Race still matters in wealth divide

Without a course correction, French economist Thomas Piketty warned, we are hurtling toward a grotesquely unequal future. A future governed by a hereditary aristocracy composed of the progeny of today’s billionaires.

In his assessment, however, Piketty overlooked the “peculiar institution” of our nation’s original sin. The color of what Piketty calls our “patrimonial capitalism” will be almost exclusively white.

Progress in race relations has done little to narrow the racial wealth divide. If average black wealth grows at the same rate it has over the last 30 years, it will take another 228 years before it equals the amount of wealth currently possessed by white households.

If we stay on our current trajectory of unequal wealth growth, the wealth divide between white families and black and Latino families will double to about $1 million by 2043, the same year when households of color are projected to account for half of the U.S. population.

The legacy of discrimination in asset-building programs, which help people purchase homes, save for college or increase retirement savings, goes back generations and has a direct impact on the net worth of today’s families. Assets are a more durable measure of inequality than income, providing a buffer against economic downturns, both personal and societal.

Wealth plays an essential role in establishing financial security and opportunity for future generations. The average retirement savings for black and Latino households is $19,049 and $12,229, respectively, compared to $130,472 for White households.

Homeownership still stands as the most significant asset for low- and middle-income families. In the years after World War II, as the G.I. Bill propelled millions of white households into homeownership, discrimination in mortgage lending left most people of color behind.

The result today is an enormous gap in homeownership. More than 70 percent of white households own their home compared to less than half of black and Latino families.

The driving causes that both compound wealth inequality and worsen the racial wealth divide are overlapping but different. Policy preferences that favor asset owners over wage earners, such as low capital gains taxes and most global trade agreements, have supercharged the share of wealth flowing to the top 1 percent. The Forbes 400, a list exclusively of billionaires, now possesses a stunning $2.34 trillion – more wealth than the entire black population and one-third of the Latino population combined or a total of over 60 million people.

Policy inaction to reduce inequality, such as allowing the minimum wage to lag and diminished investment in higher education, undermine workers of all colors. Yet popular equalizing initiatives, such as raising the minimum wage or expanding college access, will not aid black and Latino workers in the same way it does for Whites. Homes in black and Latino neighborhoods do not appreciate at the same level as homes in predominately white neighborhoods. And the return on investment for black and Latino college graduates is significantly lower than Whites in terms of lifetime earnings.

So what course corrections are needed to reverse generations of racial economic inequality?

For starters, consider public programs aimed at asset-building and homeownership. These well-intentioned policies lack rigorous enforcement against predatory and asset-stripping products and services.

Low-wealth households often must rely on alternative financial services, such as payday loans, prepaid cards and check-cashing. In some cases, these services take away as much as 10 percent of a household’s income. Black and Latino households are more than twice as likely to have to turn to these services, thanks to barriers to traditional banking. We should provide incentives, such as reduced taxation, to banks that provide accessible banking services to those without significant assets.

We also need to make a full-throttle effort to reverse existing upside-down tax incentives. Over $600 billion in tax subsidies each year helps promote homeownership, private retirement funds, and savings and investments. The overwhelming majority of these subsidies flow to affluent and white households. Why not push these subsidies towards people who actually need them?

The racial wealth divide was created and exacerbated by public policies that currently threaten to push our nation towards fundamentally un-American levels of inequality and unequal opportunity. Another future is possible, one where public policy can begin to bridge our nation’s deep divisions, not continue to widen them.

Asante-Muhammed is director of the Racial Wealth Divide Initiative at the Corporation for Enterprise Development. Follow him on Twitter @DedrickM. Collins is a senior scholar at Institute for Policy Studies and author of Born On Third Base. Follow him on Twitter @Chuck99to1. Asante-Muhmmad and Collins are co-authors of the report, Ever-Growing Gap.

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