The racial wealth “gap” in the United States is much more like a canyon, a chasm created over centuries through chattel slavery, the legacy of redlining, exclusionary immigration and labor policy, and a criminal justice system that is predatory toward black and Latinx Americans.
According to the Census Bureau’s Current Population Survey, for every $100 earned by the average white family, black families earn $57.30. The Institute for Policy Studies reports that black and Latinx households are projected to lose more wealth by 2020, by 18 and 12 percent respectively. As Forbes paraphrased, “After those declines, the median white household will own 86 times more wealth than its black counterpart, and 68 times more wealth than its Latino one.” And according to the Institute On Assets and Social Policy at Brandeis, white Americans with college degrees are three times wealthier than than black Americans with the same credentials.
Despite select success stories of black wealth (whether in the form of a celebrity like Oprah Winfrey or a former president like Barack Obama) and false claims by Donald Trump about gains in black employment under his administration, the overall economic outlook for the average black American is bleak. And the data is similar for Latinx Americans, most of whom cannot afford to pay for a $400 emergency expense on their own.
Closing the racial wealth gap is a gargantuan task centuries in the making, and it can’t be fixed with a single revolutionary bill passing congress. But some politicians are starting to embrace economic platforms that progressive economists and left organizers have embraced for decades. Policies like California senator and potential 2020 presidential contender Kamala Harris’s rather meager cash assistance plan for low income families, however short it may fall in its current iteration, would have been politically unthinkable even three years ago for a mainstream Democrat.
The same could be said of Cory Booker’s recently introduced baby bond proposal.
As Vox reported earlier this week, Booker’s American Opportunity Accounts Program would give each child born in the United States a savings account of $1,000. The government then deposits up to $2,000 into the account every year until the child turns 18. The deposits depend on family income, with lower income children receiving larger deposits and high income families receiving very little. By 18, a child from a low-income family could end up with nearly $50,000 to spend toward “wealth-building purchases”—like college tuition or a down-payment on a home. (Booker has yet to provide a full list of eligible uses for the savings.) This nest egg—referred to as a baby bond—is a stark contrast to current conservative policies such as the child tax credit.
I spoke with Yana Rodgers, the director of the Center for Women and Work at Rutgers University and professor of labor studies and feminist economics, about Booker’s proposal, what it could mean for the racial wealth gap, and creeping acceptance of universal basic income-style programs in the United States. Our conversation has been condensed and edited for clarity.
JEZEBEL: A lot of people don’t know about how the economics of these bills work. They just kind of take at face value what politicians tell them. Can you give me a sense of what Booker’s policy actually means?
YANA RODGERS: What it means is all households, when a new baby is born, will have a certain dollar amount put into a savings account managed by the federal government. That amount is the same for all families. And then every year after that, the federal government will contribute an additional amount to the savings account, but that additional amount depends on income. So the additional amount is highest for low income families. The additional amount slowly becomes smaller until a certain threshold; after a certain income threshold of better off families, they no longer get the additional amount. This additional amount is paid every year until a child turns 18, and it does accrue some interest—I think the plan is up to about three percent.
Then, when the child is 18, he or she may be eligible to draw on the account, which all projections indicate may have risen in value up to about $50,000. That can be used to fund either college tuition or some other kind of educational expense, or something else that will improve their human capital. Or, it could be for housing, according to Booker’s plan.
So this is comparable to what many European countries have, what they would call a family allowance, which is a fixed payment per child every year. For high income families, that first payment when the baby is born would accrue interest, and by the end of 18 years, that child in the higher income family would also be able to draw on the account—it would just be smaller—and use it for college as well. So in this way, the intent is the close the wealth gap because more families of color—African-American families, Hispanic families—fall toward the lower end of the wealth/income distribution. It will help to close the wealth gap by race as well. And that is Booker’s intent.
So this policy is purposely weighted to benefit lower income families.
In the U.S., the way that our government supports families with children—we have two kinds of tax policies. One is the child tax credit, which was just raised from $1,000 to $2,000.
Right, which Ivanka Trump was championing pretty aggressively last year.
Yes, and that’s per child up until a fairly high income tax bracket. And it’s not progressive because it’s the same amount for all households up until fairly wealthy households. The other way that families can have tax incentives or be helped out through the tax system for having children is through the dependent exemption, or deductions. And the deduction is actually regressive in that the value of the tax deduction increases with income, so higher income households are helped more by the dependent exemption. It helps wealthier families more. So if anything, the dependent exemption increases the wealth gap rather than decreases it.
It’s not much of a benefit if people who might have more children and are perhaps lower income are going to receive less benefits from than a wealthy family who doesn’t necessarily need much of a break on their taxes.
And it’s not a new idea, in a way it’s similar to European countries with their family allowance. It also has some similarities to the universal basic income, UBI, which more people are talking about as our economy changes and we have more automation. There’s concern that there may not be enough jobs in the future, and we might need a universal basic income kind of policy as people work less. So these are all in a similar kind of policy framework.
When I first heard about this I thought of UBI, and I think that it’s interesting that you’re seeing more Democrats—whether they may or may not be running for president—being very open about including these kinds of UBI-adjacent policies in their platform. What do you think that means? I think it’s hard to fathom anyone running on a UBI-type platform even two years ago, let alone four years ago.
I think that the discussion of UBI is very much related to discourse we’re having on the future of work and the gig economy, more automation. I think people are thinking—everyday people too as we use our apps to hire drivers, and house cleaners, and child care providers—you know, our economy is becoming more automated, computers are taking over, technology is more of a daily way of life, and people are indeed talking about the future of work. And I think that has changed in the last two to four years. And with these discussions of the future of work come discussions of, “Well what if people do work less, or not at all?” As a government needs to support its population, how do we do that? Well some kind of UBI. So I think this focus on UBI is coming hand and hand with discussions on the future of work. And this phrase, the future of work, is out there, and everyone’s talking about it.
The simplicity of the Booker proposal is appealing in its own way. There are no complicated tax forms to fill out, no questioning how it works. What do you make of this shift?
Thinking more broadly about this program, the U.S. stands out from other countries—like European countries that have family allowances—in that we do support parents in their child raising, but the way we do it is through a complex and inconsistent set of tax codes. There are odd distributional effects. High-income families are helped more. It’s confusing, it’s complicated, it’s very difficult to figure out how much exactly governments are supporting families with children. This baby bond proposal is transparent, it’s progressive, and it’s a much cleaner, simpler way. And I think more fair way of supporting families with children and closing the wealth gap.