Social and Economic Supplement data available at ``HINC-05. 
        Percent Distribution of Households, by Selected Characteristics 
        Within Income Quintile and Top 5 Percent,'' United States 
        Census Bureau, https://www.census.gov/data/tables/time-series/
        demo/income-poverty/cps-hinc/hinc-05.html.]

        [GRAPHIC] [TIFF OMITTED] T2021.007
        

.epsSavings
    Based on SCF data, white, non-Hispanic households in 2019 were 34.9 
percent more likely to save than black, non-Hispanic households. From 
1992-2019, white, non-Hispanic households have been consistently more 
likely to save and this greater likelihood has ranged from 25.1 percent 
to 59.8 percent. [Excel based on public data with estimates inflation-
adjusted to 2019 dollars on ``Survey of Consumer Finances,'' Board of 
Governors of the Federal Reserve System, https://
www.federalreserve.gov/econres/scfindex.htm.]

[GRAPHIC] [TIFF OMITTED] T2021.008


.epsWealth
            Net worth
        -  The median net worth of white, non-Hispanic households in 
        2019 was 685 percent greater than that of black, non-Hispanic 
        households. From 1989 to 2019, the median net worth of white, 
        non-Hispanic households has been consistently greater and 
        ranged from 519-1579 percent greater. [``Survey of Consumer 
        Finances, 1989-2019,'' Board of Governors of the Federal 
        Reserve System, https://www.federalreserve.gov/econres/scf/
        dataviz/scf/chart/#series:
        Before_Tax_Income;demographic:racecl4;p 
        opulation:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.009
        

        .eps-  The mean net worth of white, non-Hispanic households in 
        2019 was 589 percent greater than that of black, non-Hispanic 
        households. From 1989 to 2019, the mean net worth of white, 
        non-Hispanic households has been consistently greater and 
        ranged from 363-603 percent greater. [``Survey of Consumer 
        Finances, 1989-2019,'' Board of Governors of the Federal 
        Reserve System, https://www.federalreserve.gov/econres/scf/
        dataviz/scf/chart/#series:Before
        _Tax_Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.010
        

        .eps-  Across different age groups, median wealth for black 
        Americans is consistently less than that of white Americans: 
        for under 35, median wealth for white Americans is 42.3 times 
        that of black Americans; for 35-54, median wealth for white 
        Americans is 4.6 times that of black Americans; and for over 
        55, median wealth for white Americans is 5.9 times that of 
        black Americans. [Bhutta, Chang, Dettling and Hsu, 
        ``Disparities in Wealth by Race and Ethnicity in the 2019 
        Survey of Consumer Finances,'' Board of Governors of the 
        Federal Reserve System, September 28, 2020, https://
        www.federalreserve.
        gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-
        ethnicity-in-the-2019-survey-of-consumer-finances-
        20200928.htm.]


 Table 1: Wealth rises with age for all families, but substantial wealth
 gaps between white and non-white families persist throughout the life-
                                 cycle.
------------------------------------------------------------------------
                         White        Black       Hispanic      Other
------------------------------------------------------------------------
Under 35                     25.4          0.6         11.2         13.5
------------------------------------------------------------------------
35-54                       185.0         40.1         46.1        154.5
------------------------------------------------------------------------
Over 55                     315.0         53.8        111.5        213.2
------------------------------------------------------------------------
Source: Federal Reserve Board, 2019 Survey of Consumer Finances.
 
Notes: Table displays median wealth by age group and by race and
  ethnicity in thousands of 2019 dollars.

            Assets
        -  The median assets of white, non-Hispanic households in 2019 
        was 478 percent greater than that of black, non-Hispanic 
        households. From 1989 to 2019, the median assets of white, non-
        Hispanic households have been consistently greater and ranged 
        from 220-478 percent greater. [``Survey of Consumer Finances, 
        1989-2019,'' Board of Governors of the Federal Reserve System, 
        https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before
        _Tax_Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.011
        

        .eps-  The mean assets of white, non-Hispanic households in 
        2019 was 432 percent greater than that of black, non-Hispanic 
        households. From 1989 to 2019, the mean assets of white, non-
        Hispanic households have been consistently greater and ranged 
        from 256-433 percent greater. [``Survey of Consumer Finances, 
        1989-2019,'' Board of Governors of the Federal Reserve System, 
        https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_
        Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.012
        

        .eps-  In 1989, the gap between white, non-Hispanic households 
        and black, non-
        Hispanic households that held assets was 21.7 percentage points 
        and has decreased to 0.8 percentage points in 2019. [``Survey 
        of Consumer Finances, 1989-2019,'' Board of Governors of the 
        Federal Reserve System, https://www.federalreserve.gov/econres/
        scf/dataviz/scf/chart/#series:Before_Tax_
        Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.013
        

            .epsFinancial assets
        -  The median financial assets of white, non-Hispanic 
        households in 2019 was 800 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the median 
        financial assets of white, non-Hispanic households have been 
        consistently greater and ranged from 327-1,178 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.014
        

        .eps-  The mean financial assets of white, non-Hispanic 
        households in 2019 was 600 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the mean financial 
        assets of white, non-Hispanic households have been consistently 
        greater and ranged from 312-742 percent greater. [``Survey of 
        Consumer Finances, 1989-2019,'' Board of Governors of the 
        Federal Reserve System, https://www.federalreserve.gov/econres/
        scf/dataviz/scf/chart/#
        series:Before_Tax_Income;demographic:racecl4;population:all;unit
        s:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.015
        

        .eps-  In 1989, the gap between white, non-Hispanic households 
        and black, non-
        Hispanic households that held financial assets was 31.6 
        percentage points and has decreased to 1.6 percentage points in 
        2019. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before
        _Tax_Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.016
        

            .epsSavings bonds
        -  The median savings bonds of black, non-Hispanic households 
        in 2019 was 33 percent greater than that of white, non- 
        Hispanic households. In 2007, the median savings bonds of 
        black, non-Hispanic and white, non-Hispanic households were 
        equal and since then the median savings bonds of black, non-
        Hispanic households have been greater. [``Survey of Consumer 
        Finances, 1989-2019,'' Board of Governors of the Federal 
        Reserve System, https://www.federalreserve.gov/econres/scf/
        dataviz/scf/chart/#series:Before_Tax_
        Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.017
        

        .eps-  The mean savings bonds of white, non-Hispanic households 
        in 2019 was 284 percent greater than that of black, non-
        Hispanic households. Between 1989 and 2019, the mean savings 
        bonds of white, non-Hispanic households have been greater than 
        that of black, non-Hispanic households except for in 2010 and 
        2013. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:
        all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.018
        

        .eps-  The percent holding savings bonds has declined for both 
        black, non-Hispanic households and white, non-Hispanic 
        households between 1989 and 2019. [``Survey of Consumer 
        Finances, 1989-2019,'' Board of Governors of the Federal 
        Reserve System, https://www.federalreserve.gov/econres/scf/
        dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.019
        

.epsDirectly held stocks
        -  The median directly held stocks of white, non-Hispanic 
        households in 2019 was 150 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the median directly 
        held stocks of white, non-Hispanic households have been 
        consistently greater and ranged from 100-820 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:
        all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.020
        

        .eps-  The mean directly held stocks of white, non-Hispanic 
        households in 2019 was 594 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the mean directly 
        held stocks of white, non-Hispanic households have been 
        consistently greater and ranged from 255-1,831 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.021
        

        .eps-  Between 1989 and 2019, the percent of white, non-
        Hispanic households with directly held stocks has been 
        consistently larger than that of black, non-
        Hispanic households and has ranged from 12-19 percentage points 
        greater. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.022
        

            .epsStock holdings
        -  The median stock holdings of white, non-Hispanic households 
        in 2019 was 238 percent greater than that of black, non-
        Hispanic households. From 1989 to 2019, the median stock 
        holdings of white, non-Hispanic households have been 
        consistently greater and ranged from 98-490 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.023
        

        .eps-  The mean stock holdings of white, non-Hispanic 
        households in 2019 was 469 percent greater than that of black, 
        non-Hispanic households. From 1989 to 2019, the mean stock 
        holdings of white, non-Hispanic households have been 
        consistently greater and ranged from 226-758 percent greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.024
        

        .eps-  Between 1989 and 2019, the percent of white, non-
        Hispanic households with stock holdings has been consistently 
        larger than that of black, non-Hispanic households and has 
        ranged from 23-31 percentage points greater. [``Survey of 
        Consumer Finances, 1989-2019,'' Board of Governors of the 
        Federal Reserve System, https://www.federalreserve.gov/econres/
        scf/dataviz/scf/chart
        /
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.025
        

.epsRetirement accounts
        -  From 1989-2019, median retirement accounts of white, non-
        Hispanic households are consistently greater than that of 
        black, non-Hispanic households and range from 100-314 percent 
        greater. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_
        Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.026
        

        .eps-  From 1989-2019, mean retirement accounts of white, non-
        Hispanic households are consistently greater than that of 
        black, non-Hispanic households and range from 115-320 percent 
        greater. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_
        Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.027
        

        .eps-  Between 1989 and 2019, the percent of white, non-
        Hispanic households with retirement accounts has been 
        consistently larger than that of black, non-
        Hispanic households and has ranged from 18-27 percentage points 
        greater. [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:all;uni
        ts:
        median.]

        [GRAPHIC] [TIFF OMITTED] T2021.028
        

        .eps-  Across age ranges, retirement account ownership by white 
        families is consistently at least 2 times that of black 
        families. [Bhutta, Chang, Dettling and Hsu, ``Disparities in 
        Wealth by Race and Ethnicity in the 2019 Survey of Consumer 
        Finances,'' Board of Governors of the Federal Reserve System, 
        September 28, 2020, https://www.federalreserve.gov/econres/
        notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-
        in-the-2019-survey-of-consumer-finances-20200928.htm.]

        [GRAPHIC] [TIFF OMITTED] T2021.029
        

            .epsHome ownership
        -  From 1960-2017, home ownership for white Americans has been 
        consistently greater than that of black Americans and was 72 
        percent greater in 2017. [Choi, McCargo, Neal, Goodman and 
        Young, Explaining the Black-White Home Ownership Gap: A Closer 
        Look at Disparities Across Local Markets (Washington, DC: Urban 
        Institute, October 2019), https://www.urban.org/sites/default/
        files/publication/101160/explaining_the_black-white_home
        ownership_gap_a_closer_look_at_disparities_across_local_markets_
        0.pdf.]

        [GRAPHIC] [TIFF OMITTED] T2021.030
        

        .eps-  Home ownership for black Americans is less than that of 
        white Americans even when separately controlling for household 
        income, educational attainment, and marital status. [Choi, 
        McCargo, Neal, Goodman, and Young, Explaining the Black-White 
        Home Ownership Gap: A Closer Look at Disparities Across Local 
        Markets (Washington, DC: Urban Institute, October 2019), 
        https://www.urban.org/sites/default/files/publication/101160/
        explaining_
        the_black-
        white_homeownership_gap_a_closer_look_at_disparities_across_
        local_markets_0.pdf.]

        [GRAPHIC] [TIFF OMITTED] T2021.031
        

        .eps[GRAPHIC] [TIFF OMITTED] T2021.032
        

        .eps[GRAPHIC] [TIFF OMITTED] T2021.033
        

        .eps-  ``Marital composition, FICO score distribution, age, and 
        income distribution explain the largest proportion of the 
        black-white home ownership gap at the [Metropolitan Statistical 
        Area] level. The results also show that about 17 percent of the 
        home ownership gap remains unexplained.'' [Choi, McCargo, Neal, 
        Goodman, and Young, Explaining the Black-White Home Ownership 
        Gap: A Closer Look at Disparities Across Local Markets 
        (Washington, DC: Urban Institute, October 2019), https://
        www.urban.org/sites/default/files/publication/101160/
        explaining_the_black-white_homeownership_gap_a_closer_look_
        at_disparities_across_local_markets_0.pdf.]

        [GRAPHIC] [TIFF OMITTED] T2021.034
        
            .epsMortgages or home-equity loans
        -  From 1989-2019, median mortgages or home-equity loans of 
        white, non-
        Hispanic households are consistently greater than that of 
        black, non-Hispanic households and range from 8-136 percent 
        greater [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before
        _Tax_Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.035
        

        .eps-  From 1989-2019, mean mortgages or home-equity loans of 
        white, non-
        Hispanic households are consistently greater than that of 
        black, non-Hispanic households and range from 12-68 percent 
        greater [``Survey of Consumer Finances, 1989-2019,'' Board of 
        Governors of the Federal Reserve System, https://
        www.federalreserve.gov/econres/scf/dataviz/scf/chart/
        #series:Before
        _Tax_Income;demographic:racecl4;population:all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.036
        

        .eps-  Between 1989 and 2019, the percent of white, non-
        Hispanic households with mortgages or home-equity loans has 
        been consistently larger than that of black, non-Hispanic 
        households and has ranged from 11-18 percentage points greater. 
        [``Survey of Consumer Finances, 1989-2019,'' Board of Governors 
        of the Federal Reserve System, https://www.federalreserve.gov/
        econres/scf/dataviz/scf/chart/
        #series:Before_Tax_Income;demographic:racecl4;population:
        all;units:median.]

        [GRAPHIC] [TIFF OMITTED] T2021.037
        

.epsIntergenerational Mobility
            Income mobility
        -  ``Black Americans and American Indians have much lower rates 
        of upward mobility and higher rates of downward mobility than 
        whites, leading to persistent disparities across generations. . 
        . . Both blacks and American Indians have rank-rank mobility 
        curves that are shifted down relative to whites across the 
        entire parental income distribution by approximately 13 
        percentiles. This remains true even among children born to 
        parents in the top 1 percent, implying that children born into 
        high-income black families have substantially higher rates of 
        downward mobility than whites across generations . . . black 
        child born to parents in the top quintile is roughly as likely 
        to fall to the bottom family income quintile as he or she is to 
        remain in the top quintile; in contrast, white children are 
        nearly five times as likely to remain in the top quintile as 
        they are to fall to the bottom quintile.'' [Chetty, Hendren, 
        Jones, and Porter, ``Race and Economic Opportunity in the 
        United States: An Intergenerational Perspective,'' The 
        Quarterly Journal of Economics 135, no. 2 (2020): 711-783.]

        [GRAPHIC] [TIFF OMITTED] T2021.038
        

            .epsWealth mobility
        -  White families have greater access to wealth from family 
        members or friends than do black families: white families are 
        almost three times more likely to have received an inheritance; 
        they are 2.85 times more likely to expect an inheritance; their 
        median expected and actual inheritances are larger; and they 
        are almost two times more likely to be able to get $3,000 from 
        family or friends. [Bhutta, Chang, Dettling, and Hsu, 
        ``Disparities in Wealth by Race and Ethnicity in the 2019 
        Survey of Consumer Finances,'' Board of Governors of the 
        Federal Reserve System, September 28, 2020, https://www.
        federalreserve.gov/econres/notes/feds-notes/disparities-in-
        wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-
        finances-20200928.htm.]


    Table 2: White families are substantially more likely to receive
  inheritances, gifts, and other family support than black and hispanic
                                families.
------------------------------------------------------------------------
                                     White    Black    Hispanic   Other
------------------------------------------------------------------------
Received an inheritance (percent)      29.9     10.1        7.2     17.8
------------------------------------------------------------------------
Conditional median inheritance         88.5     85.8       52.2     59.4
 (thousands of 2019 dollars)
------------------------------------------------------------------------
Expect an inheritance (percent)        17.1      6.0        4.2     14.7
------------------------------------------------------------------------
Conditional median expected           195.5    100.0      150.0    100.0
 inheritance (thousands of 2019
 dollars)
------------------------------------------------------------------------
Could get $3,000 from family or        71.9     40.9       57.8     63.4
 friends (percent)
------------------------------------------------------------------------
Parent(s) have a college degree        34.4     24.8       15.2     40.0
 (percent)
------------------------------------------------------------------------
Source: Federal Reserve Board, 2019 Survey of Consumer Finances.
 
Note: Table displays inheritances and gifts received, expected
  inheritances, and other indicators of family support, by race and
  ethnicity, expressed in either percent or thousands of 2019 dollars.
  Parent(s) with a college degree refers to the parents of the reference
  person.

Disproportionate Impact of GFC
The home ownership rate for black Americans declined almost ten times 
as much as that of white Americans from 2000 to 2017. [Choi, McCargo, 
Neal, Goodman, and Young, Explaining the Black-White Home Ownership 
Gap: A Closer Look at Disparities Across Local Markets (Washington, DC: 
Urban Institute, October 2019), https://www.urban.org/sites/default/
files/publication/101160/explaining_the_black-white_
homeownership_gap_a_closer_look_at_disparities_across_local_markets_0.pd
f.]

[GRAPHIC] [TIFF OMITTED] T2021.039


        .eps-  ``In the 2007 to 2009 period, wealth declined for both 
        groups. White wealth excluding home equity dropped by 17 
        percent; blacks lost 23 percent of their wealth, not including 
        the value of their homes. But starting in 2009, white wealth 
        trends began an uptick, whereas blacks saw a 17-percentage-
        point further decline.'' [Burd-Sharps and Rasch, Impact of the 
        U.S. Housing Crisis on the Racial Wealth Gap Across Generations 
        (New York: Social Science Research Council, June 2015; New 
        York: American Civil Liberties Union, June 2015), https://
        www.aclu.org/sites/default/files/field_document/discrimlend_
        final.pdf.]

        [GRAPHIC] [TIFF OMITTED] T2021.040
        

        .eps-  Household wealth including home equity: ``while the 
        typical white household experienced zero losses between 2009 
        and 2011 [] the typical black household continued to experience 
        significant declines in wealth over the same period [, 12.7 
        percent].'' [Burd-Sharps and Rasch, Impact of the U.S. Housing 
        Crisis on the Racial Wealth Gap Across Generations (New York: 
        Social Science Research Council, June 2015; New York: American 
        Civil Liberties Union, June 2015), https://www.aclu.org/sites/
        default/files/field_document/discrimlend_
        final.pdf.]

        [GRAPHIC] [TIFF OMITTED] T2021.041
        

                             .epsAppendix B

EITC
        -  Black families are overrepresented in the households with 
        children with incomes under $55,000 as well as with incomes 
        under $30,000. ``In 2018, black households constituted 14 
        percent of all households with children, but 22 percent of 
        those with income below $55,000 (around the maximum adjusted 
        gross income to qualify for the EITC) . . . Overall, white 
        households are the largest share of EITC recipients (because 
        they constitute a majority of the working population), but 
        women of color in particular are disproportionately likely to 
        benefit from the credit.'' [Urban Institute, ``Racial 
        Disparities and the Income Tax System,'' https://
        apps.urban.org/features/race-and-taxes/#earned-income-tax-
        credit.]

        [GRAPHIC] [TIFF OMITTED] T2021.042
        

        .eps-  ``21 percent of black women receive the EITC, more than 
        double the 9 percent share of white women who receive it. Women 
        of color also tend to receive a larger average EITC than white 
        women.'' The average EITC benefit for white, non-Latina women 
        in 2018 was $1,600 whereas it was $2,200 for black, non-Latina 
        women. [Marr and Huang, ``Women of Color Especially Benefit 
        From Working Family Tax Credits,'' Center on Budget and Policy 
        Priorities, September 9, 2019, https://www.cbpp.org/research/
        federal-tax/women-of-color-especially-benefit-from-working-
        family-tax-credits.]

        -  Maggie R. Jones has estimated that the take-up rate for the 
        EITC was greater for those who are black alone than for those 
        who are white alone: 76.85 percent versus 78.29 percent in 2005 
        and 77.76 percent versus 81.91 percent in 2009. [Jones, 
        ``Changes in EITC Eligibility and Participation, 2005-2009,'' 
        CARRA Working Paper Series #2014-04 (Washington, DC: Center for 
        Administrative Records Research and Applications, July 11, 
        2014), https://www.census.gov/content/dam/Census/library/
        working-papers/2014/adrm/carra-wp-2014-04.pdf.]

        -  Spending on the EITC has been increasing over time. [Robert 
        Bellafiore, ``The Earned Income Tax Credit (EITC): A Primer,'' 
        Tax Foundation, May 21, 2019, https://taxfoundation.org/earned-
        income-tax-credit-eitc/.]

        [GRAPHIC] [TIFF OMITTED] T2021.043
        

                             .epsAppendix C

     differential tax treatment based on race, ethnicity, or gender
Australia
    ``Types of income.'' Australian Government: Australian Taxation 
Office, accessed April 2021. https://www.ato.gov.au/General/Aboriginal-
and-Torres-Strait-Islander-people/Tax-for-individuals/Your-income-and-
deductions/Types-of-income/#::text=
Aboriginal%20and%20Torres%20Strait%20Islander%20people%20and%20Indigenou
s
%20holding%20entities,native%20title%20payments%20or%20benefits.
        -  ``Aboriginal and Torres Strait Islander people and 
        Indigenous holding entities do not need to pay income tax or 
        capital gains tax on native title payments or benefits.''

