by Margaret Babayan & Andy Nicholas
We need to talk about our racist tax code.
Washington’s state tax code was created within many economic and legal systems and institutions aimed at keeping people of color from having access to wealth and opportunity: segregation, employment and housing discrimination, and cultural assimilation, among so many other things. Built on a history of institutional and systemic racism, this state tax structure – which is the most inequitable in the nation because it relies on those with the least to pay the most – is both a product of and perpetrator of racial and ethnic inequalities. In short, our state tax code compounds the barriers to economic opportunity faced by many communities of color.
It doesn’t have to be this way. Our state tax code can and should be a tool for helping to eliminate some of these barriers that persist for families throughout our state. Lawmakers are long overdue in taking meaningful steps to advance commonsense tax policies that would promote racial justice, bolster community well-being, and start to rebalance our state tax code. They can change that in the upcoming legislative session by enacting a Working Families Tax Credit and closing the tax break on capital gains.
Wealthy Washingtonians have been receiving unnecessary tax breaks on sources of wealth that are heavily concentrated among Washington’s richest, and mostly white, residents – like capital gains – for too long. Meanwhile, Washington relies far too heavily on regressive sales and excise taxes (on items like clothes and toiletries) that take a larger chunk out of the paychecks of people with low incomes than the wealthy. The result is that the wealthiest 1% of households pay just 3% of their incomes to state and local taxes while lower-income families pay 18% or more. That’s completely upside-down. And because people of color are more likely to be in low-income, higher-taxed portions of the population compared to white residents because of inequitable policies, the impacts are also inherently racist. American Indian and Alaska Native, Black, Pacific Islander, and Latinx people are the most harmed by the upside-down nature of our tax code in Washington.
Further, the tax code does not generate sufficient resources to maintain schools, health care, infrastructure, and other community priorities from one year to the next. While many communities struggle to raise enough revenue for basic infrastructure, others can leverage their local wealth to get ahead. This only exacerbates income inequality and opportunity gaps. For example, predominantly non-white school districts in Washington have 18% less funding on average than predominantly white school districts. And Washington is second worst in the country behind Arizona when it comes to inequitable funding for poor school districts, where the difference between nonwhite and white high poverty districts is 42% less funding for students on average.
Our tax code is not race neutral, and our policy solutions shouldn’t be, either. Lawmakers can start to undo the racist legacy of an inequitable tax code by making the wealthy pay their fair share and reducing taxes for lower-income Washingtonians.
New taxes on capital gains would start to help rebalance the tax code and generate much-needed new resources for the building blocks of strong communities: schools, community health, transportation, arts, and other important investments. Everyday people drive the economy – our labor, purchasing power, services, and small businesses create a vibrant state. And we should be able to live in thriving communities with the wealth we help create. By taxing the capital gains of a wealthy few, lawmakers could generate $1 billion in revenue annually to invest in the well-being and infrastructure of our communities. This would be particularly meaningful for communities that have been historically and systematically underfunded.
And enacting a modern, expanded Working Families Tax Credit, Washington’s state version of the highly successful federal Earned Income Tax Credit, would put cash – an average of $350 – back into the pockets of nearly one million households with low incomes who are struggling to keep up with our state’s skyrocketing cost of living. Because of the legacy of racist economic policies, it would have an outsized benefit on people of color. Notably, the state credit would expand on the federal EITC by including workers without children, working immigrants without citizenship, and low-income students, among others, giving even more Washingtonians greater peace of mind to put food on the table, keep up with rent, pay for visits to the doctor, and more.
People do better when they can afford the basics and communities do better when funded to meet their potential. The Working Families Tax Credit and a capital gains tax would start to turn our state tax code right side up while promoting racial justice and community well-being. Lawmakers should make it a priority to advance these proposals to this upcoming legislative session, and Washingtonians should hold them accountable.
Margaret Babayan is a policy analyst with the Washington State Budget & Policy Center, and Andy Nicholas is a senior fellow with the Washington State Budget & Policy Center. To learn more about the racist impacts of our state tax code – and how lawmakers can take steps to address this issue – read the Budget & Policy Center’s new report, “Washington’s Tax Code is an Untapped Resource to Advance Racial Justice.”