A half century ago, Treasury Assistant Secretary Surrey warned that tax expenditures threatened unmonitored access to the “back door” of the US Treasury. Such withdrawals served as entitlements to the wealthy and powerful.

Among the hundred tax expenditures today, a dozen account for the majority of the drain on the Treasury as they cost over $1 trillion annually. Each is designed to target their generosity to the already affluent and thereby accelerate the concentration of wealth.

In large part due to our past federal policies that overtly targeted their benefits to White households and their posterity, White Americans are the disproportionate beneficiaries of these policies. As such, these twelve tax deductions funnel most of their benefits to White households.

Since 1989, White household wealth has increased by more than $100 trillion. Since that time, these tax expenditures have assisted White households by nearly $20 trillion in reduced tax payments. Assuming these transfers were invested and earned a modest 3 percent real rate of return, then they would total $40 trillion in 2022. Assuming the funds were deposited in an S&P 500 index fund and simply held until 2022, then they would account for nearly $60 trillion of that increase.

Many cultures share the truism of shirtsleeves to shirtsleeves in three generations, indicating the challenges that family dynasties face in retaining massive wealth across several generations. The Mars family, famous for M&Ms and other candies, offer a contemporary “success” story.

The federal estate, gift, and generation-skipping transfer (GST) taxes are designed to tax larger wealth transfers from one generation to another. This chapter explains how each works and assesses their effectiveness.

These taxes generate $30 billion annually, or less than 1 percent of federal revenues. Recent increases in exemption levels – to over $13 million and double that for married couples – mean very few decedents actually pay these taxes. In effect, these progressively designed taxes affect only the extremely rich.

The prime beneficiaries of this leaky tax system are White households. In 2022, they reported receiving 93 percent of all bequests and gifts. This is despite the fact that Black households give in greater numbers and attach a higher value to leaving a legacy than do White households.

Due to state laws that undermine the rule against perpetuities, the uber rich can now create dynasty trusts that protect their trust assets while assuring that future generations will reap large incomes.

Just three years after the passage of the federal income tax, Congress enacted the federal estate tax. Instrumental in its passage were Sen. Furnifold Simmons (D-NC) and Rep. Claude Kitchin (D-NC). Both had represented the Second Congressional District, known as the Black Second. Both orchestrated the infamous 1898 election that effectively ended Black voting in North Carolina for sixty years. One cannot ignore this connection.

Amidst the Great Depression, Congress reprised the federal gift tax and stiffened the estate tax in a desperate search for tax revenues. Over the next forty years, the two taxes functioned relatively effectively at taxing intergenerational wealth transfers, raising revenue, and limiting the concentration of wealth. Although loopholes remained unchecked, the top tax rate stayed at 70 percent for decades.

Over the past half century, one that accords with the post-Civil Rights period, Congress has continually and relentless dismantled the wealth transfer tax system. Since 1976, real household wealth has tripled while the rate of filers, real taxable estates, and real collected taxes have all declined.

This dismantling will assure that more of the wealth received from the past will get transferred to advantage mostly Whites in the future, thereby cementing White supremacy.

Since its inception, the federal government sought to “secure the blessings of liberty for ourselves and our posterity.” The constitutional protections for slaveholders and the subsequent ban on the international enslaved trade are evidence of this impulse. A further example are the homesteading laws that targeted Whites alone. During the nineteenth century, cheap land and enslaved wealth brought economic security, at minimum, and immense wealth, at maximum, to millions of White Americans. Most were able to leverage this advantage and offer their children expanded educational and occupational opportunities.

In the twentieth century, education and homeownership took on increased importance as the USA became more industrial and urban. While Supreme Court rulings like Cumming v. Richmond County concluded that school districts need not provide secondary education to non-Whites, there was a massive expansion in secondary education among Whites, preparing them for skilled employment.

Amidst the housing crisis in the 1930s, the federal government offered loan guarantees to long-term, fixed-rate mortgages that rescued the housing market and encouraged homeownership. Federal agencies used residential maps that targeted this generosity to areas identified as “White only,” leaving other areas credit starved.

All of these policies functioned to secure the blessings of White Americans.

Sometime in 2021, the US economy became capable of making every American household a millionaire if wealth is spread equally. Of course, it is not. Indeed, it is one of the most unequally divided economies in the world. Whereas the typical Black household earns 60 percent of what Whites make, Blacks typically hold less than 10 percent of the wealth of Whites.

