The Incredible Whiteness of Private Equity
This is the second in a series I’m writing about business and tax reporters’ sheer ignorance when it comes to race in America. Last time it was ProPublica, this time it’s the New York Times (“NYT”). Their June 12th piece about private equity and “how a powerful industry conquered the tax system” completely ignored the role of race. That took a lot of effort, because EVERY picture in the story was of a white person — with one exception — the exceptional black guy who was elected President.
The story talked about the special treatment in the form of tax cuts and no IRS audits, but didn’t acknowledge the reality that race matters. Private equity is overwhelmingly white and male. It is no accident that tax cuts and audit policies helped that industry. As I document in my book, The Whiteness of Wealth there are lots of examples of tax breaks being crafted by rich, white guys who wanted to pay less in taxes.
There is a way in which the picture of former President Obama could have been used to greater effect in the NYT article. Even our exceptional first black president, couldn’t escape his blackness when it came to tax policy. While he was President, he made his families tax returns available, and what I learned from studying them is he, like most black Americans, didn’t own a lot of stock that is eligible for the low preferential rate. (The tax break that benefits private equity managers.) Their 2009 taxes resulted in their paying about 10 percentage points higher in taxes than his white peers, because his income was from royalties from book sales and taxed at the highest marginal tax rates unlike that of his white peers, who received a lot of income from stock and paid taxes at a low favorable rate. (By the way, the stock he owned and sold for a loss he inherited from his white grandmother.) Even wealthy black Americans don’t own stock like their white peers, much less have private equity access. The myth of equality of opportunity breaks down whenever we start to talk about wealth in America, because wealth is so tied to race, yet much of the reporting on the topic is completely colorblind.
Another place the NYT reporters missed the significance of race to really understanding what was at stake, was that part of the story discussing the non-existent audit rates of private equity funds. While we’re talking about the rich white guys who do not get audited, let’s talk about the people who do get audited. Black earned income tax claimants in the rural south are far more likely to get audited. Here ProPublica acknowledged race in their earlier 2019 piece that showed that “the five counties with the highest audit rates are all predominantly African American, rural counties in the Deep South.” Further “[t]he audit rate is also very high in South Texas’ largely Hispanic counties and in counties with Native American reservations.” Finally “primarily poor, white counties” also have high audit rates. It’s almost as if some business and tax reporters can only talk about race when we talk about the poor, but not if we talk about the rich. The serious harm in that approach is it makes how the deck is stacked in favor of rich, white Americans generally all but invisible.
Reporters need to do a better job learning about and reporting on race in their tax and business stories. But until they do, I’ll be here letting you know what they missed.
Correction: Earlier version referenced the NYT story as being about hedge funds when it obviously was about private equity.
