The voices of Urban Institute's researchers and staff
December 7, 2017

Tax changes and the cuts that may pay for them are likely to disadvantage Americans of color

December 5, 2017

Researchers and policymakers have voiced concerns that the Tax Cut and Jobs Act will favor businesses and high-income households, increasing income and wealth inequality.  Given that there are already significant disparities in income and wealth between racial and ethnic groups, there is a risk that tax changes will widen the gap between whites and communities of color. In 2016, median income for white families was $63,155, while it was more than a third lower for black families ($38,554), and about 25 percent lower for Hispanic families ($46,882). White families had seven times the wealth of black families and five times the wealth of Hispanic families in 2016.

As Congress looks to chip away at the estimated $1.4 trillion addition to the deficit that tax changes are expected to generate over the next decade, they could turn to policies similar to those outlined in the administration’s fiscal year 2018 budget blueprint.   An Urban Institute analysis of that proposal showed that one in five American families could stand to lose as a result of cuts in programs that support basic economic security. The study also showed that, as a result of cuts to seven major programs that assist families with housing, food, and other basic needs, affected families would lose an annual average of $1,230 in resources, under assumptions made for that analysis.

A majority of the affected families would be white, but a larger share of black and Hispanic families would be affected and lose more resources, on average. Asian or Pacific Islander families would be affected at roughly the same rate as white families, but those affected would lose the largest amount of resources of any racial or ethnic group, about $1,700 a year.

average resources lost

Most affected families, regardless of race or ethnicity, include children, seniors, or disabled members, which means they may have fewer options for withstanding changes or may be less likely to benefit from job growth that may occur.

Most families who lose benefits are affected by only one or two program changes. Reductions in the Supplemental Nutrition Assistance Program will affect the largest number of families, with average reductions for affected families of roughly $600 annually, or about 430 fewer meals a year. Some families who participate in rental housing assistance, Temporary Assistance for Needy Families, or Supplemental Security Income could experience annual reductions in resources of $2,000 to $3,200.

And while fewer families receive child care subsidies through the Child Care and Development Fund, cuts to this program triggered by other across-the-board reductions in non-defense discretionary spending could be significant for those families affected—about $6,000 for black families and $8,000 for Hispanic families if cuts are implemented under plausible assumptions modeled here. 

average annual change in family benefits by program

We also examined the potential changes in the supplemental poverty rate, which takes into account the value of cash and near-cash assistance resources and allows us to better understand the impact of changes to these programs. Families of color already experience higher poverty rates than white families, and the rates are particularly high for black and Hispanic families. 

The estimated rise in poverty would be greater for these families than for white families, increasing 2.6 percentage points for black families and 1.5 percentage points for Hispanic families. Asian or Pacific Islander families would see their poverty rates increase 1 percentage point. Although white families would also see a rise in poverty, both their baseline rate (9.2 percent) and the expected increase (0.6 percentage point) are lower than for any other group.

effect of proposed changes on supplemental poverty rate, by race

We don’t know what shape the final budgetary legislation will take, but the evidence raises valid concerns about the potential impact on families of color. While tax policy changes could widen the income and wealth gap for Americans of color, accompanying spending cuts to economic stability programs could also reduce the resources that help these families meet basic needs. 

Senate Majority Leader Mitch McConnell, R-Ky., is surrounded by reporters as Republicans work to pass their sweeping tax bill, a blend of generous tax cuts for businesses and more modest tax cuts for families and individuals, on Capitol Hill in Washington, Thursday, Nov. 30, 2017. Photo by J. Scott Applewhite/AP.


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