Black Americans Need More than Reparations to Bridge the Racial Wealth Gap

On April 14, a House committee voted to recommend for the first time the creation of a commission to consider providing Black Americans with reparations for slavery in the United States and a “national apology” for centuries of discrimination.

As systemic racism has placed Black Americans at a disadvantage in important steps to achieve economic wellbeing— from getting an education to being paid fair wages, buying a home, starting a business, and accumulating generational wealth—some racial justice advocates say reparations are the answer to wealth differences.

According to the Federal Reserve’s Survey of Consumer Finances, the median net worth for Black households was only $17,600 in 2016, one-tenth of the $171,000 median for non-Hispanic white households.

That’s in part because Black Americans can expect to earn up to $1 million less than White Americans over their lifetime, according to McKinsey & Co. White workers, on average, are paid more than Black workers at almost every education level, according to a report by the Economic Policy Institute. White people with an advanced degree received an hourly wage of $44.46, while Black people earned $36.23.

To put it simply, even when Black people work to accumulate assets, their wealth is lower than that of their white peers because of discrimination — that began centuries ago and continues today.

And things have not been getting better: the racial wealth gap between Black and white families has grown from about $100,000 in 1992 to $154,000 in 2016.

Reparations — financial compensation for descendants of enslaved persons — could be a great place to start in narrowing the racial wealth gap. They would also be a powerful acknowledgement of the horrors of slavery and of the collective responsibility of white people to end systemic discrimination.

Still, reparations will be difficult to implement. The bill — labeled H.R. 40, after the unfulfilled Civil War-era promise to give former slaves “40 acres and a mule” — does not have much public support. Last September, only 15% of white adults, compared with 74% of Black adults were in favor of reparations. Attitudes are beginning to change as the nation faced a racial reckoning after George Floyd and Breonna Taylor’s deaths sparked mass protests last year, but there is still a long way to go before a tangible reparations bill passes. And Black Americans shouldn’t have to wait one more minute for our help.

Aside from the fact that it’ll take quite some time to convince white Americans of the importance of reparations, such compensations are not enough to bridge the racial wealth gap. Why? Because a one-time payment will never be enough for Black Americans trapped in a system that is set up against them. Reparations must come with structural, progressive reform.

If a Black person is less likely to find a good-paying job than a white person because of racial bias in the hiring process and beyond, they’ll have a much harder time accumulating wealth, but most importantly getting advantageous loans (they might not benefit from low-interest rates) and paying off debt (their low salary will make it longer or more difficult). So why not reduce the chance that Black Americans will find themselves having to take on debt in the first place?

I’m talking about free college and free healthcare — although there is a laundry list of social services the U.S. ought to begin providing, just like every other “developed” country does. Let’s look at how such measures could help minimize racial wealth inequality.

Starting with education, wiping off student loan debt is an excellent idea, but it won’t have much of a long-term effect if more Black Americans have to keep borrowing unreasonable amounts of money to attend college. Indeed, Black students take on more debt to get an education — a direct consequence of the obstacles Black Americans have faced in accumulating intergenerational wealth. That means that as college education gets more expensive, the wealth gap between Black and white college graduates is widening. According to an analyst at the New America Foundation, 84% of Black Millenials who graduated from four-year colleges in 2016 had student debt, compared with 68% of white Millennials.

Making healthcare a commodity has similar consequences. In 2017, 27.9% of households with a Black householder had medical debt compared to 17.2% of households with a White non-Hispanic householder, according to the Census Bureau. Black Americans are often overburdened with medical bills because they are more likely to be uninsured than white Americans.

According to Brookings, prior to the implementation of the Affordable Care Act (ACA), nearly one in five Black Americans were uninsured, compared to about one in eight white Americans. Since the ACA’s core coverage provision came into effect in 2014, uninsured rates fell across all racial and ethnic groups, with the biggest gains among Black people.

In spite of this progress, the privatized healthcare system continues to leave behind millions of uninsured families, especially those who are low-income and low-wealth. Medicare for All would allow Black Americans to get the healthcare they deserve — healthcare is a human right — without taking on absurd amounts of debt. And if the moral incentive to reduce the racial wealth gap and not to make Black Americans choose between their physical and financial wealth isn’t enough to convince you, remember that universal healthcare actually lowers health care costs for the economy overall, since the government controls the price of medication and medical services through regulation and negotiation.

Still worried about affording all this? Other countries have done it, by taxing the wealthy.

Vanessa Williamson, a Senior Fellow at the Urban-Brookings Tax Policy Center, writes that “significantly raising taxes on the ultra-wealthy serves (...) the instrumental value of producing significant public revenue that can be invested in creating wealth building opportunities for those who have been blocked from generating wealth.”

Besides, raising taxes on the wealthy can help directly close the racial wealth gap, because that gap is concentrated among the wealthiest families. If you’re struggling to picture what that concentration of wealth amounts to, a study found that 400 richest American billionaires have more total wealth than all 10 million Black American households combined.

So what should taxation of the wealthy look like? Reforming income and estate taxation, plus implementing new taxes on wealth and inheritance.

The most aggressive option — implementing a tax directly on wealth — is worth examining. In his book Capital and Ideology, economist Thomas Piketty explained that a plan that would impose a 90% marginal tax rate on billionaires — meaning it would limit fortunes to $1 billion dollars — would touch barely 600 households but immediately reduce racial wealth inequality by $294 billion.

As we push for progressive policy, there is more than one way to get political opponents to listen. Tackling the issue of racial wealth inequality isn’t just a moral necessity: it’s also a logical plan to boost the U.S. economy. According to a study by McKinsey & Co, the racial wealth gap’s dampening effect on consumption and investment will cost the US economy between $1 trillion and $1.5 trillion between 2019 and 2028—4 to 6 percent of the projected GDP in 2028.

Bridging the racial wealth gap—or at the very least narrowing it—requires bold and structural reform. Let’s stop beating around the bush and get to work.

Sources

House Panel Poised to Advance Bill to Study Reparations in Historic Vote

The economic impact of closing the racial wealth gap

Five Big Ideas To Narrow The Racial Wealth Gap

Closing the racial wealth gap requires heavy, progressive taxation of wealth

Ten Solutions to Bridge the Racial Wealth Divide

Who Had Medical Debt in the United States?

There are clear, race-based inequalities in health insurance and health outcomes