Tax and Race: the Impact on Asian Americans

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Mylinh Uy

excerpted from: Mylinh Uy, "Tax and Race: the Impact on Asian Americans", 11 Asian Law Journal 7-143, 129-138 (May, 2004)(202 Citations)

The literature on the effect of tax laws on minorities overwhelmingly looks at one minority group: blacks. In this context, "'race' means, quintessentially, African American," a manifestation of what has been called the "black-white paradigm" or the "black-white binary." Because race is such a complex issue, it is easier to identify the black experience as the minority experience. "The risk [of this narrow identification] is that non-black minority groups, not fitting into the dominant society's idea of race in America, become marginalized, invisible, foreign, un-American." In the context of tax law, blacks appear the most negatively affected, especially within the context of their economic reality. In addition, given the de facto segregation of black and white lives, it is understandable that a system developed almost a hundred years ago by wealthy white men would benefit whites more than blacks. When tax and economics are so intermingled, Asian Americans appear too well off to be negatively impacted by the tax laws. Asian American households earn an average annual salary of $53,635 in 2001, compared to a white household's $46,305. But the empirical data may not always provide a complete picture into the economic situation of Asian Americans. When the data is examined a little closer, the factors that support a disparate impact on blacks could also support a disparate impact on Asian Americans. For example, Asian Americans have a very small presence in Congress. Critical tax scholars cite lack of representation in the legislature as one factor leading to the disparate impact of the tax laws on blacks. In addition, Asian American men and women also suffer discrimination similar to that suffered by blacks. Therefore, the lack of Asian American representation and bias in the workplace could be factors leading to a disparate impact on Asian Americans.

In the mid-1800s, Asians began to immigrate in substantial numbers to the United States. Not long after that, taxes were used against them to subordinate and expel them. A study of Asian American history reveals a long legacy of racism from the white mainstream society. The lynching of Chinese in California in the 1800s, the Japanese internment camps, and the murder of Vincent Chin comprise only a small part of the story. In 1988, the Civil Rights Commission reported that Asian Americans still suffer from "a variety of anti-Asian activities" and that the subject of anti-Asian discrimination still merited serious attention. The racism dealt with by Asian Americans, however, cannot be perfectly analogized to the black experience. Unfortunately, the model minority myth obscures the problems Asian Americans face in our society. As a result, Asian Americans' needs and realities are often ignored.

This Section attempts to illuminate the Asian American experience by first debunking the model minority myth and its misleading characterization of Asian American economic reality. Second, the empirical data will be examined in conjunction with distinctive Asian American issues that are not readily apparent by simply looking at the numbers. These two factors will present a more realistic picture of Asian American's economic situation. Finally, this section will make clear that that Asian Americans may suffer from a disparate tax impact similar to and different from that experienced by blacks.

A. Debunking the Model Minority Myth (again)

The model minority myth paints a picture of Asian American economic success. The stereotype of the model minority emerged in the 1960s. The New York Times Magazine published a story called Success Story: Japanese American Style. A few months later, U.S. News and World Report followed suit with an article called Success Story of One Minority Group in the United States. According to the article, "Still being taught in Chinatown is the old idea that people should depend on their own efforts--not a welfare check--in order to reach America's 'Promised Land."'

The model minority myth is dangerous in a number of ways. First, by assuming group success, the model minority myth masks the great disparity amongst Asian American ethnic groups. The Civil Rights Commission reported in 1990 that Laotians, Hmong, Cambodians and Vietnamese have poverty rates of 67.2%, 65.5%, 46.9%, and 33.5%, respectively. Only two groups of Asian Americans, Filipinos and Japanese, have poverty rates below the national average, 6.2% and 4.2%, respectively. The needs of recent Southeast Asian refugees are ignored because they are viewed on the same footing as third- or fourth-generation Japanese or Chinese Americans. "Thinking Asian Americans have succeeded, government officials have sometimes denied funding for social service programs designed to help Asian Americans learn English and find employment." Some scholars have even argued that accepting the model minority myth is a form of participation in the oppression of Asian Americans.

