February 6, 2024

Tax Policy to Reduce Racial Retirement Wealth Inequality


This report was written as a working paper for the Wharton Pension Research Council at the University of Pennsylvania. An abstract is below, and you can read the full report at SSRN

Historic and ongoing discrimination have created stark racial disparities in the US, and the racial retirement wealth gap is one such example. This chapter examines inequality in retirement wealth across race and ethnic groups and discusses various aspects of federal and state tax law with an eye toward their impact on this inequality. It advances a few guiding principles that can aid in the construction of more racially equitable tax laws, including the benefits of credits over deductions, the need for meaningful limits on the use of tax-subsidized retirement accounts, and a reminder that the core function of tax policy is to raise revenue, not subsidize private behavior.

We also provide evidence that retirement savings exemptions predominately favor upper-income White households. Tax reform has immense potential to reduce racial retirement wealth inequality through robust funding of social security, reorienting retirement savings incentives toward moderate-income families, taxing retirement income streams across the states, and ensuring appropriate taxation of real estate wealth in retirement.