What would U.S. society be like if a majority of families had no wealth – no savings, no home equity, no investments of any kind?
That is exactly where the country is headed if we continue on our current path toward economic dystopia for black and Latino families.
While we celebrate a modest reduction in poverty rates and an encouraging uptick in median income, as disclosed in this week’s Census report, the stagnation and decline of wealth remains a troubling indicator.
Between 1983 and 2013, median black household wealth decreased by 75% to $1,700 and Latino household wealth fell 50% to $2,000. At the same time, median white household wealth rose 14% to $116,800.
If this trend continues, an African American born in 2013 will see her household wealth hit zero by the time she turns 40. Her Latino peers will suffer the same fate 20 years later.
This is happening as households of color make up a growing share of the population and are projected to reach majority status by 2043. If the accelerating racial wealth divide isn’t halted, a majority of U.S. households will no longer have enough wealth to stake a claim in the middle class. The consequences for the economy and society as a whole will be devastating as racial and political polarization deepens and intensifies.
A combination of bold societal and policy changes is the only way out of this crisis.
We have a choice to make. Do we want to become a country like Brazil where staggering wealth inequality is the norm? Or do we want to be more like Canada, where there is far less inequality and greater opportunities for all?
Without a shift in direction, we are on a fast track toward the Brazilian model – with a tiny, wealthy upper class, a precarious and small middle class, and a poor majority that struggles for income and inclusion.
At that country’s tippy top are the ultra-wealthy “Brazillionaires,” traveling in private jets and bullet-proof Jaguars between their walled residential enclaves and luxurious commercial districts. Meanwhile, the ranks of deprivation among the majority are staggering.
By contrast, Canada’s celebrated social mobility is more akin to the idealized American Dream that in reality has become increasingly hollowed out. Because of public investments in early childhood education, higher education and universal health care, Canada resembles the broader opportunities available to a previous U.S. generation.
We can draw from the U.S. experience, including the mistakes of the past, to help us build a shared prosperity economy. The white middle class expansion in the decades after World War II was the result of a healthy and growing economy combined with massive opportunity-generating investments in areas such as homeownership, higher education, infrastructure and transportation.
Between 1945 and 1977, the wealthy paid considerably more taxes and revenue was invested in public goods to foster a “shared prosperity” economy, putting millions of white households on the fast track to the middle class. Unfortunately, these policy efforts excluded Americans of color by law or practice, perpetuating racial economic inequality even as state sanctioned segregation was coming to an end.
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As Congress debates the tax code this fall, one critical, cost-free remedy to these inequities is within reach: redesigning current wealth-building tax incentives. Congress should revamp our “upside down” tax code to stop subsidizing the already wealthy and invest in opportunities for struggling families to save and build wealth. That includes reforming the mortgage interest deduction and other tax expenditures, bolstering and expanding the federal estate tax, and creating a net-worth tax on multi-million-dollar fortunes.
Low-income families also need to be protected from wealth-stripping practices common in many low-wealth communities. For example, we need to strengthen the Consumer Financial Protection Bureau so it can effectively monitor rent-to-buy housing scams that prey on aspiring first-time homebuyers.
It is not too late to expand wealth opportunities for the majority of people of color and stabilize white working class families so they all have a real opportunity to join the middle class. The road to shared prosperity requires us to take a U-turn away from the Brazil model and toward a future where our democracy truly works for all Americans.
Dedrick Asante-Muhammad is the director of the Racial Wealth Divide Project at Prosperity Now and Chuck Collins is director of the Program on Inequality at the Institute for Policy Studies and co-editor of Inequality.org. They are co-authors of the new report The Road to Zero Wealth. Follow them on Twitter: @DedrickM and @chuck99to1