How to Raise Billions for Racial Equity in California

A guest blog on an innovative new tool for public funding

By Professor Jeremy Bearer-Friend, George Washington University Law School  

  • By Kelsey Lyles, CCB Board Member and Adam Briones, CCB CEO

    California Community Builders often explores ideas related to housing and homeownership – multifamily homeownership, middle income demographics, zoning and racial equity – that we believe will meaningfully impact the racial wealth gap for communities of color. Despite this issue-specific track record, we also think it’s important to consider structural tools that are related but not exclusive to housing – including tax policy. As such, we asked our friend and colleague Jeremy Bearer-Friend, Associate Professor of Law at George Washington University, to summarize his recent publications related to a novel and potentially transformative approach to corporate tax policy and share thoughts on how it might benefit California.

    Professor Bearer-Friend’s proposal struck us as an elegant approach that could create needed resources for a variety of goals that the state of California has formally adopted or has explored – slavery reparations, first time homeownership, social housing, environmental justice, etc. – and is also one of the few proposals we’ve seen that aligns the incentives of private-sector corporations with the public good.

    CCB is an ardent believer that we need as many tools as possible when it comes to solving the big problems that face our state and nation. We hope you’ll put some thought into what we believe could be a very useful tool should it come to fruition in California.  

The explosion of concentrated wealth in the Bay Area is world famous. There are many rival explanations for the ever-widening wealth gap, but one aspect of wealth building in the Bay is uncontroversial: Many tech workers are compensated with stock, not cash. This kind of equity-compensation has risk for the employee, but also tremendous rewards. In the Bay, it has ushered in an unprecedented era of prosperity for a narrow slice of the community.

While the concentration of private wealth continues to break records, the public sector has not enjoyed an infusion of resources. Local tax strategies to finance big investments, from hotel occupancy taxes to proposed headcount taxes to the capped taxes on real property, are unlikely to be sufficient for current levels of public need. Last year’s statewide ballot initiatives seeking to finance more affordable housing with debt or to pass rent control also failed.

But what if the conventional payments long used in the private sector to pay employees or to buy other companies were deployed for paying for public priorities? That is, what if some taxes were paid with company stock rather than cash?

In my 2024 article for the Howard Law Journal and a follow-up issue brief with the Roosevelt Institute, I argued that reparations for slavery could be paid for with stock, not cash. Using this approach, I argued that the federal government could capitalize a trillion dollar reparations fund in less than a year. And that’s with a one-time tax at a rate of less than 2%. All firms publicly listed on U.S. exchanges would remit new or repurchased shares to a reparations fund representing less than 2% of their outstanding stock.

A version of my federal reparations proposal could also be adopted in California. Publicly traded firms already liable for the state’s annual Corporate Franchise Tax could be required to pay a one-time reparations tax into an affordable housing fund. The payments could be made in corporate stock based on the number of shares already outstanding or based on a fixed dollar threshold and met by the combined trading value of remitted shares. The tax could also be expanded to privately held firms, though this would require additional technical design details.

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. Many of the largest mergers in our country are also paid for in stock, not cash. The public sector has left an enormously powerful tool out of its toolbox by assuming all taxes should be paid in cash.

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

There are many reasons why stock is an attractive tool for paying taxes. First, companies do not need to have liquidity to pay the tax. This is part of why start-ups often pay with equity rather than cash: they don’t have the dollars to give big salaries right away. Second, companies are experienced with issuing stock. It’s not a substantial administrative burden and can be done quickly. Third, a tax paid with newly issued stock is highly progressive. The tax is paid through the dilution in the value of other shareholders’ stock, a group that is already wealthy. The wealthiest 10% of Americans own 93% of U.S. stock.

Congress is unlikely to move forward on my proposal in the coming year, especially with tax cuts as their number one priority, but California could chart its own way forward. Last year, Senator Steven Bradford (D-Gardena) introduced SB 1331, the Reparations and Reparative Justice Fund, which called for 6% transfers from the State’s general fund for reparations policies. This bill was unsuccessful. As the California Legislative Black Caucus works to refine their 2025 agenda, a reparations fund capitalized with corporate stock could be an essential component to creating the sustainable infrastructure for Black health and wealth repair.

This proposal also has particular utility for California’s affordable housing crisis. There is currently no large-scale financing mechanism to pay for the construction of affordable for-sale housing in California. What does exist is generally at the local level and inconsistently funded. Meanwhile, according to the Bay Area Equity Atlas, “Between 2015 and 2023, zero of the 101 cities in the Bay Area permitted enough affordable housing to meet residents' needs.” And while achieving racial equity goals remains challenging because California is constitutionally barred from race-based policy making due to Prop 209, affordable housing will disproportionately impact communities of color because of the already underlying inequality of who is currently priced out of California’s housing market.

States and localities also have more freedom than the federal government to directly tax property, including corporate stock. There is no uncertainty about the constitutionality of property taxes the way that proposed federal wealth taxes are expected to receive a tough audience under the current Supreme Court. In fact, state and local governments long relied on noncash taxes to cover public expenditures, including in California.

With the sky-high values of many firms here, a new tax on California companies, one paid in stock rather than cash, could easily raise billions of dollars.

Jeremy Bearer-Friend is an associate professor of law, with tenure, at the George Washington University Law School. He teaches federal income taxation, law of nonprofit organizations, and a seminar on redistribution and reparations. His research on race and tax has been cited by the US Treasury Department and in expert testimony before both chambers of Congress. Prior to academia, Professor Bearer-Friend was tax counsel to Senator Elizabeth Warren. You can reach him with questions or comments via email (bearerfriend@law.gwu.edu), Bluesky (@Bearerfriend) and LinkedIn.