Wealth Worsens Racial Disparity

Warren Boroson, Daily Record (NJ), Sep. 5

Oprah Winfrey, Denzel Washington, Colin Powell, Halle Berry and Barry Bonds earn enormous salaries.

But they are exceptions.

Most blacks are poor—even though many racial barriers have eased and even though more blacks have been moving into the middle class.

The Forbes 400 richest families still has few if any blacks.

Despite the improving situation, Thomas M. Shapiro, a professor at Brandeis University, says racial inequality is increasing. (Shapiro is the author of “The Hidden Cost of Being African American: How Wealth Perpetuates Inequality,” Oxford University Press, 2004).

The average black family, Shapiro reports, has 10 cents worth of wealth for every dollar that whites have.

Blacks as a group are poorer than Hispanics. They are far poorer than Asians, who are at the same economic level as whites or higher.

Shapiro writes: “Many believe that African Americans do not do as well as whites, other minorities or immigrants because they spend too much money rather than save and invest for the future. They are unable to defer gratification, do not sacrifice for the future and consume excessively.”

His explanation, and that of Melvin L. Oliver, his co-author of “Black Wealth/White Wealth” (Routledge, 1995), is that white parents give their children inheritances—something that few black parents do.

Whites leave their children money, houses and businesses; they send their children to expensive private schools and expensive colleges; they help them buy houses.

White children areoff to a running head start.

In his book, Shapiro argues that to understand why so many blacks are poor, you must recognize the distinction between “income” and “wealth.”

While many more blacks are earning higher incomes these days, relatively few are wealthy—they don’t have accumulated assets (stocks, bonds, houses, businesses).

Without sufficient wealth, blacks cannot afford to move to Mountain Lakes or Beverly Hills, where the public schools are top-notch; they cannot afford to send their children to elite preparatory schools, such as Andover; they cannot pay the freight for their children to attend top-notch colleges, such as Princeton or Yale; they cannot help their children with down payments on houses; they cannot help their children launch businesses. And they don’t leave their children sizable inheritances.

“Wealth is money that is not typically used to purchase milk, shoes or other necessities,” the two men have written. “Sometimes it bails families out of financial and personal crises, but more often, it is used to create opportunities, secure a desired stature and standard of living, or pass along a class status already obtained to a new generation.”

The two books insist that “the racial wealth gap is not just a product of differences in education, jobs and income but rather a kind of inequality passed from one generation to the next.”

Money that children inherit tends to be treated as “special” money, they write. “Such funds are used for downpayments on houses, closing costs on a mortgage, start-up money for a business, maternal and early childhood expenses, private education and college costs.” This money is “enormously consequential” in influencing a child’s life chances.

“No matter how much blacks earn, they cannot preserve their occupational status for their children; they cannot out-earn the wealth gap.”

“Family wealth and inheritances,” they write, “cancel gains in classrooms, workplaces and paychecks, worsening racial inequality.”

Even when black and white professionals are in the same occupation and receive the same high salaries, Shapiro argues, they have unequal housing and educational prospects, “which means that their children are not really on the same playing field.”

The inheritances that whites receive “involve the capacity of unearned, inherited wealth to lift a family economically and socially beyond where their own achievements, jobs and earnings would place them.”

Before World War II, Shapiro writes, only the children of upper-class American families received substantial inheritances. But because of postwar economic prosperity, along with public policies promoting middle-class homeownership, “today inheritances are commonplace for middle-class families.”

In my case, I started working when I was 16 (riveting metal legs onto folding tables in a table-manufacturing factory). But when I applied to college, my parents told me they would pay the cost of whatever school I wanted to attend. And when it came to my buying a house, both sets of parents helped out.

If I didn’t have those advantages, I tell people, I’d probably still be riveting metal legs onto folding tables in a gloomy factory in West New York, N.J.

In a telephone interview, I asked Shapiro whether blacks with high salaries will gradually gain the overall wealth to enable their families to keep up with white families.

His reply was that a colleague of his had done a study of this possibility and concluded that it would take 10 generations before blacks reach parity.

Don’t many black families have a bias against education, as some black leaders have said recently?

While black families should certainly stress the value of homework and education, he replied, “It would be accurate to say that educational conditions for African Americans are less conducive for advancement than conditions for whites. Schools reflect the wealth of their communities, and Mountain Lakes and Beverly Hills, as you say, provide better educational opportunities than South Central Los Angeles or Lowell, Massachusetts, or Birmingham, Alabama.”

Don’t Hispanics also have little family wealth to pass on?

Yes, he said, and their economic conditions are very close to those of blacks.

The single most important way that families become wealthy, Shapiro and Oliver argue, is through homeownership. Houses tend to appreciate; homeowners are encouraged to save via their mortgages.

Homeownership also can give families access to the safest and most desirable communities, to the best services (police, fire etc.) and to the best public schools.

It is because of discrimination, the authors maintain, that blacks are less likely to be homeowners and less likely to be owners of the better houses.

“At each stage of the process, blacks are thwarted,” they write. “It is harder for blacks to get approved for a mortgage—and thus to buy a home—than for whites, even when the applicants are equally qualified. More insidious still, African Americans who do get mortgages pay higher interest rates than whites. Finally, given the persistence of residential segregation, houses located in black communities do not rise in value nearly as much as those in white neighborhoods.”

Naturally, Shapiro is strongly opposed to the Bush administration’s efforts to drastically reduce estate taxes, then to do away with such taxes entirely.

That would etch in stone the inherited wealth that mostly white upper-class families have enjoyed. It would reduce the amount of money available to help the less fortunate with better educations, better health and better opportunities in general.

Shapiro proposes taxing the inheritance of unearned property at a flat percentage, such as 10 percent (after an exemption).

He writes: “It is a measure of our times and how far we have strayed from American ideals that rewarding achievement and merit, not birth, sounds radical.”

A positive step in helping blacks and other minorities catch up with whites might be a bill introduced by Sen. Jon S. Corzine, D-N.J. The bill would set up an investment account for every newborn American child, and one of its goals is to expand opportunities for young adults.

These KIDS Accounts would be funded whenever a child receives a Social Security number, under legislation that Corzine introduced in the Senate on July 22 with Sen. Rick Santorum, R-Pa.

Known as the America Saving for Personal Investment, Retirement and Education Act, or ASPIRE Act, the bill would provide KIDS Accounts beginning in 2006. Each account would receive a one-time $500 contribution.

Children living in households earning less than the national median income would be eligible for an extra contribution of up to $500 at birth as well as the opportunity to earn $500 a year in matching funds for amounts saved in the account.

Families and others could contribute up to $1,000 of after-tax income into these KIDS Accounts annually, until the child reaches age 18. Earnings would accumulate tax-free.

When children turn 18, they could withdraw funds without penalty to pay for college or to purchase their first home. Or they could roll the money over to a retirement account.

“For the first time,” Corzine said, “even families with modest incomes will have a significant incentive to save, to earn the government match. And for the first time, all American children will grow up knowing that when they reach adulthood, they will have the ability to create a real future for themselves.”

Naturally, Shapiro favors such proposals. He has written, “Our record of lifting families out of poverty is shameful, as measured in absolute terms or compared to other advanced democracies.”

And he has warned that “racial inequality is increasing and will continue to increase as long as present practices remain unchanged.”

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