Explaining the Black-White Economic Divide (pdf & additional info)
This study done by Brandeis finds that the biggest determining factor in the wealth gap between the two races is home ownership. According to the study, the four key reason for the difference is:
- Because residential segregation artificially lowers demand, placing a forced ceiling on home equity for AfricanAmericans who own homes in non-white neighborhoods.
- Because whites are far more able to give inheritances or family assistance for down payments due to historical wealth accumulation, white families buy homes and start acquiring equity an average eight years earlier than black families
- Because whites are far more able to give family financial assistance, larger up-front payments by white homeowners lower interest rates and lending costs; and
- Due to historic differences in access to credit, typically lower incomes, and factors such as residential segregation, the home ownership rate for white families is 28.4 percent higher than the home ownership rate for black families
Also according to the study, the suggested ways to correct this injustice is: Public policy can play a critical role in creating a more equitable society and helping all Americans build wealth. College loans, preferential home ownership, and retirement tax policies helped build opportunities and wealth for America’s middle class. Medicare and Social Security have protected that wealth. While the bold vision of policymakers, advocates, and others interested in social and racial justice is needed to develop a precise policy agenda, we believe the following broad public policy and institutional changes are critical to closing the gap:
- Home ownership - The data in this report clearly target home ownership as the biggest driver of the racial wealth gap. We need to ensure that mortgage and lending policies and fair housing policies are enforced and strengthened so that the legacy of residential segregation no longer confers greater wealth opportunities to white homeowners than it does to black homeowners. As our nation moves towards a majority people of color population, increasingly diverse neighborhoods must deliver equitable opportunities for growing home equity.
- Income - This report identifies the importance of stable, family-supporting jobs and increasing incomes as a prime avenue for building wealth. To address the gap caused by income disparity, proven tools should be fully implemented at the national, state, and local levels, including raising the minimum wage, enforcing equal pay provisions, and strengthening employer-based retirement plans and other benefits.
- Education - It is clear that differential educational opportunities and rewards are further widening the racial wealth gap. We need to invest in affordable high-quality childcare and early childhood development so every child is healthy and prepared for school. We need to support policies that help more students from low-and moderate-income families and families of color attend college and graduate. And we need to value education as a public good and invest in policies that do not leave students strapped with huge debt or a reason to drop out.
- Inheritance - Due to the unearned advantages it transmits across generations, inheritance widens inequality and is a key driver of the racial wealth gap. If we truly value merit and not unearned preferences, then we need to diminish the advantages passed along to a small number of families. Preferential tax treatment for large estates costs taxpayers and provides huge benefits to less than 1 percent of the population while diverting vital resources from schools, housing, infrastructure, and jobs. Preferential tax treatment for -6-dividends and interests are weighted toward wealthy investors as is the home mortgage deduction and tax shielding benefits from retirement savings.
It is time for a portfolio shift in public investment to grow wealth for all, not just a tiny minority. Without that shift the wealth gap between white and black households has little prospect of significantly narrowing. A healthy, fair, and equitable society cannot continue to follow such an economically unsustainable trajectory.
This study is particularly disheartening in light of recent events. Those who were already at the bottom, were the target of…well, keeping them at the bottom.