The model minority myth also hurts other minorities. This myth's persistence is displayed in the Census's non-reporting of Asian American unemployment rates and median weekly income levels, making it difficult to assess their economic position in relation to other races. This misleadingly creates the belief that since Asian Americans have succeeded on their own, then other minority groups such as blacks and Latinos should be able to do it, too. Such rhetoric condones the subordination of other groups while simultaneously creating racial tensions between Asian Americans and other minorities. The masked success of Asian Americans supposedly serves as proof that the social and economic problems faced by other minority groups have nothing to do with race. But "the reality is that many Asian Americans, particularly recent immigrants, are neither economically well-off nor politically empowered."

When other factors are examined, it is clear that the model minority myth is truly a myth. First, reliance on median family income as evidence that Asian Americans suffer no discrimination in the workforce is misleading. In actuality, because Asian American families have more workers per household than do white families, their median family income is on average higher. The Civil Rights Commission notes that when family income is adjusted for family size, the economic status of foreign-born Japanese and Indian families equals that of native-born whites, but that the economic status of foreign-born Chinese, Filipino, Korean and Vietnamese families fall behind. Median family income, therefore, is not an accurate measure of how well Asian Americans are doing. Compounding the problem with the empirical data is the fact that Asian families are also more likely to have non-working relatives living with the nuclear family. "Thus, although the greater number of relatives living with foreign-born Asian families enhances their potential working pool, the contribution to Asian family income from this source is dominated by the increased burden their family income must support."

In addition, average income levels of Asian Americans are skewed by the inclusion of the income of Asians who are not Americans. Japanese businessmen, for example, spend several years in the United States doing business, and their upper-management salaries are added to the average Asian American income. This increases Asian Americans' average income and hides the economic reality of most Asian Americans.

The high academic achievement of Asian Americans is another component of the model minority myth. A number of factors, however, explain this "phenomenon" of Asian American academic achievement. A University of Hawaii sociology professor Herbert Barringer found that native-born Asian Americans make less than native-born whites, and possibly less than foreign-born whites. The Barringer study concluded that "'most Asian Americans are overeducated compared to whites for the income they earn."' Wu argues such a conclusion favors white Americans rather than Asian Americans: "Translated into practical terms, it means that white Americans are paid more than Asian Americans who are equally qualified." The fact that Asian Americans are better educated yet earn less than their white American counterparts undermines the model minority myth. In fact, the studies demonstrate that Asian Americans are forced to overcompensate in their education, because they receive a lower return on their educational investment.

In addition, cultural capital is a big reason for Asian American academic achievement. A study of high achieving Asian Americans found that 85% had fathers with graduate degrees, 71% with doctorate degrees, and 21% had mothers with doctorate degrees. The idea that overachieving is inherently an Asian trait is a fallacy, because the immigrants from Asia to the United States may not necessarily be representative of all Asians. Immigration by nature is self-selective. Except for the recent refugees from Southeast Asia, the Asian immigrants had to be able to afford to come to the United States, or they came to fill an occupation that American workers could not fill. More than 50% of the professional immigrants to the United States are Asian. "[A]lmost none of the Chinese Americans who served on the boards of directors for Fortune 1000 companies were 'authentic bootstrappers.' Almost all of them [have] come from well-to-do families in China, Taiwan, and Hong Kong." Thus, when statistics lump together those who immigrate from a higher economic status with Southeast Asian refugees into a group called "Asian American," the emerging numbers are not representative of either group.

Supposedly, high median household income and high education achievement of Asian Americans supports the idea of the model minority. However, the model minority myth overlooks the fact that more family members usually make up and work in the Asian American household and that Asian Americans make less than whites with the same education level. When these various factors are taken into account, they weaken the model minority myth and indicate that Asian Americans are not as successful as they are perceived. Ultimately, the model minority myth serves to "mask[] real issues of discrimination and uses Asian Americans against other minorities." As a result, the model minority perpetuates the social and economic subordination existing in the United States, which induces minorities to see differences rather than a similar tapestry of oppression.

