In theory, tax code–based public subsidies should help all families save and invest, but instead, wealthier households receive most of the benefits. In fact, a recent analysis of the largest wealth-building tax subsidies found that the top 1 percent of households received more benefits from these tax code–based subsidies than the bottom 80 percent combined.

The new PolicyLink brief, Building an Equitable Tax Code: A Primer for Advocates, answers key questions about tax expenditures: What are they, how do they work, and who benefits? In addition, since the Internal Revenue Service (IRS) does not collect tax data by race, the primer uses data related to the distribution of benefits by income quintiles and the demographics of each quintile to provide a rough approximation of how different racial and ethnic groups do or do not benefit from the different categories of tax expenditures.

Key Takeaways include:

• Exclusions, itemized deductions, and preferential rates largely benefit the wealthy, while credits, especially refundable credits, are more beneficial to low- and middle-income households.
• The majority of households of color do not benefit from exclusions, deductions, or preferential rates.
• Tax policies are more likely to help lower-income households if they: turn deductions into credits; turn nonrefundable credits into refundable credits; and provide savings incentives in the form of public matching funds.

 

The brief provides policy recommendations to make the tax code more equitable, such as turning deductions into refundable credits and providing savings incentives.

Download the brief and join us for a national discussion on this very issue.

PolicyLink, CFED, and the Asset Funders Network, and various co-hosts, are holding a webinar on December 4th that will explore who benefits from federal tax expenditures by income, race, ethnicity, and zip code. The webinar will feature new data and insights from CFED, PolicyLink, and the Urban-Brookings Tax Policy Center, along with a discussion about how tax policy proposals expand savings and investment opportunities for lower-income households and households of color.