Two hundred and twenty-eight years: That’s how long it would take for African-Americans to accumulate the same amount of wealth whites have now if current policies remain in place, according to a new analysis from the Corporation for Enterprise Development and Institute for Policy Studies.
The stunning estimate is part of a study the two groups released this week on the racial wealth divide in the U.S., highlighting the growing disparity between Americans of color and everyone else, the policies that contributed to a widening divide and proposals to help reverse the trend.
CFED and IPS looked at 30 years of data from the Federal Reserve’s Survey of Consumer Finances, which includes information on Americans’ balance sheets, income, pensions and demographic characteristics.
Over the past 30 years, they found the average wealth of white families has grown by 84%, three times as fast as the rate for African-American families and 1.2 times the growth rate for Latino families.
THE WALL STREET JOURNALSource: CFED, Institute for Policy StudiesRacial Wealth DivideThe gap between average household wealth for white families and families of color has nearly doubled over the past 30 years.
To put that in dollar terms, if the past 30 years were to repeat, whites would see their wealth increase by about $18,000 a year on average, while Latino household wealth would increase an average $2,250 a year and wealth for African-Americans would grow by just $750 annually.
At the current rate, it would take until the year 2241 for the average black family to accumulate wealth equal to what white families have today. And it would take Latinos until 2097 to reach parity with whites, the report said, assuming the average wealth of white families holds steady at today’s levels.
That wealth divide had narrowed in the years leading up to the Great Recession, but has since expanded in the wake of widespread foreclosures and job losses that hit the African-American and Latino communities particularly hard, said Dedrick Asante-Muhammad, the director of CFED’s Racial Wealth Divide Project.
“We’re not going in the right direction,” he said.
The groups attribute the divide primarily to tax policies aimed at helping households build wealth, save for retirement, buy a new home, start a business or pay for college—policies they say primarily benefit wealthy families, not low-income communities.
The authors acknowledged that using average wealth figures, rather than median household wealth, could skew the data, with very wealthy households or very poor households pulling the numbers up or down. But they said the median estimates were even more bleak: at the current growth rate, the median wealth of black households would never catch up.
It’s not just a problem for communities of color, CFED and IPS warn. By the year 2043, people of color will make up a majority of the U.S. population. By then, the wealth divide will have doubled, from roughly $500,000 on average in 2013 to more than $1 million, and many more American families will be in financial distress—a prospect that does not bode well for overall economic growth, the authors said.
“That is one of the greatest economic crises the country is facing—well, it’s not facing,” said Emanuel Nieves, government affairs manager at CFED and one of the report’s authors.
The group is calling on Congress to consider a range of policy options to help narrow the divide, including identifying policies that perpetuate the wealth divide through a government-wide audit, fixing tax policies to ensure they help families of color build wealth, and adopting revenue measures that would “reduce the wealth concentration at the top,” such as closing federal estate-tax loopholes and creating an annual net worth tax on high-wealth individuals.
Some activist groups and lawmakers have also called on the Fed to keep interest rates low for longer to help support employment andextend growth opportunities for African-American and Latino communities. Even Fed Chairwoman Janet Yellen has called the trends “extremely disturbing” and suggested the Fed is paying closer attention to the racial gaps in the economy.
“It’s important for us to be aware of those differences and to focus on them as we think about monetary policy and work that the Federal Reserve does in the area of community development,” she told Congress in June.
Originally Posted on wsj.com by Kate Davidson
Fed Pressed on Questions of Diversity (June 21)
Racial Wealth Gaps: What a Difference 25 Years Doesn’t Make (Feb. 26, 2015)