Equity at the Center: Designing Tax Policies that Close Racial and Income Gaps

Across the United States, systemic inequities continue to shape the economic realities of millions. Income and racial disparities persist due to structural barriers—many of which are embedded in our tax systems. As policymakers seek to close these gaps, tax policy must play a central role. The Tax Equity and Social Impact Division’s latest research examines how intentional tax design can drive equity and promote inclusive economic growth.

Centering Equity in Tax Policy

Tax systems are often seen as neutral tools for revenue collection. But in practice, they can either exacerbate or mitigate inequality. When state tax codes are regressive—placing a heavier burden on lower-income households—they disproportionately impact communities of color, who are overrepresented in lower-income brackets due to historical and ongoing discrimination.

Conversely, progressive reforms such as targeted tax credits, deductions for essential services, and property tax equity can significantly reduce disparities. By placing equity at the center of tax policy design, states can advance both social justice and economic resilience.

Spotlight on Key Policy Tools

1. State-Level Tax Credits

Refundable tax credits such as Earned Income Tax Credits (EITC) and Child Tax Credits (CTC) provide direct support to working families. In Minnesota, recent expansions to the state’s Working Family Credit have resulted in increased take-up among communities of color, reducing poverty rates among Black and Indigenous families. The research highlights that when these credits are fully refundable and accessible, they serve as powerful tools to bridge income gaps.

2. Property Tax Reform

Property taxes are a major source of local revenue—but they can disproportionately affect low-income homeowners, particularly in gentrifying neighborhoods. North Carolina's efforts to implement a circuit breaker program, which limits property tax liability relative to income, have helped protect longtime residents from displacement. These reforms are critical in regions where racial wealth gaps are most severe and housing affordability is declining.

3. Childcare Deductions and Support

The high cost of childcare remains a significant barrier to economic participation, especially for women and low-income parents. California's expansion of childcare tax deductions and subsidies has had a notable impact on workforce participation rates among Latina and Black mothers. This type of support not only strengthens families economically but also yields broader benefits for state economies.

Bridging Policy and Equity

While these examples show promise, the report emphasizes that isolated reforms are not enough. A comprehensive equity lens must be applied across all levels of taxation—including income, sales, property, and corporate taxes. Transparent racial and economic impact assessments should become standard practice in evaluating all tax proposals.

The call to action is clear: states must commit to tax policy that not only raises revenue efficiently but also rights historical wrongs and builds a fairer future.

Moving Forward

The Tax Equity and Social Impact Division will continue to provide research, tools, and technical assistance to states aiming to embed equity in their tax structures. As the national conversation on inequality evolves, tax policy must be a cornerstone of the solution.