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Heller study shines light on policy connections to wealth gap

Published: March 7, 2013
Section: News


The Institute of Assets and Social Policy (IASP) released a study that gives new perspective on the growing wealth gap between white and African-American families. The study, which has followed nearly 2,000 families since 1984, was authored by IASP director and Professor Tom Shapiro (HS) and analyzes factors contributing to the widening divide.

The study analyzed the total wealth of white families versus that of black families. Median wealth, or what is owned minus what is owed, equalled $90,851 for whites in 1984 and only $5,781 for African-Americans. By 2009, those figures grew to a median value of $235,000 for the former and $28,500 for the latter, with an overall gap of $236,500 between white and black households. The numbers are adjusted for inflation, as the values for 1984 are portrayed in 2009 dollars.

In addition to painting a picture of the growing wealth gap, the study asks why, so long after the Civil Rights movement, a de facto segregation still exists along racial lines in terms of wealth and opportunity.

“In the areas that we looked at, first off was home ownership,” Shapiro said. “Within home ownership, there are a lot of different policies for families to become homeowners.”

According to Shapiro, homeownership policies account for the largest portion of differences in median wealth between whites and African-Americans. The largest of these policies is mortgage interest deduction, which allows home-owning families to take a certain percentage off of their taxable income by how much interest is being paid on a mortgage loan. This policy allows wealthier families to reduce their taxes by a larger amount, while poorer families or those that do not own a home do not benefit at all. Because a much larger proportion of whites own their homes compared to African-Americans, the policy does little for black households, according to the research.

Shapiro states that differences in income and unemployment also account for a sizable amount of the divide.

“Differences in average income over the years account for about 20 percent of the gap, while unemployment accounts for 8 percent,” Shapiro said. “African-Americans almost always have twice as much unemployment as Whites … when unemployed, savings and wealth in the family are drawn from.” While the majority of Americans do not receive inheritances, in the study, 36 percent of white families received some amount of inheritance, while only 7 percent of blacks did.

According to Shapiro, dramatic change in government policy could help to alleviate the plight of non-white families.

“I like to be serious about it and go for the biggest chunk first,” Shapiro said. “What is it about home ownership policy in the U.S. that widens the gap? I would start with demanding more rigorous laws with fair lending, fair housing and no discrimination in real estate markets.”

Shapiro adds that incentives for families who rent their homes as well as those who own would benefit a larger proportion of black families, and that a serious rethinking of policy is needed for some of these incentives. “We need to work on integrating communities,” Shapiro said. “We have to do that much more seriously than in the past.”