In the wake of mounting federal budget cuts and soaring wealth inequality, the Institute on Taxation and Economic Policy (ITEP) and the Local Progress Impact Lab have co-authored an in-depth new report designed to equip local policymakers with the tools to make corporations and ultra-wealthy residents pay their fair share.
“The task for local elected officials in this moment is clear: use available tools to make the wealthy pay their fair share to fund the essential public goods that allow our communities to live safe, healthy, and thriving lives,” the report notes. “Expanding the use of progressive local revenue is not only a matter of fairness—it is a practical strategy for protecting the public services that underpin safe, healthy communities.”
The report comes at a critical juncture for American towns, cities, and counties. Federal funding cuts are set to decimate local budgets and threaten public programs that make energy, food, housing, and healthcare more affordable and accessible. Meanwhile, federal tax policies have delivered massive tax cuts to the wealthiest Americans and profitable corporations while doing little for most working families.
Furthermore, nearly all state and local tax codes today are upside-down, collecting a larger share of income from those with low and moderate incomes than from the highest earners. And local governments currently underuse progressive revenue tools. Across the nation, most local revenue is raised through property taxes and sales taxes, with relatively limited use of progressive options.
To push back against this imbalance, the report outlines concrete, actionable progressive revenue policies available to local jurisdictions, including:
- Diversifying and Graduating Income Taxes: Utilizing local options to tax wages, corporate profits, and passive wealth (interest, capital gains, and dividends). The report notes that 7,045 taxing districts across 15 states and D.C. already leverage local income taxes, providing substantial, resilient revenue streams (e.g., accounting for roughly 40 percent of local revenue in Baltimore and Philadelphia).
- Progressive Property Tax Reforms: Modernizing property tax systems by implementing “mansion taxes” on high-value real estate, vacancy taxes, and pied-à-terre taxes, as well as circuit breakers to direct relief to working families that actually need it.
- Tax Big Tech: Taxing the digital economy makes sense in many ways, and there are emerging and innovative ways to do so. Despite the fact that big tech firms are deeply embedded in the economies of nearly every community, most localities do not tax them at all. As tech companies, social media companies, and AI companies make billions off the personal information of residents and businesses, localities should tax them to ensure they pay their fair share of local services and the tremendous social costs of their business activities.
- Fixing Racial and Economic Systemic Biases: Reforming local assessment practices to address the systematic underassessment of expensive homes and commercial properties, which disproportionately burdens lower-income homeowners and exacerbates the racial wealth gap.
The authors also tackle the common legal and political obstacles used by wealthy interest groups to stifle tax fairness, most notably state-level preemption (such as constitutional uniformity clauses).
By utilizing the progressive revenue strategies detailed in this report, local leaders can insulate their communities from federal economic shocks, lower their reliance on regressive sales taxes, and secure the funding needed for safe streets, quality public schools, affordable housing, and clean infrastructure.
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About the Institute on Taxation and Economic Policy (ITEP): The Institute on Taxation and Economic Policy is a non-profit, non-partisan research organization that works at the federal, state, and local levels to ensure that tax policy is equitable, sustainable, and adequately funds public services.
About the Local Progress Impact Lab: The Local Progress Impact Lab drives the research, policy design, and strategy needed to support local elected officials nationwide in advancing economic, racial, and social justice in their communities.
