Financing Reparative Policies: How a Tax Paid in Stock Could Raise a Trillion Dollars Within a Year

Introduction

Our biggest and longest-unaddressed challenges—from the climate crisis to universal childcare—require large upfront investments to address years of neglect or reliance on free labor. All too often, the size of these expenses is the end of the conversation, and thus major challenges are left unresolved and the future price tag continues to build. But what if the purported lack of resources to pay for bold, progressive priorities is only an illusion? This brief offers one strategy for quickly and fairly raising substantial funds. Taking reparations for slavery as a case study, it offers a policy innovation that can quickly raise a trillion dollars in one year.

"Taxes are how societies share their resources. Taxes are how the public uses the law to share what we have and heal those who are injured. And it is through taxes that the United States can finally pay its debt to those who helped build our country but were never paid for their work."

A national effort to repair the harms of slavery and the subsequent segregation of Black Americans in the United States will require, by all estimates, trillions of dollars (Darity and Mullen 2020). Questions around how to raise this amount of money pose challenges for the political viability of enacting such a reparations plan.

Based on the research from my Howard Law Journal article, “Paying for Reparations,” this brief proposes a novel approach to capitalizing a Reparations Fund through the in-kind remittance of corporate equity, which could raise at least $1 trillion in less than a year (Bearer-Friend 2024). I call this proposal the “Reparations Tax.” The brief builds on my prior work on the viability of in-kind (i.e., noncash) remittance to satisfy tax obligations, as well as the target size of the fund proposed by Larry Neal (1990) and William A. Darity Jr. and A. Kirsten Mullen (2020), and describes the features of the in-kind tax proposal, the myriad design choices that would be necessary to ensure effective implementation, and analogs in the private sector for capitalizing a fund.

The results of this proposal would also radically reduce the racial wealth gap, which, according to William Darity, is “the economic measure that best captures the cumulative effects of the full trajectory of American white supremacy from slavery to the present” (Darity and Mullen 2021). This proposal is not meant to be the sole, stand-alone funding mechanism for reparations but is meant to awaken the reader’s imagination to the many options available to finance reparative policies and to dispel the notion that money is a barrier.

What is unique about this proposal is that the tax would not be paid in cash but in shares of corporate stock. We could immediately capitalize a Reparations Fund worth over a trillion dollars with a tax rate of just 1.9 percent. The tax would be on all publicly traded firms listed on US stock exchanges.

There are many advantages to a tax paid in stock rather than in cash. First, companies would not need to have cash on hand to cover the cost of their tax bill. Second, issuing stock is a routine transaction for publicly traded firms. No new systems or accounting mechanisms are required. Third, the Reparations Tax rate can be very low because the tax base of all publicly traded stock is so large. Low tax rates minimize distortions in market behavior and also improve the likelihood of public support for the tax.

Although a tax paid in stock may seem radical, the private sector has long recognized that cash is not always the best form of exchange for a transaction. The highest-paid CEOs typically receive the majority of their compensation in stock, not cash. Compensation paid in stock is appealing to both the CEO and their employer. Many of the largest mergers in our country are also paid for in stock, not cash. Yet the public sector exclusively accepts taxes in cash except in the most extreme circumstances, such as when a taxpayer refuses to pay or cannot pay. The public sector has left an enormously powerful tool out of its toolbox by assuming all taxes should be paid in cash.

The biggest question for most readers will be why publicly traded firms should pay anything at all. The case for reparations has been debated since even before emancipation: Some argue for reparations under principles of corrective justice, others under theories of distributive justice (Logue 2004; Bilmes and Brooks 2024). I see a straightforward answer to this question. Governments are responsible for their debts, and those debts are primarily paid with taxes. Taxpayers need not be personally responsible for the damage caused by a hurricane in order for public funds to be used to repair the affected disaster area.

This justification stands independent of the separate observations that much of the wealth of our economy, including our stock market, was created through a debt that has yet to be paid.¹ The only reparations for slavery our federal government ever paid were to slaveholders for the estimated property value of the human beings who were emancipated.² Ultimately, this brief is not about whether to pursue reparations but about how to pay for reparations. To the extent that critics object to reparations because of its impact on the national deficit, this brief solves that problem. It also addresses critics’ objections to reparations regarding who pays the cost.

