America's Racial Wealth Divide Is Worse Than Thought, Undermining the Middle Class and Deepening Under Trump
America is heading toward “a racial and economic apartheid state.” As the country becomes more diverse, today’s wealth gaps between whites and non-whites are poised to grow unless government policies helping people build personal wealth are reformed.
That is the takeaway from a dramatic new report, "The Road to Zero Wealth," co-authored by the Institute for Policy Studies and Prosperity Now. It finds America’s racial wealth gap is larger than thought and deepening. Ironically, the report comes as working-class whites who feel economically adrift helped elect a president and Congress to prioritize their community—as opposed to reviving everyone in a sinking middle class.
“We don’t know how to make sense of the two stories happening at the same time,” said Chuck Collins, director of the Program on Inequality at the Institute for Policy Studies, and one of the report's four co-authors. “One is overall inequality, which is happening to the bottom half of wage earners [including whites]. And then there’s the story of the legacy of racism and wealth and asset building, which is a longer story going back centuries. Both these things exist at the same time.”
“We’re missing the ways in which the overall inequalities that are affecting a lot of white working-class people are supercharging these racial wealth divides,” Collins continued. “So you have a white working class that legitimately feels like they have been betrayed or left behind, and they can’t hear the story of the racial dimensions of this because they are feeling their own pain. So how do we recognize that those two stories exist and they are intertwined and connected? And a lot of times, the solutions would be good for everyone who has been left out—free education would be a good thing; raising the minimum wage would help all kinds of low-wage workers.”
The report tells a stark story by using a new way to measure personal wealth—it doesn’t count assets that fall in value like cars and household appliances.
“A disproportionate share of the nation’s wealth is held in white hands, while households of color own a shrinking slice of the proverbial pie,” it says. “Today, this translates into a racial wealth divide in which the median net worth of black and Latino families stands at just $11,000 and $14,000, respectively—a fraction of the $134,000 owned by the median white family. Even more disturbing is that when consumer durable goods such as automobiles, electronics and furniture are subtracted, median wealth for black and Latino families drops to $1,700 and $2,000, respectively, compared to $116,800 for white households.”
The authors project forward, to the years of the next presidential election, and further down the line to the early 2040s, when non-whites will become the majority of the country’s population. Looking to the near future, the racial wealth gap is poised to grow.
“By 2020, if current trends continue as they have been, black and Latino households at the median are on track to see their wealth decline by 17% and 12% from where they respectively stood in 2013,” the report said. “By then, median white households would see their wealth rise by an additional three percent over today’s levels. In other words, at a time when it’s projected that children of color will make up most of children in the country, median white households are on track to own 86 and 68 times more wealth, respectively, than black and Latino households.”
“Current trends suggest that by 2024, median black household wealth will have declined by a total of about 30% from where it stands today,” the report continued. “In that same timeframe, the median Latino family can expect to see their net worth decline by a total of 20% over today’s levels. By then, median white household wealth will have increased by about five percent over today’s levels.”
There are many reasons why this is happening. Going back nearly 75 years, the federal government prioritized policies favoring home ownership for whites but not for non-whites. One example from the post-World War II years is the government would not make home loans to black veterans. That policy, and others, such as making mortgage interest rates tax deductible, gave an edge to families with a higher foothold on the economic ladder.
However, the election of President Trump and the GOP Congress is deepening these long-simmering structural factors because the administration is shifting resources up the economic ladder or removing protections that kept lower- and middle-class people from slipping down.
“The racial wealth divide is not a new phenomenon, nor can a single presidential administration or other policymaking body expect to ameliorate the racial wealth divide overnight,” the report says. “However, since the inauguration of President Trump in early 2017, two phenomena give cause for concern that the trends of the past 30 years might become even more pronounced in the near future. First, less attention has been paid to the growing racial wealth divide compared to previous administrations. Second and more alarmingly, there have been a bevy of policies proposed or championed by President Trump—from healthcare to immigration to housing and financial services reform—that would inevitably and exponentially exacerbate racial wealth inequality.”
The report poignantly notes that the reasons for inequality in America have little to do with the work ethic espoused by the political right.
“While some falsely argue that this racial wealth divide stems from choices made by individuals and communities, the facts tell a different story,” the report said. “Recent research shows that the racial wealth divide persists across all levels of educational attainment and family structures, seriously diminishing the ‘personal choices’ argument. Case in point? White high school dropouts own more wealth than black and Latino college graduates. Furthermore, single-parent white households own more wealth than two-parent black households.”
Further, the report says the country is on a precipice, and unless government policies—at the federal and state level—do not do more to bolster the middle class, regardless of its racial composition, the middle-class will keep shrinking and disappear, creating “a racial and economic apartheid state.”
“To claim that the future existence of the middle-class hinges on whether we reverse the trends of growing racial economic inequality is by no means an exaggeration,” the report said. “Indeed, the rise of a once-strong American middle class didn’t happen on its own. Rather, it required a healthy, vibrant economy, including significant investments in Americans’ ability to build lasting financial security, such as through homeownership, higher education and transportation, all of which enable families to build wealth.”
“However, these policy investments haven’t had a lasting positive effect on the middle class because most often, they were intentionally directed at white communities and away from communities of color,” the report continued. “Although the intentional exclusion of communities of color from opportunities to build wealth is a morally repugnant feature of American history, it remained economically viable at a time when the vast majority of our populace was white. As we look ahead to a time when people of color will comprise the majority of the population, however, we are committing economic suicide if we continue believing that we can exclude the majority of the country from opportunities to invest in the future.”
Collins, a co-author, said the solutions start with understanding that America’s economic woes traverse racial lines—and shouldn’t pit struggling whites and non-whites against each other. But the solutions also include acknowledging and reversing many decades of institutional racism.
“I think it is owning up to these two dynamics,” he said. “But then if we want to address the racial wealth divide, we have to understand that it has its own historic dynamics. We, in the report, say you should have a racial wealth audit. Any [government] policy that we think will be good for everyone, let’s just not assume that if it’s a universal approach. Let’s make sure, let’s look at how it affects the racial wealth divide.”
Collins also said that the top 20 percent of wage earners—disproportionately whites living in large homes in better-off suburbs, who send their kids to private schools and work in upper echelons in corporate America, finance, medicine and law—should surrender some of the government subsidies they receive to lift people below them.
“We also talk about this upside-down subsidy thing,” he said. “We already spend $600 billion-plus helping people build wealth in this country. But it’s mostly going to the top 20 percent of the already-haves. So just reversing some of those upside-down wealth-building subsidies would be a really good start, and should be politically more acceptable. You’re not looking at new revenue. Look at the resources we are already using to help encourage home ownership [such as the mortgage interest deduction], which is mostly going to people who already have big houses and two of them.”
Collins said he and others will try to raise these issues when Congress turns to tax reform this fall. But he is not optimistic about the Republicans in Washington. Instead, he looks toward state governments for near-term progress.
“We are trying to make that an issue, like let’s look at the upside-down subsidies,” he said. “I guess I don’t have any short-term optimism about the national picture. I do think people can start to pilot some of these things in states. It goes to the Dream Hoarders book [Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It, by Richard Reeves].
“That’s where you have the interesting politics of the top 20 percent who benefit from all these tax breaks and subsidies,” Collins said. “If you get that constituency to recognize that they are a barrier to greater equity and maybe they shouldn’t be getting those levels of subsidies. We see that discussion happening in a lot more places than two years ago.”