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Reshaping U.S. Tax Policy to Promote Economic Opportunity and Growth for All Americans A National Urban League Publication 2025CONTENTS A Message from National Urban League President and CEO Marc H. Morial ………………4 National Urban League’s Main Street Tax Initiative …………………………5 Ten-Point Plan 1. Create Direct Tax Cuts and Support Tax Credit Incentives to Help Low- and Moderate-Income Americans .............................................6 2. Make Permanent the New Markets Tax Credit Program .............................7 3. Expand the Low-Income Housing Tax Credit (LIHTC) to Promote Housing Affordability .................................................................9 4. Create an Affordable Housing Tax Credit for the Construction of New Homes …………………………………………………… 9 5. Restore the State and Local Tax (SALT) Deduction .................................... 10 6. Extend and Expand the Child Tax Credit (CTC) and Reverse the Earned Income Tax Credit’s (EITC) New (and Permanent) Measure of Inflation that will Cause EITC Benefits to Grow at a Slower Pace in Future Years ................................................................... 10 7. Establish the ‘Fair Deal for America Tax’ .................................................. 12 8. Extend or Make Permanent the Standard Deduction Increase ................... 14 9. Incentivize Corporate Investment in Certain Stressed and Rural Communities ............................................................................15 10. Prioritize Growth of Pass-Through Businesses (often referred to as Small Businesses) ....................................................16 Conclusion ……………………………………………17 Appendix A ……………………………………………18 Appendix B ……………………………………………25 National Urban League | The Main St. Tax Initiative 3A MESSAGE FROM NATIONAL URBAN LEAGUE PRESIDENT AND CEO MARC H. MORIAL 1 The Efficiency-Equity Tradeoff of the Corporate Income Tax: Evidence from the Tax Cuts and Jobs Act, patrick-kennedy.github.io (March 21, 2024). 2 Reference Table: Expiring Provisions in the “Tax Cuts and Jobs Act” (TCJA, P.L. 115-97) | Congress.gov | Library of Congress, congress.gov (Nov. 13, 2024). In keeping with the National Urban League’s 114-year legacy of advancing racial and economic justice, we must continue to champion bold ideas that address economic disparities and systemic inequities. A key part of that effort is ensuring that U.S. tax policy promotes shared prosperity and does not deepen the racial wealth gap. As Congress engages in critical debates over tax policy, we urge policymakers to seize this once-in-a-generation opportunity to correct the inequities embedded in the U.S. tax code—including harmful provisions enacted in the Tax Cuts and Jobs Act of 2017 (TCJA)— and to build a fairer, more equitable tax system for all Americans. Despite promises of broad-based relief and economic growth, analysis the Joint Committee on Taxation (JCT) and the Federal Reserve Board of Governors found that “almost all of the benefits of the 2017 law’s tax cut went to high-income shareholders and executives— not low- or moderate-income workers” while low- and moderate-income families received modest, often temporary, gains. 1 Meanwhile, at the time of the TCJA’s enactment, the JCT estimated that the TCJA would add $1.5 trillion to the federal deficit over the next 10 years, 2 threatening investments in healthcare, education, and workforce development. Many provisions of the TCJA are set to expire at the end of 2025. Congress must act decisively to correct these inequities and craft a fairer, more sustainable tax system that works for every American, not just the privileged few. As the pivotal 2025 tax debate unfolds, the National Urban League proudly introduces the Main Street Tax Initiative—a bold, equity-centered blueprint outlining ten essential reforms, along with complementary legislative efforts, to ensure the tax code uplifts hardworking Americans, their families, small business, and communities. The Main Street Tax Initiative calls for: ■ Delivering tax cuts and credits for low- and moderate-income Americans. ■ Making the Child Tax Credit permanent and reversing harmful changes to the Earned Income Tax Credit (EITC). ■ Restoring the full State and Local Tax (SALT) deduction with fiscal responsibility. ■ Expanding the Low-Income Housing Tax Credit (LIHTC) to increase housing affordability. ■ Creating a new housing tax credit to support construction and rehabilitation of homes in underserved communities. ■ Making the New Markets Tax Credit permanent to boost investment in distressed areas. ■ Enacting the Fair Deal