Advancing Racial Equity With State Tax Policy

This post is adapted from one that originally appeared on the Center on Budget and Policy Priorities' website. The Center is a nonpartisan research and policy advocacy institute, and one of the Babcock Foundation's grantee partners.   

States and localities can do more to help undo the harmful legacies of racism and the damage of continuing racial bias and discrimination, a major new report by the Center on Budget and Policy Priorities finds. If state policymakers can design their budget and tax policies to better address these harms and create more opportunities for people of color, state economies would be more equitable and likely stronger, which in turn could benefit many state residents of all backgrounds.

States and local governments account for nearly half of all domestic public-sector spending, and most of the funding for education and certain other investments important for economic growth. As such, how states and localities raise and spend revenue, including what services they finance, has major implications for racial and ethnic equity. Yet, while people of color have made progress in many areas in recent decades, state and local fiscal policies too often haven’t contributed to that progress and, instead, have extended or cemented racial disparities in power and wealth.

Discriminatory public policies and racially prejudiced public and private actions of the past contributed to a historical context in which people of color were systematically held back. For much of our nation’s history, people of color had little to no power in state legislatures, and white lawmakers could set policies that sustained white dominance, even in states where people of color were a significant share, or even a majority, of the population. In that environment, state and local tax policies often deepened the profound challenges that people of color faced, even when those tax policies were not explicitly race-based. Many such policies that remain in place today were born in the South. Examples include:

• The oldest supermajority requirement. In the post-Reconstruction era, wealthy white landowners in Mississippi demanded and won a constitutional requirement for a three-fifths vote in both houses of the legislature for all state tax increases, the oldest such requirement still on the books in any state. Delegates adopted the measure at a state constitutional convention in 1890, the same convention at which they disenfranchised nearly all of the state’s black voters. Referring to his fellow convention delegates, the delegate who introduced the supermajority requirement stated, “All understood and desired that some scheme would be evolved which would effectually remove from the sphere of politics in the State the ignorant and unpatriotic negro.” While he was referring to the convention’s aim of stripping political power from black people, the supermajority requirement that the delegate championed added further to the barriers black people faced (and continue to face), by making public investments in schools and other public services that much more difficult to secure and adequately fund. Later in the Jim Crow era, Arkansas and Louisiana also adopted supermajority requirements to raise revenue, which remain in place today.
• Some of the earliest property tax limits. During state constitutional conventions called in 1875 and 1901 to re-establish white dominance following Reconstruction, Alabama adopted constitutional property tax limits that are among the oldest still on the books. Installing highly restrictive property tax limits in Alabama’s constitution protected white property owners in the state from the possibility that African Americans and their allies could return to power and substantially increase property tax rates to fund education and other such measures. These limits have now been in place for over 140 years, producing a harmful cumulative effect. Today, Alabama’s property tax revenue as a share of its economy is the lowest of any state in the country, seriously hampering the ability of local governments to provide adequate schools and other public services. During this period in Southern history, Arkansas, Missouri, and Texas also adopted constitutional property tax limits that remain in force today.
• The first modern sales tax. In 1932, Mississippi adopted the nation’s first modern retail sales tax, a tax that generally falls hardest on those with the least income (because sales taxes consume a larger share of their income). The state’s governor urged adopting the new tax in part by emphasizing that the revenue would be used to reduce property taxes, and that as a result it would shift the state tax base away from property owners and more heavily onto consumers. What that meant in practice was a reduction in taxes owed by mostly white property owners and an increase in those owed by Black households that owned little or no property and had little else to tax. Other states across the country adopted sales taxes not long after Mississippi demonstrated the tax’s feasibility and its significant revenue-raising power.

These are just a few of the historic state tax policies still in place today that have long reinforced profound barriers for people of color in the South and across the country. This report includes original research into this history as well as policy recommendations that states can adopt to reduce racial inequities and help undo the many harms done by historical racism and contemporary discrimination and bias. An executive summary is available here.

Michael Leachman is Senior Director of State Fiscal Research at the Center on Budget and Policy Priorities, which analyzes state tax and budget policy decisions and promotes sustainable policies that take into account the needs of families of all income levels.