Tag Archives: income

Republican policies don’t help people of color

The United States continues to struggle with persistent racial gaps. There are large gaps between blacks and whites in terms of income, political representation, treatment in the criminal justice system, upward mobility and wealth. And the illusion of a postracial society, particularly in the younger generation, is hindering efforts to reduce these gaps. While Democrats say they are trying to alleviate racial gaps by increasing the ladders of opportunity for people of color, Republicans continue to pretend these gaps do not exist.

In their study “Racial Winners and Losers in American Party Politics,” political scientists Zoltan Hajnal and Jeremy Horowitz examine the two parties’ claims that their policies benefit racial and ethnic minorities. According to Hajnal’s and Horowitz’s research, Republican policies predominately benefit the richest white Americans. An oft-repeated defense of this fact is that Republicans make the pie bigger for everyone while Democrats work to redistribute wealth to the poor and people of color. The evidence demonstrates that, on the contrary, Democrats make the pie bigger for everyone, while Republicans redistribute income toward the rich and whites. (See chart below.)

The popular criticism that both parties are the arms of a corporate America also misses the granular changes that shape income distribution. As political scientist Nathan Kelly has shown (PDF), Democratic governments don’t just shift the income distribution with explicitly redistributive programs; they change pretax income distributions to favor the wealthy through what he terms market conditions such as regulation. Sociologists David Brady and Kevin Leicht find the same effect from right-wing governments, both before and after taxes and transfers. The changes combine to dramatically improve the income distribution under a Democratic president.

Hajnal and Horowitz looked at available data for changes in income, poverty and unemployment under every president since 1948. The authors lagged the data by one year since presidential actions take time to trickle down. For example, a decrease in black poverty in 2009 would be credited to George W. Bush’s administration. As shown in the table below, all racial and ethnic groups appear to benefit economically more under Democratic administrations than Republican ones.

AJAM4.1

Although they still benefit significantly more from a Democratic president, the gap between the two parties is the smallest for whites. Hajnal and Horowitz estimate that black poverty declined by 38.6 percent under Democratic leadership, while it grew by 3 percent under Republicans. From 1948 to 2010, black unemployment fell by 7.9 percentage points under Democrats and increased by 13.7 points during Republican administrations. Black income grew by $23,281 (adjusted for inflation) under Democrats and by only $4,000 under Republicans.

“Put simply: However measured, blacks made consistent gains under Democratic presidents and suffered regular losses under Republicans,” the authors said. While there’s limited data, the findings hold true for Latinos and Asians.

It appears at first glance that Republicans actively transfer income to whites through government. Of course, there could be another explanation for this phenomenon. In a study published last July, Princeton economists Alan Blinder and Mark Watson found that from 1947 to 2013, gross domestic product, employment, corporate profits and productivity grew faster under Democrats than Republicans. The authors also noted that unemployment and deficits shrank and the economy climbed out of recession in less time under Democrats. (See chart.)

AJAM4.2

Blinder and Watson attribute half these benefits to productivity shocks, consumer expectations and favorable economic conditions. They leave the other half unexplained, but studies suggest that liberal policies increase growth by boosting wages and perceptions about income security. By contrast, Republican policies slow growthand immiserate the population. The researchers also found that the economy grew even faster when Democrats control both chambers of Congress and the presidency.

It might appear that Democrats are better at managing the economy. However, as Hajnal and Horowitz point out, economic growth alone is not enough to explain racial gaps under the two parties. In fact, the results remain unchanged even after controlling for factors such as inflation, the size of the labor force, the price of oil and GDP. They found that black incomes grew by $1,000 more each year under Democrats, while poverty fell 2.6 points faster and unemployment dropped by 1 point more.

Black income growth stalls when a Democratic president is paired with a Republican Congress. Furthermore, the longer Democrats are in power, the stronger the economic gains for blacks. By contrast, blacks fare worse when Republicans are in office longer. There are similar racial gaps in the criminal justice system. Black and white incarceration rates fell dramatically (a net of 61 fewer arrests per 1,000 residents) under Democratic presidents, while they increased (36 more arrests per 1,000 residents) under Republican leadership.

Last place aversion

This raises questions about why whites largely lean Republican in elections and who benefits from Republican control of our government. The answers are intertwined. As Princeton political scientist Larry Bartels explains, economic growth is shared far more equally under Democratic presidents than under Republicans. (See chart below.) Contrary to popular belief, the incomes of the very rich increase more under Democrats than they do under Republicans. While pretax and transfer incomes are rather similar, the main shift occurs posttax and transfer.

