If current federal wealth-building policies remain in place, it will take the average African-American family 228 years to amass the same amount of wealth that white families have today and it will take Latino families 84 years to reach that goal, according to a new report from the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies (IPS).
The Ever-Growing Gap: Failing to Address the Status Quo Will Drive the Racial Wealth Divide for Centuries to Come shows how the well-documented chasm between white household wealth and African-American and Latino household wealth will play out over a period of decades and even centuries if nothing is done to change the current scenario.
For instance, the report finds that by 2043, when households of color are projected to account for more than half the U.S. population, the racial wealth divide between white households and African-American and Latino households will have doubled from about $500,000 in 2013 to $1 million.
The report notes that if these trends continue unabated, the entire economy will suffer. “By the time people of color become the majority, the racial wealth divide will not just be a racial and social justice issue impacting a particular group of people—it will be the single greatest economic issue facing our country,” according to the authors.
The Ever-Growing Gap uses new data from the Survey of Consumer Finances to examine the long-term trajectory of the racial wealth divide. Assuming that white wealth remains stagnant at today’s levels and average African-American wealth grows at the same pace it has over the past three decades, it would take the average black family until the year 2241 to accumulate wealth equal to what white families have today. By the same measure, Latino families would not reach parity with white family wealth until 2097.
“Wealth plays an essential role in helping people achieve financial security. It is money in the bank, a first home, a college degree and retirement security. As a nation we cannot sit idly by while huge swaths of society are denied those opportunities,” said Dedrick Asante-Muhammad, Director of the Racial Wealth Divide Project at CFED.
While the report documents the continuing impact of historic inequities, such as federally sanctioned housing discrimination and unequal distribution of G.I. Bill benefits, it notes that current tax policies have intensified the wealth divide by helping the highest earners get even wealthier while providing the lowest income families with almost nothing.
During the past two decades alone, the federal government has spent more than $8 trillion through tax programs to assist families in building long-term wealth, including saving for retirement, purchasing a home, starting a business or paying for college, according to the report. Since 1994, the federal government’s massive wealth-building spending has more than tripled, going from a little over $200 billion to $660 billion in 2015.
But the impact of these expenditures has been stunningly unequal or “upside down,” as the report points out, with typical millionaires today receiving about $145,000 in public tax benefits to grow their wealth while working families get a grand total of $174 on average.
The result is a financial bonanza for wealthy families. Over the past 30 years, the wealth of the Forbes 400 richest Americans has grown 736%—10 times the rate of growth for the Latino population and 27 times the rate of growth for the black population. If average African-American households had been able to enjoy the same growth rate as the Forbes 400 during that same period, they would have an extra $475,000 in wealth today. Latino households would have an extra $386,000.
The Ever-Growing Gap finds that if these trends continue, the Forbes 400 will see their average wealth skyrocket to a staggering $48 billion by 2043—more than eight times the amount they hold today. Similarly, the top 1% would see their average wealth balloon to $33 million. Overall, the average wealth for white families would increase by 84% to $1.2 million compared to $165,000 for Latino families (69% growth) and $108,000 for African-American households (27% growth).
The report calls on the next president and Congress to consider a range of policy options to help close the divide. They include:
- Conducting a government-wide audit, launched by an executive order from the president, to determine the role federal policies play in perpetuating or closing the racial wealth divide. The audit, which would be overseen by a specially appointed ombudsperson, would include recommendations for how each government agency can reduce its role in growing the racial wealth divide.
- Fixing unfair, upside-down tax incentives to ensure households of color also receive support to build wealth. The report points out the United States already has the resources to do this through the tax code, which currently doles out more than half a trillion dollars annually to help primarily wealthy households build more wealth.
- Adopting revenue measures that would reduce wealth concentration at the top and generate significant funding that could be re-invested to create opportunity for those at the bottom. These include closing loopholes in the federal estate tax, creating an annual net worth tax on wealth over $50 million or a similar high threshold at a low rate of 1-2%, and re-instituting estate taxes in the more than 30 states that currently don’t have them.
“Federal policymakers have a clear choice to make: They can allow this pattern to continue and set our country on a road to economic devastation, or they can stop facilitating the wealth divide and start expanding opportunities to boost wealth for all families, especially households of color,” said Chuck Collins, Director of IPS’s Program on Inequality and the Common Good.