International Policy Digest

New York Historical Society
U.S. News /13 Jul 2020
07.13.20

How to Pay Reparations to African Americans Without Raising Taxes

Any objective person who views history truthfully cannot deny the racial discrimination faced by African Americans in the history of the United States. From 1877 to 1954, the federal government denied the most basic rights to African Americans. These denials of rights were the end result of the Compromise of 1877 between the Republican Party and the southern part of the Democratic Party called the Redeemers. It would not be until 1937, when Franklin Roosevelt began to appoint Supreme Court justices, 8 from 1937 to 1945, that the federal courts began to take notice of the rights of African Americans and began to enforce the civil rights of African Americans, beginning with the landmark case of Brown v. Board of Education.

The call for financial reparations for this era of the American Experience has never before been so strident. And to be fair to the African American community, the federal government has offered monetary reparations to other minorities, most prominently Japanese Americans, because of their enforced internment during World War Two.

Reparations for the Japanese American Community

There is legal precedence for monetary compensation for minority groups who were discriminated against, and had their civil rights violated by the federal government. The one that comes to mind is the involuntary internment of American citizens of Japanese descent during World War Two.

On February 19, 1942, President Franklin Roosevelt issued Executive Order 9066 with the intention of preventing acts of sabotage and/or espionage by Japanese American citizens. From December 7, 1941, to the issuance of the executive order, there is no recorded evidence that any acts of sabotage or espionage took place by Japanese Americans. This order affected some 117,000 persons of Japanese ancestry, most of whom were American citizens.

The impetus for this action was a memo from Lieutenant-General John L. Dewitt to Secretary of War Henry Stimson and Attorney General Francis Biddle. Dewitt falsely attributed damage to power lines as sabotage due to the actions of members of the Japanese American community. While the power lines had been damaged, the power lines had been damaged by cattle who had been illegally allowed to graze. General Dewitt knew that this report was false, yet he sent it anyway. General Dewitt also wanted to intern German Americans and Italian Americans, but in the end, these ethnic groups were not molested.

On March 24, 1942, Japanese Americans were ordered to report to relocation centers within six days. They were only able to carry those belongings that could be easily transportable, such as luggage and bundles. These American citizens were given just six days to dispose of all of their personal properties, such as homes, cars, businesses, and their farms. Eager speculators offered pennies on the dollar for their property. Forced by such a short deadline, Japanese Americans had little choice but to accept these unfair terms.

It would take a decision by the Supreme Court on December 18, 1944, in Ex parte Endo, that the involuntary internment was unconstitutional and the Roosevelt administration began releasing these citizens from involuntary confinement.

It would not be until 1988 with the passage of the Civil Liberties Act, that the surviving Japanese American citizens whose civil rights had been so brutally violated, that the federal government offered compensation of $20,000 to each individual.

The injustices faced by African Americans, compensation for the denial of civil rights for 77 years is not only legally available, it is morally justified. While the federal government must face some responsibility for this compensation, the cost of reparations should also be borne by those states whose “Jim Crow” laws reduced African Americans to virtual slave status.

How to Fund Reparations to African Americans

One of the biggest objections to the payment of reparations to African Americans has been the cost of such a payout. The monetary figure most commonly mentioned has been the figure of $20,000 for each African American. At the time of this writing, there are 331 million American citizens. Of this figure, 13 percent are African American. 331 million multiplied by 13 percent is 43 million. 43 million multiplied by $20,000 equals nearly $860 billion. This is a daunting figure. Many Americans object to reparations as they do not feel that they should be taxed because of the actions of the government that ended some 66-years ago. This article assumes an ending date of federal racist behavior in 1954 based on the Supreme Court decision of Brown v. Board of Education.

There are Several Ways that a Reparation Payout can be Funded

Establish a limited sovereign wealth fund based on mineral assets on federal lands. This establishment of a sovereign wealth fund actually has some legal precedence. In the United States, at the associate state level, there are 21 sovereign wealth funds that contribute funds on an annual basis, witness the Alaska Permanent Fund (APF) which pays out to its state citizens a dividend on an annual basis paid for by the fund.

Have the payments made by the Federal Reserve deposited into a special fund dedicated to the payment of the reparations. In 2019, the Fed paid into the U.S. Treasury $54.9 billion. Because of the dramatic expansion of the Fed’s balance sheet in purchasing commercial grade A investment bonds, and in some cases equities, the amount of money paid to the Fed for 2020 will dramatically increase based on the interest payments the Fed will receive from these commercial bonds. This evaluation is based on historical rate of returns by the Fed in regard to its balance sheet. For example, in 2012 the Fed balance sheet was $2.6 trillion. The Fed paid $88.9 billion into the U.S. Treasury in 2012 based on its earnings from the bonds on its balance sheet. As of June 11, 2020, the Fed balance sheet was $7.2 trillion. This is almost 3 times the amount of the Fed’s balance sheet in 2012. Using the base figure that the Fed paid into the U.S. Treasury in 2012, the potential earnings from the Fed in 2020 could reach $266.7 billion. Using this base amount, a special bond could be authorized by Congress, which would then be used to raise the capital necessary for the compensation payout. The bond could be fully redeemed by payments from the Fed on an annual basis until the band has been redeemed.

Not all of the financial burden of the reparations should be borne out by the federal government. Those states which had official Jim Crow laws should also bear the cost of reparations. These reparations do not need to be in cash. Issuing school vouchers for higher education for African American students at a state university. Interest-free mortgages could also be backed and guaranteed by state governments to allow the African American community to achieve parity in the ownership of homes. By making homeownership available to the African American community, the wealth gap between the European American community and the African American community would begin to close.

In return, however, the policy of Affirmative Action would be brought to a close. Affirmative Action has been a deliberate policy of the United States since the issuance of Executive Order 10925 by President Kennedy in March of 1961. This action was followed up by the Johnson administration in the Civil Rights Act of 1964. These policies lifted millions of African American families out of poverty, yet there is still a wide-spread wealth gap between the African American community and the European American community in the development and retention of wealth.

The reparations offered to the African American community will erase to a large extent this gap. For the United States to continue its policies of Affirmative Action, after providing cash and other compensation, would provoke a sharp backlash among other segments of the American population exacerbating racial tensions instead of reducing them.

These possible solutions are far from perfect, and should be debated amongst not only the African American community as to how reparations should be made, but also among the still dominant European American community of supporting these reparations, and how to facilitate a lowering of racial and wealth inequalities in this country.

At the end of the day, we are all Americans, and we live in one country and the blessings and rights of the U.S. Constitution belong to all Americans. We must come to a compromise in this country on both sides of the aisle and put this ugly era of racism, by all segments of the American people, behind us.