New tool allows policymakers to assess and improve the impact of tax policy on racial equity
Tax policy is not race-neutral, and specific tax policy designs can be traced to outcomes that have blocked Black, Indigenous, and brown people from reaching their full potential and achieving a high quality of life.
Right now, the General Assembly has the opportunity to assess potential impacts on Black, brown, Indigenous, and white North Carolinians in advance of adopting tax changes in the final budget. By considering those impacts — alongside the already documented benefits to the richest North Carolinians and losses to critical revenue for community priorities — policymakers can make a final decision about how to maintain the revenue the state needs to invest in what is best for every North Carolinian.
When one applies a unique tool developed by the Institute on Taxation and Economic Policy to assess the racial and ethnic impact of the budget proposal approved by the state Senate in June (SB 105), it become clear that the proposed income tax reductions will worsen the state’s exclusionary tax code. This analysis should serve as a cautionary note for House budget writers, as well as the Governor, regarding the disproportionate harm that would result from the Senate tax plan and the greater cost to us all of growing a more unequal society.
Here are three charts summarizing the analysis.
First, the personal income tax cuts contained in SB105 are skewed toward wealthier families, a disproportionate share of whom are white because of the rules and practices that have governed our economy and excluded people of color from wealth-building, equal pay, and access to the best paying jobs and education. White families earning six-figure incomes make up just 16 percent of all families in North Carolina, yet they would reap 54 percent of the tax cut being proposed. Overall, 77 percent of the tax cut would flow to white families even though white families make up just 67 percent of all tax returns in North Carolina.
Second, white families with income below $59,000 would receive just 10.1 percent of the total tax cut from income tax changes, compared to the 54 percent of the tax cut being received by the richest white North Carolinians. Those North Carolinians with incomes in the bottom 60 percent of the income distribution across all races are not receiving a proportional share of the tax cuts.
Finally, Black and Latinx families would fare poorly under this proposal. The average tax cut for Black families ($480) would be 42 percent smaller than the average tax cut for white families ($831). Similarly, the average tax cut for Latinx families ($426) would be 49 percent below the average tax cut ($831) for non-Latinx white families.
In short, the Senate tax cuts would move our state backward. The House should present a clear alternative in its budget by driving our public dollars toward public goods that expand access to economic well-being for everyone, as well as by undoing the disproportionate benefit afforded to the richest by targeting any tax cuts to those with the lowest incomes.
To learn more about this subject and how to bring a greater degree of racial equity to tax policy, check out the following resources:
- The Center on Budget & Policy Priorities documented the ways that tax and spending limits have been used to protect white property owners in the South and hold down the provision of universal public goods.
- Vanessa Williamson with the Brookings Institution writes of the politics of austerity and keeping taxes low as inextricably linked to white supremacy.
- Dorothy Brown, in her book “The Whiteness of Wealth,” documents the ways that specific tax provisions like the marriage penalty and estate tax have had disproportionate impacts that have built white wealth.
- The Institute on Taxation and Economic Policy has developed a tool that analyzes state level tax codes based on their advancement of racial equity, showing that many states fall short of ensuring their tax code is not making inequality worse.
This growing body of work — including our own contribution specific to North Carolina — helps to further reveal the critical and positive role that policy can play in advance equity and opportunity for all. It should, as is increasingly the case at the federal level and in state and local governments across the country, be integrated into the infrastructure of public policy analysis.
Alexandra Sirota is the Director of the N.C. Budget & Tax Center.