Report: States Can Use Tax Policy to Advance Racial Equity

States and localities can do more to help undo the harmful legacies of racism and the damage of continuing racial bias and discrimination, a major new Center report finds. If state policymakers can design their budget and tax policies to better address these harms and create more opportunities for people of color, state economies would be more equitable and likely stronger, which in turn could benefit many state residents of all backgrounds.

States and local governments account for nearly half of all domestic public-sector spending, and most of the funding for education and certain other investments important for economic growth. As such, how states and localities raise and spend revenue, including what services they finance, has major implications for racial and ethnic equity. Yet, while people of color have made progress in many areas in recent decades, state and local fiscal policies too often haven’t contributed to that progress and, instead, have extended or cemented racial disparities in power and wealth.

Discriminatory public policies and racially prejudiced public and private actions of the past contributed to a historical context in which people of color were systematically held back. For much of our nation’s history, people of color had little to no power in state legislatures, and white lawmakers could set policies that sustained white dominance, even in states where people of color were a significant share, or even a majority, of the population. In that environment, state and local tax policies often deepened the profound challenges that people of color faced, even when those tax policies were not explicitly race-based.

This report includes original research into the history of state tax policies that are still in place today, such as property tax limits, sales taxes, and supermajority requirements to raise revenue, and shows how these policies helped reinforce profound barriers for people of color. It also includes policy recommendations that states can adopt to reduce racial inequities and help undo the many harms done by historical racism and contemporary discrimination and bias. An executive summary is available here.