Prodigious but Stingy
Sometime during 2021, the US economy passed a momentous milestone virtually unnoticed. Buried in a government report, in this case the Federal Reserve’s Financial Accounts of the United States – Z.1, is the revelation that US household wealth had reached $142 trillion by year’s end.Footnote 1 This is one of those mind-numbing statistics that defies any real understanding. Yet, when paired with another statistic, that the current number of US households is 131 million, its significance takes shape. Combining the two figures demonstrates the prodigious bounty of the US economy as they reveal average household wealth now exceeds $1 million. So much for the 1920s slogan that aspires for “a chicken in every pot.” A century later, the US economy is capable of making every American household a millionaire! Consider for a moment the possibilities.
In an ancillary appendix, opaquely named the Distributional Financial Accounts, the Federal Reserve offers insights into the distribution of this wealth; not evenly, I can assure you. According to the publication, the richest 1 percent of households garners nearly one-third while the bottom half of households claims less than 3 percent of that wealth. These lopsided shares demonstrate the acute stinginess, even cruelty, of the American economy. Although capable of generating vast amounts of wealth, its parsimony is striking. When we consider the wealth shares by race, we find a similar imbalance. White households account for just under two-thirds of American households, yet they hold 86 percent of household wealth. In contrast, Black households comprise almost 12 percent of the total population while their share is a paltry 2 percent.Footnote 2 These lopsided distributions should raise alarm.
Linking Race and Wealth
That there exists a strong link between race and wealth shares should come as no surprise; they have been inextricably linked from the very beginning. No doubt when the English colonists first landed on the shores of Virginia, they viewed the land and its bounty as a source of great wealth. Of course, the land was already occupied. Possession of this valuable source of wealth could only be obtained by the removal of the Indigenous peoples, whether through negotiation, intimidation, or violence. The settlers quickly learned that simple possession was insufficient to unlock the land’s great rewards. Rising demand back home for tobacco, indigo, and other crops meant hard labor in a hot climate, generating the need for cheap labor. Enslaving local Indians initially and later captured Africans offered a means to expanded harvests, large landholdings, and great wealth. The rising trade between local plantations and European markets enabled colonial merchants, insurers, and financiers to grow rich as well. On the backs of the enslaved, a colonial elite emerged to challenge the English king on any taxation without representation. Clearly, they were unwilling to see the irony in their position. By 1774, the enslaved Africans themselves represented the most important source of wealth in the Southern colonies and the second most important, after land, across all thirteen colonies.Footnote 3
That revered document the US Constitution codified this tight link between race and wealth. Although always in coded language that surely reflected ambivalence among the founders, the Constitution made numerous concessions to slavery. It prohibited federal interference in the international slave trade for at least twenty years.Footnote 4 By stipulating that slave revolts would be deemed as domestic insurrection, it bound the federal government to help in their suppression.Footnote 5 Further, the Constitution required every state – even those that might abolish slavery – to return any enslaved persons who may have fled for their freedom, thereby placing the property rights of enslavers above any civil rights.Footnote 6 Worried that abolitionists might try to tax slavery to extinction, supporters of slavery inserted a prohibition against direct taxes, or those on property, whether chattel or land,Footnote 7 as well as against taxes on state exports.Footnote 8 Lastly, the Constitution imposed the infamous three-fifths clause that gave the slaveholding states added representation in both Congress and the Electoral College. This provision further protected the slaveholding South against a majority of free states abolishing slavery throughout the country. All of these provisions lead some to consider it an enslavers’ Constitution. Further, they demonstrate the government’s intention to protect and expand the personal wealth of (some) Americans.
Even the celebrated Bill of Rights functioned to tighten this link further. While these early amendments enshrined various rights broadly applied to any “person,” it is clear the founders had in mind White, male persons only. The Fifth Amendment’s prohibition against any deprivation “of life, liberty, or property, without due process of law” clearly established the enslaved as chattel property. In the notorious Dred Scott case, Judge Taney argued that Congress could not abolish slavery anywhere since it would represent an undue taking of property. Not until passage of the Reconstruction Amendments, particularly the Thirteenth and Fourteenth Amendments, would this legal bond between race and wealth be severed, even if the actual link would continue unabated in practice.