    ``Receiving native title benefits--what it means for your tax 
obligations.'' Australian Government: Australian Taxation Office, 
accessed April 2021. https://www.ato.gov.au/General/Aboriginal-and-
Torres-Strait-Islander-people/In-detail/Receiving-native-title-
benefits---what-it-means-for-your-tax-obligations/.
        -  ``On 28 June 2013, Parliament passed laws that affect you if 
        you are an Aboriginal or Torres Strait Islander person or an 
        Indigenous holding entity and you receive a native title 
        benefit. The new law says certain payments or non-cash benefits 
        you receive in relation to your native title rights are not 
        subject to tax, including capital gains tax. These laws apply 
        retrospectively to cover native title benefits received from 
        July 1, 2008.''
        -  ``These changes mean that: native title benefits are now 
        considered non-
        assessable non-exempt (NANE) income and are therefore not 
        subject to income tax (however, income earned from investing a 
        native title benefit is assessable as income); any capital 
        gains or losses made from transferring native title rights to 
        an Indigenous holding entity or Indigenous person are 
        disregarded; any capital gains or losses made from surrendering 
        or canceling native title rights are disregarded.''

    ``What is native title?'' Kimberly Land Council, accessed April 
2021. https://www.klc.org.au/what-is-native-title.
        -  ``Native title is the recognition that Aboriginal and Torres 
        Strait Islander people have rights and interests to land and 
        waters according to their traditional law and customs as set 
        out in Australian Law. Native Title is governed by the Native 
        Title Act 1993 (Cth). Native title was introduced into law as a 
        result of the historic Mabo decision in which the High Court 
        ruled that Australia was not terra nullius--a land belonging to 
        no-one--at the time of European colonisation. This decision 
        recognised Aboriginal and Torres Strait Islanders as being 
        Australia's first people and that their rights and interests in 
        the land and waters continued to exist despite settlement. 
        Native title may include rights and interests to: live on the 
        area and erect shelters and structure; access the area for 
        traditional purposes, like camping or for ceremonies; visit and 
        protect important places and sites[,] hunt, fish and gather 
        food or traditional resources like bush medicines, water, ochre 
        and wood; teach law, custom and engage in cultural 
        activities.''
Canada
    ``Information on the tax exemption under section 87 of the Indian 
Act.'' Government of Canada, accessed April 2021. https://
www.canada.ca/en/revenue-agency/services/indigenous-peoples/
information-indians.html.
        -  ``As an Indian, you are subject to the same tax rules as 
        other Canadian residents unless your income is eligible for the 
        tax exemption under section 87 of the Indian Act. That 
        exemption applies to the income of an Indian that is earned on 
        a reserve or that is considered to be earned on a reserve, as 
        well as to goods bought on, or delivered to, a reserve.''
        -  ``If you have personal property--including income--situated 
        on a reserve, that property is exempt from tax under section 87 
        of the Indian Act.''
United States
    ``Frequently Asked Questions.'' U.S. Department of the Interior: 
Indian Affairs, accessed April 2021. https://www.bia.gov/frequently-
asked-questions.
        -  ``Do American Indians and Alaska Natives pay taxes? Yes. 
        They pay the same taxes as other citizens with the following 
        exceptions: Federal income taxes are not levied on income from 
        trust lands held for them by the U.S.; State income taxes are 
        not paid on income earned on a Federal Indian reservation; 
        State sales taxes are not paid by Indians on transactions made 
        on a Federal Indian reservation; Local property taxes are not 
        paid on reservation or trust land.''

    ``ITG FAQ #4 Answer--What are the tax implications of being a 
federally recognized tribe?'' IRS, accessed April 2021. https://
www.irs.gov/government-entities/indian-tribal-governments/itg-faq-4-
answer-what-are-the-tax-implications-of-being-a-federally-recognized-
tribe.
        -  ``Federally recognized tribes are sovereign legal entities, 
        similar to State governments. They have all the rights and 
        attributes of a sovereign entity such as a State. They have a 
        constitutionally guaranteed status as sovereign entities. They 
        are not subject to tax based on this. Federally recognized 
        tribal governments are a unique set of entities in the United 
        States in this respect. Revenue Ruling 67-284 states that an 
        Indian tribe, as an income producing entity, is not subject to 
        income taxation. However, income earned, if not otherwise 
        exempt from income taxation, would be included in the gross 
        income of the Indian tribal member when distributed or 
        constructively received by the tribal member. Examples of 
        income that aren't taxable to Indian tribal members include 
        payments made under certain general welfare programs and 
        payments exempt under the Per Capita Act.''
India
    ``What are the income tax exemptions and other monetary benefits 
available to women?'' The Economic Times, last updated March 4, 2021. 
https://economictimes.indiatimes.com/wealth/tax/what-are-the-income-
tax-exemptions-and-other-monetary-benefits-available-to-women/
articleshow/74666372.cms.
        -  ``Up until Financial Year (FY) 2011-12, women and men had 
        different income tax slabs with women having to pay slightly 
        less tax. However, from FY 2012-13, this was done away with and 
        tax slabs for men and women were made the same. Therefore, 
        currently there are no income tax exemptions specifically for 
        women.''

    Chakraborty, Pinaki, Chakraborty, Lekha, Karmakar, Krishanu, and 
Shashi M. Kapila. ``Gender equality and taxation in India: An unequal 
burden?'' In Taxation and Gender Equity: A comparative analysis of 
direct and indirect taxes in developing and developed countries, edited 
by Caren Grown and Imraan Valodia. London: Routledge, 2010.
        -  ``In 2008-09, the income tax threshold was increased from 
        Rs. 110,000 (U.S.$2,733, based on an exchange rate of 40.24 Rs. 
        = 1 U.S.($) to Rs. 150,000 and from Rs. 145,000 to Rs. 180,000 
        for women income earners. For both males and females over 65, 
        it is even higher, at Rs. 225,000. It is important to note that 
        India is one of the few countries, and the only one in this 
        volume, where the tax system provides such positive 
        discrimination for women. Until 2001, the tax rates on 
        individuals, both men and women, were the same. In 2001, women 
        were given a special rebate up to Rs. 5,000 against taxes 
        payable, unless they were above 65, in which case they received 
        the senior citizen rebate of Rs. 20,000. In 2005, the minimum 
        non-taxable income was raised to Rs. 125,000 for women 
        taxpayers as against the general threshold of Rs. 100,000. In 
        2005, the tax exemption limit for women was raised to Rs. 
        1,35,000, while the Rs. 5,000 tax rebate was discontinued and 
        in 2007, this limit was raised to Rs. 1,45,000.''
        -  ``Although the Indian tax system positively discriminates by 
        gender due to the higher tax threshold for women, the 
        effectiveness of such a policy is limited as the number of 
        women within the income tax net is a minuscule proportion of 
        the total number of income taxpayers and an even more minuscule 
        proportion of the total number of adult women in India. 
        Currently, the total number of individual taxpayers is about 27 
        million out of a total population of about 1 billion, so 
        approximately 2.7 per cent of the population falls within the 
        income tax net. . . . Women likely constitute less than 3 
        percent of this small number. . . . In other words, the use of 
        income tax as a means to further gender equality seems 
        limited.''
                               references
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Telle. ``Accounting for Business Income in Measuring Top Income Shares: 
Integrated Accrual Approach Using Individual and Firm Data From 
Norway.'' NBER Working Paper #22888, December 2016. https://
www.nber.org/papers/w22888.

Auten, Gerald and David Splinter. ``Income Inequality in the United 
States: Using Tax Data to Measure Long-Term Trends.'' Working Paper, 
December 20, 2019. http://davidsplinter.com/AutenSplinter-
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                                 ______
                                 
            Prepared Statement of Shay Hawkins, Co-Founder 
              and President, Opportunity Funds Association
                              introduction
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
it is a pleasure to be with you today. This will be my third time 
testifying before Congress, but my first time testifying before the 
Senate, so thank you for having me. I am the co-founder and president 
of the Opportunity Funds Association (OFA), a trade association whose 
members are entrepreneurs, investors, developers and fund managers 
operating in Opportunity Zones. Through our members, we connect capital 
to overlooked areas including Frontline Communities, improving lives, 
creating opportunities, and ensuring long-term economic growth.

    This morning, I would like to share a few success stories from 
Opportunity Zones, discuss ways to build wealth through expanded 
retirement saving, remind the committee of the ways Tax Reform made the 
tax code more equal, and finally suggest policies to get investment 
capital to minority entrepreneurs.

    Prior to co-funding OFA, I served as Tax Counsel to Senator Tim 
Scott (R-SC) where I helped champion the Investing in Opportunity Act, 
legislation authored by Senators Tim Scott and Cory Booker (D-NJ) that 
became Opportunity Zones. Research from the accounting firm Novogradac 
shows that over $15 billion has been raised for investment so far with 
over $3 billion of that being raised in the midst of a pandemic. An 
August report from the Council of Economic Advisors estimates that 
Opportunity Zones will lift 1 million Americans from poverty and reduce 
poverty in designated zones by 11 percent.
      building wealth through diverse projects and diverse leaders
    Quinn Palomino was born in Vietnam right at the end of the Vietnam 
War. She grew up at the refugee camps that the U.S. set up at Fort 
Chaffee in Arkansas. Today, Quinn leads Virtua Partners, a global 
private equity firm that was active in social impact prior to 
Opportunity Zones, but has raised $100 million across four Opportunity 
Funds to build a combination of commercial real estate and affordable 
housing nationwide.

    I'm proud to say that in my hometown of Cleveland, OH, the 
minority- and 
veteran-owned Bridgeport Group is raising capital from Opportunity Fund 
investors to expand its supply chain logistics business to serve 
Cleveland's world class health-care market. The venture will expand to 
provide prescription and OTC drug fulfillment services for local 
retailers to cost effectively compete with disruptive online 
pharmaceutical providers. Bridgeport's founder Andre Bryant is an 
active entrepreneur who makes it a point to support other minority 
entrepreneurs.

    Two weeks ago in Panama City, FL, Jorge Gonzalez, CEO of St. Joe 
Company broke ground on a waterfront hotel and stand-alone restaurant 
on Panama City Marina. The parcel is city-owned and will be leased to 
St. Joe, providing immediate revenue to residents. The terms provide 
for an increase in lease payments as the hotel's revenues grow over 
time. The project will create 150 direct jobs for current residents and 
rebuild a portion of Panama City that was completely destroyed during 
Hurricane Michael.

    Alex Bhathal, managing partner of RevOZ, a leading real estate 
investment firm specializing in Opportunity Zones, will cut the ribbon 
on an 11,325 square-foot office project. The facility will house San 
Bernardino County's Children's Department of Behavioral Health (DBH), 
providing mental wellness care to some of the most vulnerable and 
underserved members of the community. The facility's location allows 
for synergy between the County's collective community resources, such 
as the San Bernardino County Office, San Bernardino Department of 
Health, San Bernardino County Public Defender, San Bernardino County 
Juvenile Court, and local schools.
               building wealth through retirement savings
    According to Federal Reserve data, the bottom 50 percent of 
American families hold less than 2 percent of total U.S. wealth and 
have a median retirement savings balance of $0. Fixing this requires 
policies specifically targeted to the tens of millions of lower-income 
workers for whom a tax deduction provides little meaningful support.

    During my time as Tax Counsel for Senator Scott, I was proud to 
advise him as he and this committee developed the bipartisan SECURE 
Act. The bill was the largest retirement reform to impact the economy 
in more than a decade, made it easier to save for retirement, andmade 
retirement plans more accessible to more people.

    Another promising way to address this challenge was outlined in a 
recent paper from the Economic Innovation Group by a bipartisan pair of 
economists, Teresa Ghilarducci and Kevin Hassett. The authors propose a 
new program modeled after the highly successful Federal Thrift Savings 
Plan (TSP) that would be aimed specifically at helping lower-income 
workers build wealth and retirement security. As a former Senate 
staffer who, like every member of this committee, has benefited first-
hand from the TSP, I believe this proposal deserves careful 
consideration. It is precisely the kind of idea that could fill the 
gaps in current policy and ensure that all workers are rewarded for 
hard work and diligent savings. If properly designed, such a program 
could help narrow the racial wealth gap.
                       congress should do no harm
    It is critical that we build on previous efforts to make the income 
tax code more simple, fair, and focused on helping the American people. 
The Tax Cuts and Jobs Act:

        Placed a cap on the State and Local Tax Deduction
          We should not reverse course and lift the cap on 
SALT.
          Representative Alexandria Ocasio-Cortez recently 
called SALT ``A Gift to Billionaires.''
            I can't say that I agree with the Representative 
often, but in this case the math is on her side.
          Lifting the cap on the SALT deduction would be a 
huge give away to the rich.
          Even with the cap in place, around three-quarters 
of the benefit goes to families in the top fifth of the income 
distribution.
          According to the Brookings Institution, if the 
cap is lifted, almost all (96 percent) of the benefits of SALT cap 
repeal would go to the top quintile (giving an average tax cut of 
$2,640); 57 percent would benefit the top 1 percent (a cut of $33,100); 
and 25 percent would benefit the top 0.1 percent (for an average tax 
cut of nearly $145,000).
          Uncapping SALT is a nonstarter for those 
concerned with income inequality in the tax code.

        Doubled the Standard Deduction
          TCJA increased the standard deduction from $6,500 
to $12,000 for single filers and $13,000 to $24,000 for taxpayers who 
are married filing jointly.
          Millions of households will no longer need to go 
itemizing their deductions.
          The Joint Committee on Taxation estimates that 
about 88 percent of the 150 million households that file taxes will 
take the increased standard deduction.
        Doubled the Child Tax Credit
          Taxpayers can claim a maximum credit of $2,000 
for each child, with a portion of the credit refundable.
          If the credit is greater than the taxpayer's 
liability, they can receive a refund up to $1,400 based on an earned 
income formula.
          The CTC, in combination with other refundable tax 
credits, is explicitly designed to benefit low-income families with 
workers and children and can significantly boost incomes and lift 
families above the poverty line, according to the Congressional 
Research Service (CRS).
          CRS estimates that TCJA's Federal income tax rate 
changes reduced total poverty by 15 percent.
            Nearly all of the poverty reduction from the income 
tax changes were experienced by families that have both workers and 
children.

        Limited the Home Mortgage Interest Deduction (HMID)
          The benefits of the HMID go primarily to high-
income taxpayers because high-income taxpayers tend to itemize more 
often, and the value of the HMID increases with the price of a home.
          According to the Tax Foundation, in 2018, less 
than 4 percent of taxpayers earning less than $50,000 will claim HMID, 
and these taxpayers will receive less than 1 percent of the overall 
benefits.
          Taxpayers making over $200,000 will make up 34 
percent of claims and take 60 percent of the benefits.
                    what congress should do to help
Keep the Playing Field Level for Entrepreneurs
    More than 90 percent of small businesses are organized as pass-
throughs (sole proprietorships, LLCs, partnerships, or S corporations), 
not as corporations. This percentage is even higher for minority owned 
businesses. Because of TCJA, pass-through business owners can now claim 
a 20 percent deduction on their share of the business's income. The 
deduction is scheduled to sunset in 2026, Repealing this sunset, as 
suggested in Senator Daines' legislation, will benefit millions of 
pass-through businesses and help level the playing field between small 
and large businesses.
Democratize Opportunity Zone Investment
    Opportunity Zones allow for a permanent exclusion from taxable 
income of capital gains from the sale or exchange of an investment in 
an Opportunity Fund if the investment is held for at least 10 years. 
This benefit should be allowed for any capital invested and held in an 
Opportunity Fund for at least 10 years, not just capital gains. By 
allowing non-capital gains to be invested in Opportunity Zones, we can 
democratize the community development tool and allow investors at every 
level of wealth and income to participate. The change will also 
increase the overall amount of capital available to entrepreneurs 
building businesses in Opportunity Zones.
Empower CDFIs
    Congress should also consider allowing Community Development 
Finance Institutions (CDFIs) to receive equity investments as 
Opportunity Zone Businesses. CDFIs are already active as business and 
project lenders in distressed communities and have a deep understanding 
of a community's needs, strengths and weaknesses. Allowing CDFIs to 
take in equity capital from Opportunity Zone investors and then lend 
this capital out to entrepreneurs in on a larger scale would money in 
minority hands and minority communities.
Make Opportunity Zones Transparent
    Perhaps the most important step Congress can take to optimize 
sustainable growth in Opportunity Zones is to pass a bill adding 
reporting and transparency requirements to the policy. Senator Tim 
Scott along with Senators Sinema, and Grassley introduced a bipartisan 
bill to this end last Congress. The bill would enable Treasury to 
collect key information on the location of Opportunity Zone 
investments, the types of businesses and projects attracting 
investment, and the number of jobs created. This information will 
enable Congress to adjust the policy to further incentivize investment 
in areas remaining underserved, and will demonstrate the viability of 
the policy as a community development tool.
Extend the Opportunity Zones Policy
    Congress should finally consider extending this great policy. 
Investment in Opportunity Zones was first undermined by untimely 
regulations, and further hindered by the global pandemic. Extending the 
policy to account for the time and momentum lost would go far in 
bringing capital into distressed communities for benefit of existing 
residents.

                                 ______
                                 
           Questions Submitted for the Record to Shay Hawkins
                   Questions Submitted by Mike Crapo
    Question. You have been working extensively with Opportunity Zone 
projects. Do you believe that it was important that there was 
bipartisan support in building up the legislation leading to the 
Opportunity Zone provisions that ended up in the Tax Cuts and Jobs Act?

    Answer. Yes. It was absolutely critical that there was bipartisan 
support for Opportunity Zones (44 House Democrats, 44 House 
Republicans, 7 Senate Democrats, 7 Senate Republicans). We have also 
seen bipartisan legislation passed to expand Opportunity Zones use in 
Puerto Rico to support the Territory in its economic recovery from 
hurricane damage. The IMPACT Act which would add critical transparency 
and reporting requirements to Opportunity Zones was introduced last 
Congress with bipartisan sponsors.

    Question. Your fellow panelist Professor Brown has recommended that 
the Federal Government improve measurement and gathering and use of 
data on race and ethnicity. The focus is to better understand any 
interplay between provisions of the tax system and racial, ethnic, and 
gender identifications.

    Related to the Opportunity Zones provisions of the tax code, there 
has been bipartisan legislation called the IMPACT Act. That Act 
promotes reporting and measurement for opportunity funds, investors, 
and possibly Opportunity Zone projects themselves.

    I have four questions related to the IMPACT Act and Opportunity 
Zones.

    First, can you discuss what your understanding is of the bipartisan 
IMPACT Act, and what you think are its objectives?

    Second, with respect to that act, how important is it in terms of 
measuring the impact of Opportunity Zones?

    Third, will a failure to pass the IMPACT Act inhibit Congress's 
ability to fine-tune the provision?

    Fourth, in your experience with Opportunity Zones projects, what 
have been your observations on whether or how the projects have 
increased employment and business opportunities for minorities?

    Answer. The IMPACT Act was introduced by Senator Tim Scott and co-
sponsored with Senator Krysten Sinema and former chair of the finance 
committee Chuck Grassley. The bill and acronym is about Improving and 
reinstating the Monitoring, Prevention, Accountability, Certification, 
and Transparency of the Opportunity Zones provision.

    The IMPACT Act codifies certain reporting requirements for 
Opportunity Funds (the investment vehicle for opportunity zones), 
requirements such as the total assets they have held in the fund, the 
location, the value of Opportunity Zones property held by the fund, 
whether the property is owned or leased, the location and industry 
classification of operating businesses, equity investment, and the 
number of persons the fund expects to be employed to the various 
investments that they're making.

    The legislation also codifies requirements of what information that 
investors will see from the fund's managers. Information requirements 
could include relevant dates on which investment positions are made, 
descriptions of the various Opportunity Zones investments, and other 
measures that will allow IRS to track the deferral and recognition of 
gain.

    The IMPACT Act also adds some penalties for funds that fail to 
report in a timely and accurate manner.

    A second set of requirements are for the Treasury Department, which 
will be required to do an economic impact analysis that will measure 
several domestic and economic factors to determine the impact of the 
Opportunity Zones provision. The Treasury Department will look at:

      The total number of funds.

      The total assets of all funds.

      The distribution of Opportunity Zones investments across their 
financial industry classification.

      The percentage of Opportunity Zones that have received 
investment through the incentive.

      The amount of Opportunity Fund investments made in each census 
tract and the ratio of real property investments to the operating 
businesses.

    Over time, the information will be available to compare the 
effectiveness of the Opportunity Zones fund investments, compared to 
those that are not; so a failure to pass the IMPACT Act will absolutely 
inhibit Congress's ability to fine tune the provision.

    Opportunity Zones projects have increased minority employment and 
business opportunities. An example can be found in my home town of 
Cleveland OH. Minority and veteran-owned Bridgeport Group is raising 
capital from Opportunity Fund investors to expand its supply chain 
logistics business to serve Cleveland's world-class health-care market. 
The venture will expand to provide prescription and OTC drug 
fulfillment services for local retailers to cost effectively compete 
with disruptive online pharmaceutical providers. Bridgeport's founder 
Andre Bryant is an active entrepreneur who makes it a point to support 
other minority entrepreneurs.

