As our nation grapples with the COVID-19 pandemic and the senseless murders of Ahmaud Arbery, Breonna Taylor, George Floyd and Rayshard Brooks, national attention has turned once again towards critical questions such as: who do our governments really serve and benefit?   

While we reflect on the first six months of 2020, this week provides us with an opportunity to question further why our government’s largest wealth-building tools—our tax codes—do little to support the economic needs of everyday households. In a few short days, the delayed, but still much-anticipated, Tax Day 2020 will see millions of families meet their financial obligations towards our federal and state governments. But as it stands, the federal tax code—and that of many states—does not meet its own obligations towards all tax filers. Instead, it gives the wealthy an abundance of funds while providing little, if any, support to low- and moderate-income households.  

Fortunately, with the nearing expiration of the 2017 tax law, Congress will soon have an opportunity to shift this dynamic in ways that support the aspirations of low- and moderate-income families. But the question then becomes, how upside down is the federal tax code, and what exactly can Congress do to turn it right-side up?  

How Upside Down Is the Federal Tax Code? 

As we discuss in a new report—From Upside Down to Right-Side Up: Turning the Tax Code Into an Engine for Economic and Racial Equality—the vast majority of the $634 billion spent in 2019 through wealth-building tax programs to promote savings, homeownership, retirement and higher education tilted towards supporting already wealthy households as they built more wealth.  

Upside down provisions within the tax code are designed in ways that overlook or lock out communities of color, widening inequities facing these communities. For example, in From Upside Down to Right-Side Up, we look at new estimates by the Institute on Taxation and Economic Policy (ITEP) on the Mortgage Interest Deduction (MID)—which last year cost the government $25 billion and is only available to those that itemize their deductions. This prominent tool, intended to support homeownership, provides little support to households of color. Specifically, we find that: 

• White households receive 78.4% of the MID’s benefits, despite making up 68.8% of all tax returns.   
• Asian, Black and Latinx households receive 19.5% of the MID’s benefits, despite making up 28.4% of all tax returns.  
• The top 20% of White households—that make up 15.8% of all tax returns—receive 59.1% of the MID’s benefits.   
• Asian, Black and Latinx households—that make up 3.8% of all returns—receive 13.8% of the MID’s benefits.   

Still, not all tax provisions are upside down. In our report, we show how the Earned Income Tax Credit (EITC) can be held up as an example of how to create tax policy that benefits low- and moderate-income households and households of color:  

• Black, Native American and/or Alaska Native, Native Hawaiian/other Pacific Islander and Hispanic households make up 24.9% of all tax returns but account for 40.1% of all the tax returns claiming the EITC.  
• Black households make up 17.2% of those claiming the EITC; they receive 18.1% of all EITC benefits.   
• Hispanic households make up 21.2% of those claiming the EITC; they receive 24.6% of all EITC benefits. 

What Can Congress Do Turn the Tax Code Right-Side Up? 

Despite this silver lining, more needs to be done to create a tax system that equitably supports all households in saving, investing and building wealth. In From Upside Down to Right-Side Up, we identify a number of policy solutions Congress should act on to rebuild a tax system that supports not just those at the top but also those most in need, including: 

• Expanding and strengthening tax credits for working families, such as the EITC, to support low- and moderate-income families, bolstering their income and ability to save.  
• Helping low- and moderate-income families with housing costs to build pathways towards successful homeownership.  
• Creating a universal, simple, safe and affordable retirement savings account for all households, along with incentives to save.  
• Providing every child with a meaningful birthright investment to narrow the massive racial wealth divide. 

As our nation begins to think about making our way to recovering from the first volatile six months of 2020, racial economic equity must be at the top of the list. With the individual tax provisions within the nearly $2 trillion Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, Congress and the next Administration will soon have a clear opportunity to make new investments in the lives of low- and moderate-income families and families of color.  These investments can begin to create a more just and equitable society in which all—but especially Black and indigenous people, and other people of color—can prosper.