REGRESSIVE TAX SYSTEM
The upside-down tax code hurts the lowest income families and doesn’t generate enough revenue to do what communities need and want.

• All but a handful of states make poor residents contribute a greater share of their income to taxes than wealthy people do. Economists call that upside-down approach “regressive.” Nationwide, the share the lowest-income earners pay to state and local taxes is 54% higher than what the top earners pay, according to the Institute on Taxation and Economic Policy (ITEP).
  
  
• A key reason: sales and other consumption taxes. Unlike the federal government, almost all states collect them. Spend $50 on clothes for your kid, and you’ll pay the same sales tax as anyone else in your area, regardless of income. The poorer you are, the greater the share of your resources the sales tax gobbles up.
  
  
• The lower one’s income, the higher one’s overall effective state and local tax rate. On average, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate paid by residents to their home states is 11.4 percent for the lowest-income 20 percent of individuals and families, 10.5 percent for the middle 20 percent, and 7.2 percent for the top 1 percent.
  
  
• Heavy reliance on sales and excise taxes makes tax systems more regressive. Eight of the 10 most regressive states rely heavily on sales and excise taxes. As a group, these eight states derive more than half of their tax revenue from these taxes, compared to a national average of about one-third. Heavy reliance on these taxes is largely a function of these states’ decision not to levy robust personal income taxes. Six of these states do not levy broad-based personal income taxes while two levy flat-rate taxes. Nationwide, the lowest-income 20 percent of taxpayers pay 7.0 percent of their income toward sales and excise taxes, the middle 20 percent pay 4.8 percent and the top 1 percent pay a comparatively meager 1 percent rate.
  

CORPORATE TAX POLICY
The corporate tax code exacerbates our upside down tax code and prevents us from raising the type of revenue necessary to fund things that would improve outcomes for families.

• Research indicates that when the federal government cut corporate taxes dramatically in 2017 it provided few benefits to the economy in general and to low- and middle-income households in particular. As part of that overall reduction in federal revenues that came along with the 2017 tax cuts, the corporate income tax’s contribution to revenues fell by roughly half, from 2.0 percent of GDP in 2000 to about 1.1 percent in 2019. That alone amounts to roughly a $200 billion annual loss of revenue.  Imagine what we could have done with $200 billion – how many childcare centers or wage improvements for people in the care sector? How many health care centers? How many more school lunches?  How much additional mental health services?  How much additional stable housing? 

An inequitable tax code and tax system contributes to generations of families remaining in poverty and being unable to achieve economic mobility.

According to the Brookings Institute:

• Today, median white household wealth sits at $187,300, compared to just $14,100 for Black households. And while 72.7% of white Americans are homeowners, only 44% of Black Americans own homes.
  
  
• Black homeowners’ property tax burden is 10% to 13% higher than for white homeowners, yet their homes are undervalued by an average of 21% to 23%.
  
  
• The U.S. tax system protects accumulated wealth, which creates a barrier to homeownership for lower-income, low-wealth households. For decades, researchers have shown that qualifying for homeownership is a sizable financial challenge due to the large upfront costs. Many prospective buyers need financial assistance or must save for years to make a down payment, whereas others can rely on intergenerational wealth transfers to fund their purchase of a home. The U.S. tax code provides additional relief to prospective buyers whose families have excess capital to gift them. The code enables a grantor to gift up to $17,000 without having to report the transfer on the IRS gift tax return form, and the grantee does not have to pay taxes on it or report it (unless it comes from a foreign source). Such financial gifts are powerful in that they provide white families with a head start to wealth-building through homeownership. They also allow wealth to accumulate across generations in ways that it does not for Black families due to family structure and lack of access to excess capital.
  
  
• Policies such as a wealth-based refundable tax credit, a living allowance deductible, and greater transparency and access to IRS tax data stratified by race could help close the racial wealth gap.

AUDITS
One area where there are broken tax processes is in audits. Black taxpayers are 3 to 5 times more likely to be audited than are other taxpayers, due to biases in the algorithm and federal audit processes. (Stanford University).  The Stanford study found that “across all income groups, Black tax filers are audited at higher rates, with the largest disparities occurring among families claiming the Earned Income Tax Credit (EITC). Furthermore, the researchers found that the disparities are not explained by differences in income, family size, or household structure, or by differences in tax under-reporting.” It argues…

IMMIGRANT FAMILIES
Undocumented immigrants contribute billions of dollars in state and local taxes, according to estimates by the Institute on Taxation and Economic Policy (ITEP) and other groups, but aren’t eligible for many tax-funded services or tax rebates.

TAX ASSESSING
According to ITEP, studies show assessors tend to inflate property tax assessments of low-priced properties, disproportionately owned by Black and Latino people. The higher tax bills increase the odds of losing your home.

TAX FILING
The $10 billion tax preparation industry is lucrative and touches every neighborhood in America. Lacking federal oversight, some of the more than 700,000 tax preparers in the United States are unqualified and some purposely take advantage of taxpayers, commit fraud, and engage in misconduct.  Research indicates that storefront tax preparation operations that employ these corrupt or unqualified preparers concentrate in low-income communities. To build upon that research, Color of Change found that for-profit tax preparation companies are more prevalent in Black and Brown communities.  (Color of Change)

Simpler taxes have numerous benefits. They would reduce taxpayers’ costs of complying with the tax system in terms of time, money, and mental anguish. They would likely raise the use of tax subsidies-say, for education-reduce unintentional tax evasion, and increase the likelihood that taxpayers would see the tax system as fair.