Income Supplements versus Building Assets and the Racial Wealth Gap: Tax Policies

Executive Summary

The goal of this report is to provide a background of tax policies designed to address the racial wealth gap in the US. and to give an overview of alternative approaches and current tax policy applications at the state level, and potential scenarios that assume the application of these state-level policies applied at the Federal level.

The wealth gap is a product of government policy that generally gets implemented through tax and transfer policies. The same but more pronounced story is behind the racial wealth gap. The racial wealth gap is structural, not behavioral. Historically, discriminatory redistributive and subsidy policies have favored already wealthiest white individuals and have put the balance against black families’ income and wealth creation.

The report provides a rich context and background of tax policies addressing racial and general wealth inequalities at the federal and state/local level. Second, the report examines alternative tax policies focused on asset-building approaches inspired by current ongoing tax policies implemented in cities, states, and other countries. Third, it explores a series of scenarios considering alternative policies, their fiscal implications, and their potential impact on reducing the racial wealth gap.

Tax policy provides several avenues for the federal government to narrow the racial wealth gap. Many current policies impact the racial wealth gap, either widening it or narrowing it through many programs. Much of this effect comes from disparate impacts on Black and white households: the Earned Income Tax Credit and Individual Development Accounts both have different impacts on Black and white families who are otherwise similar.

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