for America Tax so the ultra-wealthy pay their fair share. ■ Reforming Opportunity Zones for transparency and equity. ■ Improving the pass-through business deduction to better support small businesses. These reforms center the Main Street, not Wall Street, are essential to lifting families out of poverty, building generational wealth, stimulating economic mobility, and closing longstanding racial and economic gaps. Now is the time to build a tax system that works for all Americans and that enables every American the opportunity to the thrive. National Urban League | The Main St. Tax Initiative 4NATIONAL URBAN LEAGUE’S MAIN STREET TAX INITIATIVE The Tax Cuts and Jobs Act of 2017 (TCJA) aimed to cut taxes, lower rates, and provide tax relief for Americans; however, the provisions providing direct tax relief to individuals and their families were not permanent and within this group, the top earners experienced the most substantial benefit of the tax cuts for individuals. (A full analysis of the TCJA’s impact can be found in the Appendix A: Understanding the Challenge: How the Tax Cuts and Jobs Act of 2017 (TCJA) Deepened Inequality). Against this backdrop, as many of the TCJA tax code changes set to expire at the end of 2025, the National Urban League proposes a ten-point Main Street Tax Initiative, which, targets key levers to reduce inequality, stimulate economic mobility, and foster generational wealth among low- and moderate-income communities. If adopted, the comprehensive plan, which includes making permanent the expanded Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), restoring the State and Local Tax (SALT) deduction, and increasing support for first-time homebuyers and small business owners in undercapitalized communities, would ensure that the tax code promotes economic opportunity and growth for all Americans rather than a privileged few. Additionally, the National Urban League calls for targeted reforms that address systemic inequities in the tax system, such as targeted incentives to close the racial wealth gap and enhanced tax benefits for affordable housing development and community investment. Together, these measures aim to uplift families, empower communities, and foster long-term economic prosperity for all Americans. Over time, the proposals would meaningfully increase wealth accumulation by low- and moderate-income families, reduce racial wealth gaps, and ensure U.S. tax policy supports meaningful job creation, skills training, and workforce development. As the 2025 debate over TCJA’s expiring provisions takes shape, Congress must confront the inequities embedded in current tax policy—and commit to building a fairer system that delivers real relief and opportunity to hardworking individuals and families. National Urban League | The Main St. Tax Initiative 5TEN-POINT PLAN 1. CREATE DIRECT TAX CUTS AND SUPPORT TAX CREDIT INCENTIVES TO HELP LOW- AND MODERATE-INCOME AMERICANS 3 How does the federal tax system affect low-income households? | Tax Policy Center, taxpolicycenter.org (Jan. 2024). 4 Designing Tax Cuts to Benefit Low-Income Families, urban.org (June 2001). 5 Designing Tax Cuts to Benefit Low-Income Families, urban.org (June 2001). 6 Designing Tax Cuts to Benefit Low-Income Families, urban.org (June 2001). 7 Overview Of The Federal Tax System As In Effect For 2022, jct.gov JCX-14-22 (June 28, 2022); 5 Little-Known Facts About Taxes and Inequality in America - Center for American Progress, americanprogress.org (Aug. 30, 2022). The National Urban League advocates for new investments that prioritize low- and moderate-income workers through transformative tax reform, including a direct income tax cut for Americans earning less than $100,000 annually. This bold initiative would deliver significant financial relief to the nation’s most vulnerable households while fostering a more equitable and sustainable economic foundation for our nation. More targeted tax incentives for lower-income Americans—unlike deductions for mortgage interest, college savings, and retirement accounts that disproportionately benefit wealthier households—would strengthen undercapitalized communities. A prime example is the Affordable Care Act’s premium tax credits, which have doubled marketplace enrollment since 2021 and now help 24 million Americans access affordable coverage. These credits are essential to household economic stability. Without Congressional action, these credits will expire in 2025—triggering average premium increases of 93% and putting nearly 5 million people at risk of losing coverage, including 2 million with chronic conditions. Making these credits permanent is critical