    If Congress passes the IMPACT Act we will have more complete 
information about the effectiveness of opportunity zones in creating 
business opportunities for minorities.

    Question. The Tax Cuts and Jobs Act did a number of things to 
simplify and increase progressivity of the personal income tax system, 
including: doubling of the standard deduction; expanding the Child Tax 
Credit; expanding the alternative minimum tax exemption; enacting 
Opportunity Zones incentives; capping the SALT deduction; capping the 
mortgage-interest deduction; and limiting the exclusion for 
employer-provided fringe benefits.

    Do you agree with the Joint Committee on Taxation analysis showing 
that TCJA made the individual side of the income tax code more 
progressive, and do you think that any of the list of provisions I just 
identified, including the cap on the SALT deduction, should be rolled 
back?

    Answer. I absolutely agree with the Joint Committee on Taxation 
analysis showing that TCJA made the individual side of the income tax 
code more progressive. I do not think that any of the provisions 
identified above should be rolled back. In particular the cap on the 
SALT deduction should not be removed. Even with the cap in place, 
around three-quarters of the benefit goes to families in the top fifth 
of the income distribution. According to the Brookings Institution, if 
the cap is lifted Almost all (96 percent) of the benefits of SALT cap 
repeal would go to the top quintile (giving an average tax cut of 
$2,640); 57 percent would benefit the top one percent (a cut of 
$33,100); and 25 percent would benefit the top 0.1 percent (for an 
average tax cut of nearly $145,000).

    Question. You have had extensive experience with Opportunity Zones 
and funds, including being able to observe the manner in which the 
capital they provide positively impacts low-income communities.

    Could you please share any examples that come to mind when you 
reflect on the positive impact that opportunity zone capital has on the 
community that it comes into?

    Could you please share any examples that come to mind when you 
reflect on the positive impact that such capital has on entrepreneurs 
and business owners located in and around opportunity zones?

    Are opportunity zones an effective way of increasing capital in 
disadvantaged areas? What changes, if any, could be made to the 
provisions to enhance their effectiveness in this regard?

    Answer. Quinn Palomino was born in Vietnam right at the end of the 
Vietnam War. She grew up at the refugee camps that the U.S. set up at 
Fort Chaffee in Arkansas. Today, Quinn leads Virtua Partners, a global 
private-equity firm that was active in social impact prior to 
Opportunity Zones, but has raised $100 million across four Opportunity 
Funds to build a combination of commercial real estate and affordable 
housing nationwide.

    In Panama City, FL, Jorge Gonzalez, CEO of St. Joe Company, broke 
ground on a waterfront hotel and stand-alone restaurant on Panama City 
Marina. The parcel is city-owned and will be leased to St. Joe, 
providing immediate revenue to residents. The terms provide for an 
increase in lease payments as the hotel's revenues grow over time. The 
project will create 150 direct jobs for current residents and rebuild a 
portion of Panama City that was completely destroyed during Hurricane 
Michael.

    Alex Bhathal, managing partner of RevOZ, a leading real estate 
investment firm specializing in Opportunity Zones, will cut the ribbon 
on an 11,325 square-foot office project. The facility will house San 
Bernardino County's Children's Department of Behavioral Health (DBH), 
providing mental wellness care to some of the most vulnerable and 
underserved members of the community. The facility's location allows 
for synergy between the County's collective community resources, such 
as the San Bernardino County Office, San Bernardino Department of 
Health, San Bernardino County Public Defender, San Bernardino County 
Juvenile Court, and local schools.

    Opportunity Zones are an effective way of increasing capital in 
disadvantaged areas. The Council of Economic Advisors estimates that 
over 1 million Americans will be lifted out of poverty because of the 
policy.
                    what congress should do to help
Democratize Opportunity Zones Investment
    Opportunity Zones allow for a permanent exclusion from taxable 
income of capital gains from the sale or exchange of an investment in 
an Opportunity Fund if the investment is held for at least 10 years. 
This benefit should be allowed for any capital invested and held in an 
Opportunity Fund for at least 10 years, not just capital gains. By 
allowing non-capital gains to be invested in Opportunity Zones, we can 
democratize the community development tool and allow investors at every 
level of wealth and income to participate. The change will also 
increase the overall amount of capital available to entrepreneurs 
building businesses in Opportunity Zones.
Empower CDFIs
    Congress should also consider allowing Community Development 
Finance Institutions (CDFIs) to receive equity investments as 
Opportunity Zones Businesses. CDFIs are already active as business and 
project lenders in distressed communities and have a deep understanding 
of a community's needs, strengths, and weaknesses. Allowing CDFIs to 
take in equity capital from Opportunity Zones investors and then lend 
this capital out to entrepreneurs on a larger scale would put money in 
minority hands and minority communities.
Make Opportunity Zones Transparent
    Perhaps the most important step Congress can take to optimize 
sustainable growth in Opportunity Zones is to pass a bill adding 
reporting and transparency requirements to the policy. Senator Tim 
Scott, along with Senators Sinema and Grassley, introduced a bipartisan 
bill to this end last Congress. The bill would enable Treasury to 
collect key information on the location of Opportunity Zones 
investments, the types of businesses and projects attracting 
investment, and the number of jobs created. This information will 
enable Congress to adjust the policy to further incentivize investment 
in areas remaining underserved, and will demonstrate the viability of 
the policy as a community development tool.
Extend the Opportunity Zones Policy
    Congress should finally consider extending this great policy. 
Investment in Opportunity Zones was first undermined by untimely 
regulations, and further hindered by the global pandemic. Extending the 
policy to account for the time and momentum lost would go far in 
bringing capital into distressed communities for benefit of existing 
residents.

    Question. When it comes to addressing underlying disparities 
through effective policy choices, a number of potential solutions have 
been offered. In your mind, what are some of the most effective ones 
that Congress should be considering, and please include consideration 
of any interplay between your suggested solution and the Federal 
budget?

    Answer. Congress should prioritize policies that enable work and 
wage growth including regulatory reform and policies that grow small 
businesses and make U.S. corporations more globally competitive. 
Congress should also emphasize policies that empower Americans to be 
more self-sufficient. Finally, Congress must consider the fact that any 
policy to reduce poverty will fail without a social foundation of 
better parents and strong marriages.

    Question. What changes will be most impactful in terms of 
addressing the racial, gender, and ethnic wealth gaps? Is the tax code 
the preferred vehicle for seeking to address such disparities?

    Answer. Because families with little or negative wealth also have 
little taxable income, the tax code is probably not the best vehicle 
for addressing racial gender and ethnic wealth gaps. To the extent 
Congress looks to the tax code, it should focus on policies such as the 
Secure Act that increases the ability to save for lower-income 
Americans.

    Another promising way to address this challenge was outlined in a 
recent paper from the Economic Innovation Group by a bipartisan pair of 
economists, Teresa Ghilarducci and Kevin Hassett. The authors propose a 
new program modeled after the highly successful Federal Thrift Savings 
Plan (TSP) that would be aimed specifically at helping lower-income 
workers build wealth and retirement security. As a former Senate 
staffer who, like every member of this committee, has benefitted first-
hand from the TSP, I believe this proposal deserves careful 
consideration. It is precisely the kind of idea that could fill the 
gaps in current policy and ensure that all workers are rewarded for 
hard work and diligent savings. If properly designed, such a program 
could help narrow the racial wealth gap.

                 Questions Submitted by Hon. Todd Young
    Question. Before the onset of the pandemic, the U.S. economy was 
delivering record gains for working Americans. The red-hot economic 
growth arising from the 2017 passage of the Tax Cuts and Jobs Act, 
along with the smarter regulation during the Trump administration, 
provided opportunity for all Americans. Prior to the pandemic, we saw: 
(i) the lowest overall unemployment rate in more than 50 years; (ii) 
record low unemployment rates for black and Hispanic workers; and (iii) 
solid wage growth, with stronger growth for low-wage workers than for 
upper earners. These are just a few of the many economic successes we 
saw following the 2017 tax cuts.

    While the Nation continues to rebuild from the pandemic, do you 
believe it is wise to undo the reforms that provided for the record 
gains seen in 2018 and 2019?

    Answer. I do not believe it is wise to undo the reforms that 
provides for the record gains seen in 2019 and 2019,

    Question. I would like to follow up on your hearing testimony and 
your extensive experience with Opportunity Zones and funds, 
particularly having observed the manner in which the capital they 
provide positively impacts low-income communities.

    Could you please share an example or two you have observed of the 
positive impact that Opportunity Zones capital has on the communities 
in which it is invested?

    Answer. In Panama City, FL, Jorge Gonzalez, CEO of St. Joe Company, 
broke ground on a waterfront hotel and stand-alone restaurant on Panama 
City Marina. The parcel is city-owned and will be leased to St. Joe, 
providing immediate revenue to residents. The terms provide for an 
increase in lease payments as the hotel's revenues grow over time. The 
project will create 150 direct jobs for current residents and rebuild a 
portion of Panama City that was completely destroyed during Hurricane 
Michael.

    Alex Bhathal, managing partner of RevOZ, a leading real estate 
investment firm specializing in Opportunity Zones, will cut the ribbon 
on an 11,325 square-foot office project. The facility will house San 
Bernardino County's Children's Department of Behavioral Health (DBH), 
providing mental wellness care to some of the most vulnerable and 
underserved members of the community. The facility's location allows 
for synergy between the County's collective community resources, such 
as the San Bernardino County Office, San Bernardino Department of 
Health, San Bernardino County Public Defender, San Bernardino County 
Juvenile Court, and local schools.

    Question. I understand there was bipartisan support in building up 
the legislation leading to the Opportunity Zones provisions that ended 
up in the Tax Cuts and Jobs Act. Do you believe this bipartisan support 
was important to the successful enactment and implementation of the 
program?

    Answer. Yes. It was absolutely critical that there was bipartisan 
support for Opportunity Zones (44 House Democrats, 44 House 
Republicans, 7 Senate Democrats, 7 Senate Republicans). We have also 
seen bipartisan legislation passed to expand Opportunity Zones use in 
Puerto Rico to support the Territory in its economic recovery from 
hurricane damage. The IMPACT Act which would add critical transparency 
and reporting requirements to Opportunity Zones was introduced last 
Congress with bipartisan sponsors.

                                 ______
                                 
            Prepared Statement of Himalaya Rao-Potlapally, 
             Managing Director, Black Founders Matter Fund
    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
thank you for the opportunity to appear before you today.

    My name is Himalaya Rao-Potlapally, and I am the managing director 
of the Black Founders Matter Fund, an early-stage venture capital firm 
that operates out of Portland, OR and invests in black entrepreneurs 
that are leading startups across several verticals within the United 
States.

    You will probably notice that I don't represent the face of venture 
capital. On the surface, there are very few women in this space, and 
even fewer women of color. I am also a first-generation immigrant to 
this country, and I started my career as a school social worker in the 
Bronx in New York City working in high-risk schools with children and 
families.

    When I got my MBA, I was exposed to what entrepreneurship is and 
who could be an entrepreneur. Learning that it didn't have to be 
someone with several Ph.D.s or with generational wealth, my wife and I 
decided to try it for ourselves and started a company. I only started 
seeking out resources and knowledge about venture capital selfishly to 
understand how I would be judged if I ever raised capital. I fell into 
this world by accident, but as soon as I did, I realized the very 
specific need for me to be here.

    There is a huge lack of representation when it comes to the 
investor makeup. Even when there are people of color or women in the 
space, most of them have come from generational wealth and a higher 
socioeconomic status. This inherently creates a space in which we have 
homogeneous thinking. To combat what I was seeing, I positioned my 
career in this space to first start as a venture capital consultant. I 
went into firms who had the willingness to diversify their dealflow but 
had seen no tangible differences in outcomes. In just 1 year of me 
being with several of these firms, I was able to significantly change 
their investment portfolio. As I analyzed why this was happening, I 
realized that even when there is a willingness to diversify deaflow, 
there are significant barriers that create unchanged outcomes. I cite 
three main reasons for this inequity: the underlying framework for 
evaluating potential startups, the homogeneous groupthink mentality, 
and the lack of an on ramp to truly representative investors.
           barriers to investing in diversity and innovation
    1.  The underlying framework for evaluating potential startups is 
based on pattern matching and a dataset of previous success attained by 
one demographic of founders.

    The basis of evaluating startups is inherently biased. When 
investors look at startups, they are essentially evaluating companies 
compared to what already exists in the market and their own portfolio. 
We compare them to existing ventures as a way to determine their 
viability and propensity for success based on what we know already 
works. This pattern matching behavior \1\ causes investors to look at 
startups and notice incremental improvements in the business model, 
team dynamics, or go-to-market strategy. While all three of those areas 
are fundamental to creating great ventures, exclusively looking at 
those factors creates a scenario where investors are missing a key 
element to an innovative venture. The word innovation is defined as the 
introduction of something new, whether it be a new idea, method, or 
device.\2\ One of its synonyms is novelty.
---------------------------------------------------------------------------
    \1\ Sparks, A. (2021). Raising Venture Capital (1.12 ed.). San 
Francisco, CA: Holloway.
    \2\ Innovation. (n.d.). Retrieved from https://www.merriam-
webster.com/dictionary/innovation.

    The solutions we think of to problems are based on our framework of 
reality. Our reality is based on our subjective lived experiences that 
confirm or challenge what we already know.\3\ When the experience or 
fact confirms what we already know, it strengthens that reality and 
locks it into place. A challenge to our existing reality, presents our 
mind with the opportunity to rationalize how the example is an outlier 
that should not to be considered, or establishes the example as part of 
a new pattern that requires us to rethink our logic framework. The 
result is that we all take in a series of objective experiences and 
facts and then internally process them through our own subjective view 
of reality, to come up with what is true and what is possible.
---------------------------------------------------------------------------
    \3\ Confirmation bias. (n.d.). Retrieved from https://
www.britannica.com/science/confirmation-bias.

    When we bring that back to venture capital, founders' reality and 
perceived notions of possibilities creates their varying approach to 
solving any small or systemic problem. BIPOC founders inherently 
experience the world and reality in a different way and therefore have 
a different set of norms and solutions they come up with. In our 
pattern matching evaluation framework, truly different ideas are 
impossible to compare. The result is that we evaluate all deals based 
on our historical dataset which is overwhelmingly composed of solutions 
presented by white founders. Because of their drastically different 
lived experiences, BIPOC founders largely present ideas that are 
incomparable to this existing dataset and are therefore overlooked; not 
because there is an overt want to exclude people based on their race or 
ethnicity, but because our existing methodology of success is 
essentially based on an algorithm that only takes its inputs from one 
---------------------------------------------------------------------------
group of lived experiences and potential solutions.\1\

    Innovation implicitly requires difference. But how can we ever 
filter or look for it when all our systems are designed to compare new 
ideas to existing benchmarks and metrics?

    2.  We create homogenous groupthink in environments without the 
four types of diversity.

    On top of an underlying biased framework, we have the problem of 
homogenous thinking. When we look at angel groups, venture capital 
funds, or private equity--there is a stark lack of diversity with 
regards to gender and racial equity. While demographic diversity (based 
on age, gender, ethnicity, and race) is foundational to creating 
representation, we run this risk of creating environments that have 
superficial diversity when we miss the intersectionality of age, 
gender, race, and ethnicity with concurring factors. A truly diverse 
environment consists of three other types of diversity in addition to 
demographic diversity.

        It requires information diversity.\4\ To achieve this, we need 
        to look at sources that people are using to gather information. 
        Is everyone looking at the same articles, publications, and 
        datasets as a method of aggregating knowledge and creating a 
        starting point? If so, all the inputs are identical and 
        reinforce one another. This creates an environment where we are 
        only surrounded by information that confirms what we already 
        know and solidifies what we see as reality and possibilities.
---------------------------------------------------------------------------
    \4\ Phillips, K.W., Duguid, M., Thomas-Hunt, M., and Uparna, J. 
(2013). ``Diversity as Knowledge Exchange: The Roles of Information 
Processing, Expertise, and Status.'' Oxford Handbooks Online. 
doi:10.1093/oxfordhb/9780199736355.013.0009.

        We also need value diversity.\5\ This relates to the core 
        values and beliefs that people hold and use to navigate the 
        world. This can be especially difficult in our current 
        polarized society where we see things are being right and wrong 
        instead of opinions that range on a spectrum informed by our 
        contrasting and sometimes contradicting realities.
---------------------------------------------------------------------------
    \5\ Tran, B. (2016). ``A History of How U.S. Academics, Laws, and 
Business Have Created the Current Approach to Organizational Diversity: 
Visual, Innovative, and All-Inclusive Multiculturalism.'' In Prescott, 
J. (Eds.), Handbook of Research on Race, Gender, and the Fight for 
Equality (pp. 380-397). IGI Global. http://doi:10.4018/978-1-5225-0047-
6.ch017.

        Finally, we need education diversity.\6\ We need to ask if all 
        the people in any given room have the same level and type of 
        formal or informal education. If so, we've all been 
        indoctrinated with the same information and knowledge and are 
        more likely to participate in a homogeneous thought process. 
        The type of education a person receives is also highly 
        correlated with socioeconomic status and education diversity is 
        one the most consistent types of diversities that is 
        overlooked. Across the spectrum, from non-profit boards to 
        government positions, to corporate leadership, we tend to see a 
        lack of intersectionality between racial, educational, and 
        socioeconomic diversity present in our leadership.
---------------------------------------------------------------------------
    \6\ Moore-Berg, S.L., and Karpinski, A. (2018). ``An intersectional 
approach to understanding how race and social class affect intergroup 
processes.'' Social and Personality Psychology Compass, 13(1). 
doi:10.1111/spc3.12426.

    Without these four types of diversities present, we engage in and 
encourage superficial diversity that enables tokenization rather than 
impact-driven, sustainable change. We should instead strive to create 
environments where different perspectives are intentionally centered 
---------------------------------------------------------------------------
and heard.

    3.  There is currently a lack of an on ramp to greater 
participation by representative investors into small businesses and new 
ventures.

    If we can agree that we need these four types of diversities 
present in any given environment, then the last major barrier to 
investment in innovation is the lack of an on ramp to truly 
representative investors. To be a participant and decision-maker in 
venture capital, you must be an accredited investor. As defined by the 
SEC,\7\ an accredited investor is an individual that makes $200,000 in 
annual income, $300,000 if a combined couple income, or has $1,000,000 
in net assets, excluding the primary residence. This definition alone 
excludes the majority of Americans from ever being able to participate 
as investors in venture capital. In the last couple of years, the 
accredited investor definition has expanded to include those who work 
within venture capital or have intimate knowledge of the inherent risks 
that come with venture investing.\8\ While this was a great expansion, 
it's only the beginning. We need continued modifications to this 
definition as well as intentional initiatives, like tax incentives, to 
help drive participation into this historically closed loop activity. 
We all come with our own set of inherent biases and subjective 
realities. Creating environments where investors and founders are truly 
representative of one another is a way to mitigate confirmation bias 
that we use to evaluate success. These initiatives, like the one 
Senator Wyden has proposed,\9\ incentivize greater participation by 
different types of investors. When we are constructing initiatives, we 
must exercise caution to ensure that we are creating a catalytic 
environment that encourages participation of new and diverse investors 
into a broad range of diverse entrepreneurs and businesses.
---------------------------------------------------------------------------
    \7\ Accredited Investors. (n.d.). Retrieved from https://
www.investor.gov/introduction-investing/investing-basics/glossary/
accredited-investors.
    \8\ Amendments to Accredited Investor Definition. (2020, December 
7). Retrieved from https://www.sec.gov/corpfin/amendments-accredited-
investor-definition-secg.
    \9\ Wyden Introduces Bill to Boost Capital Access for Women-Owned 
Business: The United States Senate Committee on Finance. (2019, October 
30). Retrieved from https://www.finance.senate.gov/ranking-members-
news/wyden-introduces-bill-to-boost-capital-access-for-women-owned-
business.
---------------------------------------------------------------------------
                          key recommendations
    Based on the previous discussion of barriers to investment in 
diverse entrepreneurs and innovation, the following constitute the 
starting points for effective change.

        Investor education that goes against the existing pattern 
matching behavior and instead upholds a holistic education framework 
that examines a person's unique experience and its contribution to 
metrics of a successful venture. The Black Founders Matter Fund has one 
such framework developed on the basis of Effectual Entrepreneurship 
\10\ overlaid with a social work framework of Systems Theory.\11\
---------------------------------------------------------------------------
    \10\ Read, S., Sarasvathy, S., Drew, N., Wiltbank, R., and 
AOhlsson, A. (2011). Effectual Entrepreneurship. Routledge.
    \11\ Systems Theory. (n.d.). Retrieved from https://
www.sciencedirect.com/topics/psychology/systems-theory.

        Incentive structures, including tax credits, student loan 
forgiveness, and stipends/vouchers, as a method of incentivizing non-
monetary participation in leadership structures by diverse individuals. 
As an example, non-profit boards are usually comprised of individuals 
who have flexible work schedules, those who are retired, and those who 
have enough passive or generational wealth to allow flexibility to 
commit to a non-paid position. Creating structures that allow for 
stipends and/or vouchers that can be used for living expenses/health 
and wellness expenses can open doors for a broader range of individuals 
to participate in leadership and community development. Tax incentives 
and student loan forgiveness would also contribute to the long-term 
flattening of the wealth disparity in exchange for the inclusion of 
---------------------------------------------------------------------------
diverse voices in setting organizational strategies and solutions.

