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Racial Wealth Divide

The Enduring Racial Wealth Divide

Research & Commentary
August 10, 2016

by Josh Hoxie Emanuel Nieves

New report shows stark history of the racial wealth divide and the public policy, both historical and current, that contributes to it.

Originally published by Talk Poverty.

The U.S. Constitution was ratified a full 228 years ago.  The cutting edge technology that year was the steamboat, and the country had not yet even had a presidential election.

If 228 years seems like a really long time, that’s because it is. But if current trends continue, that’s how long it will take for the average black family to reach the level of wealth the average white family has today.

The average Latino family fares slightly better—if the current trend continues, it would take them a little more than 80 years to amass the same amount of wealth white families have today.

Racial discrepancies in income and wealth are nothing new in this country. The troubling thing is that they aren’t improving. A new report by the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies (IPS) compares data on white, black, and Latino households over the past 30 years to see just how big the gap is—and the findings are staggering.

Between 1983 and 2013, the average black family saw their wealth grow by a little less than $20,000. Latino families saw a bump of about $40,000. Meanwhile, the average white family’s wealth spiked by more than $300,000.

If current trends persist, the figures get even starker. By 2043, when people of color are predicted to outnumber white people for the first time in the U.S., the racial wealth gap will double—leaving the average white family with over $1 million more in assets than black and Latino families.

Wealth is an important barometer of long-term financial stability. It translates into a first home, retirement security, and the countless opportunities afforded by having savings and investments.  Those without wealth lead a precarious existence – they have no cushion to fall back on if tragedy strikes or when they grow old.

So how did wealth become so skewed along racial lines?

The legacy of overtly racist public policy is partly to blame. Redlining, the practice of deliberately blocking non-white families from obtaining a mortgage, had a devastating impact on homeownership for black and Latino families. From 1934 to 1968—the period marking the biggest expansion of the American middle class—only two percent of Federal Housing Administration mortgages went to non-whites. The effects of that kind of discrimination are still reverberating today. [pullquote]Wealth is concentrated in very few hands. And those hands are mostly white.[/pullquote]

Unfortunately, current policy has exacerbated the problem. Consider, for example, federal tax expenditures. These tax breaks—all $600 billion of them—are designed to help families pay for college, buy a home, save for retirement, and start a business.  The problem is, the people who need the most help tend to get the least. Working families get an average of $174 each year in tax breaks, while the typical millionaire gets $145,000.

The Internal Revenue Service does not collect data on race, but since we know income is heavily skewed towards white earners—four out of five earners in the top the top 20 percent are white—we can be reasonably confident that these tax breaks are disproportionately benefiting white earners.

The racial disparity continues to grow at the very top of the economic pyramid. On last year’s famed Forbes 400 list, which enumerates the 400 wealthiest people in the country, just seven people are black or Latino. That’s worth noting, since America’s wealthiest citizens control a tremendous amount of the country’s wealth: the top 100 members of the Forbes 400 list own about as much wealth as the entire African-American population (42 million people), while the top 186 members own as much wealth as the entire Latino population (55 million people).

In short, wealth is concentrated in very few hands. And those hands are mostly white.

But just as public policy played a role in growing the racial wealth divide, it can play a role in shrinking it. An important first step would be to conduct a government-wide audit, launched by an executive order from the next president, to understand the role current federal policies play in perpetuating (or closing) the racial wealth divide.

With that data, we can begin to overhaul inequitable policies and take the steps needed to ensure our nation’s wealth-building system works for all Americans.

Josh Hoxie and Emanuel Nieves are co-authors of the new report “The Ever-Growing Gap: Failing to Address the Status Quo Will Drive the Racial Wealth Divide for Centuries to Come” co-released by the Institute for Policy Studies and the Corporation for Enterprise Development. 

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