While we’re all busy parsing the Republican’s new tax proposal, the Federal Reserve just released its Survey of Consumer Finances (SCF), a treasure trove of data not just on income, but on wealth. Its measure of wealth is “net worth,” simply meaning the value of all your assets — income, savings, financial wealth, home value, etc. — minus your debts.
One of the ways the Federal Reserve break this out is by race, which allows for a fascinating comparison: racial income gaps vs. racial wealth gaps. The figure below shows that in 2016, median income for African Americans compared to that of whites came to just below 60 percent ($35,400/$61,200). But the analogous ratio for wealth was 10 percent ($17,600/$171,000). The ratios for Hispanics were very similar.
The racial income gap is bad enough. The racial wealth gap is enormous.
What does this mean?
For one, wealth should be considered partly a legacy variable. When Billie Holiday sang, “Them that’s got shall get,” she meant that wealth begets wealth, through obvious channels, including inheritance, opportunity, neighborhoods, schooling, networks and so on. Therefore, if you’re someone who thinks — against all evidence; you’d be nuts to think this — that discrimination is a thing of the past, you would still have to recognize that the legacy of past discrimination plays an undeniable role in that short, second bar.
Moreover, consider those channels just noted. Income can help a little with them, though at $35K, the level of black median income doesn’t buy a lot of opportunity, good schooling or a better neighborhood. In other words, the absence of black wealth is not just a historical constraint. It is playing itself out as a steep barrier to opportunity and upward mobility today.
What to do to ameliorate this will be topics of future columns in this space, but for now, let me bring it back to current events. The proposed tax cut will make it much, much harder to address these gaps, both in income and wealth. Providing large cuts to high-income households and businesses will lead to higher after-tax income inequality. And by putting these tax cuts on the deficit, pressures to cut spending programs that invest in wealth-building opportunities, such as better housing in better neighborhoods, or quality pre-school, will grow. It is not incidental that Republicans have been actively cutting such supports for years.
So, the first order of the day is to just acknowledge the magnitude and saliency of these gaps. The second order is to block that wasteful, regressive tax cut, which is exactly what I’ve got to run off and do. More to come….