Federal policies continued to widen the racial wealth gap. The often-praised Homestead Act of 1862 offered up to 160 acres of free land – land taken from Indigenous tribes – to those who could work the land for five years and make improvements. As initially written, only Whites could apply. Although this restriction was modified in 1870, few Black freedmen could take advantage of this opportunity given their destitute status and physical distance from the available land on the Great Plains (Deverell, Reference Deverell1988). In force until 1976, the Homestead Act offered 270 million acres of land to 1.6 million homesteaders (National Archives, 2021). In contrast, General Sherman’s Field Order 15 offered the freedmen a more accessible opportunity. Using land that had been confiscated from openly rebellious White planters along coastal Georgia, it offered the freedmen a less generous “forty acres and a mule.” Nearly 40,000 freedmen accepted the offer and settled these lands, only to learn nine months later that President Johnson would vacate the order and return the land to its antebellum owners. There is no better proof of the continuing link between race and wealth than the design and legacy of these two land grant programs. Such disparate treatment by the federal government continued throughout the twentieth and even the twenty-first century, but their discussion must await subsequent chapters.
Today’s Legacy
The consequences of this early linkage between race and wealth remain with us today in so many forms. White Americans enjoy substantial advantages in almost every measure of physical, social, or economic well-being. Focusing on just four metrics, Figure 1.1 illustrates the current gaps in college attainment, professional employment, median income, and homeownership rates.Footnote 9 In each case, White households achieve levels that are between 30 and 70 percent higher than Black households. Arguably, these four metrics represent the most important ladder for upward mobility currently available. As the thinking goes, earning a college degree will increase one’s chances of landing a professional job that pays well and offers generous benefits. Such gainful employment should generate stable and ample income, enough to provide access to homeownership. Collectively, these achievements should lead to greater wealth accumulation and subsequently financial security.
Figure 1.1 Racial disparities, Take i
However, adding one further metric reveals a flaw in this thinking. Including the racial wealth gap transforms the perspective, as illustrated by Figure 1.2. Whereas the previous figure suggested that Black households may still be in “catch-up mode,” this one illustrates an imposing obstacle. Unlike the earlier gaps, the ratio in net worth is closer to 10:1. The bond between race and wealth persists today and casts a large shadow.
Figure 1.2 Racial disparities, Take ii
No doubt, some readers will find Figure 1.2 surprising and confusing. The prevailing narrative is that despite the disturbing racism that prevailed deep in our nation’s past, the Civil Rights laws of the 1960s ended legal segregation and opened new doors to Black Americans. Have not circumstances for Black Americans changed for the better over the past two generations? Has not the removal of past legal obstacles to Black opportunity led to a reduction of economic disparities experienced in the past? Simply put, yes and no.
To be sure, Black Americans have experienced substantial improvements in many areas. Since 1950, Black adults have seen their college graduate ranks swell from 2 percent to 25 percent and their professional ranks increase from 4 percent to 18 percent today; both represent notable improvements. Despite these remarkable gains, Black adults currently find themselves further behind their White peers. Among White adults, college graduates now number 41 percent, and professionals 33 percent. Similarly, median Black household incomes more than doubled from over $20,077 to $45,870 in real terms since 1950, while the Black homeownership rate rose from 34 percent to 44 percent. Once again, the luster of these gains is tarnished as we recognize the absolute racial gaps have widened. Currently, median household income among Whites is nearly $75,000, and the homeownership rate has stabilized at over 72 percent.
These statistics reveal important insights about our economy. Its prodigious bounty has raised the material circumstances of most Americans by a substantial margin. Compared to the mid-twentieth century, more young adults matriculate and graduate from college. Many more find employment in professional or managerial occupations that offer ample salaries and benefits. Far more households today own their own home than several generations back. However, these gains have disproportionately redounded to White Americans. Despite the expected consequences of the Civil Rights legislation of the 1960s, the elimination of Jim Crow segregation, and a token application of affirmative action policies, Whites have maintained or expanded their absolute advantage in each of these areas. Yes, the rising tide of the American economy has lifted many boats, but it has elevated White yachts more fully. This disparate treatment is most apparent when we consider its impact on household net worth.
