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Congress has a historic opportunity to fix the way the preferential treatment of investment income widens the racial wealth gap and to strive toward a racially equitable tax code.

10 state personal income tax reforms that offer the most promising routes toward narrowing racial income and wealth gaps through the tax code.

There are several ways that the House leadership could avoid this problem. One approach is for lawmakers to replace the SALT cap with a different kind of limit on tax breaks for the rich that actually raises revenue and avoids disfavoring some states compared to others as the SALT cap does. ITEP has suggested a way to do this.

This report finds that the vast majority of these tax increases would be paid by the richest 1 percent of Americans and foreign investors. The bill’s most significant tax cuts — expansions of the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) — would more than offset the tax increases for the average taxpayer in all income groups except for the richest 5 percent.

It is reasonable for corporations (and, indirectly, their shareholders) to pay taxes to support the government investments that make their profits possible, such as the highways that facilitate the movement of goods and people, the education and health care systems that provide a productive workforce, the legal system and the protection of property, all of which are vital to commerce. Corporate tax avoidance allows wealthy and powerful individuals to reap enormous benefits from these investments without contributing their fair share to support them.

If lawmakers are unwilling to replace the SALT cap with a new limit on tax breaks that raises revenue, then any modification they make to the cap in the current environment will lose revenue and make the federal tax code less progressive. Given this, lawmakers should choose a policy option that loses as little revenue as possible and that does the smallest amount of damage possible to the progressivity of the federal tax code.

When crafting tax policy, lawmakers and bill authors often work backward, using a patchwork of changes to help achieve their stated goal. One important consideration that is routinely left out is what impact the change will have on racial equity. Such is the case with the qualified business income deduction, which is helping to further enrich wealthy business owners, the overwhelming majority of whom are white. At present, white Americans own 88 percent of private business wealth despite making up only 60 percent of the population. Meanwhile, Black and Hispanic families confronting much higher barriers to entrepreneurship each own less than 2 percent, despite making up 13 percent and 19 percent of the population, respectively.

Policymakers tout sales tax holidays as a way for families to save money while shopping for “essential” goods. On the surface, this sounds good. However, a two- to three-day sales tax holiday for selected items does nothing to reduce taxes for low- and moderate-income taxpayers during the other 362 days of the year. Sales taxes are inherently regressive. In the long run, sales tax holidays leave a regressive tax system unchanged, and the benefits of these holidays for working families are minimal. Sales tax holidays also fall short because they are poorly targeted, cost revenue, can easily be exploited, and create administrative difficulties.

Thirty-nine profitable corporations in the S&P 500 or Fortune 500 paid no federal income tax from 2018 through 2020, the first three years that the Tax Cuts and Jobs Act (TCJA) was in effect. Besides the 39 companies that paid nothing over three years, an additional 73 profitable corporations paid less than half the statutory corporate income tax rate of 21 percent established under TCJA. As a group, these 73 corporations paid an effective federal income tax rate of just 5.3 percent during these three years.

Join us for a discussion on why tax credits like the Child Tax Credit (CTC) expansion are good economic policy. You’ll hear from anti-poverty experts on why Congress should extend the policy beyond 2021 and what we can learn from an initiative providing low-income mothers in Jackson, Miss., $1,000 cash on a monthly basis, no strings attached. From theory to practice and what it means for American families, this CTC webinar will provide a unique angle through which to view this transformative policy.