Advancing Racial Equity Through the Tax Code

Sep 24, 2019

By: Chye-Ching Huang and Roderick Taylor 
Posted on: Spotlight on Poverty and Opportunity

The federal tax code doesn’t explicitly benefit one race over another, but it directly affects the income and wealth of virtually every household, it raises revenues that support critical programs and investments to expand economic opportunity, and it helps shape markets and behavior. It can therefore be a powerful tool to advance racial equity. Indeed, the current tax code narrows racial disparities overall in some ways, but other aspects of the tax code reinforces them. Here are three ways the tax code and how it’s administered affect these disparities, along with three ways to reform it to far better harness its power to advance equity.

First, some background. Historical racism and continuing racial prejudice and discrimination have helped shape factors — such as income, wealth, and consumption — that determine households’ tax liability. Racial barriers to economic opportunity, such as labor market discrimination and disinvestment in low-income communities’ infrastructure, have helped create deeply unequal distributions of wealth and income with households of color disproportionally concentrated at the bottom while white households are heavily overrepresented at the top. Further, historical racism has directly influenced decisions that have shaped the tax code itself.

So how can the tax code and its administration affect racial disparities? And how can tax reforms can help advance racial equity?

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