National radical wealth tax k2 close the racial wealth gap

There is an enormous disparity between the wealth of Black and white Americans. According to the 2016 Survey of Consumer Finances, the median white household has a net worth of $171,000, 10 times the net worth of the median Black household, $17,100. In other words, Black households are overrepresented among the poor and working class, and underrepresented among the upper-middle class and the wealthy. The poorest 20% of American households have a net worth of less than $4,700; many of these households have a negative wealth due to debt. Of these households, 26% identify as Black. The richest 20% of American households have a net worth of more than about $500,000; 3% of these households identify as Black.

Unfortunately, policymakers have often put the responsibility for fixing centuries of racial inequity back on the shoulders of Black people. For decades,  that personal choices explained racial disparities. These claims have been thoroughly debunked. As economists Trevon Logan and Darrick Hamilton :

[G]reater educational attainment, harder work, better financial decisions, and other changes in habits and practices on the part of blacks … are wholly inadequate to bridge the racial chasm in wealth.

Even when Black people have advanced degrees, own their home, have high paying jobs, and engage in other behaviors associated with asset building, their wealth is typically much lower than their white peers. Individual-level factors are simply not the explanation for the difference in the economic fortunes of Black and white people.

Instead, the racial wealth gap should be recognized as the consequence of discrimination, public and private, throughout American history and continuing to this day. Nearly 250 years of slavery were followed by a century of Jim Crow segregation and economic exploitation reinforced by state-sanctioned violence. Until the later 20th Century, Black people were  to encourage homeownership and higher education. Racial inequality persists in our contemporary, putatively color-blind system; due to discrimination, Black people receive  and  performing the same work. Biases in public investment and criminal justice leave Black communities simultaneously underserved and overpoliced, and these civil rights violations also have serious economic consequences.

Black people in America have been systematically stripped of the wealth they have produced. Only a transformative national agenda can address the racial wealth gap, because the disparity is the product of societal racism, compounded over generations.

It is impossible, of course, to design any policy agenda that would fully reverse the effects of centuries of racism. Justice this long delayed has meant justice denied to generations. But there is a crucial and vibrant conversation occurring today that envisions what reparations would look like.

The most straightforward approach is for the federal government to provide money to descendants of American slaves. In their book, “From Here to Equality,” William A. Darity and A. Kirsten Mullen have proposed a detailed program that addresses eligibility, total outlay, payment mechanisms, and oversight of a potential reparations policy.

There are many other economic policies that are also commonly suggested to reduce the Black-white wealth gap. Rashawn Ray and Andre Perry outline some of those proposals in their essay, “.” In addition to direct payments to descendants of slaves, Ray and Perry look to a variety of programs to fund college education, , and promote homeownership and entrepreneurship in the Black community. Darrick Hamilton and William Darity have proposed a system of  that would provide American children with a nest-egg at birth; targeting larger bonds to children of lower-income families would substantially reduce the median racial wealth gap over a generation.

“A spending-based program of reparations is a moral imperative. It is also an urgent economic necessity.”

A spending-based program of reparations is a moral imperative. It is also an urgent economic necessity. A serious reparations investment would provide  to the economy as a whole and would infuse urgently needed funds in households and communities that have suffered from chronic underinvestment. But taxation—and particularly, heavy and progressive taxation of wealth—also has a critical role to play in achieving racial equality. To understand why, we must look at the relationship between the racial wealth gap and overall wealth concentration.

It is a striking fact that the 400 richest American billionaires have more total wealth than all 10 million Black American households combined. Black households have about 3% of all household wealth, while the 400 wealthiest billionaires have 3.5% of all household wealth.1

This startling statistic illustrates two broader economic realities with immense policy implications for racial justice in America.

First, it suggests the scope of the total racial wealth gap—not the median gap between typical households, but the full disparity between the fraction of wealth held by Black people and their percentage of the U.S. population. Using data from the Federal Reserve’s 2016 Survey of Consumer Finances,2 if Black households held a share of the national wealth in proportion to their share of the U.S. population, it would amount to $12.68 trillion in household wealth, rather than the actual sum, $2.54 trillion. The total racial wealth gap is over $10.14 trillion.3

Second, the rough wealth parity between 400 billionaires and 10 million Black households also indicates the extreme and extremely racialized wealth concentration that exists in the contemporary United States. A small fraction of Americans holds most American wealth, and they are almost exclusively white. So, although white households are on average wealthier than Black households at every income level, the vast majority of the total racial wealth gap, in dollar terms, is at the top.

“At the top of the wealth spectrum, there is a lot more money and a lot fewer Black people.”

Figure 3 shows both of these phenomena in a single graph. The figure reports the proportion of total wealth held by Black and non-Black households at each level of household wealth. The dark blue bars indicate the fraction of wealth held by Black families in each wealth quantile; as noted above, Black households have only a small fraction of national household wealth, and this holds at every wealth level. At the same time, the chart shows how highly wealth is concentrated. The richest 10% of American households hold more than three-quarters of all U.S. household wealth.4 Finally, the graph demonstrates the interplay between the racial wealth gap and wealth concentration. Among the richest 10% of households, only 1.9% of these households are Black. In short: At the top of the wealth spectrum, there is a lot more money and a lot fewer Black people.

In fact, the chart does not fully indicate how concentrated wealth is by both class and race. Half of the wealth held in the top 10%, about two-fifths of all American household wealth, is held by the . Within the top 1% of households,  identify as Black.

