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October 4, 2019

Improving Federal and State Credits Would Boost Virginia’s Latinx Families

While tax laws may seem racially neutral, research has shown that tax policy choices often have substantially different impacts by race. An honest evaluation of features of the tax code that benefit high-income households or homeowners means grappling with the historical injustices that contribute to present-day income and home ownership disparities by race. As a result of the disparities created by discriminatory policies and practices, Black and Latinx families in particular bear the brunt of Virginia’s upside-down tax system, but there are tools available to advance more equitable tax policies that allow every family to thrive. 

Virginia’s state and local tax code is upside-down because families who have the lowest incomes end up paying the most in taxes as a share of their income. This reflects the impact of Virginia’s sales and excise taxes, property taxes, and a relatively flat income tax. And despite the fact that the current economic expansion is the longest on record, wages have stagnated for many groups, making it hard for families to make ends meet. More than 4 in 10 Black and Latinx workers in Virginia are paid less than $14.50 an hour. Black workers were typically paid only $0.95 more per hour in 2018 compared to 2008, and Latinx workers were actually paid less compared to 2008 (adjusted for inflation). As a result, Latinx households in Virginia are more likely than non-Hispanic white households to be in one of the low- and moderate-income groups that pay the highest shares of their income in state taxes. 

Latinx families in particular struggle to afford the basics. In 2018, about 12.8% of Latinx Virginians were living in poverty, compared to 10.7% of the overall population. It doesn’t have to be this way. There are effective policy solutions available to policymakers that would boost incomes for Latinx working families in Virginia and make our tax structure more fair.

Refundable tax credits for families with low and moderate incomes, like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), are some of the most effective anti-poverty programs at state and federal lawmakers’ disposal. Studies show that these credits increase incomes and reduce poverty. The credits have also been linked to gains for children, like better health outcomes, improved performance at school, and increases in earnings when they become adults. 

A refundable EITC is especially effective at lifting families, including Latinx families, out of poverty. In 2017, the federal EITC lifted approximately 2.3 million Latinx people out of poverty, and the federal CTC lifted approximately 1 million Latinx people out of poverty, including nearly 600,000 Latinx children. Out of all federal anti-poverty programs, including the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), the refundable EITC and CTC were shown to lift the most Latinx people out of poverty. But because both federal and Virginia policymakers unnecessarily restrict the credits, working families in the state aren’t able to fully access these benefits or the full value of what they’ve earned. This is particularly true for communities of color. 


State-level refundable EITCs have also been shown to reduce poverty in communities of color. Research finds that the average state EITC benefit for non-white or Hispanic-headed households was $120 greater than for non-Hispanic white households. Unfortunately, families in Virginia aren’t seeing the same boost because state policymakers have not yet made Virginia’s EITC refundable. 

A federal policy option, the Working Families Tax Relief Act, offers another promising path forward. The Act would make many needed improvements to both credits, like making the CTC fully refundable, eliminating strict age and income requirements under current law, and expanding eligibility. The proposal would reduce the poverty rate for Latinx families by 20% and for Latinx children by 27%. Roughly two-thirds of Virginia households with incomes less than $24,500 would see, on average, an income boost of almost $1,800. And over 100,000 Latinx households in the state would benefit from the proposal if passed.  

In Virginia, people of color and their families are 38% of the total population, yet represent nearly half of the families who receive the federal EITC and would likely benefit from improvements to the federal or state credit. The bottom line: expanding the EITC and CTC would directly benefit low-income, working families, particularly in communities of color. Not only would these policies help give Latinx families financial security, but it would be a significant step toward reversing Virginia’s upside-down tax system and creating a foundation for families to thrive.

Budget & Revenue

Kathy Mendes

Chris Wodicka

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