Tracking the Racial Wealth Gap
Sixty years ago, the Federal Reserve pierced the veil that shrouded how the nation’s wealth was distributed across American households. Prior to this moment, national surveys had gathered minimal information on household wealth. In the spring of 1963, trained interviewers surveyed 2,600 targeted households after years of discussion, planning, and pilot studies. They asked detailed questions on household assets, debt, income sources, and related circumstances. This effort, known as the 1962 Survey of Financial Characteristics of Consumers, represented a notable achievement. Even then, much of the nation’s wealth was held by a small number of households, who were reluctant to reveal the extent of their good fortune. To capture this group, the survey administrators combined an oversample of wealthy households with an improved questionnaire design and field procedures to obtain a more accurate snapshot (Projector, Reference Projector1968). It offered our first peek into how wealth was spread across American households, as well as how asset ownership and debt were distributed.
Remarkable in many ways, the survey reflected its era on one notable issue. The years of planning were conducted while Jim Crow remained ascendant. The published reports examine the distribution of wealth by householder age, employment, and poverty status, but no mention was made of race or ethnicity. Survey respondents were designated as “White,” “Non-White,” or “Not Ascertained.”Footnote 10 The surveys were conducted a full year before the 1964 Civil Rights Act would outlaw de jure racial discrimination, thereby providing us with a snapshot of Jim Crow America. From that picture, we learn the median White household possessed a net worth of $7,620 ($73,701 in 2022 dollars), while the typical Black household held only $295 ($2,853 in 2022 dollars).Footnote 11 Fully 78 percent of White households had more wealth than the typical Black household. Almost one-third of Black households held zero wealth or worse, while less than one-fifth of White households suffered the same. One striking result of the survey is that White households – on average – were expecting an inheritance currently held in probate of $208 ($2,012 in 2022 dollars), while the figure for Black households was $1 ($10 in 2022 dollars). White Americans were preparing to inherit almost the same amount of wealth held in toto by Black Americans. Given the time in our nation’s history, these results generate little surprise.
What many may find more astonishing is how the racial wealth gap has evolved over the past two generations. The usual narrative is that our nation’s racial history – at one time sordid and worthy of condemnation – has been transformed in the modern era by laws outlawing discrimination and market forces encouraging meritocratic outcomes. This chronicle argues how the 1960s Civil Rights legislation outlawed Jim Crow racial exclusion and forced segregation. Dismantling the barriers to Black opportunity and progress opened the doors to higher education and professional occupations. Affirmative action policies were enacted to redress past abuses by ensuring colleges and businesses took active roles in augmenting their numbers of Black students and professionals. Economists insisted that competitive markets surely would eliminate any persistent vestiges of racial discrimination. Many hailed President Obama’s election in 2008 as a harbinger of a “post-racial” society.
The evidence tells a different story. After waiting twenty-one years before implementing a second survey, the Federal Reserve quickly developed a regular, triennial wealth survey, starting in 1989. Using the available sources, one can track the Black–White racial wealth gap over the period. Figure 1.3 illustrates the changes in median Black and White household wealth after making adjustments to control for inflation. Using 2022 constant dollars, typical Black household wealth rose from $2,853 in 1962 to $24,698 in 2022, an overall increase of nearly $22,000. Over the same period, typical White household net worth increased from $73,701 to $248,880, a net gain of over $175,000. Despite the image suggested by the figure, the gains in household wealth were not always steady nor positive. Both groups were clearly harmed by the Great Recession of 2008–2009, although there is significant evidence that Black households were hammered harder (Williams, Reference Williams2016). Most important is what has happened to the racial wealth gap. During this period of supposed movement toward racial equality, the absolute difference between typical Black and White household wealth has more than tripled, from around $71,000 to over $220,000 in real terms.