B. Problems with Empirical Data: How the Tax System Really Affects Asian Americans

1. Asian American wages and employment

In 2001, the Census Bureau reported that Asian American families had a median annual income of $53,635 but that Asian American income per household member was $24,933. This falls below the average income for white household members, which is at $25,751. As mentioned above, these figures may not take into account that a number of Asian American women work for no pay in a family-owned business, or that Asian Americans often work below their level of educational achievement. In addition, the figure does not reflect the economic reality of many sub-groups that fall under "Asian American." A large percentage of Southeast Asian groups and recent immigrants live below the poverty line.

For both native and foreign born Asian Americans, the earnings of other relatives make up a larger fraction of Asian American family income than of white family income. In native born Chinese, Filipino, Japanese, and Korean families, family members other than the husband generate more than 30% of the household income. Compare this to native born white families, where that number is 25%. In foreign born Filipino, Vietnamese and Chinese families, 43%, 37%, and 32% of family income, respectively, come from the combined labor income of wives, children, and other relatives. In foreign born white families, this number is only 23%. This data indicates that more family members must work to make up Asian American household income. Without the supplemental income of other household members, the head of the household would not be able to make as much as the head of a white household.

In addition, Asian Americans tend to live in areas of the country that have higher wages and higher costs of living. The income in these areas would be higher, such that their average family income compared to the national average appears higher. Many scholars argue that when one controls for geographic location, Asian American wages do not look that much better than black or Latino wages. In California, for example, Korean men earn 82% of the income of white men, Chinese men 68%, and Filipino men 62%. According to the Civil Rights Commission, if Asian Americans and whites shared the same regional distribution, the relative average family incomes for most Asian groups would be slightly lower. According to another study, Asian American men make 10 to 17% less than white men and Asian American women make as much as 40% less than white women. Therefore, a simple statistical comparison does not reflect the economic reality of Asian Americans.

Asian Americans are also more likely than whites to be self-employed. "Self-employed individuals with the same income as corporate employees tend to put in longer hours, with fewer benefits and increased risks of bankruptcy and other setbacks." Self-employed individuals must pay for their own medical insurance while many employers offer this benefit to their employees. They also must cover the costs of doing business that individuals working for a company do not have to pay, such as other insurance and self-employment taxes. The empirical data may not take into account these expenses that a self-employed individual must account for, since they simply report income.

In addition, the empirical data masks the fact that Asian Americans do face workplace discrimination. In 1992, the United States Civil Rights Commission released a report on the civil rights issues facing Asian Americans. The report found that all Asian Americans suffered some level of employment discrimination such as accent or language discrimination, discrimination caused by immigration control laws, and "artificial barriers" preventing Asian Americans from rising to management positions. Indeed, some believe that "Asian professionals face the worst promotional opportunities of all groups."

Therefore, when Asian American household income is broken down, each family member makes less than what an individual in a white household makes. In addition, the income of the Asian household members makes up a larger percentage of Asian American household income. Accepting the fact that Asian Americans often make less than whites and that they do face workplace discrimination, they face some of the same hurdles other minorities face in achieving racial equality. These same hurdles may be reflected in the ways Asian Americans are taxed and in the tax benefits they receive.

2. Home ownership and family structure

Asian American home ownership is not at all near the level of white home ownership. According to a Harvard University study, approximately 53.9% Asian Americans and "others" owned their homes in 2002, compared to 74.7% of whites. The homeownership rate for blacks was 48.9% and 47.4% for Latinos. Despite the relatively large disparity between whites and the other minority groups, homeownership rates had increased for all groups, except for Asians in 2002. In fact, the rate for Asians held constant for the last three years while the rate for all other races continued to steadily climb.

That other minority groups increased in their rate of homeownership may be explained by the opportunities they receive in relation to Asian Americans. According to an article on homeownership in Colorado, except for Asian Americans, minority homeownership increased between 1990 and 2000. The article reports that the national mortgage lending company, Fannie Mae, encourages minority home ownership through programs such as continuing education for realtors on how to better serve minority home buyers. The article also reports that the Colorado Housing and Finance Authority, an agency offering down payment and loan assistance, is targeting blacks and Latinos to help increase rates of homeownership in these communities. Given the data on Asian American homeownership, it is surprising that the agency is not targeting Asian Americans as well.

