Americans have called for historic policy interventions to address the incessant racial wealth gap between Black and white households that has resulted from a history of lost income and lost opportunity, compounded over time. Using data from the Survey of Consumer Finances, the authors assess the sources of wealth disparity and analyze the potential impacts and trade-offs of four disparity-reducing wealth-allocation policies.

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Overcoming Compound Racial Inequity

Policies and Costs for Closing the Black-White Wealth Gap

by Jonathan W. Welburn, Pedro Nascimento de Lima, Krishna B. Kumar, Osonde A. Osoba, Jonathan Lamb

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Research Questions

  1. How large would wealth allocations need to be to significantly impact racial wealth disparity?
  2. How does the impact of wealth allocations exclusively to Black households (i.e., reparations) differ from race-neutral allocation policies?
  3. What is the first-order, immediate impact of targeted, disparity-reducing allocations to qualifying households based on their current wealth?

Wealth is the accumulation of past and present income, assets, debts, and disparities. Differences in Black and white Americans' economic status show how the harms of the past — slavery, segregation, redlining, discrimination — live on in the present. The result is that white Americans make 73 percent more in annual income, are nearly two times more likely to own their homes, hold ten times more wealth, and are 28 times more likely to become millionaires than Black Americans.

Under current conditions and without intervention, it is unclear if and how the racial wealth gap could ever close over a meaningful time horizon. Recognizing the strength and persistence of the United States' racial wealth gap, Americans have called for historic policy interventions to address long-standing inequities and current wealth disparities. Proposed actions often include large wealth allocations, in the form of one-time government payments, to Black households. This potential policy device raises several questions about the efficacy of disparity-reducing wealth allocations.

This report, part of a discussion paper series investigating the U.S. racial wealth gap, provides insight into these questions based on the authors' quantitative analysis of current wealth distributions, a measure of racial wealth disparity, and a model of disparity-reducing wealth allocations. The authors use data from the Survey of Consumer Finances, a survey conducted by the Federal Reserve Board, to investigate the sources of wealth disparity, estimate the potential first-order impacts of government allocations, and shed light on the possible trade-offs of one-time allocations.

Key Findings

  • There is no evidence that the wealth gap could ever close without significant intervention. Wealth-allocation policies can close the racial wealth gap, but only if coupled with broader policies aimed at reducing overall wealth inequality in the United States.
  • Over the past 30 years, the wealth gap has widened rather than narrowed.
  • A wealth-allocation policy of $500 billion, spread equally across all Black households, could reduce median wealth disparity by 17 percent; a policy of $1.5 trillion could halve median disparity; and a policy of $3 trillion could eliminate median wealth disparity.
  • Focusing instead on mean wealth disparity, a wealth-allocation policy of $7.5 trillion, spread equally across all Black households, could reduce mean wealth disparity by 50 percent, and a policy of $15 trillion could eliminate mean wealth disparity.
  • Given the larger percentage of Black households toward the bottom of the wealth distribution, Black households benefit relatively more than white households by race-neutral allocations. The effect is, however, small: A 30-percent reduction in median disparity would require a total allocation of $9.6 trillion.
  • Equal allocations to all Black households lead to better results for disparity compared with race-neutral policies that use small to moderate total allocation values. However, as wealth-allocation policy grows to include more households, race-neutral policies will have larger impacts on overall disparity.
  • Targeted wealth-allocation policies are better at disparity reduction than their equivalent equal non-targeted policies. Under these targeted policies, median wealth disparity could be halved with a $760-billion policy and eliminated with a $1.6-trillion policy.

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Funding for this research was provided by gifts from RAND supporters and income from operations. The research was conducted by RAND Education and Labor.

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