Figure 1.3 Tracking median household net worth
This expansion in the racial wealth gap has the ability to upend the upward mobility ladder discussed earlier. Family wealth determines which opportunities are truly available. Without ample savings, households must forgo additional education and training that can open occupational doors to higher-paying careers. Unable to access family help, their children face the stark choice of graduating with substantial student loan debt or forgoing college altogether. Without a diploma in hand, they find most doors to well-paying jobs closed. Instead, they are relegated to jobs that offer uncertain tenure, modest pay, and limited benefits. Each of these limits their ability to develop retirement savings or to attain homeownership, key steps in building wealth and achieving financial security. Indeed, the swelling wealth gap threatens to stall and undo much of the material progress made to date by Black households. And it threatens such progress over multiple generations.
Contrasting Perceptions with Reality
Most Americans believe our country has witnessed steady and significant progress toward racial equality over the past sixty years. In a recent poll, half of White Americans said that Black Americans experience equal treatment in gaining access to good jobs.Footnote 12 A similar percentage feel there has been substantial progress made in equalizing access to education and health care. In another poll, only a minority of White respondents believe they have benefited as much or more than Blacks over the years.Footnote 13 Whites who report they have gained little help outnumber those who think they have benefited a great deal. In both surveys, Black respondents offer very different answers.
To gauge public perception of the racial wealth gap, a recent study queried individuals about their views. Respondents were asked to estimate the net worth of a typical Black household assuming White households held $100 (Kraus et al., Reference Kraus, Onyeador, Daumeyer, Rucker and Richeson2019). They could select among answers that ranged from $10 to $200 and were invited to make comparisons both in the past – as far back as 1963 – as well as currently. The typical answer among the more than 1,000 study participants was that Black households have $90 for every $100 held by Whites. Looking back to 1963, they believed that Black households held just under half ($50) for every $100 held by Whites. While closer to the reality, even these estimates substantially underestimate the extent of the racial wealth gap. Nonetheless, these figures confirm belief in the dominant narrative that progress over the years has largely eliminated any racial disparities in wealth.
In a follow-up survey, the researchers provided half of the White respondents with materials that explain how both explicit and implicit racial bias would deter racial progress (Onyeador et al., Reference Onyeador, Daumeyer, Rucker, Duker, Kraus and Richeson2021). Once again, most believed that the country had experienced substantial progress in eliminating the wealth gap. Among those who read the materials on racism, they offered a curious response. Relative to the control group, they tempered their optimism on how much progress had actually been achieved. However, they did so by reducing the extent of the wealth gap in the past rather than revising their perceptions of the current gap. These results suggest that Whites are resistant to changing their perceptions on the size of the current racial wealth gap.
What explains why White Americans are so clueless regarding the extent of the nation’s racial wealth gap? Various arguments have been advanced. Wealth, even more than one’s salary or income, remains shrouded from view. We rarely speak openly about such matters in public. Among our colleagues at work, we can make informed guesses on their salaries, but their wealth remains far more elusive. One obvious marker of people’s wealth is their home, yet most White Americans live in neighborhoods that are predominantly White (Massey & Denton, Reference Massey and Denton1993; Hadden Loh et al., Reference Hadden Loh, Coes and Buthe2020). Two-thirds of White Americans report having no friends of color, thereby indicating even greater racial isolation (Brumley, Reference Brumley2022). Very few Whites interact with Blacks on a regular basis and therefore they have little experience in assessing any wealth gap. Some contend this racial isolation among Whites is so severe and influential, they label it as “White habitus” (Bonilla-Silva et al., Reference Bonilla-Silva, Goar and Embrick2006). Absent meaningful cross-racial relationships, White Americans have little knowledge from which to accurately assess the extent of the racial wealth gap.
There is a motivational cause for White myopia on this issue. An essential feature of our national narrative is that we are a just, egalitarian, and meritocratic society. Holding these beliefs not only supports our country’s sense of exceptionalism, but also offers individuals strong incentives and a dose of self-protection (Kraus & Tan, Reference Kraus and Tan2015; Kraus et al., Reference Kraus, Rucker and Richeson2017). The lure of expected economic advancement offers encouragement to work hard even when the material consequences are not immediately clear. Viewing our economic system as fair and meritocratic offers those who achieve material success a defensible rationale for their good fortune. It provides a bulwark against the argument that their success is simply the result of privilege and favoritism. For this reason, White Americans have a pressing need to view racial exploitation as relegated solely to our sordid past while our contemporary society moves quickly toward racial equity. Doing so protects White, particularly affluent Americans, from the psychological threat that their material success is largely the result of White privilege (Kraus et al., Reference Kraus, Onyeador, Daumeyer, Rucker and Richeson2019). Thus, White Americans have a strong incentive to minimize the racial wealth gap even when confronted with persuasive counterevidence.