AJAM4.3

Similarly, in absolute terms, whites do better under Democratic than under Republican leadership. But that doesn’t really matter. People weigh their well-being relative to those around them. There is strong evidence that whites often oppose actions against inequality because of “last place aversion,” the desire to ensure that there is a class of people below oneself. Among white voters, racial bias is strongly correlated with lower support of redistributive programs. For example, research shows that opposition to welfare is driven by racial anger. Approximately half of the difference between social spending in the U.S. and Europe can be explained by racial animosity.

Democrats enjoy a broad-based support among the American electorate. But they lose elections because of enthusiasm gap, which is attributed to the party’s inability to rally a diverse coalition of educated, working-class whites, people of color and unmarried women. By contrast, the Republican base is easy to mobilize, allowing them to turn the government into an efficient patronage machine for whites and the top 1 percent of U.S. earners, using what Suzanne Mettler, a professor of government at Cornell University, calls the “submerged state” — subtle tax breaks and benefits such as marriage subsidies and the mortgage interest deduction.

All in all, those who claim that Democrats have abandoned the middle class or failed blacks are missing a larger story. While the Democratic Party has been imperfect in responding to the policy demands and preferences ofblacks and low-income voters, it has done a far better job of improving their condition than Republicans have. Conservatives’ attempts to rebrand themselves as beneficial to the working class or people of color will succeed only if voters remain unaware of their actual record.

This piece originally appeared on Al Jazeera.

How America can fix the racial wealth gap

One of the most persistent but unaddressed problems in the United States is our massive racial wealth gap. Wealth provides an important cushion from the threat of unemployment, medical emergency or other unforeseen events. Wealth can also help pay for college, the start of a new business or the purchase of a first home. However, most Americans struggle with debt. A recent Federal Reserve Report finds that of Americans who had savings before 2008, 57 percent reported using up some or all of their savings in the aftermath of the recession. However, wealth and debt are not distributed equally (see chart).

The racial wealth gap is caused by the fact that wealth is passed from generation. As Gregory Clark notes in his recent book, “The Son Also Rises, the residual effects of wealth remain for 10-to-15 generations. Given that most Americans are only four generations removed from slavery and one generation away from segregated neighborhoods, restrictive covenants and all white colleges, the only truly surprising fact is that the racial wealth gap is not larger. America is also uniquely susceptible to persistent wealth gaps because of our low inheritance, estate and capital gains taxes and the fact that what minimal taxes exist our fraught with loopholes. In 2010, the richest 400 households took home 16 percent of all capital gains (a sweet $300 million each), but paid the same tax rate as a worker making $80,000. At the same time, a loophole in the tax code has allowed the wealthiest to avoid $100 billion  in estate and gift taxes since 2000. On the other side, our public school system is profoundly discriminatoryour neighborhoods deeply segregated and access to credit is racially discriminatory. As Thomas Piketty recently demonstrated, “In terms of total amounts involved, inheritance has thus nearly regained the importance it had for nineteenth century cohorts” (see chart).

The biggest myth of the racial wealth gap that must be demolished is that education or rising incomes can eradicate it. As Matt Bruenig has persuasively shown, this argument is laughably absurd.  College educated Blacks have less wealth than white college drop-outs (see chart).

Bruenig also shows that high income Blacks and Hispanics also have less wealth than whites (see chart).

Between 2007 and 2010, all racial groups lost large amounts of wealth. However, the wealth reduction fell disproportionately on Hispanics and blacks, who saw a 44 percent and 31 percent reduction in wealth (compared to an 11 percent drop for whites). This was due to blacks and Latinos disproportionately receiving subprime loans, both because of outright lending discrimination and housing segregation.A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African Americans has tripled between 1984 and 2009. They find five main factors responsible for driving the gap, which together explain 66 percent of the growth in inequality. The factors, in order of importance, are number of years of homeownership, household income, unemployment, college education and financial support or inheritance.

The most frustrating problem with the racial wealth gap is that it is not abating. While half of whites say that “a lot” of progress has been made towards Martin Luther King Jr.’s dream,  the data show that the racial wealth gap has only increasing since 1983 (see chart).

What is to be done?

There are several important public policy changes that can alleviate the racial wealth gap. The first is to prevent the further accumulation of debt. While debt is often seen as a problem attributable to individuals, the academic literature is clear that broader economic forces are at largely responsible for the run-up of debt. Credit card debt is particularly harmful for people of color who often face discriminatory lending practices. A recent study of credit card debt finds that people of color pay a far higher IPR on average than white borrowers. The CARD act has already been a boon to consumers, but underlying drivers of debt, such as rising inequalityretirement insecurity and lack of health insurance must also be addressed.

