New research: Tax policy choices can narrow — or worsen — the racial income gap

Budget & Tax Center report details role of different taxes in addressing racial income and wealth gaps

RALEIGH (April 12, 2021) — A new report released today by the Budget & Tax Center, a project of the North Carolina Justice Center, analyzes who pays taxes in North Carolina and the ways in which our current tax code directly — and via the investments it supports — impacts Black, Indigenous, Latinx, and white residents.

“Each year as our policymakers consider whether and how to raise collective resources to advance our state’s well-being, their choices can support more equitable outcomes that ensure every person — Black, Indigenous, people of color, and white — can thrive,” said Alexandra Sirota, Director of the Budget & Tax Center and co-author of the report. “Tax choices are part of a set of broader policy choices that can reinforce or break down inequities.  North Carolina policymakers can choose to enact progressive tax policies that do more to create equitable outcomes in our state.”

Read the report

The report details the role of different taxes in addressing racial income and wealth gaps and the impact of specific past tax policy choices on the state’s tax code and its effectiveness at advancing more equitable outcomes.

“North Carolina’s current tax code is upside-down because it requires those who make the least to pay the most of their income in taxes,” said Leila Pedersen, Policy Analyst with the Budget & Tax Center and co-author of the report. “By recognizing that economic and racial disparities are the result of specific policy choices, we can choose a path forward that benefits the whole economy and leads to better outcomes for all.”

Key takeaways from the report:

• State and local lawmakers can choose to advance equity with tax policy decisions. North Carolina policymakers can levy progressive taxes to narrow racial income and wealth gaps, or they can make those gaps worse with inequitable tax policies.

• Progressive tax policies promote economic growth and shared prosperity. A more even distribution of wealth benefits the whole economy as more people are able to meet their basic needs, participate in our workforce, and increase their demand for local goods and services.
• Tax policies that fail to raise adequate revenue give rise to austerity budgets that block North Carolinians from opportunity. If North Carolina were spending at the 45-year average, given the size of the economy today, the state would be investing $5.4 billion more into its communities. Over current year spending, this would mean a 20 percent increase in state public spending.
• The type of tax matters. Heavy reliance on sales and excise taxes is the primary policy leading to low- and middle-income families paying a larger share of their incomes in state and local taxes than the rich, which has a disproportionately negative effect on people of color. Progressive personal income taxes — which include meaningfully graduated tax rates, broad bases, and significant refundable low-income tax credits — are more effective at narrowing the racial income gap and raising the necessary revenue to adequately invest in communities.

Read the report

More analysis

The Budget & Tax Center report demonstrates North Carolina specific information, but the issues facing state and local governments are also detailed in a new report released last week by the Institute on Taxation and Economic Policy. ITEP’s report spotlights how states whose overreliance on inequitable revenue sources makes wealth and income gaps worse across the country.

The nonpartisan Budget & Tax Center is a project of the NC Justice Center, which works to eliminate poverty in North Carolina by ensuring every household in the state has access to the resources, services and fair treatment it needs to achieve economic security. 

FOR MORE INFORMATION, CONTACT Alexandra Sirota, Budget & Tax Center Director, at alexandra@ncjustice.org or ; or Mel Umbarger, Budget & Tax Center Senior Communications Specialist, at mel@ncjustice.org.