Focus of This Book
The purpose of this book is to document and explain why the racial wealth gap is widening during a half century that many view as a period of racial progress and reconciliation. To do this, one must view the growing racial wealth gap not as an unfortunate consequence of our prodigious economy, but as an intentional objective of our current system. This requires delving into this system, which I label as White supremacy in the book title.
Many may find my using the term White supremacy to describe our contemporary society as provocative and even alarming. In recent decades, the term has been used to describe the goals and methods of the Klan and other White nationalist/terrorist groups that, until recently, were somewhat marginalized. Yet, a century ago, White politicians spoke freely using the term. Speaking to a crowd just days before the infamous 1898 election, Furnifold Simmons, chairman of the North Carolina Democratic Party, described the stakes of the impending vote: “The battle has been fought, the victory is within our reach. North Carolina is a WHITE MAN’S State and WHITE MEN will rule it, and they will crush the party of negro domination beneath a majority so overwhelming that no other party will ever again dare to attempt to establish negro rule here” (Rippy, Reference Rippy1936, p. 86)Footnote 14
Two years later, Simmons spoke to a crowd to raise support for a North Carolina state amendment – one that was popularly referred to as “the Simmon’s Election Law” (Watson, Reference Watson1989, p. 144) – that would effectively end Black voting rights for sixty years. He explained:
There is no use mincing matters. This amendment discriminates against the Negro in favor of the white man. We intended that it should so discriminate and I am here today to defend that discrimination. This is a white man’s state. We have raised the white flag here. Who will haul it down? The Negro can’t do it and the white man that does, spot him. Write on his brow traitor – traitor to country and race; to wife and child, aye to the father and mother. Let him be an outcast on the face of the earth.
Simmons went on to serve in the US Senate for thirty years, rising to chair the powerful Senate Finance Committee. In that role, he will return in later chapters. Even thirty years later, in a radio address that billed him as “our Old Chieftain of White Supremacy” (Watson, Reference Watson1960), he referred to the election of 1898 in the following way:
Instantly, upon surveying the situation, I raised the question – it was not raised in the Democratic platform – of black or white supremacy in North Carolina. (Great applause). I set about to effect a union of all white people of every occupation, of every class and every condition, in the Democratic fold for the purpose of redeeming the State from disgrace which had been cast upon it.
As these quotes demonstrate, mainstream politicians like Simmons, himself a credible presidential candidate in the 1920 election, spoke forthrightly about the importance of maintaining White supremacy.
At its core, White supremacy embodies a social system that produces and reproduces racial hierarchy and domination. This dominance operates within political, cultural, social, and economic spheres. In her book Caste: The origins of our discontents, Isabel Wilkerson (Reference Wilkerson2020) offers a useful framework to examine how this system functions. From her research, she argues that caste hierarchies rely upon eight pillars for their support and persistence.Footnote 15 Two pillars, the inherent superiority of certain castes that result from the natural order, are clearly manifest in our culture wars. There is no need for a White History month since what has always been packaged as American history is a focus on White accomplishments from a White perspective. Modest challenges to this dominant narrative, like the 1619 Project, Critical Race Theory, and the Advance Placement (AP) class in African American History, have triggered bellicose responses revealing the importance of maintaining cultural domination. Two more pillars, status heritability and occupational hierarchy, are clearly revealed as one considers the power corridors of Washington or corporate board rooms. Intergenerational wealth functions to ensure that those born into privilege have the means to exert that privilege throughout their lives. More to come on this issue. Two other pillars, endogamy and maintaining caste purity, function less importantly today, although wealth disparities do encourage economic homogamy and cement residential and educational segregation. The last two pillars, stigmatizing and imposing cruel conditions on subordinated castes, are evident throughout the media as well as by the breadth and depth of financial hardship amidst such a bountiful economy. Each of these pillars can be applied to the racial divide that currently exists. We will return to these issues.
