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The Half Trillion Dollar Tax Program That’s Driving Income Inequality

This tax season, as partisan debate continues to dominate Capitol Hill, the U.S. federal government will quietly spend over half a trillion dollars on tax programs to help American households build wealth. Indeed, these annual investments will promote wealth — for those who already have it.

This is one of the great — and often overlooked — tragedies of our tax code: Congress spends billions of dollars each year on a tax program that is making wealth inequality worse.

According to research by the Corporation for Enterprise Development (CFED), every year the federal government spends more than $660 billion on tax credits, deductions, reduced tax rates, and other measures intended to promote wealth-building activities, such as buying a home, saving for retirement, or investing in higher education. In practice, however, these wealth-building “tax expenditures” — as they are called – grossly favor America’s richest households, ensuring that those with wealth can maintain and grow their assets, while the vast majority of Americans receive next to nothing.

The top 1 percent of earners receive more from these tax policies than the bottom 80 percent combined. That comes to about $77,000 per household going back into the pockets of the rich at tax time. The rest of Americans, many of whom are financially insecure and have little or no savings, can expect to receive an average of about $77.

Welcome to our federal government’s inequitable tax code and the “wealth-building” tax program that most of us know far too little about. Though income tax rates or budget allocations tend to grab headlines, these programs are the half trillion dollar elephant in the room — a devastating financial force that is driving inequality and exacerbating disparities in wealth between men and women, and between white communities and communities of color.

What’s worse, as wealth becomes more concentrated among a few top earners, the price tag on this unfair tax program is growing rapidly. Between 2014 and 2015 alone, wealth-building tax expenditures rose $40 billion — government revenue that could have given each of the 26 million working families and individuals who receive the Earned Income Tax Credit (one of the few tax programs that does target low- and moderate-income Americans) an additional $1,500. President Donald Trump’s plans to reform the tax system are still up in the air, but his proposals so far would double down on this approach, siphoning billions more tax dollars into the pockets of the wealthiest Americans.

Our tax program poses both a challenge and an opportunity for those who care about equity, justice and opportunity in this country. Unless we address the problem, we will never achieve a just and fair economy that works for all.

Imagine the impact if our $660 billion tax program was reorganized to invest in financial security for struggling families, including the 60 percent who don’t have enough savings to weather a $500 emergency. Imagine the ripple effects for communities and the economy if this tax program actually empowered low- and moderate-income households to save for the future, own a home, plan for retirement and invest in an education that would better prepare the next generation of workers.

This starts with expanding the policies that we know promote financial security, such as the EITC and Child Tax Credit. Next, we must reform existing tax policies that support, for example, higher education and retirement to ensure they serve the needs of low-income communities and communities of color.

Bending our tax code toward equity won’t be easy, but with half a trillion dollars at stake, there is no bigger policy tool for fighting inequality and expanding economic mobility for millions of Americans who need it most.