Even the wealthiest Black households, moreover, are less wealthy than the wealthiest white households. According to the Forbes 2020 list, the 571 white billionaires, who make up 93% of all billionaires, have about $2.8 trillion dollars in personal net worth. This is 96% of all billionaire-held wealth and more than 3% of the total household wealth of the United States. The five Black billionaires, who make up 0.8% of all billionaires, have $14 billion dollars, less than 0.5% of all billionaire-held wealth. Were Black people represented among billionaires in accordance with their portion of the U.S. population, there would be 80 Black billionaires, and they would hold not $14 billion dollars, but $383 billion dollars. In other words, the racial wealth gap among billionaires is $369 billion dollars.

The point is not that billionaires need more billions, or that America needs more billionaires. On the contrary. The point is that closing the total racial wealth gap is exceptionally difficult without reducing the concentration of wealth among a small class of almost exclusively white people. Even equality of total wealth would not be real parity, moreover, if white people continued to be immensely over-represented among the very rich, whose economic and political power is both quantitatively and qualitatively different from that held by most Americans.

The problem is clearly illustrated if we imagine the wealth gap between Black and white households were completely eliminated for all but the richest 10% of households. This would be an extraordinary achievement of public policy: total wealth parity between all the Black and white households that have less than $1.2 million in net worth. Nonetheless, because so much of American wealth is held by so few, the total racial wealth gap would still be $8.3 trillion dollars, more than 80% of the total wealth gap that exists today.

Most analyses of the racial wealth gap, and most policy agendas to close the disparity, . And for good reason: The median captures the experience of the typical person, for whom housing and education costs are major factors in wealth accumulation. But as the data above demonstrate, closing the median racial disparity in wealth is not the whole task. Darity and Mullen use the total racial wealth gap as their measure of the contemporary economic disparity between Black and white Americans that has resulted from centuries of discrimination and exploitation. Taking into account the distribution of the total racial wealth gap, it is clear that racial justice requires progressive taxation.

A first step would be to reverse the slide toward regressivity that has characterized the American tax code in recent decades. Top marginal income tax rates have fallen from a peak of 92% in the early 1950s to 37% today. The income tax rewards wealth over work by taxing income from ownership at much lower rates than income from salaries and wages. State and local taxes, moreover, are . In sum, the  for those between the poor and the upper-middle class, and tax rates actually go down for the very rich.

“[T]he tax code is only somewhat progressive for those between the poor and the upper-middle class, and tax rates actually go down for the very rich.”

Additionally, though nominally color-blind, the U.S. tax code is not race-neutral in its effects. As , tax expenditures . Tax advantages for home ownership amount to a “,” while local property tax assessments are  against Black homeowners.7 Legal scholar Dorothy Brown notes that Black families are more likely to pay a marriage penalty.8 In addition, there are tax-privileged workplace , which fewer Black people have access to, and tax benefits for , which fewer Black people receive due to shorter life expectancy. Low-income people of color are also , and states have come to increasingly rely on fees and fines which are . In other words, tax policies compound the discrimination and exploitation that Black people experience in hiring, housing, education, health, and other aspects of life.

Reversing these policies and top-heavy tax cuts like the  would help ensure that the tax code does not exacerbate racial inequity. But to close the total racial wealth gap requires more than just the undoing of the tax code’s most regressive and racially biased aspects. It demands taxation at levels high enough to reduce the extreme wealth-hoarding that characterizes the contemporary American economy.

Tax policies that would substantially reduce the total racial wealth gap must be highly progressive and very heavy. The first point is obvious; progressive taxes hit those at the top of the economic spectrum, where the bulk of the racial wealth gap resides. The second point—that progressive taxes need to be high to be meaningful—is also an obvious truth, though more rarely acknowledged. Progressivity measures only the relative impact of a tax, not its total effect. For example, a tax of $1 on billionaires and $0 on everyone else is highly progressive, but it is far too low to affect the distribution of wealth.

There are  that could fit these basic criteria. Taxes on estates  are especially promising because intra-generational transfers account for  in the United States as well as “ including education, income and household structure.” Higher top marginal tax rates on income, while not exactly correlated with wealth,  both pre- and post-tax. Both of these approaches are tried and true. As economists  explain, the “development of progressive income and estate taxation” in the mid-20th century “made it difficult to accumulate and pass on large fortunes.” When these policies were reversed in the late 20th century, the economic elite found they could amass and transfer to their heirs a larger and larger share of wealth.

Perhaps the most efficient route is the newly popular proposal of a tax directly on wealth. Legal scholar Beverly Moran has discussed the potential of a wealth tax in the context of a reparations program. Using data from Saez and Zucman on , we can estimate the potential impact of such a policy on the racial wealth gap. The most aggressive plan considered by Saez and Zucman, proposed by Thomas Piketty in his 2019 book, “Capital and Ideology,” would impose a 90% marginal tax rate on billionaires, which would in essence limit fortunes to $1 billion dollars.10 Though Piketty’s proposed tax would touch barely 600 households, it would immediately reduce racial wealth inequality by $294 billion. Applying a similar policy at a lower threshold, $110 million in wealth, would reach about 16,000 households and would reduce racial wealth inequality by about a remarkable $500 billion.

Note that this impact comes prior to any allocation of the revenue raised by these taxes, which would amount to . These revenues could also be allocated to reduce the racial wealth gap. But the tax alone results in an increase in racial equity of several hundred billion dollars simply by reducing the fortunes of the extremely wealthy, who are disproportionately white.

If such a narrowly targeted tax can have a measurable impact on the racial wealth gap, a more comprehensive tax strategy to reduce wealth concentration could easily have even more substantial effects. Assessing the impact on the total racial wealth gap should become a standard practice in the analysis of tax proposals’ distributional effects. While technically complicated, depending on the measure and , such calculations provide vital information about the economic implications of tax proposals. What is already clear, however, is that heavy progressive taxation can and should reverse racial inequity at the economic levels left unaddressed by expenditure-based racial justice policies.