        Expansion of the accredited investor definition to allow 
greater participation by the majority of American citizens.

        Incentive programs, including tax credits and student loan 
credits, that accelerate and encourage participation of investment into 
new ventures and small businesses. Special consideration should be 
given to ensure that the resulting investment goes into a broad range 
of businesses and individuals to ensure diverse distribution of 
dollars.
                               conclusion
    Creating environments that truly incentivize and encourage 
participation from a diverse set of individuals might seem difficult to 
achieve. But the lack of this environment and exclusively investing in 
one type of solution or founder creates ripple effects throughout our 
society. Here in the United States, we pride ourselves on being the 
global leader of progress and innovation. We must therefore look to 
solve this complex problem with a variety of different solutions to 
ensure that we can continue to remain competitive in the global 
landscape. This country is home to different cultures, identities, and 
ideologies. We need to find a way to harness the strength of our 
differences and diversity for a brighter, inclusive, and innovative 
future.

    Thank you again for the opportunity to testify, and I look forward 
to your questions.

                                 ______
                                 
      Question Submitted for the Record to Himalaya Rao-Potlapally
                Question Submitted by Hon. Maggie Hassan
    Question. Given the barriers that women, minority, and rural 
entrepreneurs face in accessing capital, many have difficulty hiring 
their first few employees. A tax credit to support initial hiring would 
help these entrepreneurs start up their businesses. That's why I've 
joined Chairman Wyden's bill to support women and minority 
entrepreneurs, and why I worked on a bipartisan basis to secure a tax 
credit for new businesses hires in the American Rescue Plan.

    How do barriers to accessing capital affect the ability of women 
and minority entrepreneurs to hire and retain employees?

    Answer. Women and minority entrepreneurs have an exceptionally 
difficult time when it comes to the race for talent. I was recently 
connecting with a female entrepreneur as she reflected on her journey 
to finding a co-founder. Although she had revenue and could demonstrate 
market validation, investors wouldn't capitalize her company until she 
had a co-founder to create more stability in the executive team. The 
issue is that the women and BIPOC individuals historically suffer from 
systematic wealth disparities. Therefore, there are less women and 
BIPOC individuals and families available that can afford to work 
without any salary now with the promise of equity and returns later. 
Lack of funding continues to be the number one reason why startups lose 
the ability to hire and retain top talent in their ventures. It is 
therefore critical that we create pathways for companies led by women 
and BIPOC leaders to get funded, so that they can participate in the 
startup talent race. Hiring their first few employees and executive 
team can mean the difference between a startup that scales and one that 
fails.

    Across the board, there is undercapitalization when it comes to 
women and BIPOC-led ventures. The bill you proposed with Chairman Wyden 
not only creates a tax credit that benefits these small businesses when 
they hire their first employees, but also helps to create incentives 
for investors to fund small businesses run by women and BIPOC 
entrepreneurs. As stated above, an ability for companies to get funded 
gives them the tools and resources to hire strong talent to scale 
quickly and solidify their differentiation moat.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    This morning the Finance Committee will examine issues of racial 
justice and tax code inequality in America. Nobody of good conscience 
wants there to be a race-based penalty or a discount on taxes. 
Everybody ought to pay a fair share, and everybody ought to have a fair 
chance to get ahead. In practice, the U.S. tax code does not always 
work that way.

    If America's busted old tax code truly excels at anything, it's 
rewarding those who are fortunate enough to already have wealth. The 
lucky few with the top incomes can go years deferring their taxes, 
paying what they want and when they want. On the other hand, there's no 
deferral for a black nurse who pays taxes out of every paycheck or a 
Latina small business owner who pays taxes quarterly.

    According to a recent survey, a typical white American family has 
eight times the wealth of a typical black American family. Some of the 
cornerstone tax policies in America include well-intentioned tax 
incentives for home ownership, education, and retirement savings. Those 
incentives only really work for people who can afford to buy homes and 
set money aside for education and retirement. Those people are much 
likelier to be white.

    The committee will hear a lot more examples like those today 
illustrating how the tax code adds to inequality in this country. The 
fact is, some recent changes have made the situation worse. An 
estimated 80 percent of the individual benefits of the Trump tax law 
went to white Americans. Even the benefits that went only to the top 1 
percent of taxpayers were skewed the same way.

    The American Rescue Plan enacted in March begins to change the math 
of racial injustice and tax code inequality. It expanded the Earned 
Income Tax Credit for millions of working people. It expanded the Child 
Tax Credit and makes sure millions more working families will receive 
the full amount available. Too often, families and individual workers 
with lower incomes, particularly black and Latino, haven't had access 
to those full benefits.

    Those expansions are going to be game changers for those workers 
and families in Oregon and all across the country. They ought to be 
permanent, and I'm working with members of this committee to make that 
happen.

    Inequality isn't just about race, it's also about gender. Women 
business owners, particularly women of color, are underrepresented, 
under-capitalized and underappreciated. The share of business revenues 
that go to women-owned businesses hasn't budged in 20 years. It's stuck 
at 4 percent. Along with Senator Cortez Masto and Senator Hassan, 
Senator Cardin and I are introducing the PROGRESS Act that will help to 
increase that figure. Our bill is all about promoting investment in 
women- and minority-owned businesses and helping them grow and hire 
more workers.

    Finally, policy-makers need better, confidential data on how tax 
laws affect Americans of different races. Other Federal agencies 
collect that type of demographic information and policy-makers can use 
it to improve them. The IRS does not.

    The fact is, the tax code isn't strictly about government funding. 
Congress decided long ago to use the tax code to tackle major economic 
and social challenges. The words black or white or Asian or Latino or 
Native American don't have to appear anywhere in the code for tax laws 
to affect those groups differently. Too often, those differences are 
adding to inequality.

    The IRS needs to meet a higher standard of confidentiality due to 
its history and the sensitive nature of taxpayer information. That 
said, it makes no sense to blind lawmakers to the key data that would 
illuminate injustice in our tax laws. It's time for more tax data 
transparency. This committee is going to make sure that happens in a 
manner that fully protects the privacy and confidentiality of American 
taxpayer information.

    I'm looking forward to discussing all those issues and more today. 
There's a lot for us to cover in this hearing. I want to thank our 
witness panel for joining us.

                                 ______
                                 

                             Communications

                              ----------                              


                   Letter Submitted by Vania K. Baker
U.S. Senate
Committee on Finance

I am a U.S. American citizen who lives outside the United States. To be 
clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States because of work and family. In fact, I 
am a full tax resident in the country where I live. But, because I 
actually live and work in the EU, I am required to pay taxes and assume 
responsibility for my financial and retirement planning here, where I 
live. My income, financial and retirement assets are foreign to the 
United States, but are local to me. Because my income and financial 
assets, although local to me, are foreign to the United States, I am 
subject to the U.S. Extraterritorial tax regime. As such, I am subject 
to constant stress and fear of penalties should I make mistakes in 
complying with the Internal Revenue Code. Furthermore, I find it very 
difficult to find competent professional help. The help I can find is 
very expensive (often costing more than $500 a year).

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens.

      Punitive Taxation on non-U.S. mutual funds.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my neighbors.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Difficulty in carrying on a business. It is normal for people in 
my country to carry on business through small business corporations--
which are taxed punitively by the IRS (GILTI).

      Having the retirement savings in my corporation effectively 
confiscated by the 965 Transition Tax.

      Being subject to income based on phantom capital gains. (Because 
I am required to live my life tethered to the U.S. dollar, fluctuations 
in the exchange rate can result in unexpected fake income).

To be clear, I am and will always be a U.S. American. However, I find 
it very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No U.S. 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning.

It is terribly unfair that, because I live outside the United States, I 
am forced to choose between my responsibilities to plan for retirement 
and my responsibilities under the Internal Revenue Code. Why should I 
be subject to additional requirements that resident U.S. Americans are 
not? I am not living in the United States nor using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

A great American writer, the late Pat Conroy, began his book ``The 
Prince of Tides'' with the following words: ``My wound is geography. It 
is also my anchorage, my port of call.''

Although, my U.S. citizenship is my anchorage and my port of call, the 
unfair U.S. extraterritorial tax regime--triggered by my geography--is 
most definitely my wound.

Please fix this extreme injustice!

                                 ______
                                 
                    Letter Submitted by Amy Balcerak
U.S. Senate
Committee on Finance

I am a proud American citizen who lives outside the United States. To 
be clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States because my husband got a job opportunity 
to move us to Switzerland, and we were looking for a new adventure! In 
fact, I am a full tax resident the country where I live. But, because I 
actually live and work in Switzerland, I am required to pay taxes and 
assume responsibility for my financial and retirement planning here, 
where I live. My income, financial and retirement assets are foreign to 
the United States, but are local to me. Because my income and financial 
assets, although local to me, are foreign to the United States I am 
subject to the U.S. Extraterritorial tax regime. As such, I am subject 
to constant stress and fear of penalties should I make mistakes in 
complying with the Internal Revenue Code. Furthermore, I find it very 
difficult to find competent professional help. The help I can find is 
very expensive, costing around $1,300 a year.

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens.

      Punitive Taxation on non-U.S. mutual funds.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my neighbors.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Difficulty in carrying on a business. It is normal for people in 
my country to carry on business through small business corporations--
which are taxed punitively by the IRS (GILTI).

      Having the retirement savings in my corporation effectively 
confiscated by the 965 Transition Tax.

      Being subject to income based on phantom capital gains. (Because 
I am required to live my life tethered to the U.S. dollar, fluctuations 
in the exchange rate can result in unexpected fake income).

To be clear, I am and will always be a proud American. But, I find it 
very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No proud 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning.

It is terribly unfair, that because I live outside the United States, 
that I am forced to choose between my responsibilities to plan for 
retirement and my responsibilities under the Internal Revenue Code. Why 
should I be subject to additional requirements that resident Americans 
are not? I am not living in the United States and using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

A great American writer, the late Pat Conroy, began his book ``The 
Prince of Tides'' with the words: ``My wound is geography. It is also 
my anchorage, my port of call.''

Although, my U.S. citizenship is my anchorage and my port of call. The 
unfair U.S. extraterritorial tax regime--triggered by my geography--is 
most definitely my wound.

Please fix this extreme injustice!

                                 ______
                                 
   Statement of Professor Caroline Bruckner, Professorial Lecturer, 
  Accounting and Taxation Managing Director, Kogod Tax Policy Center, 
             Kogod School of Business, American University
Chair Wyden, Ranking Member Crapo, Committee Members and Staff, thank 
you for holding the full committee hearing on April 20, 2021, titled, 
``Combating Inequality: The Tax Code and Racial, Ethnic, and Gender 
Disparities.'' My name is Caroline Bruckner and I am a tax professor on 
the faculty at American University's Kogod School of Business. I also 
serve as the Managing Director of the Kogod Tax Policy Center (KTPC), 
which conducts non-partisan policy research on tax and compliance 
issues specific to small businesses and entrepreneurs. Our mission is 
to develop and analyze research and policy recommendations for tax-
related problems faced by small businesses, and to promote public 
dialogue concerning tax issues critical to small businesses and 
entrepreneurs. In connection with my appointment as Managing Director 
of the KTPC in 2015, I have focused our research agenda, in part, on 
the tax and financing challenges facing women business owners, who are 
overwhelmingly small businesses.

In June 2017, the KTPC released ground-breaking research on women 
business owners and small business tax expenditures, Billion Dollar 
Blind Spot: How the U.S. Tax Code's Small Business Expenditures Impact 
Women Business Owners (BDBS), which built on my prior experience as 
Chief Counsel to the U.S. Senate Committee on Small Business and 
Entrepreneurship. That research included survey data from experienced 
women-owned firms and focused on four small business tax expenditures 
(i.e., Section 1202--100% Exclusion from Capital Gains Tax for 
Investments in Qualified Small Business Stock; Section 1244--Ordinary 
Loss Treatment for Investments in Small Business Stock; Section 179--
Expensing for Small Businesses; and Section 195--Deduction for 
Qualified Start-Up Costs). We found:

1.  While the number of women-owned firms has increased at 
extraordinary rates in recent decades, the majority of these firms 
remain predominately small businesses operating in service industries 
and still encounter substantial challenges with growing their receipts 
and accessing capital;

2.  Our survey data showed that when women-owned firms can take 
advantage of tax expenditures, they do (see, e.g., Section 195). 
However, least some of the U.S. tax code's small business tax 
expenditures targeted to stimulating small firm investment either 
explicitly exclude service firms by design (e.g., Section 1202), and by 
extension, the majority of women-owned firms, or operatively bypass 
them in favor of firms that are incorporated (e.g., Section 1244) or 
operating in industries that tend to make more regular capital-
intensive investments (e.g., Section 179);

3.  There is a critical (and long-overdue) need to develop tax data and 
research to measure the effectiveness of small business expenditures 
with respect to women-owned firms; and

4.  The lack of demographic data and tax research on U.S. tax code's 
small business tax expenditure with respect to women business owners 
constitutes a billion-
dollar blind spot in U.S. tax policy.

Throughout 2017's tax reform debate, I submitted multiple statements 
for the record to the Congressional tax-writing committees and 
testified before the U.S. House of Representatives Committee on Small 
Business on this research and the need to specifically consider the tax 
challenges and data gaps identified in BDBS.\1\ However, at no point 
during the tax reform debate did Congress meaningfully and specifically 
consider whether money spent on tax expenditures targeted to small 
businesses would be effective in addressing the access to capital 
challenges faced by most women business owners.\2\
---------------------------------------------------------------------------
    \1\  The testimony and submissions included links to and excerpts 
from BDBS, which detailed the legislative history and Congress's intent 
to provide access to capital and opportunities for growth to small 
businesses with respect to four specific tax expenditures. See e.g., 
Small Business Tax Reform: Modernizing the Code for the Nation's Job 
Creators: Hearing Before the U.S. House Committee on Small Business, 
115th Congress (testimony of Caroline Bruckner) (October 2017), https:/
/www.govinfo.gov/content/pkg/CHRG-115hhrg27040/html/CHRG-115hhrg27040.
htm; Caroline Bruckner (July 27, 2017), Statement for the Record to the 
U.S. House of Representatives Committee on Ways and Means Tax Policy 
Subcommittee in Connection With July 13 Hearing, ``How Tax Reform Will 
Help America's Small Businesses Grow and Create New Jobs.''; Bruckner, 
Caroline (July 14, 2017), Submission to the U.S. Senate Finance 
Committee in Response to the Chair's Request for Recommendations for 
Tax Reform (on file with author); Caroline Bruckner, Statement for the 
Record to the U.S. Senate Committee on Small Business and 
Entrepreneurship in Connection With the June 14 Hearing Titled, ``Tax 
Reform and Barriers to Small Business Growth,'' (June 28, 2017).
    \2\ Bruckner, Caroline (2020). ``Doubling Down on a Billion Dollar 
Blind Spot: Women Business Owners and Tax Reform.'' American University 
Business Law Review, Vol. 9, Issue 1.

In fact, subsequent research on the witnesses that testified before the 
Congressional tax-writing committees shows that women business owners 
were repeatedly overlooked and under-represented as witnesses during 
tax reform hearings.\3\ For example, in 2017, the tax-writing 
committees held a total of 12 hearings on tax reform and less than 19% 
of the witnesses testifying at these hearings were women. In fact, 
women were witnesses in only 7 hearings and no women business owner 
testified at the sole SFC hearing on business tax reform.  More 
broadly, analysis of witnesses testifying before the tax-writing 
committees from 2007 through 2017 at tax reform hearings found that 44% 
of the SFC tax reform hearings had no women as witnesses, while 46% of 
W&M tax reform hearings failed to include any women.\4\
---------------------------------------------------------------------------
    \3\ In 2019, together with Karen O'Connor, the Jonathan N. Helfat 
Distinguished Professor of Political Science, Department of Government, 
School of Public Affairs at American University, I developed the 
Congressional Record Representation Dataset [hereinafter CRRD], which 
is the first-of-its kind digital diversity and inclusion legislative 
tool in the U.S. designed to track the number of women and people of 
color testifying before congressional committees to measure diversity 
and inclusion of congressional witnesses. The CRRD is comprised of 
witnesses testifying at congressional legislative, oversight or 
investigative hearing identified using published committee end-of-
congress (EOC) reports and hearing transcripts. The CRRD excludes 
witnesses at confirmation hearings or mark-ups. The CRRD has been 
created by human-based processing of publicly available EOC Reports, 
which congressional committees are required to prepare and file at the 
end of each Congress. EOC Reports document a committee's legislative 
activities during a Congress and identify witnesses that testified at 
hearings. Preliminary results for the gender of witnesses before U.S. 
Senate Committee on Finance (SFC) and the U.S. House of Representatives 
Committee on Ways and Means (W&M) from the CRRD for the 110th-112th 
Congresses announced in January 2020. Bruckner, Caroline, Karen 
O'Connor and Dakota Strode, ``A Seat at the Table: Just How 
Representative Is the Legislative Process? An Analysis of the Gender 
Distribution of Witnesses Before a Select Group of Committees in the 
U.S. Congress.'' Southern Political Science Association Annual Meeting, 
San Juan, Puerto Rico, available at: https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3543554.
    \4\ Bruckner, supra n. 2 at 19.

Overall, women comprised only a small fraction (17.5%) of the total 462 
witnesses called to testify at the 91 tax reform hearings the tax-
writing committees held from 2007 through 2017, and the data used to 
develop this witness testimony research does not (yet) include the race 
or ethnicity of witnesses. At the same time, by 2017, women business 
owners had grown to comprise almost 40% of all U.S. businesses and 
research showed that women of color were responsible for much of the 
overall growth.\5\ The systemic representation inequity before the tax-
writing committees is particularly problematic given SFC alone ``has 
the largest committee jurisdiction in either chamber of Congress, 
oversees more than 50 percent of the federal budget and has 
jurisdiction over tax, trade and healthcare policy.''\6\
---------------------------------------------------------------------------
    \5\ Bruckner, supra n. 2, at 9 (citing research finding that firms 
owned by women of color grew at a rate of 43 percent over the last five 
years--double the rate of all new women-owned firms).
    \6\ Press Release, U.S. Senate Committee on Finance (Nov. 9, 2017), 
available at: https://www.finance.senate.gov/imo/media/doc/
11.9.17%20Committee%20History.pdf.

The absence of consideration of women business owners as part of the 
tax reform legislative process reflects an effort by Congress to double 
down on the billion-dollar blind spot it has when it comes to tax 
expenditures and women business owners. Specifically, as part of the 
final tax reform legislation Congress passed in 2017, Congress included 
hundreds of billions of dollars in funding for targeted small business 
tax expenditures that my research suggests are less favorable to women 
business owners.\7\
---------------------------------------------------------------------------
    \7\ Bruckner, supra n. 2, at 26-27.

Although some women business owners had some tax savings as a result of 
the tax reform legislation, data from Congressional tax experts raises 
new questions on the equity of the distribution of the revenue of some 
tax expenditures funded by the legislation. For example, in 2018, the 
Joint Committee on Taxation (JCT) released data on the distribution of 
the revenue loss triggered by the Section 199A deduction created for 
individuals with business income that indicated more than 90% of the 
revenue loss would ``flow to firms with income of more than $100,000 in 
2018 and 2024.''\8\ In other words, the majority of revenue Congress 
spent in funding Section 199A flowed to firms other than the majority 
of women business owners (88%) who have revenues of less than $100,000 
and who struggle to access capital.\9\
---------------------------------------------------------------------------
    \8\ Id. at 26 (referring to data from Joint Committee on Taxation, 
JCX-32R-18, Tables Related to the Federal Tax System in Effect 2017-
2026 (2018)).
    \9\ Testimony Before the U.S. House of Representatives Committee on 
Budget in connection with a hearing titled, ``2017 Tax Law--Impact on 
the Budget and American Families.'' (February 27, 2019), available at: 
https://budget.house.gov/sites/democrats.budget.house.gov/files/
documents/02.27.2019.Bruckner_%20Testimony.pdf.

