Federal tax cut worsening racial wealth divide

Federal tax cut worsening racial wealth divide

While President Trump and Republicans in Congress heralded the Tax Cut and Jobs Act of 2017 as a major tax cut for the middle class, the numbers don’t bear that out.

Number of the Day

$2.75  - The average daily tax benefit a middle class family gets from the 2017 Trump tax cut, compared to $131 per day for the richest 1 percent of households  (Source: Prosperity Now and ITEP).

While President Trump and Republicans in Congress heralded the Tax Cut and Jobs Act of 2017 as a major tax cut for the middle class, the numbers don’t bear that out. A new analysis by researchers at Prosperity Now and the Institute on Taxation and Economic Policy reveals just how much of the federal tax cut benefits went to the highest income earners, and the crumbs that were left over for low and middle-class households:

Using the Institute on Taxation and Economic Policy’s (ITEP) microsimulation model, we estimate that of the nearly $275 billion directed at individual tax cuts within the Tax Cuts and Jobs Act in 2018, 72% of these cuts-totalling just under $200 billion-goes to the top 20% of households (earning $110,000 or more). In other words, despite the 2017 tax law being framed as necessary or unlocking and boosting the economic outlooks of working families, the law gives the top 20% of the nation’s highest income earning households more than two-and-a-half times the tax cuts it gives to the bottom 80% of households combine ($77 billion).

Not only are the bulk of the benefits from the 2017 tax cuts going to households in the highest income brackets, the lopsided nature of the tax cuts is also compounding already deeply problematic racial wealth disparities:

Making all this worse, while most low-income families are White, Black and Latino families are overrepresented in this group relative to their share of the national population. Take together, Black and Latino households account for nearly 30% of the nation’s poorest families, despite comprising just 22% of the overall population. 74% of Black and Latino households fall in the bottom 60% of taxpayers with incomes of $65,000 or less. In contrast, just 56% of White households fall in the bottom 60%.

It’s important to remember that the existing racial wealth disparities in the United States are a function of a long history of inequitable policy decisions, of which the Tax Cuts and Jobs Act is just the latest:

The yawning racial wealth divide, much like the rise in overall income inequality, did not occur through random change or a mass collection of “bad” individual choices. An insidious history of racist federal, state and local policies built over generations catalyzed White wealth, while intentionally depressing the wealth and wealth-building potential of households of color.


Controversial property tax exemption moves forward
Property taxes are a major source of funding for local schools, infrastructure and a variety of other local government functions. For decades, the state of Louisiana has been reducing the amount of property tax revenue flowing to localites by exempting manufacturers from paying property taxes without the approval of the affected local governments. Under new rules put forth by Gov. John Bel Edwards, local authorities have an opportunity to weigh in on the exemptions. But in Baton Rouge, major companies have shown they aren’t going to let go of their tax breaks without a fight. The Advocate’s Terry L. Jones reports:

ExxonMobil’s tax break would be worth $5.7 million in the first year, and the firm would pay 20 percent property taxes for a decade. …  The group Together Baton Rouge has been one of the most outspoken critics of ITEP and other issues related to tax assessments involving ExxonMobil’s facility, which the city-parish’s park’s system had claimed was too low before dropping its objections. Edgar Cage, a lead organizer with Together Baton Rouge, said the organization has issues with government entities doling out large tax breaks to ExxonMobil without standards or protocols in place to penalize the company if it doesn’t reach the revenue projections in their project proposals.


Advocates push for local child care funding
The academic and economic benefits of quality early childhood education for infants and young children are well established and widely recognized, but state and local elected officials in Louisiana have a hard time coming up with the funding to ensure that quality early education is available to low-income families. A working group in New Orleans analyzed the need and the estimated costs of addressing the early childhood education needs in the city, and presented its findings to the Orleans Parish School Board on Thursday. Jarvis DeBerry, columnist for Nola.com/The Times Picayune, weighs in:

All together, the group reports, there were 5,386 New Orleans children ages 0-4 who were getting federal, state or local funds for access to education, but 9,990 who qualified for assistance but weren’t getting it. It would take more than $202 million extra dollars to close the gap and provide access for every child who qualified. Obviously, neither the federal government, the state nor the city has that much money to devote to early childhood education.  But that doesn’t mean that there shouldn’t be a coordinated effort on the part of the School Board and the New Orleans City Council to do all they can to expand access to children who need it.

While $202 million may not be available to provide quality early care for all of the families in need, the New Orleans-based advocates have a more measured ask of their local elected officials:

As the City Council prepares its budget, the New Orleans Campaign for Grade-Level Reading, a collaborative that includes dozens of nonprofit and service organizations in New Orleans, has released a statement asking that the city double the investment in early childhood education it made last year.  That would be a $1.5 million budget item.


Investing in human capital works
The World Bank has embarked on a new project to measure how well nations help citizens live up to their human potential. The threshold for reaching your maximum human potential, according to the researchers, is to survive to age 5 without your growth being stunted, complete 14 years of “high quality” schooling by age 18 and survive to age 65. Sadly, nearly 1 in 4 Americans never hit that mark, which is largely attributable to inequitable access to quality education and health care services. Andrew Van Dam and Jeanne Whalen write for The Washington Post’s Wonkblog:

The bank estimates the United States enables its population to realize about 76 percent of its potential. Contrast that to 88 percent in the top-ranked country, Singapore, or just 29 percent in Chad, which came in last among the 157 countries surveyed. “One feature of countries that are successful in the index … they also worry a lot about equal distribution of health and education,” said Simeon Djankov, director of the World Bank’s research department, who helped produce the index. “In Vietnam, urban kids from upper-income families do well on tests, but so do rural kids from not so well-to-do families.”

The human capital index reveals that investing in human potential is one of the most efficient ways for a country to increase economic output. According to the results, the United States has a lot to gain from maximizing human capital by ensuring that every person has access to quality education and health services, and there are clear examples of that strategy working for other countries:

If the United States were to deploy its human capital at Singapore-like levels over the next two decades, back-of-the-envelope math shows it would add roughly 0.8 percentage points to annual growth over that time. That one move would take the country from a slow and steady expansion to something near the 3 percent figures about which politicians rhapsodize. Such a move isn’t as improbable as it seems. In 1950, the report notes, adults in Singapore averaged two years of formal schooling. Today, they’re near the top of the list with an expected 13.9 years of schooling by age 18.


*Note* LBP is collecting stories about the impact of Medicaid and Medicaid expansion on Louisianans’ access to health care services. If you have a personal story to share, or if you work with Medicaid patients who would like to share their story, please reach out to Caroline Gilchrist via email at caroline@labudget.org or by phone at 225-573-9996.


Number of the day
$2.75  – The average daily tax benefit a middle class family gets from the 2017 Trump tax cut, compared to $131 per day for the richest 1 percent of households  (Source: Prosperity Now and ITEP).