No federal reparations tax exists in the United States, and every serious proposal to create one faces steep constitutional obstacles. The term describes a dedicated levy whose revenue would be earmarked for compensating the lasting economic effects of slavery and government-sanctioned racial discrimination, rather than flowing into a general fund. A handful of cities and one state have launched programs using existing local tax mechanisms, but broader federal proposals remain stuck between the limits of Congress’s taxing power, the Equal Protection Clause, and the practical problem of identifying eligible recipients. The Supreme Court’s 2023 decision on race-conscious admissions narrowed the constitutional path further.
What a Reparations Tax Would Be
Every proposal shares one design feature: the revenue is earmarked exclusively for reparative programs. Proponents argue that earmarking insulates the money from annual budget fights. Beyond that shared feature, the structures vary sharply depending on which level of government is doing the taxing.
At the federal level, the most prominent structural idea comes from policy researchers who have proposed a one-time tax on the corporate equity of publicly traded firms, paid in stock rather than cash. Under that model, companies listed on U.S. exchanges would remit shares to a reparations fund at roughly 1.9 percent, capitalizing the fund at over $1 trillion almost immediately. The fund would then operate like a sovereign wealth fund, governed by a board elected by beneficiaries and distributing returns over time. Companies that preferred not to dilute existing shareholders could buy back shares on the open market and contribute those instead.
At the local level, the options are more constrained. Cities have used dedicated cannabis sales taxes, property tax surcharges, real estate transfer taxes, and fees on casino revenues. These are smaller in scale but fit within existing local taxing authority, which turns out to matter a great deal.
Where Reparations Taxes Actually Exist
Congress has not enacted a reparations tax. Several local and state governments have moved ahead on their own.
Evanston, Illinois
Evanston became the first U.S. city to fund a government reparations program. The city pledged $20 million to its Reparations Fund, split evenly between revenue from a 3 percent tax on recreational cannabis sales and the city’s real estate transfer tax.1City of Evanston. Reparations Financial Report The program offers $25,000 housing-related grants to eligible Black residents who experienced housing discrimination in Evanston between 1919 and 1969, or to their direct descendants. By early 2026, the city was exploring additional revenue sources because cannabis tax revenue came in lower than projected.
Detroit, Michigan
A Detroit reparations task force recommended creating a downtown entertainment tax and adding a fee on casino revenue, among other local funding mechanisms. The cost of the proposed programs is not settled, and none of the recommendations have been enacted.
California
California ran the most ambitious state-level effort through AB 3121, which created a task force that delivered its final report to the legislature in June 2023.2California Department of Justice. The California Reparations Report The task force recommended per-year compensation figures tied to specific historical harms, including roughly $3,000 per year for housing discrimination and roughly $13,600 per year for the Black life expectancy gap. Follow-on legislation, SB 518, set eligibility criteria requiring applicants to demonstrate direct lineage to a person subjected to American chattel slavery before 1900, and directed a state bureau to verify descendant status.3California Legislative Information. SB-518 Descendants of Enslaved Persons: Reparations
Federal Proposals on the Table
The best-known federal measure is H.R. 40, the Commission to Study and Develop Reparation Proposals for African Americans Act. It was first introduced in 1989 and has been reintroduced in every Congress since. In the 119th Congress it was introduced on January 3, 2025, and referred to the House Judiciary Committee, where it remained as of mid-2026.4Congress.gov. H.R.40 – 119th Congress: Commission to Study and Develop Reparation Proposals for African Americans
H.R. 40 would not impose a tax or distribute any money. It would create a commission to compile evidence of slavery and subsequent discrimination, analyze the federal and state governments’ roles, and recommend remedies, including a formal apology and compensation. The commission would have 18 months from its first meeting to submit a final report.4Congress.gov. H.R.40 – 119th Congress: Commission to Study and Develop Reparation Proposals for African Americans No version of H.R. 40 has ever passed either chamber.
The corporate stock proposal described earlier is a policy blueprint rather than pending legislation. It has not been introduced as a bill.
The Constitutional Limits on Taxing Authority
Congress has broad power to tax. Article I, Section 8 authorizes it to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”5Constitution Annotated. Article I Section 8 Clause 1 Courts have historically deferred to Congress on whether a particular spending purpose qualifies under general welfare.
The main structural constraint is the distinction between direct and indirect taxes. Article I, Section 9 requires that any “direct tax” be apportioned among the states according to population.6Constitution Annotated. ArtI.S9.C4.1 Overview of Direct Taxes The Sixteenth Amendment created an exception for income taxes, which Congress can levy “from whatever source derived, without apportionment.”7Legal Information Institute. Sixteenth Amendment – Deductions and Exemptions A reparations surcharge added to existing federal income tax would likely fit within that exception.
