(Photo by Olivier Douliery/Abaca Press/Sipa via AP Images)
The $1.5 trillion tax cut signed into law last December by President Trump is not only widening the economic gap between the rich and everyone else, but also between white Americans and people of color.
That's according to a new, first-of-its-kind analysis of the 2017 Republican Tax Act by the Institute on Taxation and Economic Policy (ITEP) and Prosperity Now, a nonprofit advocacy group for low-income households. Using an economic model created by ITEP, the report drills down on the racial implications of the Republicans’ handiwork. The report’s authors found that racial inequities are a feature of the tax law, not a bug—Trump’s tax cuts champion Americans with existing wealth over those struggling to create new wealth.
Of the $275 billion in individual and business tax cuts doled out by the law this year, some $218 billion will go to white households, according to the report. Black and Latino households are expected to take in only $32 billion total between the two groups. On average, white households will get $2,020 in cuts, while black households will receive $840 and Latino households $970.
The richest Americans are the largest beneficiaries of key elements of the individual tax cuts—a reduced Alternative Minimum Tax and lower personal income tax rates, for starters—and the richest Americans also happen to be disproportionately white. Thanks to financial advantages rooted in historic race-based public policies that ranged from redlining to denying the benefits of the G.I. Bill to African Americans, white Americans are disproportionately represented among the highest earners in the country.
“Anytime you concentrate benefits at the top, you are either consciously or unconsciously deciding that you are going to make a larger share of investments in white households,” says Jeremi Greer, Prosperity Now's vice president of policy and research and a co-author of the report.
Even among the fabulously rich, racial disparities still abound: White households in the top one percent will receive an average tax cut of about $52,000 a year, while Latino households will take in $19,850 and black households will get $19,290.
“For elite households of color, who by societal standards have ‘played by the rules' and have so-called ‘made it,' the [Tax Act] not only treats them differently than their wealthy White counterparts, it also leaves them far behind relative to these households,” the report's authors write.
Such inequities stem from the Tax Act's treatment of income from work. Or, to be more precise, its unfavorable treatment of income from work compared with existing wealth. The tax code already favored earnings received through capital gains, dividends, and inheritance more than working income from high earners. The Trump tax cuts double down on that, establishing a new tax deduction for so-called “pass-through” businesses and taking a trimmer to the estate tax.
Under the new tax law, wealth is valued even more highly than work than it was before—and racial gaps in wealth are even larger than racial gaps in income. The median net worth among white families is approximately ten times larger than that of black families and eight times that of Latino families. Wealth gaps have largely remained persistent despite increases in educational attainment among black and Latino households over the years.
What's more, when it comes to tax-dodging skullduggery, as showcased by the Paul Manafort trials and the recent mammoth investigation into the Trump family finances by The New York Times, only the rich can afford to hire the kind of tax advisers who reduce multimillion-dollar tax bills to pocket change.
Middle-class taxpayers earning between $40,000 and $60,000 are the only the group whose tax cut benefits, as a share of income, are consistent across races. However, white middle-class families outnumber black and Latino middle-class families, resulting in a larger total number tax cut for white taxpayers.
Then there are the downstream effects of the tax cut that must be considered.
While the tax cut amounts to a huge giveaway for the wealthy, it's not a free one. And it won't be the super-rich who'll be presented with the bill when it comes time to pay up.
To make up for the revenue lost to the tax cut, congressional Republicans have already begun angling toward cuts to social safety net programs on which low-income and middle-class communities rely—communities that encompass a large majority of minority groups. Reactive austerity efforts might also lead to cuts to the public-sector workforce, which is disproportionately made up of black employees, thereby further punishing communities of color.
When Donald Trump was campaigning for president in 2016, he had a stock pitch he delivered to black and Latino Americans. “What do you have to lose?” Trump asked rhetorically to Americans of color while standing before a sea of white supporters at a rally in Ohio. “What do you have to lose?”
As it turns out—and as this new reports documents—quite a lot.
Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives' age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren't made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.