Additionally, this analysis uses the lens of stratification economics to examine the issues. Racial stratification requires some mechanism by which resources and opportunities are disparately distributed. Household wealth provides a suitable means. Even more than income, household wealth offers its holder an expansion of opportunities, agency, and power. Ample wealth provides households the means to respond to educational or entrepreneurial opportunities that may increase future income. Parents can access the best local schools for their children as they are able to purchase a home in select neighborhoods. Moreover, household wealth is easily transmitted across generations, ensuring its power will extend into the future. In this way, the system is capable of reproducing the disparities generation after generation. Acknowledging this important transmission, recent policy changes have worked to make this transfer easier and less subject to any tax bite.
Equally important to this system of unequal treatment is the perception that these disparities are themselves “earned” and not the result of favoritism. As suggested by the polling data, any structural advantages that redound to Whites must be viewed as the result of a meritocratic system. Once again, household wealth meets this need effectively. According to conventional wisdom, households accumulate wealth by saving prudently for the future, investing those funds wisely, or gaining some modest help from their families. Few of us receive large inheritances from our forebears, but many of us gain some help. The potential to save and invest funds is nominally open and accessible to all households. Consequently, if we conveniently ignore those structural advantages that redound to the wealthy, one can attribute the unequal wealth shares as the result of laudable self-discipline and astute financial literacy. More on this to come.
An additional element of the stratification framework is the recognition that status and well-being is assessed both relatively and absolutely and that it reflects both our intragroup position as well as our between-group comparison. According to one explanation, “in the context of the Black–White dichotomy, each Black American will be concerned simultaneously with how Blacks as a collective are doing relative to Whites and how they are personally doing relative to other Black Americans. Similarly, Whites will have a parallel set of concerns” (Darity, Reference Darity2022, p. 4). This means that Whites will view any perceptible reduction in racial disparities with suspicion and even a sense of threat. To the extent that any improvements gained by Blacks are attributable to specific policies, Whites will argue that they represent “unearned” improvements. White reaction to modest affirmative action policies offers a compelling example of this. Similarly, any revision of the structural advantages currently favoring Whites will generate comparable responses.
This particular component of stratification economics offers some instructive predictions. During periods where the intergroup disparities between White and Black Americans are vast, the framework predicts that Whites will focus more on their relative position among other Whites (Darity, Reference Darity2022). This prediction takes on particular interest as one considers the early twentieth century. At this time, White supremacists across the South and beyond had eliminated Black political participation using legal barriers backed by local terrorism. One wonders whether the enactment of the federal income and estate taxes – two topics of consideration in later chapters – owe their birth to these White supremacist achievements. Additionally, stratification economics predicts that as the intergroup disparities narrow, Whites will respond to this perceived threat to their status by rallying to White tribalism. Of course, one response will be to attack the sources of Black group improvement as unearned and unmerited.
Lastly, stratification economics views race prejudice and discrimination as critical elements to maintaining the White supremacy system. Racial discrimination – whether in educational systems, labor markets, credit markets, or wherever – functions to maintain and expand those intergroup disparities that support the status of Whites. Racial prejudice is necessary to offer an explanation for why these disparities exist and persist. Both elements focus more on maintaining intergroup disparities than on limiting individual access. This view of racial animus explains the behavior of many Whites who might welcome specific Black colleagues and acquaintances while holding deeply biased views about Blacks in general.
The Remainder of This Book
Although income and wealth are frequently confused as identical twins, the singular qualities of wealth cannot be overstated. Wealth offers its holder, at minimum, reduced vulnerability to the threats that emerge from an uncertain world and, at maximum, a source of power that can be wielded across and over lifetimes. In Chapter 2, I explain how households accumulate wealth. At one level, this explanation is both simple and intuitive. Households may receive wealth in various forms from their families; they may save some of their current income; and they may invest those savings into assets that appreciate over time. This is not rocket science. Under this simple view, these opportunities are largely accessible and subject to individual discretion, discipline, and determination. Bluntly put, this view contends that wealth is earned.