The most recent 2021 JCT estimates suggest that more than 21 million 
taxpayers will claim a Section 199A deduction that will cost taxpayers 
$186 billion in 2021 alone.\10\ Given that tax expenditures ``are 
similar to direct spending programs that function as entitlements to 
those who meet the established statutory criteria,''\11\ the tax-
writing committees have an oversight responsibility to taxpayers to 
determine what businesses are benefiting from these business tax 
programs. My research suggests that combatting inequality in the U.S. 
tax code requires greater oversight of business tax expenditures and 
should include consideration of the legislative process and who is 
testifying before the tax-writing committees as part of that process.
---------------------------------------------------------------------------
    \10\ Joint Committee on Taxation, JCX-18-21, Overview of the 
Federal Tax System as in Effect For 2021 (2021), available at: https://
www.jct.gov/publications/2021/jcx-18-21/.
    \11\ Joint Committee on Taxation, JCX-23-30, Estimates of Federal 
Tax Expenditures for Fiscal Years 2020-2024 (2020), available at: 
https://www.jct.gov/publications/2020/jcx-23-20/.
---------------------------------------------------------------------------

Conclusion

With the economic devastation triggered by the COVID-19 pandemic and 
its impact on working women, Congress has repeatedly demonstrated a 
willingness to respond to small businesses owners in distress. The 
CARES Act and the American Rescue Plan included several tax provisions 
targeted to help businesses survive despite challenging economic 
conditions. The SFC is to be commended for recognizing the inequities 
that exist in the U.S. tax code and its administration by holding this 
hearing. In addition, Chair Wyden's recent introduction, together with 
Senators. Cardin, Hassan and Cortez Masto, of the Providing Real 
Opportunities for Growth to Rising Entrepreneurs for Sustained Success 
(PROGRESS) Act demonstrates critical leadership and willingness to use 
tax expenditures to tackle existing inequities, including those faced 
by women- and minority-owned firms looking to secure capital to grow 
their businesses. But there is more work to do. Moving forward, the SFC 
should:

    1.  Hold hearings to consider the impact of U.S. tax code's 
business tax expenditures on women- and minority-owned small 
businesses;

    2.  Task the U.S. Government Accountability Office with preparing a 
report detailing recommendations on how Congress can coordinate with 
the U.S. Department of Treasury, IRS, the U.S. Small Business 
Administration and JCT to develop the demographic data needed to 
prepare an assessment of the distribution of existing tax business 
expenditures with respect to women-owned and minority-owned firms. The 
report's recommendations should include discussions of and 
recommendations on protecting taxpayer privacy data;

    3.  Develop voluntary witness disclosure statements for individuals 
testifying before the tax-writing committees. Such statements should 
ask witnesses to volunteer information with respect to their gender, 
race, ethnicity, and veteran status;

    4.  Amend the tax-writing committee rules to require staff to 
include voluntarily-provided demographic data of witnesses testifying 
before the committees in end-of-congress reports and hearing 
transcripts; and

    5.  Charge JCT with including demographic distribution data when 
preparing estimates of business tax expenditures in its annual tax 
expenditure reports.

Combating inequality in the U.S. tax system will require sustained 
commitment by this Committee and holding this hearing is an important 
step. I stand ready to help the Committee with its work. Feel welcome 
to contact me with questions regarding the foregoing.

                                 ______
                                 
            Letter Submitted by Anne-Marie Yarbrough Buzatu
Dear Committee Members,

Imagine you were born in Canada, but moved to Texas as a young person, 
obtained U.S. citizenship and built your family life and career in 
Texas. You love your life in Texas, but there is one BIG catch: you 
have to pay higher Canadian tax rates on your income, often on top of 
the taxes you are already paying in the U.S., for services such as 
Canadian nationalized health care that you never personally benefit 
from. You can't take advantage of U.S. tax programs such as 401K plans 
and education deductions because they are not ``Canadian approved'' 
programs. Furthermore, Texas banks have to report all of your financial 
records to the Canadian tax authorities, and as a result very few banks 
will accept you as a client, so you can't shop around for a better 
mortgage or a higher savings interest rate. Finally, you are 
effectively barred from investing in any kind of mutual funds or 
investment instruments in Texas because they are treated by Canada as 
``offshore'' accounts overseen by the Canadian Financial Crimes Unit, 
with onerous reporting requirements and punitive tax rates. All of this 
because you were born in Canada, and because of your place of origin 
you are treated differently from/more punitively than other Americans--
even those born in other countries. Then imagine that your repeated 
calls to change the system to something more equitable were 
systematically ignored by both Canadian and U.S. authorities. Sound 
unfair? This is the reality I have to contend with every day as a 
``U.S. person'' residing in Switzerland.

I am an American citizen, born and raised in Texas, who has resided in 
Switzerland for more than 15 years, and who has recently obtained Swiss 
citizenship. Because of my status as a ``U.S. person'', I am 
discriminated against in Switzerland, my place of residence and now 
nationality, because of the U.S. practice of taxing ``U.S. persons'' on 
their worldwide income, and the Foreign Account Tax Compliance Act 
(FATCA) and the bilateral agreement that the U.S. negotiated with 
Switzerland in order to enforce FATCA. Furthermore, because I reside 
outside of the U.S., I am discriminated against as compared to my U.S.-
based compatriots and am unable to benefit from a whole host of social 
benefits, tax deductions and banking services. Here are a few examples:

      I am effectively banned from opening an investment account in 
Switzerland, my place of residence and nationality, because financial 
institutions do not want to assume the onerous reporting requirements 
that come with a potential withholding fee of 30%.
      Nearly all banks in Switzerland will not accept me as a client 
for regular banking services for the same reasons, so there is no way 
for me to compare banking services or take advantage of offers that are 
not provided by the one bank that will accept me (UBS).
      Nearly all U.S.-based investment firms and banks will not accept 
me as a client because I am not a resident of the U.S.
      I pay into a retirement fund that is very similar to a 401K 
program, and which provides similar tax advantages in Switzerland 
because I am only taxed on that income when I take it out at 
retirement; but both my and the employer's contributions are taxed by 
the U.S. in the year I earn them meaning I am taxed at a punitive rate.
      I cannot take deductions for my sons' university tuition because 
they schools they go to are not on the U.S. Department of Education's 
Database of Accredited Post Secondary Institutions and Programs (DAPIP) 
\1\ or the Federal Student Loan Program list.\2\
---------------------------------------------------------------------------
    \1\ https://ope.ed.gov/dapip/#/home.
    \2\ https://studentaid.gov/understand-aid/types/international.
---------------------------------------------------------------------------
      I am not able to benefit from a whole host of tax deductions and 
credits that my U.S.-residing compatriots do because I am not a 
resident of the U.S.
      Many IRS services are only available to U.S. residents, meaning 
that they are not available to me as a U.S. person residing abroad.
      Being a ``U.S. person'' has impacted me professionally because 
any Swiss institution I work and have bank signatory rights for would 
have to have their finances reported to the IRS. I have only worked for 
non-profit NGOs in Switzerland.
      In many cases Swiss taxes are assessed in a manner that is 
fundamentally incompatible with the U.S. income tax approach, meaning 
that in some cases I am double-taxed by both systems; the current U.S.-
Swiss tax treaty does not effectively address these inconsistencies 
(see more below).

U.S. taxation on my and my husband's income is disastrous for us, for 
numerous reasons which are laid out in detail in the below submission. 
However, before wading into the weeds, I wanted to put up front my 
recommendations for how to overhaul international taxation so that it 
is fairer and reduces discrimination against folks like myself:

    (1)  Change the system of citizen-based taxation of individuals to 
that of individual taxation on only income earned from U.S. sources, 
and not worldwide taxation, also known as resident-based taxation for 
individuals, the kind of income taxation that most of the rest of the 
world practices (for a relatively simple and fast interim fix to this 
issue by the U.S. Treasury while waiting on lengthier legislative 
processes, please read this article);\3\
---------------------------------------------------------------------------
    \3\ https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3795480&fbclid=IwAR10eXmPraGW3
Wuaa_VgnL7HYObjUBZz3302cglQOsT2rPyxtmy5SS7ibgU.
---------------------------------------------------------------------------
    (2)  Create a special committee that looks at the impacts of U.S. 
taxation on its nationals residing abroad so that any changes made to 
the tax code are reviewed by this body to ensure that our situations 
are taken into consideration, including analyses of how they are 
(in)compatible with the tax systems of the other 190+ countries in 
which U.S. persons live in order to protect against unintended negative 
consequences; and finally
    (3)  To include formal representation of Americans living abroad in 
our representative bodies, as the approximately 9 million of us living 
abroad need a voice. Switzerland and France include seats for their 
citizens residing abroad in their Parliaments, and the U.S. can and 
should do the same.

To understand why I am making these recommendations, please read the 
more personal account below.

I was born and raised in Texas, where I lived most of my life until I 
and my family moved to Switzerland more than 15 years ago. We didn't 
feel we had much choice. In August 2005, my husband was laid off from 
his job in the high-tech sector. We had two young boys aged 4 and 7, 
and I was working as a part-time consultant and a more than full-time 
mom. Once my husband lost his job, we suddenly were faced with 
extremely high health insurance costs (COBRA), significant student loan 
debts and a high monthly rent with no income. My husband applied for 
several jobs and had a few interviews, but the one he got was working 
in IT for the International Computing Center, a UN-affiliated computer 
services organization, located in Geneva, Switzerland.

In Switzerland, I went back to school studying the impact of war and on 
international security and human rights. I subsequently managed to 
carve out a really fulfilling career working for Swiss-based NGOs where 
I strive to limit the negative impacts of businesses on human rights, 
as well as work with the private sector to foster positive change, both 
on the ground as well as in the halls of international policy.

I love the U.S. and have close ties with family members and several 
good friends who live there. Both of my elderly parents are alive, but 
have been experiencing some serious health issues of late. Before the 
pandemic, I typically would visit them at least once a year, and it has 
been tough waiting on the sidelines, hoping that I will be able to see 
them again before too long. It is important to me that I am able to 
visit them, and to be able to spend more time with them should they 
need extra care and support, and more generally I love getting back to 
the U.S. There are definitely things that I miss, like really good Tex-
Mex (!) in an affordable restaurant, infinite sunsets over a West Texas 
sky, and easy, laid-back conversations with good friends and family.

What I do not love is the U.S. taxation of people like me who live, 
work and pay taxes in a completely different tax system, which in many 
areas is completely incompatible with the U.S. tax system. As a matter 
of fact, you could say that the U.S. has three different distinct 
income tax regimes which creates different, unequal classes of 
taxation: 1. Residence--For U.S. residents, 2. U.S. Source--For non-
resident aliens, 3. Extraterritorial--For Americans Abroad. This last 
regime to which I and my family are subject means that we don't get the 
same kinds of deductions and tax credits as our homeland-based 
compatriots. For example: I participate in an employer-contribution 
retirement program which is very similar to U.S. 401K programs: the 
employer matches my contributions, and I do not have to declare the 
employer nor my contributions on my Swiss taxes as they are paid, only 
when I take them out after retirement when I am likely earning much 
less. However, the U.S. taxes me on the employer contributions as well 
as my own contributions to the tax plan in the year that they are paid, 
so I am taxed by the U.S. on money I haven't even received, and likely 
at a higher tax rate than I would be at during retirement. Another 
example: my son is going to a university located in Berlin, Germany, 
however the school is not on the list of U.S. recognized educational 
institutions, so we are unable to deduct his tuition from our taxes.

Furthermore, Swiss income taxes are structured completely differently 
from those of the U.S., and they are in most cases lower than the U.S. 
income tax rates. However, the cost of living in Switzerland is one of 
the highest in the world and is considerably higher than we were paying 
in Texas. People who visit from the U.S. are shocked at the prices in 
the stores and restaurants here, and renting/buying homes is extremely 
expensive. However, because of the relatively high salaries (in Geneva 
we have an approximate $25/hour min. wage) and low taxes, these prices 
are generally affordable to people who work here. Less so for us: as 
``U.S. persons'', because we are unable to take many of the same 
deductions as our homeland compatriots, we essentially have to pay 
higher U.S. taxes than Americans living in the U.S., higher taxes than 
others who live and work in Switzerland and pay the higher Swiss 
prices. And to be very clear, we are not earning very high salaries, 
but rather are at that sour spot of earning just a little more than the 
Foreign Earned Income Exemption (FEIE) once things like our employer 
contributions to pensions and other benefits--much of which we don't 
get in pocket--are taken into account. As such, we pay U.S. taxes at a 
pretty high rate on income that doesn't make it into our bank account 
and given the high cost of living we have here, this means we are 
penalized financially relative to our colleagues who are working 
similar jobs.

Moreover, as U.S. persons residing abroad, we are not able to take 
advantage of many of the tax credits that are available to those living 
in the U.S. For example, in March 2018 we bought a Tesla Model 3 (the 
more affordable Tesla) and were under the impression that we would be 
able to get the $7,500 tax credit to help us offset the still 
significant cost. However, when we did our U.S. taxes, we learned that 
this tax credit was only available to those actually living in the 
U.S., not those living abroad. In a way I understand the rationale: our 
Tesla would not be directly benefiting those living in the U.S. 
(although it is contributing to an overall globally cleaner 
environment), and therefore we should get no incentive from the U.S. to 
buy it. However, by the same logic, we should not be paying taxes in 
the U.S. on income that we do not earn from there, to pay for an 
infrastructure and a Congress that does not directly benefit or 
represent us.

Coming back to the incompatibility between Swiss and U.S. income tax 
systems, this is not just limited to the fact that similar Swiss 
retirement and education tax programs are not recognized by the U.S., 
but also to completely different approaches in the manner of 
calculating income tax. For example, in Geneva the way that taxes are 
assessed in relationship to our townhouse is that the income tax 
authorities tax us on the fictional ``income'' we would have earned if 
we had been renting the house out (which we are not). The way they 
calculate this is very complicated and not fully known to me, but it 
has something to do with the type of property, when the property was 
built, where it is located, and the amount of income that we earn from 
our work (this last element helps to ensure that we will not be priced 
out of our home by property taxes even as property values rise). 
Furthermore, it is something we find out long after the fact of filing 
taxes. For example, for tax year 2020, we will file our Swiss tax 
returns in June of 2021 and we will get the calculation of this 
``income tax on our property'' somewhere in October-November 2021, long 
after our U.S. tax returns are due and interest is being assessed on 
any unpaid amounts. Furthermore, its incompatibility with how U.S. 
assesses income and property taxes makes it really difficult to know 
how to include that in our tax returns. We tried to do it for a couple 
of years, but this did not seem to be accepted by the IRS, and then we 
had to pay additional taxes with penalties and interest. Now we do not 
even try to include these taxes we pay on our U.S. tax return, and so 
we are being double-taxed by both Swiss and U.S. jurisdictions on that 
income.

When it comes to trying to get information, help and guidance from the 
IRS so that we can navigate these difficulties more easily, this is 
also not set up for those of us living abroad. Most of the time when I 
call the IRS, I get a message that the line is too busy and they are 
not accepting calls at that time. Sometimes I have gotten a message 
saying that the estimated wait is between a certain time, such as 7 to 
10 minutes, and then finally hung up after being on hold for more than 
30 minutes. Needless to say, there are no toll-free numbers for U.S. 
persons abroad, so of course we have to pay international long-distance 
rates. However, even many of the IRS online services are not available 
to those of us living outside of the U.S. (see below for an example).

Another problem is that as ``U.S. persons'', nearly ALL banks will 
simply not open an account for us, which has huge implications on, for 
example, shopping for affordable mortgages from local/cantonal banks.

Further, we are effectively banned from investing in any kind of 
stocks, bonds or mutual funds in our country of residence and 
nationality. We are getting older, and we wanted to try to invest in a 
mutual fund here to put aside a little extra money for our golden 
years. However, the only bank we found in Switzerland that would accept 
us as customers had a 250,000 Swiss Francs (about $270,000) minimum 
investment requirement--something that is definitely out of our league! 
Furthermore, we learned that even if we could and did invest in a 
mutual fund here in the country where we live (and now are also 
citizens of), that it would be treated by the U.S. as a ``Passive 
Foreign Investment Company'' and would be taxed at an exorbitant rate.

Discrimination against me as a ``U.S. person'' has also impacted me 
professionally. After I was hired as the COO for a very small, non-
profit Swiss NGO we learned that if I were given signatory rights on 
our organizational bank account, that the financial records of this 
Swiss organization would have to be sent to the IRS. Therefore, I do 
not have these rights, and I can't perform all of the functions of my 
role. This puts me at a disadvantage employment-wise relative to all of 
the qualified candidates who do not have U.S. citizenship.

Furthermore, filing and paying taxes in the U.S. is extremely 
complicated, and 
calculations/corrections made by the IRS are not transparent. We have 
consistently filed and tried to pay our taxes in accordance with the 
rules as we understand them, although the tax code is not exactly 
straight-forward especially for people like us living outside the U.S.. 
Sometimes we get bills years later without any explanation as to why or 
how new calculations were made. For example, we recently got a bill 
from the IRS from 2014 for nearly $8,000(!) This is a lot of money for 
us. I wrote the IRS and asked for an explanation of how they calculated 
this amount more than six years after the fact and got no response 
except for a threatening letter that they are going to levy taxes on 
our assets. I tried to go online to get a transcript of how they 
calculated this tax, however the online service is not available to 
persons who live abroad! There is a phone-in/write-in service to obtain 
tax transcripts, but it only goes back to the previous three years' 
returns. I tried to call anyway and was not able to get through.

I am not against paying taxes, and fully recognize the necessity of 
them. If I were to earn any money from U.S. sources, it would make 
sense that I pay U.S. tax rates under the U.S. tax system, but not that 
I pay Swiss taxes on top of them. If every country taxed because of 
nationality (or even former permanent residence status) with no regard 
to the other nationalities and their accompanying tax systems, the 
impacts would be devastating: many persons here in Geneva have 3, 4 or 
even more nationalities, and having to satisfy the requirements of 
multiple different, incompatible national income tax systems on income 
earned in one country would not be sustainable, nor would it be fair. 
In this respect the U.S. is the only country (outside of Eritrea) that 
taxes on the basis of nationality/permanent residence, but this also 
highlights how incongruent and out of step this practice is with the 
rest of the world, and for its citizens/permanent residents who happen 
to reside in other countries. Every time Congress makes a change to the 
tax code, this directly impacts me and those of us living outside of 
the U.S. who are also subject to other tax code regulations. However, 
these impacts are rarely if ever discussed by members of Congress, and 
certainly not studied in depth as to how they will impact/interact with 
the other 190+ countries' income tax regimes where U.S. persons may be 
living. This results in devastating unintended consequences on ordinary 
folks: if I were rich, or a multinational, I would have the resources 
to figure out how to get around the different tax systems, but I am 
not.

Finally, I cannot express the anger and frustration I feel when I read 
that Amazon and 54 other major U.S. corporations, as recently reported 
in The New York Times,\4\ paid ZERO income taxes on incredible, record-
setting profits in the many billions. How is it that we, a middle-class 
family who hasn't even lived or earned any income in the U.S. for more 
than 15 years, are effectively paying more income taxes than Amazon?
---------------------------------------------------------------------------
    \4\ https://www.nytimes.com/2021/04/02/business/economy/zero-
corporate-tax.html.

---------------------------------------------------------------------------
Therefore, we ask you to:

    (1)  Change the system of citizen-based taxation of individuals to 
that of individual taxation on only income earned from U.S. sources, 
and not worldwide taxation, also known as resident-based taxation for 
individuals, the kind of income taxation that most of the rest of the 
world practices (for a relatively simple and fast interim fix to this 
issue by the U.S. Treasury while waiting on lengthier legislative 
processes, please read this article);\5\
---------------------------------------------------------------------------
    \5\ https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3795480&fbclid=IwAR10eXmPraGW3
Wuaa_VgnL7HYObjUBZz3302cglQOsT2rPyxtmy5SS7ibgU.
---------------------------------------------------------------------------
    (2)  Create a special committee that looks at the impacts of U.S. 
taxation on its nationals residing abroad so that any changes made to 
the tax code are reviewed by this body to ensure that our situations 
are taken into consideration in such regulation and to protect against 
unintended consequences; and finally
    (3)  To include formal representation of Americans living abroad in 
our representative bodies, as the approximately 9 million of us living 
abroad need a voice. Switzerland and France include seats for their 
citizens residing abroad in their Parliaments, and the U.S. can and 
should do the same.

We should not be penalized and discriminated against just because we 
were born in, had American parents or lived a significant time in the 
U.S., and reside in another country. Furthermore, we can be an 
important resource to the U.S.--we can play the role of ``local 
ambassador'' in our countries of residence, helping to bridge 
differences and forge understandings between the U.S. and the countries 
we call home, which is increasingly important in our highly 
interconnected, shrinking world.

As a last note, it is more than somewhat ironic that the U.S. 
ostensibly got its start over a tax dispute with its overseas colonial 
parent, with American revolutionaries crying out the slogan ``no 
taxation without representation,'' launching a war that brought about 
the birth of our nation, and yet it taxes folks like me who earn their 
income completely outside the U.S. system and have no effective 
representation on the U.S.-created impacts we face living abroad. That 
notion of justice, of democratic representation and fair taxation is 
fundamental to the very identity of the United States, and yet somehow 
it is the only developed country that burdens individuals such as 
myself with a tax imposition that does not take into account the 
situations in which we are living, and which prevents us from fully 
participating in the societies of which we are part.

Many have said that you, our representatives, don't care for U.S. 
persons residing abroad, that we don't matter enough in terms of votes 
or funding, that our situations don't play well on media platforms in 
terms of messaging, that we don't have enough pull or importance to get 
any attention. However, I am still hoping that you can care about 
something that is wrong and unfair, even if it isn't politically 
expeditious. In fact, it is my American-bred idealism and pragmatic, 
can-do spirit that make me believe that we can work together to develop 
an income tax system that is fair and not unduly burdensome, and that 
honors those fundamental American values which we all hold dear.

