Tax Cuts and Jobs Act Will Supercharge Racial Wealth Divide, Finds First-Time Analysis

New Paper by Prosperity Now and ITEP Reveals 80 Percent of Cuts Goes to White Households

Even among the 1 Percent, White Households Receive Much Higher Tax Cut than Households of Color

WASHINGTON -- On the heels of a stunning report showing how the Trump family kept and built its wealth through tax fraud and exploiting loopholes, a paper by Prosperity Now and the Institute for Taxation and Economic Policy (ITEP) finds the 2017 Tax Cuts and Jobs Act, Congress’s and the Trump Administration’s signature piece of tax legislation, unequivocally rewards white wealth at the grave expense of households of color. The tax law’s racist underpinnings come into harsh light through a first-time quantitative look at the distributional impact of the law by income and race using ITEP’s microsimulation tax model. Read the full paper, Race, Wealth and Taxes: How the Tax Cuts and Jobs Act Supercharges the Racial Wealth Divide.

“On our best days as a nation, our tax system can be one of the most effective tools we have to help all families build wealth and financial security. But in passing the Tax Cuts and Jobs Act, Congress has instead doubled down on our shameful legacy of enriching the already wealthy and putting the rest of us further behind,” said Jeremie Greer, Prosperity Now’s Vice President of Policy and Research. “By and large, households of color are an afterthought in this bill, left to split the table scraps of the main course: a huge giveaway to the already wealthy, particularly the white households who get the bulk of their income from already existing wealth.” 

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Despite the bill’s proponents advertising it as legislation benefiting the middle class, researchers at Prosperity Now and ITEP show that 72 percent of the tax cuts go to the nation’s richest 20 percent of households. 80 percent of the cuts go to White households, further widening a Racial Wealth Divide that has become a defining feature of American life. The report also shows that setting race aside, it will take middle class families 50 years to get to the same average tax cut the richest one percent of households will receive in just one year. The report provides startling confirmation of sentiments expressed in a recent RNC poll that found 61 percent of Americans believe the Tax Cuts and Jobs Act favors the wealthy and corporations over middle class families.

“Far from the boon to working families its proponents claim that it is, the Tax Cuts and Jobs Act will only serve to intensify income and wealth inequality,” said co-author Meg Wiehe, ITEP’s Deputy Director. “It will take middle class families decades and low-income families centuries to receive the benefit families in the 1% receive in a year. Perhaps most devastatingly, the new tax law will serve to enshrine the Racial Wealth Divide as a defining feature of American life.”

Key findings from the paper include:

  • Of the $275 billion in tax cuts to individuals this year, $218 billion (80%) goes to white households who make up only 67 percent of taxpayers. On average, white households will receive $2,020 in cuts, while Latino households will receive $970 and Black households receive $840.

  • More than 40% of all tax cuts from the Tax Cuts and Jobs Act go to the White households in the top 5% of earners, despite only representing 3.9% of all tax returns.

  • Households of color are disproportionately represented in low- and middle-income groups which helps to explain why a tax bill so heavily tilted to the wealthy would leave them behind.  Taken together, Black and Latino households account for nearly 30% of the nation’s poorest families, despite comprising just 22% of the overall population. 74% percent 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%.

  • Absent major federal policy intervention, it will take median Latino families over 2,000 years to match the wealth median of white households today and median Black households are left with zero wealth during the second half of this century.

  • Even among the super wealthy, the disparity is alarming. White households in the top 1% will receive over $52,400 a year from the Trump tax cuts. Black, Latino and Asian households: $19,290, $19,850 and $35,690, respectively.

Rejecting the notion of “trickle-down economics,” ITEP and Prosperity Now’s latest paper calls for expanding and reforming the Estate Tax and leveraging those public dollars to invest in opportunity for all, particularly for children of low-and moderate-income families. To help

narrow the racial wealth divide, the paper’s authors also recommend expanding access to health care and reforming retirement and higher education tax incentives to help everyday Americans save and pay for college. 

Find more information from ITEP and Prosperity Now, including the microsimulation model used to generate tax estimates at https://prosperitynow.org/resources/race-wealth-and-taxes.  

RSVP for the 1pm media call at Courtney.Boland@berlinrosen.com or 732.284.7462.

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Prosperity Now

Prosperity Now believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most.

Institute on Taxation and Economic Policy (ITEP)

ITEP is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations on how to shape equitable and sustainable tax systems. ITEP’s expertise and data uniquely enhance federal, state and local policy debates by revealing how taxes affect both public revenues and people of various levels of income and wealth.

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