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The 2017 Federal Tax Cuts are Supercharging the Racial Wealth Divide

A newly released report by the Institute on Taxation and Economic Policy and Prosperity Now, Race, Wealth and Taxes: How the Tax Cuts and Jobs Act Supercharges the Racial Wealth Divide, finds that the Tax Cuts and Jobs Act (TCJA) that Congress passed in late 2017 not only adds unnecessary fuel to the growing problem of overall economic inequality, but also supercharges an already massive racial wealth divide to an alarming extent.

Last year, Congress had a tremendous opportunity with the TCJA to help low-income and middle-class families – particularly those of color – build the wealth needed to secure their share of the American Dream. Unfortunately, by spending the majority of the $1.9 trillion within this law to provide large tax breaks for the wealthy and multi-billion-dollar corporations, Congress chose to actively invest in policies that exacerbate economic inequality rather than mitigate it.

Even worse, in designing and enacting the 2017 tax law, Congress not only chose to grow the economic gap between the rich and everyone else, but also between White households and households of color, thus further perpetuating a long history of racism that undergirds government policies and American society at large.

Key findings from the report include:

  • Of the nearly $275 billion within the TCJA in 2018, $200 billion (72%) goes to the top 20% of households. Instead of boosting the middle class and working Americans, this is a giveaway to the richest 20% of Americans.
  • Because America’s wealthiest families are overwhelmingly White, it is inevitable that a tax cut geared to the very top would shower outsized benefits on White households relative to the overall population and households of color. For instance, while 1.2% of White families earn enough to place them among the top 1 percent of earners, just 0.4% of Latino and Black families are members of this group. As a result, households of color are largely excluded from accessing the TCJA benefits, leaving them with little support from one of our nation’s largest systems for improving the economic outcomes of American households.

Families that are not among the nation’s highest-income households are likely to be hit twice by the federal tax cuts. In the short term, higher deficits brought about by the tax change will likely increase pressure on lawmakers to cut funding for important services that help reduce barriers to opportunity for so many low- and moderate-income households – particularly those of color – in areas like health, income security, job training and education. In the long term, this dynamic will not only exacerbate already tense economic insecurities so many households face today, but will also lead to even further economic hardships for households of color.

This post was written by the Institute on Taxation and Economic Policy and Policy Now.

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