to tax fairness, economic stability, and health equity. The National Urban League supports strengthening and making permanent the Work Opportunity Tax Credit (WOTC), which incentivizes employers to hire individuals from groups that face barriers to employment. In a recent economic analysis of the Improve and Enhance the WOTC Act by Ernst & Young, the legislation would support 417,000 jobs and generate $8.9 billion in labor income—demonstrating the credit’s clear value in boosting employment and supporting underserved workers. Low-income households typically pay some federal tax, and “the largest tax burden for households in the bottom income quintile (the bottom fifth) comes from the payroll tax, followed by excise taxes and a small amount of corporate tax.” 3 Many of these households pay little or no income tax, which means they benefit less from tax credits that only reduce income tax liability. 4 However, low-income individuals work and pay significant federal payroll taxes, excise taxes, and also state and local taxes in many jurisdictions. 5 To ensure low-income workers benefit from tax relief, it is essential that such relief be fully refundable—so that it is not limited by a taxpayer’s income tax liability. 6 A fully refundable payroll tax would provide direct support to working families and offer meaningful economic relief. Workers earning less than $100,000 annually often pay a higher effective payroll tax rate than the wealthy. For example, individuals with “less than five-figure incomes pay an effective payroll tax rate of 14.1 percent, while those making seven-figure incomes or more pay just 1.9 percent,” 7 due in part to the income cap on Social Security taxes and the nature of capital-based income. At the same National Urban League | The Main St. Tax Initiative 6time, most Americans pay more in payroll taxes than income taxes. 8 This disparity is further compounded by how the tax code treats different sources of income. 9 Wages—work income earned primarily by low- and middle-income households—are taxed at rates ranging from 10% to 37%, 10 while capital gains—earned primarily by high-income households—are taxed at rates as low as 0%, 15%, or 20%. 11 In most cases, income from wealth accumulation is taxed more lightly than income from work. Congress must act to correct this imbalance and ensure that the tax code rewards labor fairly, not just wealth. Payroll taxes, which fund Social Security, Medicare, unemployment insurance, and other programs, are the second-largest source of federal revenue, generating $1.6 trillion in federal revenue—or 36% of the total federal revenue in Fiscal Year (FY) 2023. 12 However, payroll taxes are regressive: as 8 Overview of the Federal Tax System in 2024, crsreports.gov (Dec. 18, 2024). The Tax Foundation also indicated that the Joint Committee on Taxation reported the tax burden for most Americans comes primarily from payroll taxes, not income taxes. Most Americans Pay More in Payroll Taxes Than in Income Taxes; taxfoundation. org (Mar. 26, 2019). In addition, another public policy research and advocacy organization, further indicated that taxpayers with less than five-figure incomes pay an effective payroll tax rate of 14.1 percent, while the wealthy making seven-figure incomes or more pay an effective payroll tax rate of just 1.9 percent. 5 Little-Known Facts About Taxes and Inequality in America - Center for American Progress, americanprogress.org (Aug 30, 2022). 9 The difference in how the wealthy make money—and pay taxes, brookings.edu (Sept. 7, 2023). 10 Federal Income Tax Rates and Brackets (Internal Revenue Service), irs.gov (Last reviewed or Updated Feb.13, 2025). 11 5 Little-Known Facts About Taxes and Inequality in America - Center for American Progress, americanprogress.org (Aug. 30, 2022); Capital Gains and Losses (Internal Revenue Service), irs.gov (Last reviewed or Updated Jan. 2, 2025). 12 Overview of the Federal Tax System in 2024, crsreports.gov (Dec. 18, 2024). 13 Payroll Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief, crsreports.gov (Apr. 4, 2022). 14 Payroll Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief, crsreports.gov (Apr. 4, 2022); Most Americans Pay More in Payroll Taxes Than in Income Taxes, taxfoundation.org (March 26, 2019); Payroll Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief, crsreports.gov (Apr. 4, 2022). Additionally, according to CRS, the Tax Policy Center estimated that, for 2023, 62.6% of tax filing units would have a payroll tax liability that exceeded income tax liability. Overview of the Federal Tax System in 2024, crsreports.gov (Dec. 18, 2024). The largest tax burden for low-income households “in the bottom income quintile (the bottom fifth) comes from the payroll tax.” How does the federal tax system affect low-income households? | Tax Policy Center, taxpolicycenter.org (Updated Jan. 2024). income increases, the share paid in payroll taxes declines. 