Yet, households experience each of these avenues toward wealth accumulation in very different ways. Some households find themselves sharing their wealth back to their parents and grandparents who find themselves in economic distress. Other households earn incomes that are either too irregular or inadequate to support regular savings. Many households invest their limited resources in essential assets that do not appreciate over time, like furniture, appliances, and cars. In these cases, something other than individual discretion, discipline, and determination is driving wealth outcomes. In large measure, household wealth itself drives these outcomes. Put simply, wealth begets wealth.
In Chapter 2, I introduce the Wealth Privilege (WP) model to provide a more nuanced explanation on the role that wealth status plays in the wealth accumulation process. After attaining a modest wealth threshold, households find it increasingly easier to save and invest in assets that appreciate more rapidly. Numerous institutional and systemic factors favor the affluent, making their efforts all the more fruitful. Across generations, families take whatever gifts they have received from prior generations, build wealth upon this base, and offer their children even larger gifts of support. All of this functions as a virtuous cycle as more wealth enables greater wealth accumulation. As our prevailing cultural beliefs argue the wealthy have earned their good fortune, the system’s beneficiaries can indeed feel virtuous. At the same time, households with little or no wealth find these avenues threatening and unrelentingly stingy, offering only discouragement to their efforts to get ahead. These contrasting circumstances illuminate why even modest family gifts can have such powerful consequences on life outcomes. Sixty years ago, the typical White household had the means to buy a modest home, while the typical Black family had enough to buy a used car. This significant head start has allowed White households to benefit more fully from the privileges of wealth, thereby widening the racial wealth gap.
A key omission of the WP model is the role that federal policies have played throughout our nation’s history in supporting the wealth-building efforts of American households. In Chapter 3, I redress this omission as I describe landmark policies that helped families build wealth. Almost without exception, these policies intentionally targeted White families. These include the already mentioned constitutional protections to enslavers as well as the differential treatment given to White homesteaders and Black freedmen. During the twentieth century, the GI Bill and federal housing policies funneled vast sums to help millions of White households earn a college degree, start a business, or become homeowners, all while ignoring and even harming Black households. Moreover, federal acquiescence and participation in legalized segregation further helped White households as these policies limited the educational, occupational, business, and residential opportunities afforded to Black households. Given this lopsided assistance provided to White households and their descendants, it comes as little surprise that the racial wealth gap in 1962 was as large as it was. Indeed, the real surprise is that it was not even larger.
In the post-Civil Rights era, federal wealth policy took a new turn, one that has remained largely unnoticed. Over the vehement disapproval of then Treasury Undersecretary Surrey, lawmakers increasingly relied on federal tax expenditures as the way to help households build wealth. According to Surrey, such tax expenditures lack either transparency or accountability, causing him to view them as the hidden back door to the US Treasury. Their relative obscurity makes them the perfect vehicle to dispense favoritism without attracting notice. In Chapter 4, I examine twelve tax deductions and explain how their design targets the needs of the wealthy. Initially modest in scale, these tax expenditures now cost the US Treasury more than $1 trillion annually, with the bulk of this aid assisting the wealthy. Given the tight link between wealth and race, targeting assistance to the wealthy is simply another way to funnel funds to White households. As I document, these twelve tax deductions provide the largest contribution to the growth of White wealth over the past generation.
The growing generosity of these tax expenditures experienced increasing resistance from another tax obstacle. While these tax deductions fueled the accumulation of vast sums of wealth, existing federal estate and gift taxes limited their transfer across generations. Chapter 5 examines this issue as it describes the trinity of federal wealth taxes: estate, gift, and generation-skipping transfer (GST) taxes. Given the growth and concentration of wealth, these taxes were poised to take larger roles as federal tax sources. However, several bouts of tax reform over the past fifty years have undermined their effectiveness. These taxes have been pierced by so many loopholes that some see them as “voluntary taxes.” Any who want to avoid paying them generally can do so. Moreover, changes in state tax laws are allowing the very rich to create “dynasty trusts” that will assure future descendants financial security fully guaranteed from birth.
