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The Racial Wealth Gap
Racial wealth inequality dates back to the founding of this country: Europeans forcibly removed Native Americans from their own land in order to create the current United States. Many White Americans were able to build and grow their own wealth through owning Black slaves and conquering Native American territories. Sadly, this violence is part of the foundation of the modern United States. Even after the prohibition of slavery and land grabbing, discriminatory public policies and an unbalanced tax system maintain racial injustice. Consequently, the racial wealth gap grew to what it is today.
When looking at the racial wealth gap, many assume that the residential isolation of communities of color is only the accident of economic circumstance, a natural phenomenon. However, twentieth century history reminds us that residential segregation and the racial wealth gap derives from racially-motivated public policy. Even though racial segregation in housing was outlawed in a 1948 Supreme Court case, the federal government still allowed localities across the country to prevent racial minorities from moving into White neighborhoods. Practices such as blockbusting, redlining, and racialized zoning laws created deep segregation and blocked households of color from owning their homes and receiving adequate public investment in their neighborhoods. These segregationist policies have created decades-long consequences. Wealth – the value of a household's property and financial assets, minus the debts owed – is even more highly concentrated at the top than income.
In 2013, the wealthiest three percent received roughly one-third of all income in 2013 and held more than half of all wealth. In particular, the share of wealth held by the top three percent rose from 44.8 percent in 1989 to 54.4 percent in 2013, while the share held by the bottom 90 percent fell from 33.2 percent in 1989 to 24.7 percent in 2013. The consequences of this wealth concentration are profound.
The racial wealth gap is a pervasive inequity in this country that has lasted for too long. It is important that we understand the historical roots of wealth inequality, and how poverty rates and wealth inequality disproportionately affect communities of color. RESULTS’ efforts on tax credits for low-income working families will have an impact on the racial wealth gap. Tax fairness is not only important in lifting up all families, but is particularly critical in supporting families of color to move up socioeconomically. The Earned Income Tax Credit (EITC) and low-income portion of the Child Tax Credit (CTC) are particularly beneficial for communities of color because these communities experience higher rates of poverty. For example, Blacks make up 12 percent of the population but 19 percent of the working poor. Latinos make up about 17 percent of the working population but 28 percent of the working poor. Consequently, tax credits targeted to low-income populations as well as other savings policies will help to close the racial wealth gap and decrease poverty rates in those communities.
Fewer than half of Black households own homes and are thus unable to take advantage of homeownership tax subsidies. Also, only four out of ten Black workers participate in an employer-based retirement savings account – another critical method of gaining wealth. (Read more about tax fairness on the RESULTS site.) Understanding America’s history and tax system is fundamental to creating equitable public policies.
When done right, tax policy can empower all Americans to save, invest, and build wealth. However, the current U.S. tax code benefits wealthier families in terms of wealth creation much more than middle and low-income families. In 2015, the $660 billion in federal spending on these programs, with a few exceptions, largely served to expand the wealth of those at the top. Most individuals and families (those in the bottom 60 percent) receive less than 12 percent of the benefits from these programs. When thinking about annual tax benefits, a family in the top one percent could buy a Cadillac with their tax savings and credits while a family in the bottom 20 percent could barely fill the gas tank. Thus, these tax expenditures on asset-building start feeling, as the Corporation for Enterprise Development likes to call it, “upside down” – those who need it least get the most, and those who need it most get the least. Creating tax policy that steers toward opportunity and equity for all Americans will begin to address these gaping inequalities.
The wealth gap between rich and poor is even starker for communities of color, and it is growing. The median wealth gap between white and African American households nearly tripled between 1984 and 2009 – from $85,000 to $236,500. One reason for this is that white households are more likely to receive wealth transfers from family members. The Institute on Assets and Social Policy at Brandeis University found that between 1984 and 2011, nearly half (46 percent) of white households received a family financial transfer compared to only 10 percent of African American households. Additionally, the average amount of the transfer was about $85,000 for white households, but only $52,000 for African American households.
The Center for Global Policy Solutions released a report in 2014 called Beyond Broke, which found that:
The Corporation for Enterprise Development (CFED) found that more than 40 percent of households of color are asset poor, meaning they don't have enough assets to live for three months at the poverty level with no income. In contrast, only 25 percent of white households are asset poor. Furthermore, over 60 percent of households of color are liquid asset poor (which is similar to asset poverty, but includes only liquid, or readily accessible, assets) compared to about 35 percent of white households. This means that many low-income households of color are just one job loss or medical emergency away from a financial crisis.
An Insight Center for Community Economic Development report shows that the racial wealth gap has a significant impact on the development of young children. The data shows that at nine months, all children start out with similar results on a standard child development test. However, by age two, children in African American and Latino households, which hold only a fraction of the assets possessed by white households, begin to lag way behind their white counterparts; this gap becomes even more stark when these children enter kindergarten.
These stark gaps have roots in historical and modern government polices – including racial discrimination within each of the major housing, lending, land-ownership, and education-related government programs. (See United for A Fair Economy’s 11 Ways the Federal Government Contributed to the Racial Wealth Gap and the Illinois Asset Building Group's Racial Wealth Gap Timeline).
RESULTS’ Tax Fairness page
RESULTS' Building Savings and Assets page
The Growing Divide from United for a Fair Economy
Closing the Racial Wealth Gap Initiative from the Insight Center for Community Development
State of the Dream 2013: A Long Way From Home - Housing, Asset Policy and the Racial Wealth Divide from United for a Fair Economy
Beyond Broke: Why Closing the Racial Wealth Gap is a Priority for National Economic Security by the Center for Global Policy Solutions
2013 Racial Wealth Gap Policy Brief from the Institute on Assets and Social Policy
The Color of Debt: How Collection Suits Squeeze Black Neighborhoods from Pro Publica
The Black Neighborhoods Where Collection Suits Hit Hardest from Pro Publica