Higher education debt must also be addressed. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022.” However, student debt is not distributed equally, but rather falling primarily on students of color and low-income students. That’s because in our age of austerity, governments are spending less money on higher education, shifting the burden of paying for college onto students. Federal and state governments need to step up and fund an investment in the next generation.

On the other side, however, we must also foster wealth-building initiatives. Historically, homeownership has been a pathway to the middle class, but deep residential segregation means that Blacks and Hispanics often own homes that are far less valuable than white homes (see Table 3). Further, in the wake of the crisis many banks are buying up foreclosed houses and renting them out. That means income for people of color is no longer becoming wealth for people of color, but rather wealth for rich bankers.  One solution would be a first-time homeowners tax credit that is weighted to benefit low and moderate income households, rather than the mortgage interest deduction, which favors the wealthy. FICO credit scores should replaced with more reliable credit measurements.  But the ideal way to reduce wealth inequality, not only between people of color and whites, but also between the richest .1 percent and the rest of us, is a baby bond.

A baby bond is an endowment given to Americans at birth and maintained by the federal government until they are 18. The bond functions in a similar way to Social Security and can be sued to pay for college, buy a house or start a business. Hillary Clinton, in fact,briefly floated the possibility of a baby bond during her 2008 campaign, although the modest $5,000 sum she proposed is certainly smaller than ideal. Britain brieflyexperimented with a baby bond proposal, although it later became the victim of Tory Austerity.  Dr. Darrick Hamilton and William Darity Jr., leading proponents of  a baby bond, propose a progressive bond that caps at $50,000 for the lowest wealth quartile bond could close the racial wealth gap in three generations.  Their proposal would be given to three-quarters of Americans (based on wealth eligibility). They estimate that such a program would cost $60 billion a year, about one-tenth of the 2014 defense budget.

The baby bond need not increase the deficit. A recent CBO report finds that right now, tax credits primarily benefit the wealthiest, at a cost of nearly $1 trillion a year. This money could easily fund an extensive baby bond program that would, over time, eliminate the racial wealth gap. Another option would be to restore progressivity to our tax system. Because the baby bond program would not be explicitly targeted at people of color but rather would benefit most Americans, it could easily win broad support (much as Social Security is currently untouchable). Any presidential candidate should make the baby bond a central plank of their 2016 if they want to seriously address the problem of wealth inequality. Without such a proposal, wealth, and therefore political power will become increasingly concentrated in the hands of a small elite. It may already be too late.

This piece originally appeared on Salon

Beyond Ferguson: 5 glaring signs that we’re not living in a post-racial society

In the wake of the Ferguson shooting, a recent Pew poll finds that 47 percent of whites believe that “race is getting more attention than it deserves,” with regards to the death of Michael Brown, while only 18 percent of African-Americans feel the same. Meanwhile, a similar Pew study found that whites are far less likely to see discrimination in the treatment blacks receive by the education system, the courts and hospitals. Such views are held by many Americans, who believe that “blacks are mostly responsible for their own condition.” Police killings of unarmed blacks are certainly the most visible manifestation of systemic racism, but data show that racism still manifests itself frequently in everyday life.

In America, race determines not just where someone lives and what school he or she attends, it affects the very air we breathe. Although many whites wish to believe we live in a “post-racial” society, race appears not just in overt discrimination but in subtle structural factors. It’s impossible to delineate every way race affects us every day, but a cursory examination of major structural racial problems can give us a feeling for how far we still have to go.

1) Education

Education is an important key to fostering upward mobility and alleviating inequality. However, schools today are becoming more segregated, rather than less segregated. At the peak of integration, 44 percent of black Southern students attended majority white schools. Today, only 23 percent do. This is particularly worrying because recent research by Rucker C. Johnson finds that school desegregation benefited black students, because it “significantly increased both educational and occupational attainments, college quality and adult earnings, reduced the probability of incarceration, and improved adult health status.”

Researchers have increasingly referred to a rise of “apartheid schools,” which are almost entirely non-white. In 2003, one-sixth of all black students were educated in such “apartheid schools.” These districts are underfunded and understaffed, and frequently referred to as “dropout factories.” So students of color are far less likely than their white peers to attend schools with a full range of advanced courses.

As ProPublica documents, more and more schools are squeezing out of court oversight. The result, according to Sam Reardon and his colleagues, is increased racial segregation.

(Source)

At the college level, the situation is little better. A recent report by Anthony Carnevale and Jeff Strohl finds that college education in America consists of “a dual system of racially separate and unequal institutions despite the growing access of minorities to the postsecondary system.” They find that students of color are less likely to end up in the most selective schools than white students with the same qualifications.