The tight link between wealth and race that is exhibited in the current racial wealth gap is simply the reflection of our nation’s history. From the earliest beginnings through constitutional protections of chattel slavery, disparate land policies, support of legalized segregation, and redlining, federal policies have created and cemented the link between wealth and race.

For many reasons, White Americans fail to acknowledge the yawning gulf that is the modern racial wealth gap. This failure along with the innate power that personal wealth brings creates a system that meets the requirements of Wilkerson’s caste system as well as offering a case study in stratification economics.

Like many Americans, Treasury Secretary Jack Lew overestimates the significance of disciplined saving and financial literacy in determining one’s wealth status. While it is true that households accumulate wealth either from help from family, saving some of their current income, or realizing gains from appreciating assets, it is important to understand the circumstances in which households find themselves.

Economic orthodoxy insists that wealth accumulation follows a life cycle pattern. Interested in maintaining a high but stable level of consumption, households dissave when young as they invest in their education, save prodigiously during midlife in anticipation of retirement, and then dissipate their wealth as they approach death. In this view, wealth is seen merely as a store of future consumption.

Yet, wealth is a source of power. Its possession allows one to avoid unexpected harm, take advantage of unforeseen opportunities, influence public policy, and assure the prospects of one’s offspring. The Wealth Privilege model insists that holding wealth makes it easier to accumulate more wealth, whether through saving, asset appreciation, or family transfers. It predicts that a system of wealth disparities is fully capable of promoting economic stratification as wealth is transferred across generations.

Almost immediately after the Civil Rights legislation, influential Whites encouraged a pause in redressing racial disparities. Moynihan encouraged a period of “benign neglect” while a Commentary article forecast the “march toward statistical parity.” Economic orthodoxy largely agreed as Becker’s taste-based discrimination model predicted that competitive markets would eliminate disparities over time. This left mostly Black economists willing to challenge this view.

Recent carefully conducted research demonstrates little likelihood that Black households can overcome the racial wealth gap, even if they persist in outsaving their White peers.

This chapter offers a different direction. It proposes to replace our current estate tax system with a simpler and more transparent inheritance tax. It recommends elimination or severe curtailment of the discussed tax expenditures to redirect assistance to those most in need. It suggests implementation of a Baby Bonds program, a doubling of Pell awards, and the enactment of guaranteed retirement accounts (GRAs). These three programs would enable far more households to reach the wealth pathway thresholds and benefit from the privileges of wealth.

Acknowledging that even these efforts are inadequate, the chapter calls for the enactment of a reparations program that effectively would eliminate the racial wealth gap.

Over the twentieth century, a college education increasingly functioned as a ladder to professional occupations and ample-paying employment. Until the GI Bill, access to college remained tightly limited, although the expansion mostly served White matriculants.

In the 1970s, tuition, room, and board (TRB) rates remained beyond the financial grasp of talented young adults from low-wealth families. Lois Dickson Rice, herself a first-generation college student, worked tirelessly to expand access to college and eventually persuaded Congress to fund what became known as Pell Grants. These awards were distributed inversely to household income and given directly to the recipients, who could then decide where to enroll.

At one time, maximum Pell awards could finance nearly 40 or 80 percent, respectively, of the TRB costs of attending a private or public four-year college. Over the past half century, the Pell Program has assisted tens of millions of students from marginalized communities enroll and graduate from college.

This chapter examines how the promise of Pell unraveled. Middle-class parents wondered why their kids did not benefit. The Clinton Administration shifted emphasis toward using tax policies to assist families with the cost of college. Enrollment management strategies shifted institutional aid from need-based to merit-based aid.

Six tax expenditures can trace their existence to the enactment of the federal income tax. Swept into office after nearly a half century of Republican control, Democrats moved quickly to enact a tax on incomes. Tasked to write a draft law, Rep. Cordell Hull (D-TN) wrote a fifteen-page bill that experienced modest resistance and was largely adopted. Simultaneously, the Wilson Administration was moving to segregate the federal bureaucracy as lynchings and Confederate monument building reached their apex across the country.

While all the tax expenditures clearly favored the wealthy, almost all were enacted for other equally persuasive reasons. Life insurance benefits and charitable giving were given preferential treatment as they would limit demands on public services. Preferences given to state and local bond income as well as state and local tax payments were made in deference to constitutional concerns.

Over time, these tax expenditures have taken on increased value and generated powerful allies. Attempts to close the estate step up in basis exclusion and later the exclusion on capital gains were quickly rescinded.

Most of the changes over the past half century of supposed racial reconciliation has been to make these expenditures more valuable to wealthy, mostly White households.