Picture This: Tax Policy That Tackles Economic Inequality

The image below from the Institute on Taxation and Economic Policy (ITEP) is almost worth 1,000 words. It reveals that the last 20 years of tax policies have disproportionately benefited the wealthy while tax and cash provisions in the American Rescue Plan focus on the bottom 60 percent, ensuring resources go to individuals and families who need it most.

There are a few more words necessary to paint a complete picture and underscore why the American Rescue Plan–and its tax and cash provisions specifically–are a necessary reversal of policies that have enabled growing economic inequality.

A 2018 ITEP report that examined tax policy in the Bush, Obama and Trump years concluded: “Since 2000, tax cuts have reduced federal revenue by trillions of dollars and disproportionately benefited well-off households. From 2001 through 2018, significant federal tax changes have reduced revenue by $5.1 trillion, with nearly two-thirds of that flowing to the richest fifth of Americans.”

In other words, President Bush’s tax cuts, limited extensions of those tax cuts under President Obama and the 2017 Trump-GOP so-called Tax Cuts and Jobs Act funneled trillions of dollars in wealth to the highest-earning 20 percent of households. These policies exacerbated federal revenue shortfalls and contributed to widening income inequality. Since the policies are still in effect, the wealthy continue to benefit.

In contrast, the cash and tax provisions in the American Rescue Plan are necessary and transformative, but they are only a one-time infusion.

Consider the expansion of the Child Tax Credit (CTC) in the American Rescue plan, which experts project will reduce child poverty by 45 percent this year. When this credit expires in a year, Congress will have to decide whether it wants to continue to invest in children over the next 10 years.

President Biden has signaled his readiness to make long-term adjustments to the tax code and bring greater equity to the system. As he eyes a capital gains increase for those making over $1 million to place income gained from work on par with that gained from wealth, an income tax increase for those earning over $400,000, and a corporate tax rate hike among other proposals, he should pair those measures with permanent expansions of the CTC, Earned Income Tax Credit, and other investments that boost economic security for poor, low- and moderate-income families. Just as tax policies (and underfunding of the IRS) have contributed to widening economic inequality, it can also be a tool to address it. Wealth tax anyone?

Tax and other policies of the last four decades ignore how structural challenges in the economy erect barriers to economic success. Government can work. The American Rescue Plan is showing the way, and now is the moment to begin cementing gains the plan will make possible.

Tax Takes from Citizens for Tax Justice here. CTJ is a partner in the movement for transformative change. Find out more at http://ctj.org

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