Advocating for Tax Fairness: Insights from ITEP’s Statement on the State of the Union
Nandini Singh
In the wake of President Biden’s State of the Union address, the Institute on Taxation and Economic Policy (ITEP) released a statement shedding light on the critical issue of tax fairness and equity in the United States.
One of the focal points of ITEP’s statement was the need for a fair tax system that ensures corporations and high-income individuals contribute their fair share through corporate taxation reforms. In an era marked by growing economic inequality, progressive taxation emerges as a vital tool for redistributing wealth and fostering inclusive growth. For example, anti-poverty tools such as the Earned Income Tax Credit (EITC) have been known to lower income inequality between Black and white households by roughly five to ten percent each year.
However, the current tax landscape falls short of this ideal, with loopholes and disparities exacerbating income inequality. A recent ITEP report found that several profitable corporations are paying much less than the 21 percent corporate tax rate due to special breaks. This is also attributed to ripple effects from the introduction of the 2017 Trump Tax Law, which slashed the corporate income tax rate from 35 to 21 percent and further allowed corporations to contribute less to public investments overall.
To reduce this tax avoidance, President Biden signed a corporate minimum tax and expanded tax enforcement funding signed into law in 2022. By introducing new reforms, there is a greater opportunity to focus on advancing progressive tax programs, like the EITC and Child Tax Credit (CTC), which can support workers, families, and children.
Moreover, ITEP highlighted the importance of equitable provisions that prioritize low- and middle-income households. President Biden proposed the restoration of the 2021 expanded federal CTC and strengthening the federal EITC, among other reforms. By expanding refundable tax credits and implementing targeted relief measures, policymakers can alleviate financial burdens on vulnerable populations, promoting economic stability and mobility.
Several states – regardless of party lines – have become valuable proponents of creating more progressive tax systems through effective anti-poverty efforts, including as state-level tax credits. As of 2023, roughly a quarter of states that offer a state EITC in some form are classified as a red state with the rest classified as a blue state. Similarly, approximately 20 percent of states that offer a CTC in some form are classified as a red state with a majority often classified as blue. Among these states, tax credits have received recent support in:
- Wisconsin, where Gov. Tony Evers (D) recently expanded the state Child and Dependent Care Tax Credit (CDCTC) from 50 to 100 percent of the federal rate.
- Connecticut, where Gov. Ned Lamont (D) retroactively increased the state EITC from 30.5 to 40 percent of the federal rate for 2023. Additionally, state legislators recently proposed establishing a refundable state CTC valued at $50 per eligible child beginning July 2024 and incrementally increasing to $600 within four years.
- Pennsylvania, where Gov. Josh Shapiro (D) expanded the state CDCTC from 30 percent to 100 percent of the federal credit.
While it’s evident that blue states have a higher tendency to offer local tax credits, red states are not far behind. And while legislative sessions are still in effect in many states, several states are in the process of providing essential and valuable tax credits to their communities, including:
- Illinois, where Gov. J.B. Pritzker (D) allocated $12 million to create a new state CTC valued at 20 percent of the federal rate for children three and younger as part of his proposed fiscal year 2025 budget.
- Kansas, where Gov. Laura Kelly (D) was joined by Republican State Senator John Doll and Rob Olson, Independent State Senator Dennis Pyle, and Senate Democratic Leader Dinah Sykes to unveil a bipartisan tax cut proposal that includes doubling the state CDCTC.
ITEP further emphasized the need for bipartisan cooperation and evidence-based policymaking to address economic inequalities. Recently, the House passed a bipartisan tax bill that expands the CTC for 16 million children and families with low incomes, including about six million children under the age of six, which would bring them closer to the full $2,000-per-child amount that children in higher-income families receive. By transcending partisan divides and prioritizing the common good, policymakers can enact meaningful reforms that promote equity and prosperity for all Americans.
These federal and state updates and recommendations serve as a plea to policymakers and advocates to pave the way for a more just and equitable tax landscape. By addressing these disparities in taxation, prioritizing equitable relief measures, and fostering collaboration across party lines, there’s an opportunity to build a stronger, more resilient economy that works for all Americans.