Accounting for Black-White Wealth Differences
Dec 7, 2022
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.
Policies and Costs for Closing the Black-White Wealth Gap
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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.
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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