Examining the Black-White Wealth Gap

A close examination of wealth in the U.S. finds evidence of staggering racial disparities. At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016. Gaps in wealth between Black and white households reveal the effects of accumulated inequality and discrimination, as well as differences in power and opportunity that can be traced back to this nation’s inception. The Black-white wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.

Efforts by Black Americans to build wealth can be traced back throughout American history. But these efforts have been impeded in a host of ways, beginning with 246 years of chattel slavery and followed by Congressional mismanagement of the Freedman’s Savings Bank (which left 61,144 depositors with losses of nearly $3 million in 1874), the violent massacre decimating Tulsa’s Greenwood District in 1921 (a population of 10,000 that thrived as the epicenter of African American business and culture, commonly referred to as “Black Wall Street”), and discriminatory policies throughout the 20th century including the Jim Crow Era’s “Black Codes” strictly limiting opportunity in many southern states, the GI bill, the New Deal’s Fair Labor Standards Act’s exemption of domestic agricultural and service occupations, and redlining. Wealth was taken from these communities before it had the opportunity to grow. This history matters for contemporary inequality in part because its legacy is passed down generation-to-generation through unequal monetary inheritances which make up a great deal of current wealth. In 2020 Americans are projected to inherit about $765 billion in gifts and bequests, excluding wealth transfers to spouses and transfers that support minor children. Inheritances account for roughly 4 percent of annual household income, much of which goes untaxed by the U.S. government.

Just how large and persistent are these racial wealth gaps?

Wealth is a safety net that keeps a life from being derailed by temporary setbacks and the loss of income. This safety net allows people to take career risks knowing that they have a buffer when success is not immediately achieved. Family wealth allows people (especially young adults who have recently entered the labor force) to access housing in safe neighborhoods with good schools, thereby enhancing the prospects of their own children. Wealth affords people opportunities to be entrepreneurs and inventors. And the income from wealth is taxed at much lower rates than income from work, which means that wealth begets more wealth.

There is no single, simple explanation for the racial wealth gap. It is not explained away by differences in educational attainment, as Darrick Hamilton and Trevon Logan show in a recent article, and as we show in a recent Hamilton Project volume on tax policy. It is not accounted for by indebtedness—white families actually tend to have higher levels of debt. It is not even fully accounted for by differences in income, as seen in figure 3. In addition, the fact that intergenerational transfer of wealth is lightly taxed means that historical gaps persist over generations. Furthermore, inadequate investments in the public goods that facilitate economic mobility make it harder to erase past gaps.

The solutions to the Black-white wealth gap—and the policies that address racial inequity more generally—are largely outside the scope of this post. But the analysis above points to at least one type of reform: taxation of income from wealth. The income from inheritances, and from wealth more generally, is taxed at an inequitably low rate, especially when compared to earnings.

Well-designed taxes on inheritances, reforms to capital income taxation, and even taxes on wealth could be part of the solution. Inheritance or estate taxes in particular could enhance equality of opportunity, especially if revenues were invested in programs that give low-income children a better chance at economic success.