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Report: Tax Policy Can Help Promote Racial Equality

The tax policies of state and local governments can help move the U.S. toward racial equality and “undo the harmful legacies of past racism,” according to a report from the Center on Budget and Policy Priorities (CBPP) released in mid-November.

The increasing gap between the wealthiest 1 percent and the rest of the U.S. has been widely publicized in recent years.

Less visible is what has been called the “racial wealth gap,” denoting that white households possess 87 percent of U.S. wealth while people of color hold only 13 percent.

Tax policies, which might not on the surface seem discriminatory, have contributed to this racial wealth gap by hindering generations of people of color from improving their economic status.

One historic example cited was the adoption of supermajority requirements for raising state taxes.

This limited the impact black representatives could have in state legislatures and made it difficult to increase taxes to fund public education.

Another example was establishing a state sales tax, which increased the tax burden on lower-income persons (often people of color) and decreased the tax burden for white, wealthy landowners.

These and similar policies have compounded over generations and contributed to our current context in which “the median net worth of white households ($171,000) is 10 times the median net worth of Black households ($17,600) and eight times that of Latinx households ($20,700).”

CBPP offered three recommendations to states to address inequality through its tax policies and budget priorities:

  1. “Ensure that households with high incomes pay a larger share of their income in state and local taxes than households with lower incomes – the opposite of the upside-down tax systems in place in 9 of every 10 states today.
  2. “Raise sufficient revenue for high-quality schools in all communities and for other investments in education, infrastructure, health and the like, and target spending to help overcome racial and ethnic inequities and build an economy whose benefits are more widely shared.
  3. “Improve the fiscal policy ‘rules of the game’ so lawmakers don’t face artificial constraints that prevent them from raising more revenue from wealthier residents or to finance public investments that can promote broadly shared prosperity.”

For tax policies to address historic inequities and discriminatory practices, they should focus on increasing public school funding, making college more affordable, assisting struggling families with basic needs, providing access to healthcare, increasing the minimum wage, allowing workers to form unions and adopting family and sick leave policies.

“State policymakers may be tempted to think of state and local tax policy as neutral with respect to race. Statutes do not mention race or ethnicity … Yet historical racism and contemporary patterns of racial discrimination and bias can affect a taxpayer’s income and consumption, and the value of property the taxpayer may own,” the report stated.

“Fiscal policies need not be explicitly race-based to worsen or extend longstanding racial inequities,” CBPP explained. “Policies can have those effects if they ignore the history of governmental and private actions that enforced racial segregation and held back people of color, as well as the continuing impact of racial bias and discrimination.”

The full report is available here.