I thank you for your time and attention, and hope that this submission 
will be fully considered by the Committee. I would be happy to provide 
any additional information or support to help you better understand the 
implications of the U.S. income tax system on folks like me who live in 
other countries.
Sincerely,

Anne-Marie Yarbrough Buzatu

                                 ______
                                 
                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Wyden and Ranking Member Crapo, thank you for the opportunity 
to submit these comments for the record to the Committee on this topic.

First, we will review income data by race.

As you know, the IRS does not collect information on race, ethnicity or 
gender when we file taxes. The best we can do is analyze differences in 
income by race, as estimated by the Current Population Survey published 
by the U.S. Census Bureau. From this, we can infer the impact on tax 
collections. To ease presentation, only two categories are used: white 
non-hispanic and other.

There are a total of 128.4 million American households, 8.7 million are 
in the white middle and upper middle classes (top 10%), with 4.5 
million non-whites in the top 10%. There are 76.2 million white and 
39.1 million non-whites in the bottom 90% of households. Here is how 
income is distributed.


----------------------------------------------------------------------------------------------------------------
                                                 Households         Income       Percentages in     Percent of
                                                 (millions)      (trillions)         group            total
----------------------------------------------------------------------------------------------------------------
Total                                                  128.4            $12.6
----------------------------------------------------------------------------------------------------------------
White top 10%                                            8.7             $3.4              38%              27%
----------------------------------------------------------------------------------------------------------------
White next 90%                                          76.2             $5.6              62%              44%
----------------------------------------------------------------------------------------------------------------
Other top 10%                                            4.5             $1.0              29%               8%
----------------------------------------------------------------------------------------------------------------
Other remaining 90%                                     39.1             $2.5              71%              20%
----------------------------------------------------------------------------------------------------------------
All white                                               84.9             $9.0              71%              66%
----------------------------------------------------------------------------------------------------------------
All other                                               43.6             $3.5              28%              34%
----------------------------------------------------------------------------------------------------------------
All top 10%                                             13.2             $4.4              35%
----------------------------------------------------------------------------------------------------------------
All next 90%                                           115.3             $8.1              64%
----------------------------------------------------------------------------------------------------------------


Among Whites, the top 10% of households receive 38% of income within 
the group and 27% of the total population. Among others, the top 10% 
receive 29% within the group and 8% of the total. The top 10% in the 
population receive 35% of income. Whites make up 66% of the population, 
receiving 71% of the income.

Over time, this has led to wealth inequality. This table is excerpted 
from our forthcoming volume on who owns the national debt. For more on 
the topic of debt as class warfare, see the first attachment. Here is 
how assets are broken down by race, as estimated using the 2019 Survey 
of Consumer Finance conducted by the Federal Reserve.

[GRAPHIC] [TIFF OMITTED] T2021.044


.epsThis chart shows the mix between race and class, with all non-
White, non-Hispanics combined into a single class. Understanding this 
table will give you insight into why poor Whites resent minorities and 
why these two groups vote in separate parties.

[GRAPHIC] [TIFF OMITTED] T2021.045


.epsThis chart shows why lower income Whites and non-Whites need to 
find unity.

[GRAPHIC] [TIFF OMITTED] T2021.046


.epsNext, we will turn our attention to current tax policy.

Prior to the American Recovery Plan Act, the tax code was what we 
inherited from the Tax and Job Cuts Act (not a typo) passed in the 
116th Congress. As we detailed at the time, this legislation rewarded 
the speculative sector, including corporations, while simplifying 
personal income tax filings (although sole proprietors may not see it 
that way). The Act was supply side economics run amok. One year after 
these cuts took effect (giving them time to work their way through the 
economy), economic growth was down by approximately one percent of GDP. 
Our analysis of the TCJA can be found in Attachment Two.

In January of 2020, I predicted the failure of mortgage backed 
securities holding single family home rental properties (which have 
been sold to Exchange Traded Funds) and cryptocurrency. The Federal 
Reserve's efforts to back toxic securities due to the pandemic 
prevented Exchange Traded Funds holding ETFs from crashing. The slowing 
in the economy prevented mass sales of crypto to the general public.

The ARPA has its pluses and its minuses. On the minus side, families 
who had adequate income during the pandemic now have money to blow. 
Instead of spending it they are using it to speculate. Masses of people 
are about to enter the bottom half of EFT and Crypto markets, which 
will allow the top tiers of the scheme (whose seed money was provided 
by the Ryan-Brady-Trump tax cuts) to get out.

The increased Child Tax Credit and its new refundability will provide 
long term economic security to children and their parents, especially 
their mothers. For some families, one or the other parent can stay home 
with the children--including the father. When my daughter was born, my 
wife had a career position and I did not, so it was a no-brainer for me 
to stay home to be the nurturing parent. The new provisions will give 
others that chance--especially if credits are expanded to median income 
levels.

The new CTC provisions are good for women and racial and ethnic 
minorities, as well as the White Working Class. Giving everyone a 
better deal will lower the temperature, provided it does not come with 
the ``stink of welfare.''

There are two avenues to distribute money to families. The first is to 
add CTC benefits to unemployment, retirement, educational (TANF and 
college) and disability benefits. The CTC should be high enough to 
replace survivor's benefits for children.

The second is to distribute them with pay through employers. This can 
be done with long term tax reform, but in the interim can be 
accomplished by having employers start increasing wages immediately to 
distribute the credit to workers and their families, allowing them to 
subtract these payments from their quarterly corporate or income tax 
bills.

Over the long-haul, tax reform is necessary to cement these gains. 
Please see our tax reform plan in the third attachment. It is designed 
to provide adequate income and services to families (both with 
increased minimum wages and Child Tax Credits) through employer-paid 
taxes, funding government services through a goods and services tax, 
separating out taxation of capital gains and income from income to an 
asset value added tax and higher tier subtraction VAT collections on 
wage income up to the $330,000 level and above, with additional 
personal income taxation for incomes over $425,000.

The top rates for higher tier subtraction VAT, personal income taxes 
and asset VAT would all be set to the same rate, say 26%, so that forms 
of income are not manipulated to avoid taxation. It would also 
effectively raise taxes on salaried income to 52%, with capital incomes 
reinvested or investments funded by salary income adding an additional 
26% of taxation. Spending money will also trigger taxation.

Adding the effect of lower tier subtraction VAT collection to taxation 
on business owners and the top marginal rate approaches 90%. Such taxes 
are meant to prevent payment of extreme salaries rather than maximizing 
revenue. This provides more wages to the rest of the population, 
especially to those who are not adequately compensated at lower income 
levels.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

Attachment One--Debt as Class Warfare, September 24, 2020

Visibility into how the national debt, held by both the public and the 
government at the household level, sheds light on why Social Security, 
rather than payments for interest on the public debt, are a concern of 
so many sponsored advocacy institutions across the political spectrum.

Direct household attribution exists through direct bond holdings, 
income provided by Social Security payments and secondary financial 
instruments backed with debt assets. Using the Federal Reserve Consumer 
Finance Survey and federal worker and Social Security payment and tax 
information, we have calculated who owes and who owns the national debt 
by income quintile. Federal Reserve and Bank holdings are attributed 
based on household checking and savings account sizes.

Responsibility to repay the debt is attributed based on personal income 
tax collection. Payroll taxes create an asset for the payer, so they 
are not included in the calculation of who owes the debt. Calculations 
based on debt held when our study on the debt was published, 
distributed based on the latest data (2017) from the IRS Data Book show 
a ratio of $16.5 of debt for every dollar of income tax paid.

This table shows a summary level distribution of income, national debt 
and debt assets in three groupings based on share of Adjusted Gross 
Income received, rather than by number of households. This answers the 
perennial question of who is in the middle class.

[GRAPHIC] [TIFF OMITTED] T2021.047


.epsThe bottom 75% of taxpaying units hold few, if any, public debt 
assets in the form of Treasury Bonds or Securities or in accounts 
holding such assets. Their main national debt assets are held on their 
behalf by the Government. They are owed more debt than they owe through 
taxes.

The next highest 20% (the middle class), hold few bonds, a third of 
bond-backed financial assets and a quarter of government held 
retirement assets.

The top 5% (roughly 8.5% of households) own the vast majority of non-
government retirement holdings and collect (and roll over) most net 
interest payments. This stratum owns very little of retirement assets 
held by the government, hence their interest in controlling these 
costs. Their excess liability over assets is mostly attributable to 
internationally held debt. Roughly $4 trillion of this debt is held by 
institutions, with the rest held by individual bond holds, including 
debt held by members of this stratum in off-shore accounts.

Source: Settling (and Squaring) Accounts: Who Really Owes the National 
Debt? Who Owns It? available from Amazon at https://www.amazon.com/dp/
B08FRQFF8S.

Attachment Two--The Tax and Job Cuts Act

The Tax and Job Cuts Act (not a typo) was a classic piece of Austrian 
Economics, where booms are encouraged and busts happen with no 
bailouts. Strong companies and best workers keep jobs and the devil 
takes the hindmost. It is economic Darwinism at its most obvious, but 
there is a safety valve. When tax cuts pass, Congress loses all fiscal 
discipline, the Budget Control Act baseline discipline is (as it should 
be) suspended and deficits grow. Bond purchasers pick up the slack 
caused by the TCJA, which they will as long as we run trade deficits, 
unless the President's economic naivete ruins that for us.

Modern economics has become infected with the idea that higher tax 
rates and lower public spending hurt the economy. By definition, this 
is not the case. The exact opposite is true. To refresh our memories of 
what is in the U.S. Code and most basic economics textbooks, Gross 
Domestic Product equals equal government purchases, consumption from 
government employee, contractor, transfer recipient and second order 
private sector spending, which leads to private sector investment, and 
exports net of imports (which creates a source of funds for debt 
finance).

Anything that is not part of GDP is considered ``savings'' or in 
reality, is asset inflation. If you want to end poverty, give poor 
people and retirees more money and the economy will grow. Increase 
government expenditure (even bombers) and the economy will grow, 
including for the now notorious upper middle class.

Lower tax rates also made money available to chase the same supply of 
investment instruments, which bid up their price, and caused the 
invention of a whole range of new products which would be built up and 
sold by the emerging financial class, who would profit-take and watch 
what they created go bust and start yet another modern recession, 
especially the Great Recession just experienced. Only higher tax rates 
or increased deficit spending control such asset inflation (and the 
consumption cycles associated with them--which Marx thought was the 
driver of the boom bust cycle--Marx had a failure of imagination).

A key part of our proposals is to increase income tax revenue from the 
very wealthy through our income surtax. The higher the marginal tax 
rate goes, the less likely shareholders and CEOs will go after worker 
wages in the guise of productivity while pocketing the gains for 
themselves. Since shareholders usually receive a normal profit through 
dividends, it is the CEO class that gets rich off of workers unless tax 
rates are high enough to dissuade them.

Attachment Three--Tax Reform, Center for Fiscal Equity, March 5, 2021

Individual payroll taxes. These are optional taxes for Old-Age and 
Survivors Insurance after age 60 for widows or 62 for retirees. We say 
optional because the collection of these taxes occurs if an income 
sensitive retirement income is deemed necessary for program acceptance. 
Higher incomes for most seniors would result if an employer 
contribution funded by the Subtraction VAT described below were 
credited on an equal dollar basis to all workers. If employee taxes are 
retained, the ceiling should be lowered to $85,000 to reduce benefits 
paid to wealthier individuals and a $16,000 floor should be established 
so that Earned Income Tax Credits are no longer needed. Subsidies for 
single workers should be abandoned in favor of radically higher minimum 
wages.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $85,000 per 
year, will range from 6.5% to 26%. This tax will fund net interest on 
the debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction. Transferring OASDI employer funding from 
existing payroll taxes would increase the rate but would allow it to 
decline over time. So would peace.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises and inherited assets will be reset, with prior tax payments 
for that asset eliminated so that the seller gets no benefit from them. 
In this perspective, it is the owner's increase in value that is taxed.

As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will 
fund the same spending items as income or S-VAT surtaxes. This tax will 
end Tax Gap issues owed by high income individuals. A 26% rate is 
between the GOP 24% rate (including ACA-SM and Pease surtaxes) and the 
Democratic 28% rate. It's time to quit playing football with tax rates 
to attract side bets.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-battlefield injuries and long term care.
      Employer paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable Child Tax Credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee-ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits). Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Value-Added Tax (C-VAT). A carbon tax with receipt visibility, 
which allows comparison shopping based on carbon content, even if it 
means a more expensive item with lower carbon is purchased. C-VAT would 
also replace fuel taxes. It will fund transportation costs, including 
mass transit, and research into alternative fuels (including fusion). 
This tax would not be border adjustable.

Summary

This plan can be summarized as a list of specific actions:

1.  Increase the standard deduction to workers making salaried income 
of $425,001 and over, shifting business filing to a separate tax on 
employers and eliminating all credits and deductions--starting at 6.5%, 
going up to 26%, in $85,000 brackets.

2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

3.  End personal filing for incomes under $425,000.

4.  Employers distribute the Child Tax Credit with wages as an offset 
to their quarterly tax filing (ending annual filings).

5.  Employers collect and pay lower tier income taxes, starting at 
$85,000 at 6.5%, with an increase to 13% for all salary payments over 
$170,000 going up 6.5% for every $85,000--up to $340,000.

6.  Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes to 
employers, remove caps on employer payroll taxes and credit them to 
workers on an equal dollar basis.

7.  Employer paid taxes could as easily be called a subtraction VAT, 
abolishing corporate income taxes. These should not be zero rated at 
the border.

8.  Expand current state/federal intergovernmental subtraction VAT to a 
full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

9.  Change employee OASI of 6.5% from $18,000 to $85,000 income.

                                 ______
                                 
                  Letter Submitted by Sylvia de Bruin
U.S. Senate
Committee on Finance

I am a proud American citizen who lives outside the United States. To 
be clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States because I had a job opportunity in the 
Netherlands. In fact, am a full tax resident the country where I live. 
But, because I actually live and work in the Netherlands I am required 
to pay taxes and assume responsibility for my financial and retirement 
planning here, where I live. My income, financial and retirement assets 
are foreign to the United States, but are local to me. Because my 
income and financial assets, although local to me, are foreign to the 
United States I am subject to the U.S. Extraterritorial tax regime. As 
such, I am subject to constant stress and fear of penalties should I 
make mistakes in complying with the Internal Revenue Code. Furthermore, 
I find it very difficult to find competent professional help. The help 
I can find is very expensive (often costing more than $500 a year).

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens.

      Punitive Taxation on non-U.S. mutual funds.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my neighbors.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Difficulty in carrying on a business. It is normal for people in 
my country to carry on business through small business corporations--
which are taxed punitively by the IRS (GILTI).

      Having the retirement savings in my corporation effectively 
confiscated by the 965 Transition Tax.

      Being subject to income based on phantom capital gains. (Because 
I am required to live my life tethered to the U.S. dollar, fluctuations 
in the exchange rate can result in unexpected fake income).

To be clear, I am and will always be a proud American. But, I find it 
very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No proud 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning.

It is terribly unfair, that because I live outside the United States, 
that I am forced to choose between my responsibilities to plan for 
retirement and my responsibilities under the Internal Revenue Code. Why 
should I be subject to additional requirements that resident Americans 
are not? I am not living in the United States and using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

A great American writer, the late Pat Conroy, began his book ``The 
Prince of Tides'' with the words: ``My wound is geography. It is also 
my anchorage, my port of call.''

Although, my U.S. citizenship is my anchorage and my port of call. The 
unfair U.S. extraterritorial tax regime--triggered by my geography--is 
most definitely my wound.

Please fix this extreme injustice!

                                 ______
                                 
                Letter Submitted by Christine Dymkowski
I am an American citizen who has lived outside the United States for 
virtually my entire adult life. I am a middle-income individual, who 
did not move from the United States to avoid paying U.S. taxes, but 
because I fell in love with someone British. However, by moving from 
the United States, I am automatically subject to the U.S. 
extraterritorial tax regime, one that imposes more punitive taxation 
and reporting on Americans living abroad than is imposed on American 
residents. This is because the Internal Revenue Code treats all 
financial matters foreign to the United States in a punitive and 
sometimes confiscatory way.

Because I live in Britain, I am required to pay taxes and assume 
responsibility for my financial and retirement planning here, where I 
live. All of my income, financial and retirement assets are foreign to 
the United States, but local to me. However, because I have kept my 
American citizenship, I am subject to the U.S. extraterritorial tax 
regime, making it very difficult for me to live the same kind of life 
that my friends and neighbours live: they are subject to only one tax 
system, whereas I, as a U.S. citizen, am subject to both the U.S. and 
the UK tax systems, which are not compatible. Most attempts at 
responsible financial and retirement planning where I live are 
frustrated by the need to comply with U.S. tax laws. This is clearly 
unfair. My income derives entirely from my previous salary and now my 
pension from the British university in which I worked and on which I 
have paid British taxes (which are higher than the U.S. tax rate). How 
can the United States justify imposing taxation on the non-U.S. income 
and investments of a person who is a tax resident of another country 
and who has not had a financial or economic connection to the United 
States for 45 years?

U.S. treatment of its citizens who live overseas also subjects me to 
constant stress and the fear of penalties should I make even non-wilful 
mistakes in complying with the Internal Revenue Code. IRS rules for 
Americans who live overseas are extremely complex, requiring 
preparation by professionals. I recently filed my 2020 return, on which 
I owed $10.00 (ten dollars). Because I have to account for all my 
``foreign'' (i.e., local to me) investments, the return was about 150 
pages long and cost 1,854 (about $2,500) to prepare, which 
is about 7% of my U.S. taxable income.

There is no other advanced country in the world that imposes this kind 
of extraterritorial taxation, and it is very disheartening that, even 
though American emigrants and emigrant organizations have for many 
years written to and met with Congressional lawmakers about the 
problems that citizenship-based taxation causes us, no one listens. 
When we write about the difficulties we face, our representatives in 
Congress send back replies that bear no relation to our specific points 
and complaints. Because, and only because, I live outside the United 
States, my difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens, and I have had to close 
one savings account with a good interest rate because the bank doesn't 
want to deal with the complexity of reporting to the IRS.

      Confiscatory taxation of non-U.S. mutual funds: the U.S. tax on 
them may exceed the total value of the funds.

      Being subject to U.S. tax based on phantom capital gains. 
Because the IRS requires me to use USD as my functional currency, I am 
subject to ``fake income'' on nothing but changes in the exchange rate: 
investments that actually lose money in real (pound sterling) terms may 
show phantom gains as a result of fluctuating exchange rates.

      Having the United States impose taxes on things that my country 
of residence does not.

      Having a substantial ``tax credit'' from the U.S. because I pay 
much higher taxes in the UK than I would in the U.S., but finding that 
the IRS will not apply this tax credit to, for example, interest paid 
on my UK savings accounts.

      Finding it difficult to cope with the required paperwork and 
records and the online FBAR form as I get older. I sometimes don't 
switch money out of a savings account to get better interest elsewhere 
because I'm afraid I won't keep track, and the IRS imposes draconian 
penalties for even non-wilful mistakes on the FBAR.

As a tax resident of both the United States and the UK, I get the worst 
of both tax systems. How can this be fair? I can't imagine the U.S. 
would take kindly to a foreign country taxing U.S. residents earning 
U.S. dollars and paying U.S. tax, simply because the person had 
retained their original citizenship.

I very much hope to remain a U.S. citizen until I die, as being 
American is part of my identity. However, I am finding it very 
difficult to maintain compliance with both the U.S. Internal Revenue 
Code and UK tax. Because of this dual tax obligation, my responsible 
planning for old age has been for nothing: I invested savings from my 
fully-taxed British salary in a UK government-recommended stocks and 
shares Individual Savings Account (ISA). As I am not a high net worth 
individual, I did not seek any specialist financial advice before doing 
so and consequently did not know that the U.S. would regard the mutual 
funds held in the ISA as PFICs and tax them in what is essentially a 
confiscatory way--U.S. tax will take not just the gains, but the 
principal. As a result, I am being forced to consider whether it is 
possible to retain my U.S. citizenship. No one should be forced to 
choose between their citizenship and the need to engage in responsible 
financial and retirement planning.

It is terribly unfair that I am facing this choice simply because I 
live outside the United States. Why should I be subject to additional 
requirements that resident Americans are not? I am not living in the 
U.S. and using services there. And how can the U.S. be happy, given its 
ideal of fairness and justice for all, to be the only developed country 
in the world to show such cavalier disregard for the well-being of its 
citizens who live overseas?

As I hope I have demonstrated, the U.S. extraterritorial tax system is 
terribly unfair, making my U.S. citizenship my biggest burden as I face 
old age. For many years, both individual Americans and American 
organizations abroad have been attempting to get both Treasury and 
Congress to address these issues. The United States should abandon its 
anomalous extraterritorial tax regime and join the rest of the world in 
adopting a system of residence-based taxation. Please fix this extreme 
injustice and show that you care for ALL Americans, no matter where 
they live.

