We’ve Heard about Income Inequality. What about Wealth Inequality?


August 24, 2016

You may recognize this statistic: In the U.S., CEOs of large firms make 276 times the pay of an average worker. That is the very definition of income inequality.
wealth inequality report coverBut now, courtesy of the Center for Economic Development and the Institute for Policy Studies, we are reminded that we need to be worried about wealth inequality too. For most people, wealth (if any) comes from home ownership, savings, and/or retirement accounts. People with more wealth will add other forms of investment income.

These two groups have published a new report, titled “The Ever Growing Gap,” which examines a growing racial wealth divide for Black and Latino households, compared with White households.

A key statistic: Over the past 30 years, the average wealth of White families has grown by 84 percent, 1.2 times the rate of growth for Latinos and three times the rate of growth for Black families. Even with White wealth remaining stagnant, according to the report, “it would take Black families 228 years to amass the same amount of wealth White families have today.” In 2013, the average wealth for Black households was $85,000; for Latinos, $98,000; for Whites, $656,000.

Wealth inequality in the U.S. was exacerbated by the 2008 recession, which caused Black and Latino households to lose three and four times more wealth, respectively, than White households, putting them even more behind. This was due in part to the collapse of the housing market, higher rates of unemployment, income inequality, the already limited amount of savings and increased exposure to exploitive traps such as payday lending.

What happens if we do nothing about this problem? The report traces trends in wealth accumulation over the past 30 years – but it also looks at what will happen the next 30 years if no action is taken. And it is not a pretty picture.

With no action, White households would see their average wealth increase to $1.2 million while Latino households would only see their wealth increase to $165,000 and Black households would only see their wealth rise to $107,000.

So what can we do? The authors of the report suggest three initial steps:

  1. Conduct an evidence-based, government-wide audit of federal policies to understand the role current policies play in perpetuating or closing the racial wealth divide.
  2. Fix unfair, upside-down tax incentives to ensure households of color also receive support to build wealth.
  3. Address the distorting influence of concentrated wealth at the top through the expansion of existing progressive taxes and the exploration of a dedicated wealth tax.

And if we don’t do these things? Wealth inequality, and its closely-related cousin, income inequality, will simply continue to grow unabated.

income inequality
Poverty and Income
wealth inequality