A wealth tax is harder. A tax on what someone owns, rather than on a transaction or on earned income, is almost certainly a direct tax under Article I. Apportionment then produces an awkward result: if a state holds 3 percent of the population but 1 percent of the nation’s wealth, the tax rate in that state has to triple to hit its assigned share of revenue. States with less concentrated wealth end up with higher effective rates than wealthier ones, which defeats the point. The corporate stock proposal tries to sidestep this by framing itself as a one-time in-kind remittance rather than a recurring wealth levy, but whether courts would treat stock remittance differently from a direct tax on net worth is an open question.
State and Local Taxing Power
Cities and counties face a different constraint. About 40 states apply some version of Dillon’s Rule, under which municipalities may exercise only the powers their state legislature has granted them, powers fairly implied from those grants, and powers essential to core functions. A city cannot invent a new type of tax on its own.
Even home-rule cities usually find fiscal powers to be the most restricted area. State constitutions often cap property tax rates, reserve classification powers to the legislature, or require voter approval for new taxes. In some states, an earmarked tax needs a two-thirds supermajority at the local ballot. That is why Evanston relied on cannabis sales taxes and real estate transfer taxes already on the books rather than trying to create a new levy. A city that wanted a local wealth tax or income surcharge for reparations would almost certainly need enabling legislation from its state first.
The Equal Protection Problem
The obstacle drawing the most legal attention is not taxing power but the Equal Protection Clause of the Fourteenth Amendment. Any government program that classifies people by race triggers strict scrutiny, the most demanding standard of judicial review. The government must show the classification serves a compelling interest and is narrowly tailored to achieve it. That standard applies to federal, state, and local government alike.8Legal Information Institute. Adarand Constructors v Pena, 515 US 200 (1995)
In City of Richmond v. J.A. Croson Co., the Supreme Court held that a government entity using a race-based remedy must identify its own past discrimination “with some specificity.” The Court struck down Richmond’s minority contracting set-aside because the city had not established that discrimination in its own construction industry justified the program.9Legal Information Institute. City of Richmond v JA Croson Company The program also failed narrow tailoring because it extended preferences to minority entrepreneurs from anywhere in the country, not only those harmed by Richmond’s practices.
The lesson for reparations: a city or county using race-based eligibility must show that its own policies caused the harm being remedied, and it must design the distribution to reach the actual victims or their descendants rather than a broader racial group. Evanston’s 1919-to-1969 housing-discrimination window is a direct response to that framework.
The 2023 Shift
The Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard tightened the standard further. The Court struck down race-conscious university admissions programs, saying the Equal Protection Clause protects individuals, not groups, and that racial classifications require “detailed judicial inquiry.”10Supreme Court of the United States. Students for Fair Admissions Inc v President and Fellows of Harvard College The majority wrote that remedies for past governmental discrimination “must be closely tailored to address that particular past governmental discrimination.”
The decision left one narrow opening. Justice Thomas, joining the majority, agreed that the Constitution permits race-conscious measures used “to equalize treatment against a concrete baseline of government-imposed inequality.”10Supreme Court of the United States. Students for Fair Admissions Inc v President and Fellows of Harvard College The distinction is between broad appeals to societal discrimination, which the Court rejected, and targeted remedies for documented government action, which remain theoretically permissible. No court has yet ruled directly on whether a reparations program can satisfy that test.
If You Receive a Reparations Payment
For anyone who does receive a payment from an existing program, two practical questions come up: will the IRS tax it, and will it cost you your public benefits?
Federal Income Tax
Under current law, a reparations payment is almost certainly taxable. The Internal Revenue Code treats all income as taxable unless a specific provision excludes it. The exclusion that might seem relevant, IRC Section 104(a)(2), covers damages for personal physical injuries or physical sickness. Reparations for historical discrimination are not compensation for physical injury. The IRS has ruled that back pay and damages for emotional distress in Title VII employment cases are not excludable from gross income, and reparations payments fall into the same non-physical-injury category.11Internal Revenue Service. Tax Implications of Settlements and Judgments
There is one limited precedent. In 2001, the IRS decided that restitution payments to Holocaust survivors and their heirs could be excluded from federal income tax. That exclusion was tied to specific payments by foreign governments for wartime atrocities and does not extend to domestic reparations programs. Congress would need to pass legislation creating a new exclusion, and none has been enacted. Without that, a $25,000 grant could produce an unexpected federal tax bill of several thousand dollars, depending on the recipient’s bracket.
Means-Tested Benefits
Recipients who rely on Medicaid, SNAP, SSI, or federal housing assistance face a second risk. A lump-sum payment can push them over income or asset limits, temporarily or permanently disqualifying them from benefits they depend on. HUD currently excludes reparation payments from income calculations, but only for payments made by foreign governments for Nazi-era persecution.12U.S. Department of Housing and Urban Development. HUD Occupancy Handbook – Chapter 5 Income Inclusions and Exclusions No comparable federal exclusion exists for domestic reparations. Without specific legislation shielding the payment from benefit calculations, it can count as both income in the year received and as an asset going forward, so a program meant to close the racial wealth gap can, in the absence of coordinated legislation, cost recipients health coverage or food assistance in the short term.