                                 ______
                                 
                   Letter Submitted by Elizabeth Holt
U.S. Senate
Committee on Finance

To whom it may concern:

I am a proud American citizen who lives outside the United States. To 
be clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States to care for my elderly mother who had 
several health issues and lived alone. Her health trials lasted for 3 
years until the end of her life, after which as Executor of her Estate, 
it was easier to remain in Canada to deal with them. I ended up 
remaining here and retiring, to be near family. In fact, I am a full 
tax resident of the country where I live. But, because I actually live 
in CANADA, I am required to pay taxes and assume responsibility for my 
financial and retirement planning here, where I live. My income, 
financial and retirement assets are foreign to the United States, but 
are local to me. Because my income and financial assets, although local 
to me, are foreign to the United States I am subject to the U.S. 
Extraterritorial tax regime. As such, I am subject to constant stress 
and fear of penalties should I make mistakes in complying with the 
Internal Revenue Code. Furthermore, I find it very difficult to find 
competent professional help. The help I can find is very expensive 
(often costing more than $500 a year).

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens.

      Punitive Taxation on non-U.S. mutual funds.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my neighbors.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Difficulty in carrying on a business. It is normal for people in 
my country to carry on business through small business corporations--
which are taxed punitively by the IRS (GILTI).

      Having the retirement savings in my corporation effectively 
confiscated by the 965 Transition Tax.

      Being subject to income based on phantom capital gains. (Because 
I required to live my life tethered to the U.S. dollar, fluctuations in 
the exchange rate can result in unexpected fake income).

To be clear, I am and will always be a proud American. But, I find it 
very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No proud 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning.

It is terribly unfair, that because I live outside the United States, 
that I am forced to choose between my responsibilities to plan for 
retirement and my responsibilities under the Internal Revenue Code. Why 
should I be subject to additional requirements that resident Americans 
are not? I am not living in the United States and using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

A great American writer, the late Pat Conroy, began his book ``The 
Prince of Tides'' with the words: ``My wound is geography. It is also 
my anchorage, my port of call.''

Although, my U.S. citizenship is my anchorage and my port of call. The 
unfair U.S. extraterritorial tax regime--triggered by my geography--is 
most definitely my wound.

Please fix this extreme injustice!

Thank you,

Elizabeth Holt

                                 ______
                                 
                Letter Submitted by Nicholas Matthew Lee
U.S. Senate
Committee on Finance

Cc: U.S. Representative Madeline Dean (PA 4th District)
    U.S. Senator Bob Casey Jr. (PA)
    U.S. Senator Pat Toomey (PA)

Dear Senators,

I am writing to you as an individual U.S. citizen, concerned about 
inequalities that are created and perpetuated by a lack of empathy, 
understanding, and tolerance for Americans that reside overseas. While 
you may take the position that this is ``yet another expat rights'' 
letter, I can assure you that it is not. Emigrant rights are another 
facet of equality between races and nationalities. Furthermore, some of 
the negative impacts of the U.S. extraterritorial tax regime 
specifically discourage full economic participation by Non-Resident 
Alien spouses of U.S. citizens.

There is abundant literature asserting that the United States subjects 
its overseas citizens to a separate, but more punitive tax system in 
comparison to resident citizens and nonresident aliens. In this 
comment, I will avoid discussing the full extent of this, and I will 
instead focus on specific issues that related to ``mixed'' couples and 
tax ``baggage'' that is likely to only affect immigrants and U.S. 
citizens that are a bit ``foreign.''

 Penalties against U.S. citizens with non-resident alien spouses

Consider two couples, both living outside the United States. One couple 
is ``fully American,'' with both spouses being U.S. citizens. Another 
is a biracial couple, with one being from a foreign land and the other 
being a born-and-raised U.S. citizen.

What is apparent is that the tax code penalizes the mixed couple in 
situations that are viewed with complete unquestioning trust with the 
``full American'' couple. Listing some of these situations out:

      The fully American couple will be ``Married Filing Jointly,'' 
enjoying tax treatment that is largely similar to if they were both 
single. The mixed couple will be forced to have the U.S. citizen spouse 
``Married Filing Separately''--a penalized position with lesser 
deductions and allowances, or they can be ``Married Filing Jointly,'' 
in which case the foreign spouse is excluded from the financial system 
of the country they live in and subject to taxation by a country they 
may have never lived in and whose passport they do not carry.

      There is a limit of $159,000 of tax free property transfers each 
year from one spouse to another if it is a mixed couple, rather than a 
fully American couple.

      While a fully American couple benefits from an unlimited marital 
deduction in the unfortunate event of one spouse dying, the mixed 
couple may encounter estate taxes that the fully American couple is not 
subject to. This is due to the unlimited marital deduction not applying 
to mixed couples.

 Discouraging financial participation by NRA spouses

Because of Community Property rules, there are circumstances in which a 
Nonresident Alien Spouse, even Married Filing Separate, is 
``contaminated'' by U.S. tax status. Due to FATCA, it is not uncommon 
for foreign banks, investment firms, and other financial institutions 
to deny spouses of U.S. persons access to necessary services. At the 
same time, those NRA spouses are denied access to the U.S. financial 
system due to their non-residence.

This is worsened by the Controlled Foreign Corporation and GILTI rules, 
which have created the need for many small businesses to remove 
partners that may have indirect ties through a U.S. spouse, or for 
spouses to rid themselves of a business that became partly owned by 
U.S. persons through community property rules.

 Tax provisions that disproportionately affect immigrants and emigrants

The U.S. tax code takes a distinctly punitive view towards foreign 
retirement accounts that are not subject to the treaty benefits, often 
causing individuals to incur significant accounting and tax costs due 
to IRS 8621 form preparation and the associated PFIC tax regime.

When considering who is likely to hold a foreign pension--immigrants to 
the United States and non-resident U.S. citizens, we see a clear 
pattern. Those who are of a ``foreign race'' are subjected to a 
punitive treatment of illiquid accounts that are owned due to having 
lived and worked in another land. Had they been ``proper'' Americans, 
they would have lived and worked their whole lives in the U.S., where 
accounts would cleanly fit into the Traditional IRA, Roth IRA, 401k 
taxonomy. This punitive treatment lies in the racist assumption that 
there is zero legitimate reason for someone to have foreign finances--
clearly, it must be suspicious and part of an elaborate scheme.

We see similar penalization when considering the Windfall Elimination 
Provision, which may penalize Americans for having lived and worked in 
another country at any point in their lives. Again, a penalty that 
never affects a ``pure'' American that has never resided outside of the 
United States.

A call to action

While these adverse effects of the U.S. tax code are not intended in 
any way that is overtly racist, the reality is that the U.S. tax code 
has a separate and more punitive tax treatment for most situations that 
are ``foreign'' as opposed to ``American.''

These provisions by and large affect immigrants to the U.S., having 
``financial baggage'' from their life before the U.S., and emigrants 
and spouses of emigrants, who are subject to America's unique 
extraterritorial tax code.

The lack of movement on this issue, despite years of pleas for help, 
goes back to the aforementioned undertone. These people aren't really 
American. They're a bit foreign, and we should treat them with 
suspicion, and their issues with apathy.

I urge you to consider the inequality imposed by the tax code's failure 
to consider legitimate reasons for a U.S. person to have foreign 
finances, and to adopt measures to mitigate this.

Alternately, consider adopting Residence Based Taxation like the rest 
of the world, which would eliminate much of the discrimination that the 
tax code inflicts on U.S. citizens and their spouses.

                                 ______
                                 
                  Letter Submitted by David Moskowitz
To: Senate Committee on Finance

I can't tell you how disappointing it is to watch and hear no mention 
of how the tax law impacts citizens living abroad, and how unjust it 
treats us. There is a very clear geographic disparity, which is 
something you need to address.

I am an American citizen, who has lived abroad for more than 20 years. 
I decided to move abroad when I was 25, to see the world and experience 
life outside of the United States. Initially, I lived in Japan for 12 
years, learned the language, and eventually started my own business. In 
2009, I moved to Singapore, got married and started up a few more 
businesses over the years.

I did not move abroad or set up a business abroad to avoid taxes. 
However, the tax laws and other compliance rules are a massive burden. 
After the passage of the TCJA, it is now difficult as an American to 
compete globally, as I am now taxed as if my company was located in and 
selling to people in the U.S. The solution to this is to sell my 
ownership in the business. It's simply not worth the headache and the 
potential tax burden, as I could be taxed for income that I will never 
receive.

The current tax laws also punish citizens living outside of the U.S. 
for investing in retirement plans, ETFs or other investment vehicles in 
their country of resident. I can't effectively save without worrying 
about complex tax and compliance implications such as PFICs.

Foreigners investing the U.S. stock market are treated better than the 
U.S. treats its own citizens abroad. Foreigners pay no U.S. capital 
gains tax on U.S. shares, but I will still owe capital gains in the 
U.S. on any investments in the country which I am actually a resident.

As a homeowner with my wife, from what I understand, when we sell the 
property, although no tax may be due in Singapore, I may owe taxes in 
to the U.S.! Additionally, if the currency rate changes, even if we 
make no gain on the property, I could actually owe money to the U.S. in 
phantom currency gains.

Paying a professional to help navigate this minefield has costs me 
thousands of dollars, with very little in actual tax due to the U.S.

The current tax system is incredibly unfair to American citizens who 
live abroad. The simplest solution is to follow what the rest of the 
world does, residency-based taxation.

Please for once, consider us when creating your new tax policies.

Sincerely,

David Moskowitz

                                 ______
                                 
                   Professional Managers Association

                 700 12th St., NW, Ste. 700, PMB 95968

                          Washington, DC 20005

                              202-793-6262

                    https://www.promanager.org/about

              Statement of Chad Hooper, Executive Director

Dear Chairman Wyden, Ranking Member Crapo, and Members of the 
Committee:

On behalf of the Professional Managers Association--the non-profit 
professional association that has since 1981 represented professional 
managers, management officials, and non-bargaining unit employees at 
the Internal Revenue Service (IRS)--I write to provide a written 
statement for the record for the April 20, 2021 hearing on ``Combating 
Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities.''

We appreciate the Committee for elevating issues of diversity and 
inclusivity within our tax system. As IRS leaders, PMA is committed to 
ensuring our workforce is equipped to maintain the equitable delivery 
of taxpayer services. This means having a workforce that reflects the 
diversity of our nation and the resources to enforce our tax laws at 
all income levels.

I.  Congress must conduct necessary oversight to ensure the IRS 
                    provides leadership opportunities to diverse 
                    populations and is conscious of equity issues 
                    impacting taxpayers.

PMA immediately applauded \1\ President Biden's swift action to rescind 
the last administration's memorandums halting diversity and inclusion 
training. These trainings are critical to the IRS's commitment to being 
an equal opportunity employer and ability to ensure the equitable 
delivery of taxpayer services.
---------------------------------------------------------------------------
    \1\ https://mailchi.mp/7db9647c086b/pma-statement-on-president-
bidens-day-one-action-on-covid-19-diversity-training?e=%5bUNIQID%5d.

Even before the White House memos,\2\ IRS leadership was hesitant to 
offer employees Equity, Diversity, and Inclusivity (EDI) training, 
whether on a voluntary or compulsory basis. PMA has approached 
leadership about introducing EDI trainings based on staff interest. 
Political leadership showed little interest in additional trainings and 
refused to meet with PMA on the issue.
---------------------------------------------------------------------------
    \2\ Training in the Federal Government, M-20-34, Office of 
Management and Budget, September 4, 2020; https://www.whitehouse.gov/
wp-content/uploads/2020/09/M-20-34.pdf; Ending Employee Trainings That 
Use Divisive Propaganda to Undermine the Principle of Fair and Equal 
Treatment for All, M-20-37, Office of Management and Budget, September 
28, 2020; https://www.whitehouse.gov/wp-content/uploads/2020/09/M-20-
37.pdf; Mandatory Review of Employee Training under E.O. 13950, 
September 22, 2020; https://www.chcoc.gov/content/mandatory-review-
employee-training-under-eo-13950-september-22-2020.

Since President Biden's orders restoring EDI trainings, we are grateful 
to the IRS for its work in restoring the IRS curriculum and for using 
---------------------------------------------------------------------------
this as an opportunity to refresh and update its content.

Speaking about difficult issues like racism is not comfortable. It is 
difficult. It does not come naturally. Doing so requires grace and 
understanding that comes from training and experience. PMA has sought 
avenues to address equity and diversity issues within our Association 
and it is with a heavy heart I must admit we have had to expel several 
members due to blatantly racist messages communicated over government 
email.

For example, following a member-wide message on the importance of 
diversity after the death of George Floyd, a white GS-14-equivalent 
frontline manager argued in an email to PMA that ``the first slaved, 
not indentured servants, were white'' and that they had ``read 
firsthand accounts of white men who were put into slavery for life in 
Delaware, Maryland, North Carolina, and Virginia.'' This is the same 
individual who said the Boston Tea Party was a terrorist act and that 
``even today, [they] hate the British.'' Not only is this statement a 
clear EEO violation for reflecting discrimination based on national 
origin, but it highlights a misunderstanding regarding the role and 
impact of slavery by using a few, select stories of white oppression to 
justify the denial of hundreds of years of the legal enslavement, 
disenfranchisement, and segregation imposed on black Americans.

Another Executive Officer within the IRS vocally opposed the 
recognition of Juneteenth in an email to PMA, arguing that recognition 
of this holiday would require the recognition of women's suffrage or 
the Holocaust. ``This could go on and on,'' the Executive cautioned.

The IRS employees who felt it was appropriate to send these hateful 
messages over their official work email for the United States 
Government are in critical roles affecting millions of taxpayers.

This is a documented problem throughout our federal workforce. In 
September 2020, the Merit Systems Protection Board (MSPB) reported, 
``African American and Hispanic employees were less likely to say that 
their agency did a good job of either recruiting or retaining a diverse 
workforce. They were also more likely than White employees to say that 
they had not been treated fairly in terms of career advancement, 
awards, training, performance appraisals, job assignments, discipline, 
and pay. Finally, they were more likely to say that they had been 
denied a job, promotion, pay increase, or other job benefit within the 
past 2 years because they had been discriminated against based on 
race.''

The MSPB described the survey results regarding disparate treatment 
based on race ``strikingly consistent,'' with African American and 
Hispanic employees continually agreeing that people of color within our 
federal workforce are being subjected to higher standard and being 
passed over for supervisory positions.

The IRS workforce has steadily increased in diversity over time. In a 
March 2021 annual report,\3\ the IRS provided the following total 
workforce distribution by racial and ethnic origin and gender for FY 
2020:
---------------------------------------------------------------------------
    \3\ https://www.irs.gov/pub/irs-pdf/p5465.pdf.

      White--49.11%
      Black--28.84%
      Hispanic--14.05%
      Asian--6.53%
      American Indian or Alaska Native--0.83%
      Native Hawaiian or Pacific Islander--0.19%
_______________________________________________________________________
      Male--34.83%
      Female--65.17%

Unfortunately, IRS leadership does not reflect the diversity of its 
workforce. In FY 2020, the IRS reports the following distribution of 
members of the Senior Executive Service (SES) by racial and ethnic 
origin and gender:

      White--65.9%
      Black--23%
      Hispanic--5.8%
      Asian--4.2%
_______________________________________________________________________
      Male--54.4%
      Female--45.6%

Oversight is necessary to ensure IRS leadership is taking an active 
role in addressing barriers to the advancement for women and people of 
color within the Service. The failure to ensure a diverse cadre of 
employees rise to leadership levels has a direct impact on taxpayer 
services.

PMA learned in February 2020 that, despite mandates under both Title VI 
of the Civil Rights Act of 1964 and Executive Order 13166 \4\ 
prohibiting discrimination based on national origin and requiring 
federal agencies to provide individuals with limited English 
proficiency ``meaningful access to program benefits and services 
conducted or funded by the federal government,'' as well as the reality 
that over 67 million American have a primary language other than 
English in their home, the IRS was neglecting to provide multi-lingual 
telephone support to domestic taxpayers. Instead, according to the EDI 
office's own admission to PMA, the IRS was engaging in civil rights 
settlements with these individuals, allowing the Service to quietly 
continue failing to provide equal access to taxpayer services.
---------------------------------------------------------------------------
    \4\ https://www.justice.gov/crt/executive-order-13166.

It was likely no single ``racist'' individual's decision to fail to 
provide non-English speaking Americans with taxpayer assistance 
services. Rather, an unconscious bias toward English speakers and a 
lack of diverse voices at the Service's decision-
making tables allowed this inequity to exist. Thankfully, and to the 
Service's credit, this issue has been addressed and the IRS now 
provides multi-lingual telephone support for domestic taxpayers as 
---------------------------------------------------------------------------
required by law.

This example demonstrates that positive and rapid change is possible 
when pressure is placed on leadership to elevate issues of diversity 
and equity. It also illustrates the necessity of ensuring diverse 
voices are heard within the IRS and each IRS leader is trained in 
diversity, equity, inclusion, and accessibility issues.

II.  Congress must ensure the IRS is equipped with the resources and 
                    mission clarity to equally enforce our tax laws 
                    against all violators at any income levels.

PMA appreciates several members of the Committee for identifying the 
manner in which resource constraints impact equity issues within the 
Service. We echo the sentiments of several witnesses emphasizing the 
need for greater enforcement funding to rectify racially discriminatory 
audit rates. We do not support the IRS being tasked with collecting 
race-related data in addition to the agency's current work. Instead, 
PMA supports increased access for the IRS to existing datasets 
collected by other agencies. For example, the IRS can sort its 
enforcement data by ZIP code or Census tract to root out racial 
disparities in its actions. By leveraging information already in the 
hands of our federal government, we can be sure that the data are 
accurate, collected in an efficient manner, and avoid duplication of 
work across the Executive branch.

In the last decade, \5\ the IRS has lost over 20,000 full-time 
equivalent positions and had its funding slashed by over $2 billion. 
These cuts have dramatically diminished \6\ enforcement capabilities 
within the IRS, according to the Congressional Budget Office (CBO).
---------------------------------------------------------------------------
    \5\ https://www.irs.gov/statistics/irs-budget-and-workforce.
    \6\ https://www.cbo.gov/system/files/2020-07/56422-CBO-IRS-
enforcement.pdf.

The result is that IRS employees, with limited resources and support, 
audit taxpayers with simpler, easier to audit returns. These taxpayers 
tend to be low income and tend to receive the Earned Income Tax Credit 
(EITC). They also tend to be people of color. Meanwhile, high-income 
earners with complex tax returns are infrequently audited due to a lack 
---------------------------------------------------------------------------
of time and resources.

While the IRS does sponsor a program to provide free legal assistance 
to low-income taxpayers, in Mississippi, the state with the highest 
audit rate in the country, ProPublica \7\ discovered in 2019 that there 
was only one attorney for the program in the entire state.
---------------------------------------------------------------------------
    \7\ https://projects.propublica.org/graphics/eitc-audit.

This legal assistance program is just one example of a well-intentioned 
program meant to assist those in need that has failed its taxpayers due 
---------------------------------------------------------------------------
to a lack of funding and oversight by Congress.

Adequately funding the enforcement functions of the IRS will allow the 
Service to refocus efforts on those most negatively impacting our tax 
system. Economic analysis published in November 2020 \8\ reflects that 
investing $100 billion over the next decade in IRS technology, data, 
and personnel would allow the agency to collect up to $1.4 trillion in 
unpaid tax revenue. Funding the IRS is both equitable and efficient.
---------------------------------------------------------------------------
    \8\ https://www.taxnotes.com/featured-analysis/shrinking-tax-gap-
comprehensive-approach/2020/11/25/2d7ht.
---------------------------------------------------------------------------

III. Conclusion

It is our hope you can understand that racism is a real and true 
problem within the civil service, both on an individual and systemic 
level. Black, indigenous, and/or people of color (BIPOC) managers and 
BIPOC candidates to join the Senior Executive Service have approached 
PMA as an anonymous group to share their stories of discrimination. 
Many are too afraid for their careers to make formal reports.

PMA feels it is necessary for Congress to provide oversight on internal 
equity issues and ensure the IRS is taking an active role in 
diversifying its leadership ranks. In the event of continued leadership 
resistance to offering voluntary or compulsory anti-racist leadership 
and anti-bias training, we encourage Congress to act so all employees 
have the opportunity to be trained on EDI issues. Congress must also 
appropriately fund the IRS to allow the Service to rectify longstanding 
inequities in our practices and refocus enforcement efforts as 
necessary.

Thank you for your consideration of PMA's views on this critical topic. 
Please do not hesitate to contact PMA's Washington Representative Jason 
Briefel ([email protected]) if the association can be of any 
assistance to you on this matter.

Sincerely,

Chad Hooper
Executive Director
Professional Managers Association
                             Public Citizen

                      215 Pennsylvania Avenue, SE

                          Washington, DC 20003

                              202-546-4996

                        https://www.citizen.org/

May 4, 2021

U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Re: Hearing on ``Combating Inequality: The Tax Code and Racial, Ethnic, 
and Gender Disparities''

Chairman Wyden, Ranking Member Crapo and Honorable Committee Members:

On behalf of more than 500,000 members and supporters of Public Citizen 
nationwide, we thank you for holding this timely session and 
respectfully offer the following comments to the record for the hearing 
entitled ``Combating Inequality: The Tax Code and Racial, Ethnic, and 
Gender Disparities.''