13 This creates a system in which the lowest-income workers pay the highest effective payroll tax rates relative to their income. 14 The National Urban League urges Congress to adopt a comprehensive approach to tax reform that prioritizes low- and moderate- income Americans. This includes direct income tax cuts, permanent expansion of the Affordable Care Act’s premium tax credits, and strengthening the Work Opportunity Tax Credit to support employment in underserved communities. In addition, Congress should establish a fully refundable payroll tax credit and address the imbalance between how wages and wealth are taxed. Together, these reforms will deliver meaningful relief to working families, reduce structural inequities in the tax code, and build a more just and inclusive economy for all. 2. MAKE PERMANENT THE NEW MARKETS TAX CREDIT PROGRAM Historically, low-income communities experience a lack of investment, as evidenced by vacant commercial properties, outdated manufacturing facilities, and inadequate access to education and healthcare service providers. The New Market Tax Credit Program (NMTC or Program), which attracts private capital into low-income communities by permitting investors to receive a tax credit against their federal income tax in exchange for making investments into a Community Development Enterprise. The NMTC Program was originally authorized in 2000 and has been extended by Congress eight times since. These extensions, along with the original NMTC legislation, have enjoyed bipartisan and bicameral support over the past two decades. Since its inception, the NMTC Program has provided billions of dollars to organizations that help National Urban League | The Main St. Tax Initiative 7rebuild economically distressed communities and has created more than a million jobs. In addition, during a July 2024 Senate Finance Committee Hearing, “Tax Tools for Local Economic Development,” Chairman Ron Wyden (D-OR) stated “all 50 states have benefited from the New Markets Tax Credit. It has helped get thousands of projects off the ground. Health care and manufacturing facilities. Childcare centers and schools. Retail developments and housing, including lots of affordable units.” 15 And during the same Hearing, Ranking Member Mike Crapo (R-ID) stated that, in his state, a new primary care facility opened that will serve a more rural community and was made possible due to a NMTC investment. In addition, both Senators indicated their support for bipartisan legislation introduced by Senator Benjamin Cardin (D-MD) and Senator Steve Daines (R-MT) to permanently extend the NMTC. More recently, in 2025, during the current Congressional session, bipartisan members of the Senate Finance Committee introduced legislation that will permanently extend the NMTC Program, as well as a bipartisan group of members of the House Committee on Ways and Means also introduced legislation to make the NMTC Program permanent. 16 According to one expert, whose current research “focuses on understanding the limitations of current tax policies used to promote affordable housing and combat poverty,” indicated in July 2019, that their 15 https://www.finance.senate.gov/hearings/tax-tools-for-local-economic-development (July 30, 2024). 16 Warner, Daines Introduce Legislation to Boost Job Growth, Support Virginia Communities - Press Releases - Mark R. Warner, warner.senate.gov (Feb. 7, 2025); Sen. Warner introduces bill to extend tax credits for low-income development, agustafreepress.com (Mar. 5, 2025); Kelly, Tenney reintroduce the New Markets Tax Credit Extension Act | Congressman Mike Kelly, Kelly.house.gov (Feb. 10, 2025). 17 law360-whynewtaxhousingsubsidieswouldlikelyfail.pdf, blogs.illinois.edu (July 9, 2019). 18 law360-whynewtaxhousingsubsidieswouldlikelyfail.pdf, blogs.illinois.edu (July 9, 2019). 19 New Markets Tax Credit Program | Community Development Financial Institutions Fund (cdfifund.gov); NMTC Funded 322 Projects, Nearly 60,000 Jobs Across the U.S. in 2023 - New Markets Tax Credit Coalition; Unlocking Economic Growth: How The New Markets Tax Credit Program Transforms Communities Across America, forbes. com (Dec. 2, 2024). research on the NMTC “suggests that the program has been relatively effective at subsidizing projects that stand to benefit poor communities, such as homeless shelters, social services, youth centers and community centers.” 