Earlier this month, a report from the Institute on Taxation and Economic Policy showed how the federal tax cut bill signed last year by President Trump exacerbated the growing racial wealth gap in the country. By gearing the bulk of its tax cuts to the very wealthy, who are overwhelmingly white, the Tax Cuts and Jobs Act overlooked communities of color, who saw much smaller tax cuts, making the existing racial wealth gap worse.
Now, a new report from the Center on Budget and Policy Priorities explores how states can help undo the harmful legacies of past racism and policies that perpetuate racial wealth inequality, through policies designed to address these harms and create more opportunities for people of color.
Nearly half of all domestic public sector spending occurs at the state and local level. That means how state and local governments raise revenue and how they spend it has major implications for racial and ethnic equity. For much of the nation’s history, people of color had little to no power in state legislatures, allowing white lawmakers to set policies that systematically held people of color back, even in states where people of color were a significant share or even a majority of the population. Many of these policies remain in place today, such as supermajority requirements for state tax increases that disenfranchised minorities and made it more difficult to secure funding for schools and other public services, property tax limits that protected white property owners and sales taxes that generally fall hardest on those with the least income.
States can work to overcome racial inequities, in part by improving their tax and budget policies and more adequately financing needed public services such as education. This will not only decrease racial inequity, but also improve the well-being and productivity of state workforces. This means states should pursue fiscal policies 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 system in place in West Virginia. Regressive tax structures worsen racial and ethnic inequities because households of color are more likely to have lower incomes and less wealth than white households. States can take steps such as strengthening their income taxes and otherwise improving the structures of their tax systems, better taxing wealth, enacting or expanding tax credits for low-income families, and eliminating various fees used to raise resources for the courts and other parts of the justice system, that can trap low-income individuals — often people of color — within cycles of debt and criminal justice involvement.
States should also ensure to 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. This can be done by eliminating wasteful subsidies that allow corporations to avoid paying taxes on their profits, raising income tax rates for the most affluent, modernizing state sales taxes and better taxing carbon pollution and natural resource extraction. It can also be done by eliminating artificial constraints that prevent them from raising more revenue from wealthier residents or to finance public investments that can promote broadly shared prosperity. These include reforming or repealing constitutional limits on property taxes and avoiding or repealing supermajority requirements for raising taxes.
When public investments are strong and administered with equity in mind, they can help break down barriers to opportunity for communities of color and help more Americans achieve their potential, to the benefit of the broader economy.
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