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Why Is The Racial Wealth Gap Widening? And What Should Be Done To Reverse It?

By   Follow Me on Twitter     Message Robert B. Reich       (Page 1 of 2 pages)     Permalink    (# of views)   3 comments

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Reprinted from Robert Reich Blog


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alth inequality is even more of a problem than income inequality. That's because you have to have enough savings from income to begin to accumulate wealth -- buying a house or investing in stocks and bonds, or saving up to send a child to college.

But many Americans have almost no savings, so they have barely any wealth. Two-thirds live paycheck to paycheck.

Once you have wealth, it generates its own income as the value of that wealth increases over time, generating dividends and interest, and then even more when those assets are sold.

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This is why wealth inequality is compounding faster than income inequality. The richest top 1% own 40% of the nation's wealth. The bottom 80% own just 7%.

Wealth is also transferred from generation to generation, not only in direct transfers, but also in access to the best schools and universities. Young people who get college degrees are overwhelmingly from wealthier families.

Which is why kids from low-income families, without such wealth, start out at a huge disadvantage. This is especially true for children of color from low-income families. Such families typically rent rather than own a house, and don't earn enough to have any savings.

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Throughout much of America's history, the federal government has given families tax breaks in order to help them save and build assets -- such as paying no tax on income that's put away for retirement, and being able to deduct interest on home mortgages.

But these tax breaks mainly help those with high income and lots of wealth in the first place, who can afford to put away lots for retirement or get a large mortgage on a huge home. They don't much help those with low incomes and minimal savings.

Families of color are especially disadvantaged because they're less likely to have savings or inherit wealth, and face significant barriers to building wealth, such as discriminatory policies and practices that thwart home ownership.

These structural disadvantages have built up to the point where the median net worth of white families is now more than 10 times greater than that of African-American or Latino families.

So what can we do to help all Americans accumulate wealth?

First, reform the tax system so capital gains -- increases in the value of assets -- are taxed at the same rate as ordinary income.

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Second, limit how much mortgage interest the wealthy can deduct from their incomes.

Then use the tax savings from these changes to help lower-income people gain a foothold in building their own wealth.

For example:

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Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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