Report: White Americans benefit most from Trump’s new tax law
The tax cuts President Donald Trump signed into law last year are disproportionately helping white Americans over African-Americans and Latinos, a disparity that reflects long-standing racial economic inequality in the United States and the choices that Republicans made in crafting the law.
The finding comes from a new analysis of the $1.5 trillion tax cuts using an economic model built by the Institute on Taxation and Economic Policy, a liberal think tank, and released in a joint report with Prosperity Now, a nonprofit group focused on helping low-income Americans attain wealth and financial stability. It is the first detailed analysis of the law to break down its effects by race.
White Americans earn about 77 percent of total income in the U.S., but they are getting nearly 80 percent of the benefits of the individual and business tax cuts generated by the new law, the analysis found. African-Americans received about 5 percent of the benefits, despite earning 6 percent of the nation’s income. Latinos got about 7 percent, although their share of all income is 8 percent.
In total, the analysis estimates, whites will get about $218 billion in tax cuts this year as a result of the law. Black and Latino Americans will get about $32 billion combined.
The analysis starts with a simulation of the law’s effects on Americans by income group, using historical tax data. On that front, its conclusions closely track those of distributional analyses by the Tax Policy Center and the Joint Committee on Taxation, Congress’ scorekeeper on the effects of the cuts. Both found the vast majority of the law’s benefits would flow to the top 20 percent of U.S. income earners.
The economic policy institute’s model extends those analyses by combining tax data with race and ethnicity data from the Federal Reserve’s Survey of Consumer Finances. It took months to build.
The racial divide highlighted by the analysis is largely a product of the financial advantages white people have long held. They earn more on average than black or Latino Americans, and are far more likely to be among the top income earners in the country. That means they were better positioned to gain from a law that delivered higher benefits to top earners.
“The average income for white taxpayers is significantly higher than for black or Latino taxpayers,” said Meg Wiehe, deputy director of the economic policy institute. “That’s a huge driver.”
As a result, the average tax cut going to a white American household is more than double one going to a black or Latino one. The study found the group getting the highest average cut was Asian-Americans, who have the highest average income of any of the groups.
It appears, though, that even among top earners, whites have fared better than other Americans under the law — probably because the tax cuts affect individual taxpayers differently depending on how they make their money.
High-earning white taxpayers, for example, are more likely to own passthrough companies such as limited liability corporations, and pay taxes on their profits through the individual income tax code. The new law includes a special 20 percent deduction for pass-through income, subject to some limitations. The pass-through break does not apply to high earners such as professional athletes who get most of their money from salaries.
The average tax cut, as a share of pretax income, for a white or Asian-American household in the top 1 percent of income earners was nearly 3 percent, the analysis found. For Latinos, it was 1.7 percent; for blacks, it was 1.2 percent.