State and Local Government Revenues and Racial Disparities

The COVID-19 pandemic and the ensuing recession, as well as racial injustices and protest responses throughout 2020, have highlighted that public policies can have very different impacts on populations by race or ethnicity. Tax policies, in particular, are commonly perceived as “race neutral,” often because information on race or ethnicity is not solicited in tax collections or explicitly referenced in those policies. But that does not mean tax systems affect people of different races and ethnicities in the same way. We know that Black, Latinx, and Native American households have already been bearing the brunt of COVID-19 cases, deaths, and the economic downturn. Fiscal actions taken by state and local governments going forward can mitigate or amplify these racial inequities, and some places are making targeted efforts to tackle them.

In this brief, we look at how geography intersects with race and the levels and composition of state and local revenues, why the progressivity and regressivity of state tax systems matter, and the intricacies of tax reforms.