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The current federal Child Tax Credit (CTC), which provides up to $2,000 per child, is designed to provide an income boost to parents or guardians of children and other dependents. However, many low-income families do not receive the full benefit of the federal credit due to an earnings requirement and lack of full refundability for families with low incomes. A state-level CTC could redress some of the shortcomings of the current federal credit. By eliminating the requirement for earnings, along with the phase-in, and making the credit fully refundable, low-income families would be eligible for the full benefit, ultimately reducing child poverty.
In offsetting federal income and payroll taxes and supplementing the earnings of low-wage workers across the country, the Earned Income Tax Credit (EITC) is one of the most effective anti-poverty programs in the U.S. However, the EITC provides little or no benefits to workers without children; for childless adults, aged 25 through 64, the maximum credit is small and the income limits are restrictive. The tables in this report outline the benefits of relaxing age requirements under state EITCs to include both young and older childless adults; they also identify the impact of bringing existing state EITCs for that population up to 100 percent of the federal credit to help counteract shortcomings in the federal credit’s design.
Thirty states and the District of Columbia (D.C.) allow a broad category of tax subsidies known as itemized deductions, used to reduce taxpayers’ taxable income. Itemized deductions are regressive, offering the largest benefits to higher-income taxpayers and little or no benefits to low and middle-income families. Additionally, Black and Hispanic families tend to receive smaller tax cuts from itemized deductions than white families. This report outlines options state lawmakers can take to address these problems, including outright repeal, applying broad-based phase-outs or caps, and limiting specific deductions such as for mortgage interest on second homes or for charitable gifts constituting a small percentage of income.
The United States needs to address growing inequality and raise more revenue to fund critical public investment. One way to accomplish both goals is to enact legislation that raises taxes for high-income or high-wealth households. This infographic includes figures that demonstrate the following four points: the U.S needs to address inequality, the U.S needs more revenue, the U.S tax system is not solving these problems now, and the public supports using progressive taxes to solve these problems.
Flat or graduated personal income taxes drive income inequality and racial wealth gaps. This brief compares Illinois’s flat income tax structure to the proposed Fair Tax amendment through a retrospective analysis. It shows that Illinois’s historic flat income tax in lieu of a graduated rate tax (used by most states) results in a tax subsidy for the wealthiest Illinoisans that compounds income inequality and racial wealth gaps.
President Joe Biden’s COVID-19 relief package, the American Rescue Plan, includes a significant expansion of the Child Tax Credit (CTC). The proposal provides a $125 billion boost in funding for the program, which would double the size of the existing federal credit for households with children. This infographic explains the benefits of this expansion and their potential impact on different racial and income groups.
No two state tax systems are the same. This report provides detailed analyses of the features of every state tax code and assesses their fairness by measuring effective state and local tax rates paid by all income groups. The report concludes the following findings: the majority of state tax systems are inequitable, tax structures in 45 states exacerbate income inequality, heavy reliance on sales and excise taxes characterize the most regressive state tax systems, progressive graduated income taxes characterize the lead regressive state tax systems, and more.
Examining tax laws only in the context of class is a “colorblind” approach to tax and economic policy that ignores how tax policies affect communities based on race. Historical instances of explicitly racist tax policies, such as the slave tax, continue to impact state and local tax systems. Additionally, housing, education, and criminal justice policies have contributed to white wealth accumulation and depressed the abilities of communities of color to acquire wealth on the same scale. Dismantling policies that unfairly perpetuate white economic advantage requires understanding forces that created such advantages and how they remain ingrained through current policies. Acknowledging the racially differential impacts of tax policies is necessary in building equitable and sustainable tax systems.
Generally, southern states levy taxes in a way that worsens racial and economic equity. Most southern states raise less revenue than states in other regions, leading to underinvestment in people and places. This lack of revenue contributes to staggering levels of poverty, particularly for Black and Hispanic families. Southern states also generally have lower corporate and personal income taxes for high-income households, which are disproportionately white. Additionally, southern lawmakers have been slow to adopt refundable tax credits, which are strong poverty-reducing tools. This report provides a series of solutions, such as employing a progressive tax system and reforming property taxes, to create more equitable tax codes in the South.
A federal wealth tax on the richest 0.1 percent of Americans is a viable approach for Congress to raise revenue and address rising inequality. This report outlines reasons why the United States needs a federal wealth tax to achieve these goals, as opposed to federal tax policies that continue to almost exclusively tax income. Additionally, this report also identifies and refutes the two most common arguments against a federal wealth tax: claims that wealth is too difficult to measure precisely, and claims that a federal wealth tax would be unconstitutional.