2) Wealth

There is a large racial wealth gap between blacks and whites in America, partially driven by income but exacerbated by racially biased housing policies (which will be examined below). A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African-Americans has tripled between 1984 and 2009. The recession has only exacerbated the gap, with whites losing 11 percent of their wealth between 2007 and 2010, while blacks lost 31 percent and Hispanics 44 percent.

(Source)

The housing crash disproportionately affected blacks and Hispanics, who were more likely to receive subprime loans even when compared to whites with similar credit scores. In one instance reported by the New York Timesa loan officer at Wells Fargo said the bank “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” However, even before the recession, disparities inemployment, college education, homeownership and inheritance helped solidify racial wealth gaps. Instead of wealth, more and more Americans, particularly people of color, are burdened with debt.

3) Job Markets

Unemployment is particularly high among African-Americans, the result of both explicit discrimination and occupational segregation.

Occupational segregation, or the delegation of blacks to jobs with low upward mobility and wages, is rife. People of color are primarily affected by practices like just-in-time scheduling, which gives workers little warning before a shift.

Part of the problem is infrastructure and education. People of color are far more likely to rely on public infrastructure, and therefore suffer from cuts to public transportation. Decades of housing segregation have trapped African-Americans in jobless areas with badly understaffed schools. Social networks reinforce the patterns, since most Americans get their jobs through friends and family connections. Outright discrimination plays a role as well: Marianne Bertrand finds that applicants with white-sounding names are 50 percent more likely to receive a call-back than applicants with black-sounding names with the same credentials.

4) Upward Mobility

Possibly the defining American attribute is the dream of upward mobility. Sadly, this tends to be more farce that fact — America lags behind other developed countries in measures of upward mobility. But recent research by Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, shows that levels of upward mobility vary across the country — and is strongly predicted by income inequality and racial segregation. They write: “Income mobility is significantly lower in areas with large African-American populations.” (Whites in the areas also had lower levels of mobility.)

Specifically, they note the importance of segregation, “areas that are more residentially segregated by race and income have lower levels of mobility.”

(Source)

A recent Pew Research Center study shows that not only do blacks have lower levels of upward mobility; among those that do make it into the middle class, their children are more likely to slide back into poverty. In what may be the most depressing footnote I’ve ever seen in a chart, Pew notes that there are not enough observations of blacks in the fourth and fifth (read: highest) quintiles of income to make observations about upward mobility.

 

(Source)

In a recent study, Bhashkar Mazumber finds that out of all children born between the late 1950s and early 1980s, 50 percent of black children born into the bottom 20 percent of the income scale remained in the same position, while only 26 percent of white children born into the bottom 20 percent of the income scale remained in the same position. He also finds, like Pew, that African-Americans in the middle class are on far more precarious footing than whites: 60 percent of black children born in the top half of the income distribution fell to the bottom half later in life, but only 36 percent of white children born in the top half of the income distribution fell to the bottom half later in life.

Surprisingly, Mazumber finds that “[w]hile these results are provocative, they stand in contrast to other epochs in which blacks have made steady progress in reducing racial differentials.” While we like to believe we are constantly progressing, these data suggest we may be backsliding with regard to mobility and race.

5) The War on Drugs

The socioeconomic realities discussed above cannot be divorced from the war on drugs: It is a war that is primarily fought against people of color in the country. One in 12 working-age African-American men is incarcerated; and while whites and blacks use and sell drugs at similar rates, African-Americans comprise 74 percent of those imprisoned for drug possession.

The U.S. prison population grew by 700 percent between 1970 and 2005, while the general population grew only 44 percent. According to the Bureau of Justice statistics, around half of federal prisoners’ most serious offense is drug-related. The war on drugs has undermined the legitimacy of law enforcement and eroded their esteem in the eyes of the public. Even before the Ferguson shooting, 70 percent of blacks agreed that, “blacks in their community are treated less fairly than whites” when dealing with the police.

Instead of housing those who have committed violent crimes, U.S. prisons are increasingly teeming with nonviolent offenders. Formerly incarcerated people struggle to find work, and are therefore more likely to turn to crime in the future, creating a vicious and counterproductive cycle. A Pew study finds that the costs of incarceration are often hundreds of thousands of dollars in lost wages. Even when they are no longer incarcerated, former inmates are often deprived of basic rights, including franchise. Around 13 percent of African-American men have been denied the right to vote.

This is to barely touch on the empirical literature on school punishmentaccess to healthcare, a history of racially biased federal policy and the other deep issues that we face. The most disturbing fact is that in almost all of these areas, we have actually seen previous progress eroded, even while we proclaim ourselves a post-racial society. It’s time to take an honest look at race in America. We probably won’t enjoy it. But we need it.

This piece originally appeared on Salon.