New Report: California’s Tax Code Favors Wealthy, Blocks Californians of Color and Low-Income Households from Economic Opportunities

SACRAMENTO — A new report by the California Budget & Policy Center shows that how California policymakers choose to raise and allocate resources taxes and ongoing revenue contributes to the economic inequities for Californians of color and low-income households while providing many more advantages to wealthy individuals. 

In a 5 Facts report Promoting Racial Equity Through California’s Tax and Revenue Policies — the Budget Center outlines how a legacy of racist state and federal policies and practices, along with aspects of the tax code, block people of color from opportunities to build income and wealth while many of the state’s tax policies privilege Californians with higher incomes and wealth. These policies and practices range from residential segregation, employment discrimination, tax benefits only available to those who opt to “itemize” tax deductions, and deductions for mortgage interest and property taxes.

Findings in the report include:

  • Black households represent only 3% of the richest one-fifth of California households, even though they make up 6% of all California households. 
  • Latinx households represent 14% of the richest fifth compared to 30% of all households.
  • While American Indians and Pacific Islanders make up very small shares of California households, they represent even smaller shares of the richest 20%.
  • California is expected to lose over $60 billion in state revenues in 2021-22 to personal income tax breaks, some of the largest of which provide the majority of benefits to high-income families.
  • California’s four largest personal income tax deductions provide more than three-quarters of their benefits to families with incomes over $100,000, who are generally the richest 20% of families, while providing nearly no benefits to those with incomes below $20,000.
  • Just 35% of Black households, 44% of Latinx households, and 45% of Pacific Islander households own homes, compared to 60% of Asian households and 63% of white households.

“The racial, ethnic, and economic inequities that have been made painfully clear by the COVID-19 pandemic and recession are nothing new for California’s communities of color. The question now is what will California policymakers do about the widening racial-economic inequities and tax breaks that primarily benefit the already wealthy as they consider the state’s economic recovery?” said Kayla Kitson, a policy analyst with the Budget Center and author of the report.

The report notes too that policymakers have an opportunity to expand or create new tax benefits that reach Californians with low incomes and help families build economic security, such as with the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit, which boost the incomes of Californians with incomes under $30,000. Around 3 in 4 Californians eligible for the CalEITC are people of color, including about half whom are Latinx Californians. However, the amount the state spends on these two credits is only about 2% of all state spending on tax breaks for individuals.

Relatedly, another Budget Center report released this week — Why Aren’t Corporations Paying Their Fair Share of Taxes? — found corporations are paying less than half the amount in state taxes, as a share of their income, than they did four decades ago. This is largely due to policymakers’ decisions to cut corporate tax rates and expand tax breaks. These tax policy choices by state leaders have significant consequences for the economic well-being of the state and Californians. As one example, California’s state budget would have received $13.3 billion more revenue in 2018 had corporations paid the same share of their income in taxes that year as they did in 1981, more than the state spends on the University of California, the California State University, and student aid combined.

Policymakers have an opportunity to generate ongoing revenue and invest in universal health care, in making child care, housing, and higher education more affordable, and in expanding children’s savings accounts or creating a “baby bonds” program to help families save for their children’s futures, position the state for greater and more equitable economic growth, and better prepare the state for the next crisis.

Read the full report here: https://calbudgetcenter.org/resources/promoting-racial-equity-through-californias-tax-and-revenue-policies/ 

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The California Budget & Policy Center engages in independent fiscal and policy analysis and public education with the goal of improving public policies affecting the economic and social well-being of Californians with low and middle incomes. Support for the Budget Center comes from foundation grants, subscriptions, and individual contributions.