Wealth-Building for the Wealthy Through the Tax Code Continues as Families of Color Fall Further Behind
$729 billion. That’s how much the federal government spent through the tax code last year to help families build wealth. But for those of you familiar with our Turn It Right Side Up campaign, you already know the catch. The vast majority of this spending goes to help already wealthy families build more wealth instead of helping low- and moderate-income families, who need the most help. The typical benefit for a millionaire last year was $160,190 compared to the typical benefit for a working family of median income, which was $226 (see the visual below). That’s not a typo. Working families get next to no help building wealth while millionaires get thousands upon thousands of dollars to build even more wealth than they already have.
As you can see in the following chart, Black and Latino households are hit particularly hard by this vast disparity in tax spending, which is an important driver in the ever-growing racial wealth divide. In The Road to Zero Wealth report from last year, we found that as of 2013, median White households owned more than twelve times as much wealth ($134,000) as median Black households ($11,000) and nearly ten times as much as median Latino households ($14,000).
When most think of government spending, they don’t think of taxes. But the reality is that tax expenditures—in the form of deductions and credits—are just another form of government spending, albeit in disguise. By forging revenue to encourage families to buy a home, obtain a higher education, save for a comfortable retirement, and make investments, the government is in effect spending to help families build wealth and long-term economic security. Building wealth in these areas is a key part of the American Dream. And at a time when the costs of higher education are skyrocketing, more families are being priced out of homeownership, and saving for emergencies—let alone retirement—is becoming increasingly difficult, help is needed now more than ever.
As you may remember, Congress also passed a major tax bill last year, the Tax Cuts and Jobs Act. This would have been an ideal time to reform the tax code by making wealth-building incentives more equitable to start helping all families grow their wealth and get ahead. However, as the following graphic shows, Congress made the tax code overall more regressive by focusing on cutting taxes for the wealthy and corporations at the cost of $1.5 trillion over the next ten years.
Though the exact implications of the new tax law for working families and households of color is still not entirely clear, the overall the picture is not good. Prosperity Now will be exploring the details of this in the coming months with the hope of offering more insights later this year.
In the meantime, next week we will be releasing a brand-new report on the racial wealth divide facing Black and Latino households using an analysis of new data released by the Federal Reserve at the end of the last year. The new data hints at some improvements to the racial wealth divide, but the long-term benefits are unclear and the disparities are still vast. Check back next week for more!