A trillion-dollar tax proposal of course involves many technical details. The stock remitted to the fund would be in exact proportion to the categories of preferred and common stock already outstanding. The stock paid into a Reparations Fund could be new issuances or shares that the company bought back from the market. I do not propose issuing a controlling interest of shares to the Reparations Fund created through the Reparations Tax. In the spirit of self-determination and emancipation, the eligible beneficiaries of a Reparations Fund would decide on its governance as well as the size and character of the fund’s disbursements.

As with any new trillion-dollar tax, we should expect litigation. But the power to tax has been a part of our Constitution since our founding and is not on its face legally dubious. A tax, unlike eminent domain, does not require the government to pay fair-market-value compensation in exchange for the property it claims. And our country compensating its people for the enduring and compounding harms they have suffered is conventionally understood as providing for the general welfare. A Reparations Tax would be just that.

Taxes are how societies share their resources. Taxes are how the public uses the law to share what we have and heal those who are injured. And it is through taxes that the United States can finally pay its debt to those who helped build our country but were never paid for their work. Through tax law, we could finally achieve reparations for slavery.

“The public sector has left an enormously powerful tool out of its toolbox by assuming all taxes should be paid in cash”

Top Takeaways

This brief proposes a new strategy for capitalizing a trillion-dollar Reparations Fund in less than a year. The tax would not be paid in cash but in shares of corporate stock. We could immediately capitalize a Reparations Fund worth over a trillion dollars with a tax rate of just 1.9 percent. The advantages of this Reparations Tax proposal include its scale, its low rate, its one-off nature, its political appeal, its progressivity, its administrability, and its flexibility.

#1

The Reparations Tax is at the scale necessary to quickly achieve a trillion-dollar capitalization. The total value of all publicly traded firms on US exchanges provides an enormous tax base worth over $50 trillion.

#2

Because the proposed tax base is so large, the required tax rates to achieve a fixed revenue target can be relatively low. With a tax rate as low as 1.9 percent, applied to the total amount of outstanding shares of a liable form, a onetime remittance of corporate equity would raise over $1 trillion within a year.

#3

Under conventional tax policy principles, lower rates are generally preferred because they produce less distortion in economic behavior. The onetime nature of the tax also limits the market distortions associated with the tax, principally impacting economic choices already made rather than new firm decisions.

#4

The low tax rates allowed by the large tax base also improve the political appeal of the proposed Reparations Tax. This public appeal is also furthered by the fact that the nominal taxpayers for the new liability are generally under-taxed groups facing strong public scrutiny: large, multinational corporations listed on Wall Street exchanges.

#5

The Reparations Tax has a progressive incidence since it dilutes the value of current shareholders in publicly traded firms. These shareholders are at the highest end of the income spectrum. The top 20 percent of wealthiest households own 87 percent of corporate equities (Federal Reserve 2024).

#6

In-kind remittance is also easier to administer because it does not create the liquidity issues of cash tax liabilities or the valuation issues associated with wealth taxes. Because the Reparations Tax is modeled after a routine transaction in the private sector–the issuance of new stock–complying with the tax obligation does not require substantially new overhead costs for the taxpayer beyond the tax liability itself.

#7

The proposal also provides flexibility. It does not require new issuances to the Reparations Fund, because the treasurer of the liable firm can simply buy the stock back from the open market and remit the repurchased shares.

Footnotes and Suggested Citation

Read the footnotes

¹In “Normalizing Reparations,” Linda J. Bilmes and Cornell Williams Brooks (2024) provide the following taxonomy of compounded racial harms inflicted over centuries as a result of the federally enshrined institution of slavery: “housing; wages, employment, and labor markets; education, criminal justice, health care, the franchise, and violence. Each broad category of racial harm represents specific harms to Black American bodies, opportunity, and wealth.” If using the racial wealth gap as a proxy for the compounding harms of slavery, repair would cost $7.13 trillion (Derenoncourt et al. 2022). The gap is partially documented through the substantial retirement wealth gap (Moran 2023).

²By contrast, many other countries have provided reparations that attempt to compensate communities that were enslaved (Darity et al. 2024).

Suggested Citation

Bearer-Friend, Jeremy. 2024. “Financing Reparative Policies: How a Tax Paid in Stock Could Raise a Trillion Dollars Within a Year.” Roosevelt Institute, December 10, 2024.

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