We’ve explained that the 2017 tax law largely ignored working-class families, instead delivering large tax cuts to the most well-off and large, profitable corporations. A new analysis from the Institute on Taxation and Economic Policy (ITEP) and Prosperity Now shows that that’s particularly troubling for Black and Latino households:
Today’s income and wealth distribution, in which households of color are overrepresented on the bottom rungs while White households are overrepresented at the top, reflects many decades of policy choices and the nation’s long history of racial barriers. These factors include barriers to high-quality education and jobs for households of color and the deliberate residential segregation of households of color from White households. And, as CBPP’s new report on higher education points out, well-documented discrimination in hiring and salary practices holds back many workers of color, including graduates from highly selective colleges. The ITEP-Prosperity Now report explains that under current trends, it’ll take the median Latino family over 2,000 years just to match the current wealth (financial and housing assets) of the median White household, and Black families will never catch up with White families’ current level.
The 2017 tax law worsened these racial inequities because its core provisions are highly tilted to households at the top. Its deep cut in the corporate tax rate will mostly benefit wealthy shareholders and highly compensated employees such as CEOs. It also showers large tax benefits on heirs to multi-million-dollar estates, lowers the top income tax rate, weakens the Alternative Minimum Tax, and creates a special deduction for “pass-through” business income (the incomes that the owners of certain businesses pay on their individual tax returns).
Low- and moderate-income working families, in contrast, get relatively little from the law. For example, its Child Tax Credit (CTC) increase largely or entirely excludes 11 million children in low-income working families. In addition, the law not only does nothing to strengthen the Earned Income Tax Credit (EITC), which boosts working families’ incomes, it actually weakens it over time.
The 2017 tax law’s ultimate impact on working-class Black and Latino households could be even worse than the report suggests:
Meanwhile, the gain for households at the very top, which are disproportionately White, could be greater than the report estimates. The tax law creates new opportunities for high-income filers who can afford high-priced tax advice to game the tax code to avoid taxes, such as its large cut in the estate tax and the new “pass-through” deduction. And tax planning experts may find other ways to game the tax code that current estimates don’t yet reflect.
The 2017 tax law was a large step in in the wrong direction, and lawmakers should fundamentally restructure it. Future federal tax changes should focus on expanding opportunity for low-and moderate-income households and reducing racial inequities, such as by bolstering the EITC and CTC, and on raising the revenues needed to meet national needs in a fiscally responsible way (including financing investments that can help reduce poverty, inequality, and racial inequities such as well-designed investments in education, infrastructure, and nutrition, and in ways to create better-paying jobs and make health care more affordable).