17 However, although the NMTC Program can fund a wide range of projects, as of 2019, empirical studies suggest that the NMTC “has not produced many new jobs, but it has sometimes been used to fund fancy condos, high-end grocery stores, museums, opera houses and other projects that fail to address the most pressing needs of poor communities.” 18 However, according to the Department of the Treasury, as of the end of FY 2023, the NMTC Program has, for example, generated $8 of private investment for every $1 of federal funding, which resulted in the creation or retention of more than 888,200 jobs; and in 2023, the Program funded 322 projects, and roughly 60,000 U.S. jobs. 19 The current extension of the NMTC Program expires at the end of 2025; however, the Program is needed, especially in today’s uncertain economy, because corporations are looking to attract capital to underserved communities to revitalize neighborhoods, offer employment opportunities, and jump start small businesses. The National Urban League urges Congress to extend the NMTC Program to attract the investment necessary to reinvigorate and grow struggling disadvantaged communities. National Urban League | The Main St. Tax Initiative 83. EXPAND THE LOW-INCOME HOUSING TAX CREDIT (LIHTC) TO PROMOTE HOUSING AFFORDABILITY 20 Congress May Expand The Low-Income Housing Tax Credit. But Why? | Tax Policy Center, taxpolicycenter.org (Feb. 5, 2024). 21 Congress May Expand The Low-Income Housing Tax Credit. But Why? | Tax Policy Center, taxpolicycenter.org (Feb. 5, 2024). 22 Congress May Expand The Low-Income Housing Tax Credit. But Why? | Tax Policy Center, taxpolicycenter.org (Feb. 5, 2024). Affordable housing remains an urgent need, and the critical nationwide shortage of affordable housing units makes it extremely difficult for American families to purchase or rent a home. The National Urban League advocates for the expansion of existing tax incentives like the Low-Income Housing Tax Credit (the LIHTC or Housing Tax Credit), which would support the creation of affordable housing units across the country. These investments can generate meaningful impact in underserved communities, provide stability for working families, help address significant housing needs, and contribute to closing the homeownership gap. For nearly 40 years, the Housing Tax Credit has played an important role in supporting new multifamily housing construction and reducing housing costs for millions of families. The original intent of the law was ‘to encourage mixed-income housing that would help low-income families live in neighborhoods with better schools, lower crime, and better transportation and job opportunities.” 20 However, a 2018 analysis raised concerns that the Housing Tax Credit “may further concentrate poverty” in certain areas. 21 As Congress considers expanding tax incentives to address housing affordability, the federal government should first collect comprehensive data to evaluate the effectiveness of the Housing Tax Credit—a step long recommended by the Government Accountability Office (GAO). Congress should also pair any expansion with stronger disclosure requirements and improved oversight. 22 With these safeguards in place, the expansion of the Housing Tax Credit can play a continued and enhanced role in increasing the housing supply and providing affordable housing to the families who need it most at a time when the nation faces a growing housing affordability crisis. 4. CREATE AN AFFORDABLE HOUSING TAX CREDIT FOR THE CONSTRUCTION OF NEW HOMES The National Urban League urges Congress to build on federal efforts and make housing affordability a top legislative priority by addressing the growing housing supply ap and investing more directly in the construction of affordable homes. For example, Congress could increase tax credits available through the Low-Income Housing Tax Credit (LIHTC) and expand funding for other federal housing subsidy programs. Some researchers suggest this could be achieved by boosting funding for the U.S. Department of Housing and Urban Development’s existing programs that support LIHTC, such as the HOME Investment Partnerships Program. In addition, several states and localities are considering implementing new social housing programs that could develop projects independently of the private market, and the federal government could invest in those initiatives as a complement to LIHTC. In many distressed neighborhoods undergoing revitalization, developers face difficulty recovering the gap between the cost to purchase and rehabilitate single-family National Urban League | The Main St. Tax Initiative 9Next >