During a global pandemic when many Americans are enduring mass 
suffering--hundreds of thousands of deaths, millions of jobs lost, and 
shuttered businesses across the nation--the very rich, Wall Street and 
some corporations' financial health is better than ever. What's more, 
the collective wealth of billionaires increased by $1.6 trillion \1\ 
since March 2020--the start of the pandemic. This basic unfairness is 
deepened when looked at through the lens of racial injustice.
---------------------------------------------------------------------------
    \1\ Chuck Collins, Inequality.Org, Updates: Billionaire Wealth, 
U.S. Job Losses and Pandemic Profiteers (April 2021), https://
tinyurl.com/32wyvzyk.

The ramifications of racial inequality are deeply embedded in our 
nation's fabric and can be traced to early origins of this country's 
inception. Slaves forcibly transported against their will from Africa 
served as collateral for the nation's first mortgages and literally and 
figuratively laid the building blocks for what is known as ``Wall 
Street'' and the global financial market at large.\2\ And, the first 
bond market was backed by Black enslaved human beings.\3\ The U.S. must 
confront this unconscionable underpinning of our financial system.
---------------------------------------------------------------------------
    \2\ Pedro Nicolaci da Costa, ``America's First Bond Market Was 
Backed By Enslaved Human Beings,'' Forbes (September 1, 2019), https://
tinyurl.com/ffxx3w65.
    \3\ Id.

Furthermore, due to years of discriminatory policies that upheld 
systemic racism, the wealth of white families is ten times that of 
Black families--the wealth of white families is on average around 
$171,000, while the wealth of a typical Black family is only 
$17,150.\4\ Factors such as redlining, mass incarceration, decline in 
union jobs, and racially-biased employment practices have denied many 
African Americans access to the ``American Dream.''
---------------------------------------------------------------------------
    \4\ Jenice R. Robinson, ``Institute on Taxation and Economic Policy 
Report, Adequately Funding the IRS Would Be One Small Step Toward 
Racial Equity in the Tax Code'' (July 2021), https://tinyurl.com/
9fv67bdv.

Moreover, studies show that racial inequality is manifested in our tax 
code.\5\ For example, because wealthy families are disproportionately 
white, and a large portion of the giveaways in the 2017 tax law went to 
the wealthy, according to a study from Prosperity Now and the Institute 
on Taxation and Economic Policy, of the nearly $275 billion of 
giveaways in the 2017 tax law, around 80% ($218 billion) went to white 
households.
---------------------------------------------------------------------------
    \5\ Dorothy Brown, The Whiteness of Wealth: How the Tax System 
Impoverishes Black Americans--And How We Can Fix It (Penguin Random 
House 2021).

Unfortunately, the racial inequities around Wall Street trading 
persist. Around half of the population owns no stock market wealth at 
all, even indirectly. And among households of color, the share is even 
smaller. As a result of public policies that systematically excluded 
Black, Latinx, and other families of color from wealth-building 
opportunities that benefit white families, only around one third of 
Black and one quarter of Latinx families owned any stock at all in 
2019.\6\
---------------------------------------------------------------------------
    \6\ Neil Bhutta et al, ``Disparities in Wealth by Race and 
Ethnicity in the 2019 Survey of Consumer Finances'', Board of Governors 
of the Federal Reserve, FEDS Notes, September 28, 2020, https://bit.ly/
32hwAnD.

IRS enforcement is another way that racial inequities are felt in the 
tax code. The wealthy are responsible for 70% of the underreporting in 
taxable income yet we see the IRS auditing lower income Americans at 
the about same level as the top 1%.\7\ It is particularly galling that 
areas with the high-audit rate in majority-Black communities.\8\
---------------------------------------------------------------------------
    \7\ Paul Kiel, ``It's Getting Worse: The IRS Now Audits Poor 
Americans at About the Same Rate as the Top 1%,'' ProPublica (May 30, 
2019), https://tinyurl.com/ns8pb8bv.
    \8\ Paul Kiel and Hannah Fresques, ``Where in the U.S. Are You Most 
Likely to Be Audited by the IRS?'', ProPublica (April 1, 2019) https://
bit.ly/3vKn7lh.

To address these racial inequities in the implementation of our tax 
code, we suggest policies that will require the wealthy, Wall Street, 
and profitable corporations to pay their fair share. Increasing the 
corporate tax rate, the top rate on individuals and pursuing a 
Millionaires Surtax or Ultra-Millionaire Tax along with policies that 
address accumulations of wealth (such as a strengthened estate tax and 
ending stepped-up basis for wealth gains that accrue over time) will 
help ensure that wealthy families, that are predominately made up of 
white individuals, will pay more of their fair share. Similarly, a tax 
on financial transactions such as stock, bond, and derivative trades 
would help address the inequities in ownership of stock wealth by race. 
And, tax cheats must be made to follow the law. We urge Congress to not 
only increase mandatory and discretionary funding for the IRS, but also 
to set audit levels in law that would require significant increases in 
the percentages of large corporations and the wealthy that would be 
---------------------------------------------------------------------------
audited.

Public Citizen looks forward to working with the committee to enact 
policies that unrig our tax code and reinvest in all American 
communities to create a fairer society.

Thank you for the opportunity to submit this statement for the record. 
For questions, please email [email protected] or 
[email protected].

Sincerely,

Susan Harley
Managing Director
Public Citizen's Congress Watch division

Robert L. Stewart
Tax and Disclosure Advocate
Public Citizen's Congress Watch division

                                 ______
                                 
             Stop Extraterritorial American Taxation (SEAT)

                          3 impasse Beausejour

                         78600 Le Mesnil le Roi

                                 France

                         http://www.seatnow.org

                            [email protected]

U.S. Senate
Committee on Finance

                                                     April 29, 2021

Please accept this as our submission with respect to the subject of the 
April 20, 2021 Senate Finance Committee Hearing: ``Combating 
Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities.''

The title to this hearing acknowledges that the United States Tax Code 
has different impacts upon different people based upon race, ethnicity, 
and gender. This list, however, leaves out at least one additional 
critical factor. Senator Crapo himself refers to that factor in his 
statement: geography.

Senator Crapo is correct: the tax code (sometimes by accident and 
sometimes by design) does lead to differing impacts based on where an 
individual--who is a citizen or resident of the United States--lives. 
Generally, the United States has one tax system for U.S. citizens who 
live inside the geographical borders of the United States. The United 
States operates a separate and more punitive ``Extraterritorial Tax 
System'' for U.S. citizens (and Green Card holders) living outside the 
geographical borders of the United States.

The ``Extraterritorial Tax System'' is not a secret: it has been 
explained well by a multitude of observers.\1\ This punitive regime 
affects persons of all races (including African-Americans \2\), 
genders, and ages. Its sole factor for discrimination is geography--the 
mere fact of living outside the United States coupled with having 
income, assets and/or financial accounts outside the United States.
---------------------------------------------------------------------------
    \1\ An Act to provide for reconciliation pursuant to titles II and 
V of the concurrent resolution on the budget for fiscal year 2018, Pub. 
L. 115-97. Known colloquially as The Tax Cuts and Jobs Act (TCJA).
    \2\ Laura Snyder, ``Taxing the American Emigrant,'' 74 Tax Law. 
299, 313-17 (2021), available at SSRN: https://ssrn.com/
abstract=3795480.

When U.S. citizens move from the United States and become tax residents 
of another country, they are subject to a U.S. tax regime that is more 
complex, punitive and penalty laden than are U.S. residents. To 
compound matters, the taxation of Americans abroad varies depending on 
where they actually live. For example, U.S. citizens living in Canada 
are subject to a different set of U.S. tax rules than U.S. citizens 
---------------------------------------------------------------------------
living in Israel.

Indeed, the Senate Finance Committee recognized this problem at least 
as early as 2015. That is when the Senate Finance Committee Bipartisan 
Tax Working Group \3\ on International Tax concluded their report with 
the following paragraphs:
---------------------------------------------------------------------------
    \3\ https://www.finance.senate.gov/chairmans-news/finance-
committee-bipartisan-tax-working-group-reports.

        According to working group submissions, there are currently 7.6 
        million American citizens living outside of the United States. 
        Of the 347 submissions made to the international working group, 
        nearly three-quarters dealt with the international taxation of 
        individuals, mainly focusing on citizenship-based taxation, the 
        Foreign Account Tax Compliance Act (FATCA), and the Report of 
---------------------------------------------------------------------------
        Foreign Bank and Financial Accounts (FBAR).

        While the co-chairs were not able to produce a comprehensive 
        plan to overhaul the taxation of individual Americans living 
        overseas within the time-constraints placed on the working 
        group, the co-chairs urge the Chairman and Ranking Member to 
        carefully consider the concerns articulated in the submissions 
        moving forward.

Six years have passed and there is still no movement on overhauling the 
taxation of individual Americans living overseas, in spite of the clear 
directive from the International Tax Working Group. In fact, the 
situation for Americans abroad has gotten far worse. This is due in 
large part to the enhancements to the Subpart F regime in TCJA.\1\ We 
informed the Senate Finance Committee in that regard in our submission 
dated April 22, 2021, available here.\4\
---------------------------------------------------------------------------
    \4\ http://seatnow.org/wp-content/uploads/2021/04/SEAT-Submission-
Overhauling-International-Taxation.pdf.

As stated above, Senator Crapo was correct in acknowledging that the 
U.S. tax code leads to differing impacts across geography. Further, he 
was also correct to point this out together with the other factors of 
race, gender, and age. This is because Americans living overseas are 
the victims of prejudice--and the victims of prejudicial taxation 
policies--in a manner that is closely akin to the prejudice--and 
prejudicial policies--to which many other Americans are victim as a 
result of racism, sexism, and ageism. Researchers refer to this 
prejudice with a variety of names, including ``placism,'' as well as 
``prejudice of place,'' ``blemish of place,'' ``spatial taint,'' 
---------------------------------------------------------------------------
``stigma of place,'' and ``territorial stigmatization.''\2\

Former Senator Max Baucus--one of Senator Wyden's predecessors as Chair 
of the Senate Finance Committee--was not immune to this prejudice. In 
1995, he stated:

        [Americans] are going to great lengths, thousands of miles to 
        other countries, to avoid paying their fair share. In a 
        metaphorical sense, burning the flag, giving up what should be 
        their most sacred possession, their American citizenship, to 
        find a tax loophole. . . . These are precisely the sort of 
        greedy, unpatriotic people that FDR called malefactors of great 
        wealth. . . . Let us not allow more of these rich freeloaders 
        to get away.\5\
---------------------------------------------------------------------------
    \5\ 3 Senate Committee on Finance, Tax Treatment of Expatriated 
Citizens: Hearing on S. 453, S. 700, H.R. 831, H.R. 981, H.R. 1535 and 
H.R. 1812, 104th Cong. 2 (July 11, 1995), https://
www.finance.senate.gov/imo/media/doc/Hrg104-795.pdf [https://perma.cc/
7LDH-XW26] (statement of Sen. Max Baucus).

This comment, alongside many others expressed by other members of the 
United States Congress dating back to the Civil War right up to 
today,\6\ expose longstanding and deep-seated prejudices against 
Americans who live outside the United States. Is it any wonder that 
these prejudices have been translated into extraterritorial taxation 
and banking policies that are highly damaging to Americans and green 
card holders living outside the United States?
---------------------------------------------------------------------------
    \6\ Laura Snyder, ``Taxing the American Emigrant,'' at 317-20.

It is well past the time that the Senate Finance Committee act upon the 
call of the 2015 Senate Finance Committee Bipartisan Tax Working Group 
on International Tax, and finally accord to Americans living outside 
the United States the full attention, concern, and respect to which 
they are entitled as U.S. citizens. It is also well past time to put an 
end to the taxation and banking policies that penalize them so 
---------------------------------------------------------------------------
severely.

The best solution to this problem is for the United States to come into 
alignment with every other developed nation on the planet and move to a 
residence-based taxation system for individuals. Taxing non-resident 
citizens is ``Mission Impossible,'' as it is impossible to fairly 
administer an extraterritorial tax system and afford non-resident U.S. 
citizens the rights guaranteed by the Taxpayer Bill of Rights (IRC 
Sec. 7803(a)(3)), by multiple human rights instruments and by the U.S. 
Constitution.\7\
---------------------------------------------------------------------------
    \7\ Laura Snyder, Karen Alpert, and John Richardson, ``Mission 
Impossible: Extraterritorial Taxation and the IRS,'' 170 Tax Notes 
Federal 1827 (March 22, 2021), available at SSRN: https://ssrn.com/
abstract=3828673.

---------------------------------------------------------------------------
Thank you for your attention to these matters.

Respectfully submitted by:

Stop Extraterritorial American Taxation (SEAT) Board Members (info@
seatnow.org):

Dr. Laura Snyder (President)
Dr. Karen Alpert
Suzanne Herman
David Johnstone
Keith Redmond
John Richardson

                                 ______
                                 
                   Letter Submitted by Ronald Walther
U.S. Senate
Committee on Finance

I am a proud American citizen who lives outside the United States. To 
be clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States because my parents returned to their 
homeland. In fact, am a full tax resident the country where I live. 
But, because I actually live and work in Germany. I am required to pay 
taxes and assume responsibility for my financial and retirement 
planning here, where I live. My income, financial and retirement assets 
are foreign to the United States, but are local to me. Because my 
income and financial assets, although local to me, are foreign to the 
United States I am subject to the U.S. Extraterritorial tax regime. As 
such, I am subject to constant stress and fear of penalties should I 
make mistakes in complying with the Internal Revenue Code. Furthermore, 
I find it very difficult to find competent professional help. The help 
I can find is very expensive (often costing more than $500 a year).

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:

          FATCA has provided incentives for banks in my 
country to refuse to deal with U.S. citizens.

      Punitive Taxation on non-U.S. mutual funds.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my neighbours.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Difficulty in carrying on a business. It is normal for people in 
my country to carry on business through small business corporations--
which are taxed punitively by the IRS (GILTI).

      Having the retirement savings in my corporation effectively 
confiscated by the 965 Transition Tax.

      Being subject to income based on phantom capital gains. (Because 
I am required to live my life tethered to the U.S. dollar, fluctuations 
in the exchange rate can result in unexpected fake income).

To be clear, I am and will always be a proud American. But, I find it 
very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No proud 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning.

It is terribly unfair, that because I live outside the United States, 
that I am forced to choose between my responsibilities to plan for 
retirement and my responsibilities under the Internal Revenue Code. Why 
should I be subject to additional requirements that resident Americans 
are not? I am not living in the United States and using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

A great American writer, the late Pat Conroy, began his book ``The 
Prince of Tides'' with the words: ``My wound is geography. It is also 
my anchorage, my port of call.''

Although, my U.S. citizenship is my anchorage and my port of call. The 
unfair U.S. extraterritorial tax regime--triggered by my geography--is 
most definitely my wound.

Please fix this extreme injustice!

                                 ______
                                 
                 Letter Submitted by Susan P. Williams
U.S. Senate
Committee on Finance

I am a proud American citizen who lives outside the United States. To 
be clear: I am an individual. I am not a corporation. I am not a 
multinational. I did not move from the United States to avoid paying 
U.S. taxes. But, by moving from the United States, I am automatically 
subject to the U.S. Extraterritorial tax regime--a regime that imposes 
more punitive taxation and reporting on Americans living abroad--than 
is imposed on American residents. This is because the Internal Revenue 
Code treats all things foreign to the United States punitively.

I moved from the United States because I fell in love with a Welshman. 
We married and settled in Wales in 1981. I am a full tax resident in 
the UK, the country where I live. Because I have lived and worked in 
the UK for 40 years, I have been required to pay taxes and assume 
responsibility for my financial and retirement planning here, where I 
live. My income, financial and retirement assets are foreign to the 
United States, but are local to me. Because my income and financial 
assets, although local to me, are foreign to the United States I am 
subject to the U.S. Extraterritorial tax regime. As such, I am subject 
to constant stress and fear of penalties should I make mistakes in 
complying with the Internal Revenue Code. Furthermore, I find it very 
difficult to find competent professional help. The help I can find is 
very expensive and I am living on a modest retirement pension. The last 
time I had assistance to complete my tax return was in 2018 and the 
cost was =1,000 (approx. $1,450). As my annual income is only =18,000 
this represents a huge portion of my income, and I have not been able 
to afford assistance since that time.

I know that you will find it difficult to relate to this. However, 
because and only because, I live outside the United States, my 
difficulties include the following:

      Difficulty in maintaining bank/financial accounts where I live:
          FATCA has provided incentives for banks in my 
country to refuse to deal with US citizens. I live in fear that I will 
lose banking services here where I live.

      Punitive Taxation on non-US mutual funds. I have made 
investments in Mutual funds here in the UK, where I live, as many 
people do. I did this years ago, and have since discovered I will have 
to forfeit much of their value when I cash them in. My American 
relatives who live in the United States also have Mutual Funds but are 
not subject to the awful PFIC rules.

      Being able to participate in non-U.S. pensions and still get the 
benefits of tax deferral available to my American relatives residing in 
the United States.

      Taxation on the sale of my principal residence which is not 
taxed in the country where I live.

      Being subject to income based on phantom capital gains. (Because 
I am required to live my life tethered to the U.S. dollar, fluctuations 
in the exchange rate can result in unexpected fake income)

      The inability to have a bank account in the United States. This 
is denied to people who do not live in the United States.

      The inability to open an IRS account--this cannot be done 
without a cell phone registered to a U.S. address. As I live in the UK 
I do not have a U.S. address.

      The inability to receive payments from the IRS into my bank 
account. This is because the IRS will not make payments to ``foreign'' 
bank accounts, and, as stated above, I am unable to open a U.S. bank 
account.

      The inability to open a U.S. social security online account. 
This is not possible when living outside of the United States.

      The ability to contact the IRS by phone without incurring a 
large phone bill. There is no toll-number available to people 
telephoning from outside the United States.

To be clear, I am and will always be a proud American. But, I find it 
very difficult to maintain compliance with both the U.S. Internal 
Revenue Code and the tax code of my country of residence. Because of 
this dual tax obligation, I am finding it very difficult to save and 
invest for retirement. What one country gives, the other country takes. 
The necessity of complying with both tax regimes means that I get the 
worst of each tax regime. As a result, I feel that I am being forced to 
consider whether it is possible to retain my U.S. citizenship. No proud 
American should be forced to choose between his cherished U.S. 
citizenship and the need to engage in responsible financial/retirement 
planning. It makes me feel quite sick to consider giving up my U.S. 
nationality, but if things go much further my hand will be forced. How 
can anyone function if banking services are denied to them?

It is terribly unfair, that because I live outside the United States, 
that I am forced to choose between my responsibilities to plan for 
retirement and my responsibilities under the Internal Revenue Code. Why 
should I be subject to additional requirements that resident Americans 
are not? I am not living in the United States and using services in the 
United States. I have even been denied a COVID-19 vaccine from the U.S. 
Government (because I don't live in the United States) while being 
required to pay taxes to the United States!

The U.S. Extraterritorial tax system is terribly unfair.

Many people take the view that I have ``chosen'' to live outside the 
USA and so should bear the consequences. Actually, I am in a ``mixed 
marriage'' and if my husband I choose to live together, then at least 
one of us must live in a ``foreign'' country. In my case, it is me!

Please help!

Susan P. Williams

                                 ______
                                 
                  Letter Submitted by Genelle Windsor
      CBT (Citizen Based taxation) The U.S. requires that its citizens 
fill out tax returns and pay tax if they live outside of the U.S.

      Americans living outside of the U.S. are required to fill in tax 
returns and FBAR financial reporting.

      FATCA is introduced to require banks outside of the U.S. to 
report the bank details of accounts held by Americans. This includes 
Americans who are residents and tax payers in countries outside of the 
U.S.

      The banks are fined if they do not report on accounts of 
Americans or if they report incorrectly.

      The banks outside of the U.S. decide that they do not want to 
pay large fines for mistakes in reporting.

      Banks close accounts of Americans and do not accept Americans as 
new customers.

      Conclusion: Americans who are law-abiding tax-paying residents 
of countries outside the U.S. cannot open bank accounts with many banks 
and their accounts that they have had for a long time can be closed at 
any time.

This is descrimination against all Americans who choose to live outside 
of the United States. The United States should adopt an RBT (Residency 
Based Taxation) like most of the countries in the world. Taxes are 
levied for goods and services. Americans living outside of the U.S. pay 
taxes where they reside and receive goods and services. Americans 
living outside of the U.S. can pay taxes to the U.S., but not receive 
any goods or services because they don't live in the U.S. The laws are 
designed to get large corporations to pay tax in the country where they 
do business. Individuals U.S. citizens get caught up in the law and end 
up having their bank accounts closed because of it. Please change the 
law so that Americans living outside of the U.S. do not have to fear 
that their bank will close their accounts and then they would have no 
way of paying their taxes in the country where they reside.

                                  [all]