We Need New Rules – Federal Policies Have Made the Wealth Gap Worse (VIDEO)

A new study by the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies (IPS) shows that wealth inequality in the United States has mushroomed in the last 30 years. It’s not just about the 1% vs. the rest of us. The wealth gap between white households and black and Latino households is much larger than it was 30 years ago. And it’s growing.  In fact, to build as much wealth as the average white family had in 2013, the average black family would have to work 228 years.

It’s true that many white people are included in the 99 percent. But the 1 percent, as a whole, is a much whiter group than the 99 percent. And low-income (and low-wealth) people are much more likely to be black, Latino, or Native American than white.

As a matter of fact, of the 400 richest Americans, only two are African-American, and five are Latino. The 100 wealthiest Americans own about as much wealth as the entire African American population, about 42 million people. And the 186 wealthiest people on the Forbes 400 own more than the entire Latino population, more than 55 million people.

Measuring Inequality

As of 2013, the average black household owned assets worth $85,000, the average Latino household owned $98,000, and the average white household held $656,000 in assets. In other words, the average white family has a net worth $571,000 higher than the average black family.

Look at home ownership. As of 2013, 71 percent of white families owned their homes, compared to 41 percent of black households and 45 percent of Latino households.

Black (67 percent) and Latino households (71 percent) are less likely to have enough savings to get through three months of lost income. Nearly two-thirds of white households have three months’ living expenses set aside.

Increasing Concentration

The CFED and IPS researchers compared the racial wealth gap of 2013 to the gap in 1983. Both income and wealth are becoming increasingly concentrated. This reinforces and expands inequality. For example, in 1983, the median wealth by racial group was $67,000 for black households, $58,00 for Latinos, and $355,000 for white households. If wealth for all three groups had grown at the same rate as for whites, the average for black households would be $123,000 ($38,000 higher), for Latinos, $107,000 ($9,000 higher. But if black and Latino wealth had grown at the same rate as the Forbes 400, the averages would be $475,000 for black households, $386,000 for Latinos.

Our Tax Dollars at Work

Several federal policies, some enacted into law, have helped to create and aggravate the wealth gap between whites and racial minorities:

1. Excluding agricultural and household workers from coverage under the Social Security Act of 1935;
2. Excluding many tip-based occupations that mostly employed black people from the first minimum wage laws (servers, shoe shiners, domestic workers, and Pullman porters);
3. Redlining zones with higher black populations, preventing them from accessing the FHA financing that helped many people buy their first homes. Although redlining was outlawed in 1968, its effects are still felt today;
4. Discriminatory application of the GI Bill deprived many black veterans of the benefits given to white veterans.

Perhaps worst of all is the tax system. It has been a major force in creating and maintaining both wealth concentration and racial inequality. Examples:

1. The deduction for interest on home mortgages favors people who buy more expensive homes. So does the deduction for real estate taxes. These two tax breaks cost the Treasury  $100 billion per year. Most of that benefit goes to people with expensive homes and large mortgages.
2. The tax benefits for saving for retirement, paying for higher education, buying a home, or starting a business, which have cost the U.S. Treasury $8 trillion in the last 20 years.
3. The zip codes with the highest percentage of capital gains income and mortgage interest deductions are 83 percent white. Black households were 3 percent of the residents of zip codes with the highest capital gains and 6 percent of residents in the zip codes with the highest mortgage interest deductions.
4. Millionaires get an average of $145,000 in tax benefits to help build their wealth. Working Families get just $174.

What Can Be Done?

CFED and IPS have several proposals:

1. Capping the interest deduction on home mortgages;
2. Expanding assistance programs to help working families buy their first home;
3. Expanding the Earned Income Tax Credit (EITC) to households without dependents;
4. Creating incentives to allow taxpayers getting the EITC to save the money;
5. Creating a simple, affordable retirement product for low-wealth families;
6. Apply more progressive tax rates, that is, higher taxation on higher levels of income;
7. Tax wealth at a low percentage each year; and
8. Reviving and expanding the estate and gift taxes.

Featured image is a screengrab from video.