In 2000, Asian Americans houses had the highest average value, $199,300, more than 50% above the national average. Homes owned by whites had an average value of $123,400, blacks $80,600, and Hispanics $105,600. As mentioned above, Asian Americans may own homes with a higher average value because these homes are located in areas of the country where cost of living is higher. For instance, 45% of the Asian households are located in Hawaii or California where average housing prices are the highest in the nation. Hawaii has the highest average house prices of $272,700, and California has the second highest of $211,500.

Additionally, the higher than average home values for Asian Americans may not be a reflection of their individual ability to buy larger homes but reflective of the fact that they have more family members contributing to the cost of home. At the same time, the inclusion of extended families in an Asian American household may necessitate larger homes. Therefore, factors such as geography and family structure may account for the high average cost of Asian American homes. In turn, these factors demonstrate how numerically, less Asian Americans benefit from the tax incentives available for homeowners.

Family structures informed by cultural differences may account for why Asian Americans are treated differently by the tax system. As noted earlier, the tax system benefits nuclear family households where one adult works outside of the home and the other stays at home. This poses problems when extended families live together in one household in Asian American families, for less Asian Americans are able to take advantage of the tax benefits allowed by the Code. For example, if two sibling families bought a house and lived in one household with their parents, only one of these siblings would take advantage of the home mortgage interest deduction, property tax deduction, or the favorable treatment of gains on that house if they were to sell it.

Another question in the inquiry is whether houses in Asian American neighborhoods appreciate as rapidly as those in white neighborhoods. Just because Asian American homes cost more does not mean they will appreciate more. It is possible that due to the positive image of Asian Americans as successful, the appreciation rate of Asian American homes reflect more those of white homes rather than the trend we see with black homes. This is highly unlikely, however, because Asian Americans are perpetually seen as the foreigner.

a. The marriage penalty and marriage bonus

Both spouses of the Asian American couple are more likely to work outside of the home, therefore making their economic reality more comparable to black couples. As noted earlier, more Asian American women than white women must work, because the males in their family earn such low wages. Asian American wives are the largest contributor to family incomes next to their husbands, and their earnings make up a larger part of family income than in white families. This suggests that Asian Americans may be in the same position as African Americans in suffering the marriage penalty more often than whites.

In addition, the tax structure does not account for other family members that the working couple may be supporting. While the couple can claim children and some relatives as dependents, not all relatives can qualify as dependents even if the couple's income goes toward supporting the person. Often, Asian American households include extended family, some of whom may be dependent household members who cannot work; but tax benefits are still not extended for such families. Extended family may not always fall into the tax code's definition of who a "dependent" could be, further eliminating potential deductions available for Asian American families.

3. Immigration

An issue affecting a large number of Asian Americans and Latinos is immigration. Under the federal tax system, even if someone does not qualify to be a resident or citizen under immigration laws, they can be considered a resident for tax purposes. The federal tax law applies the "substantial presence" test, which basically asks whether the taxpayer has been present in the United States for 183 days in the tax year. If the answer is yes, the taxpayer must file a 1040, just as a citizen or resident immigrant would. This "resident" for tax purposes does not enjoy any of the benefits that may come with full citizenship or resident immigrant status but must pay taxes just the same. Even worse, the person cannot vote, and therefore has no voice in the democratic process.

4. Conclusions

The current scholarship in critical tax theory argues that the tax system disparately affects blacks for several reasons. First, the tax laws were created by a legislature that is generally wealthy, white, and male. As a result, the created tax provisions tend to benefit those taxpayers with these characteristics over those who do not. Second, due to the wage disparities between blacks and whites, the former are less often able to take advantage of the tax incentives favoring those who make more money and have more savings.

This Comment delineated several reasons for the disparate tax effects on Asian Americans: 1) Very few Asian Americans make up the legislature. Therefore, for the same reason that tax laws benefit underrepresented blacks less than whites, these same tax laws also benefit Asian Americans less. 2) While the empirical data appears to indicate that Asian Americans are economically well off, in reality, there still exists a wage disparity between Asian Americans and whites. Related is the fact that Asian Americans suffer from workplace discrimination. Both factors translate into less favorable tax treatment for Asian Americans. 3) Asian American families form households that differ from their white counterparts, resulting in less available tax benefits for Asian Americans.