The next two chapters examine the origins of both sides of the federal wealth policy: tax expenditures and wealth taxes. Chapter 6 traces the source of many of the contemporary tax deductions back to the creation of the federal income tax enacted over a century ago. Without exception, these tax deductions were created largely as afterthoughts and often as pragmatic solutions to thorny tax accounting problems. In most cases, these decisions raised little controversy and their future consequences went unrecognized. Only after the federal income tax’s transition from a “class tax” to a “mass tax” did they assume any real importance. Throughout the bulk of this period, state and federal laws ensured that Black political participation was either nonexistent or severely marginalized.
Chapter 7 replicates this historical examination as it sketches the birth and evolution of the federal wealth taxes. It discusses the circumstances that gave rise to the federal estate tax (1917), the gift tax (1924), and the GST tax (1934). It is no coincidence that their implementation occurred during a period of overwhelming suppression of Black political participation. This vacuum permitted the emergence of class divisions among Whites over the appropriate role of wealth in society. During this early period, shifting political winds favored one side and then the other in this debate, thereby causing substantial revisions to these taxes. After the Great Depression, these taxes remained relatively untouched and reasonably effective in both limiting the intergenerational transfer of wealth and filling the US Treasury. It is not until the 1970s with the threat of Black resurgence that the attacks on their effectiveness manifest in tax policy changes.
Chapter 8 returns to the modern era as it examines federal policies attempting to remedy the rising cost of higher education and its impact on accessibility. Our nation’s experience with the GI Bill demonstrated how opening college to eligible matriculants broadens the middle class, expands access to financial security, and boosts economic growth. Even by the 1970s, the cost of attending college was beyond the means of many college-ready students and their families. When first introduced, the Pell Grant program was heralded as opening the doors of higher education to all who were ready. Yet, its actual history and diminished accomplishments offer us a cautionary tale. Early reforms that extended its aid to recipients from middle-class households diluted its assistance to those recipients with the greatest need. Rather than build broader political support for the program, these changes inaugurated an era of increased underfunding. Today, the financial obstacles to obtaining a college diploma are far greater as the cost of college attendance has far exceeded the Pell Grant aid and family resources. Many graduates leave with student debt loads they cannot possibly repay, creating a new source of economic stratification.
Chapter 9 examines a range of potential solutions that might help close the racial wealth gap. Of course, any substantial effort to close the gap requires that an increasing number of White Americans become aware of the gap as well as how it both benefits them as it harms Black Americans. Without such an understanding, it is difficult to see how any truly effective solution to the problem will become enacted. To be sure, there are a number of nonracial policies that have been advanced that could reduce the gap, at least modestly. These include revamping the current tax deductions to retarget their assistance to households seeking financial security rather than to already affluent households. It also includes a doubling of the largest Pell grants as well as a proposal for funding Baby Bonds. However, it is unlikely that any of these policies, even working together, will dramatically reduce the wealth gap. Thus, the chapter recommends the enactment of reparations as the only way to make amends for our nation’s past and bridge our racial divide.
Conclusion
Throughout our nation’s history, wealth and race have experienced multifaceted, complex, and important links. Racial classifications emerged largely to justify the forced removal of one people and the enslavement of another, all in the pursuit of profit. Concerned about the stability of this link, Southern delegates demanded provisions to the Constitution that would protect slaveholding. A half century later, the federal government was offering 160 acres to Whites while rescinding its offer of only forty acres to the freed people. Other federal policies, including support for Jim Crow segregation, targeted aid to White households to the detriment of others. By 1962, a carefully conducted household survey revealed the extent of the resultant racial wealth gap. Given the survey’s careful preparation, its offhand attention to race reveals much about the link between wealth and race. Despite the “conventional wisdom” and certainly public perceptions among Whites, the racial wealth gap has only widened over the past sixty years. White ignorance of this reality is in part caused by the federal policies that led to racial residential segregation and kept White and Black households separated and isolated. Perhaps equally important is the willful ignorance among Whites who likely acknowledge unconsciously how the racial wealth gap both supports their group status and threatens their meritocratic narrative. Yes, this link between wealth and race is very complicated.
Given all of this, it makes sense to move next to understanding the unique benefits that wealth brings its holder. While the ways that households can accumulate wealth on their path to financial security are well understood, the particular circumstances that different households face depend on their position and resources. All of this is the focus of Chapter 2.
