Author: Galen Hendricks and Ryan Zamarripa - Center for American Progress | Date: 30 October 2020
In July of this year, when the overall Latino unemployment rate was 12.9 percent and the unemployment rate for Latinas was 14 percent—both substantially higher than the concurrent white unemployment rate of 9.2 percent—President Donald Trump remarked at a roundtable with Hispanic leaders that his administration had “done really well with Hispanics.” But, in his nearly four years in office, President Trump has done nothing to address the Latino labor market gaps. In fact, his administration’s flagship legislative achievement is a tax bill that left out many Latino families and exacerbated persistent wealth gaps. Here are four ways Trump’s 2017 tax bill left the Latino community behind.
1. The 2017 tax law expands the Latino-white wealth gap
Overall, the 2017 tax law—known as the Tax Cuts and Jobs Act (TCJA)—exacerbated an already-massive wealth gap between white and Latino households. In 2016, the median white household had $171,000 in wealth, including durable goods. The median Latino household had just more than $20,000 of wealth, less than one-fifth of the median white household. Yet, instead of helping to close the Latino-white wealth gap, the TCJA likely widened it. In 2018, white taxpayers received nearly 80 percent of all the benefits of the TCJA, while just 6.7 percent went to Latino taxpayers, according to a study by the Institute for Taxation and Economic Policy and Prosperity Now. The average tax cut for white households was twice as large as that for Latino households. In fact, the Tax Cuts and Jobs Act gave white households in the top 1 percent of the income distribution more benefits than everyone in the bottom 60 percent, regardless of race, combined.
2. The 2017 tax law left many Latino children behind
In 2018, 46 percent of Latino households had children under the age of 18 compared to just one-quarter of white households. But the changes that the TCJA made to help families with children left out Latino households to a large degree. The TCJA doubled the child tax credit (CTC) from $1,000 per child under the age of 17 to $2,000 and increased the maximum refundable part of the credit to $1,400 from $1,000. But while the law significantly expanded eligibility for wealthier households to access the credit—raising the income level where the credit begins to phase out to $400,000—most low-income families with children received only a partial benefit or no benefit at all. Because not all of the tax credit is refundable, the lowest-income families, who are disproportionately families of color, are unable to qualify for the full CTC. As a result, 50 percent of Hispanic children were left behind.
The 2017 tax law also shut out a large swath of the Latino workforce from the CTC entirely: those who claim children with Individual Taxpayer Identification Numbers (ITINs) instead of Social Security Numbers (SSNs). ITINs are used for tax filing purposes by individuals who do not qualify for a social security number—including by many taxpaying undocumented workers and other immigrant residents of the United States. By denying the child tax credit to low-income working families whose children have an ITIN rather than a SSN, the 2017 law left out roughly 1 million children, overwhelmingly undocumented children. Though not a perfect picture of the disparity, the undocumented population is overwhelmingly Latino.
3. The 2017 tax law’s massive corporate tax cuts predominantly benefit white households
The TCJA also slashed the tax rate on large corporations from 35 percent to 21 percent. Unlike the majority of individual tax provisions, which are set to expire in 2025, the corporate tax cuts are permanent. This means, in the long run, an increasingly large share of the benefits from the 2017 tax law will flow to the owners of corporate stock. Because non-Hispanic white households are far more likely to own stock, both directly or through retirement accounts, these changes leave many Latino households with little benefit while providing a large windfall to wealthy—and predominantly white—households.
4. The 2017 tax law favors existing wealth over work
Decades of discrimination, occupational segregation, and systemic oppression have created a large wealth gap between white and Latino households, and the TCJA made several changes that solidified and expanded this gap. One of the worst provisions in the bill significantly weakened the tax on wealthy estates, which are predominantly white, helping to preserve dynastic wealth transfers between generations. Even before the 2017 law, the estate tax fell solely on the wealthiest 0.2 percent of estates, meaning that nearly every American aside from the 5,500 wealthiest heirs were exempt. The TCJA expanded the exemption level from roughly $11 million to $22 million for married couples. This reduced the number of wealthy heirs who must pay and conferred a $4.5 million tax cut on each of the wealthiest estates.
The vast majority of this tax cut will go to wealthy white heirs. According to the 2019 Survey of Consumer Finance, white families are much more likely to receive inheritances than Hispanic households. In 2019, nearly 30 percent of white households received an inheritance, gift, or other family support, compared to just 7.2 percent of Hispanic households. For those that did receive an inheritance, Hispanic households received less on average than white ones. The conditional median inheritance for white households in 2019 was 70 percent higher than the average inheritance for Hispanic households.
Moreover, because the estate tax falls only on the largest of inheritances, the benefits of cutting it would flow only to those with enough wealth to meet the pre-TCJA exemption threshold. According to a Center for American Progress analysis of the 2016 Survey of Consumer Finance, 9 out of 10 households in the United States with a net worth above the pre-2017 estate tax threshold were white.
Combined, the changes within the tax bill that Trump signed into law in 2017 served to increase inequality and substantially cut taxes for the wealthy while leaving Latinos, regardless of income, with the short end of the stick. The tax law also drained roughly $2 trillion in revenue that could have been dedicated to education, health care, or other priorities that advance shared prosperity. Future changes to the tax code should address these failings by making targeted changes that boost incomes and opportunities for low- and middle-income families; ensure that corporations and the ultrawealthy pay their fair share of taxes; and address persistent racial inequities.
Note: Galen Hendricks is a research assistant of Economic Policy at the Center for American Progress. Ryan Zamarripa is the associate director of Economic Policy at the Center.