6 
FORWARD TO EQUITY
I DIDN’T KNOW FULLY WHAT I WAS GETTING INTO WHEN I started this project two decades ago. I wanted to learn about how wealth shapes vital family choices and how assets affect families’ capacity for economic mobility, but I couldn’t have guessed that, as my colleagues and I sought answers to these questions,1 America itself would change so quickly. I certainly did not anticipate the Great Recession or how much I would learn from its effects on ordinary families’ everyday lives. Over the course of our research, we spoke to families whose hopes, dreams, and frustrations were emblematic of those shared by millions of Americans trying to get ahead. We watched as their children matured and, amid a transforming economic climate, their fortunes changed—sometimes for the better but more often for the worse. Some of the young children we met in 1998 grew up to attend elite schools, while others dropped out of high school to toil at low-level service jobs. One was murdered in her home by a stray bullet. Again and again, we saw starry aspirations crash headfirst into the reality of toxic inequality.
Again and again we saw that personal virtues could not ensure positive or improving life outcomes. Those families that successfully passed their status to the next generation often used wealth on multiple occasions to provide head starts and help overcome setbacks. Those families without such resources often could not pass their social status along to their children, who tended to fare poorly. In most cases, such young adults confronted a full spectrum of challenges: weak school systems, fragile communities, a stagnating and stumbling economy, and personal problems, poor health, or family troubles. Without wealth, they often found it nearly impossible to recover from these converging difficulties.
Social institutions and government policies indisputably bend individual life trajectories and tend to lock children into the race and class status of the families they were born into—but that doesn’t mean there’s no hope for change or that only a few individuals will ever achieve uphill mobility against steep odds. Starting with the lives, challenges, and needs of real families, we can build an agenda for significant reform that can turn the tide against toxic inequality. For toxic inequality is not inevitable or intractable; nor is it unpredictable. It results from the rules and choices that structure America’s economy. Since the early 1970s, corporate interests have dominated the writing of these rules, and the result is a weakened economy in which prosperity is hoarded and most families struggle to achieve or maintain a middle-class lifestyle, while a tiny elite amasses an increasing share of the nation’s wealth.2
In recent decades, the growing power of the very wealthy and of corporations to influence government policies has increasingly shaped the conditions and prospects of families like the ones we interviewed. Changes in patents and other intellectual property rights created monopolies and superprofits for pharmaceutical companies. Corporations and their lobbyists have bent antitrust rules to suit their interests and solidify market control. Corporate lobbying turned labor laws against workers in favor of the bottom line. As a result, the American public pays higher prices for medicine, Internet services, food, airline tickets, and banking services than citizens of other advanced nations. Recent legislation has abated some health, safety, and environmental standards. American workers have fewer leave days and paid holidays as well as fewer benefits than counterparts in advanced economies.3 It is more difficult to organize a union. Bankruptcy laws have been modified to allow corporations to close down more easily, with fewer obligations to workers and communities. Meanwhile, home owners burdened with mortgage debt and graduates with student debt face years of payments and threats to their credit histories.
Yet, by wedding what we have learned from our family interviews with other social science research, we can map out the kinds of big changes needed to create equitable prosperity. An understanding of how families truly achieve success and sustained mobility and of the roadblocks that throw families too easily off that path will point the way forward from toxic inequality to equity. Family wealth is of fundamental importance to economic mobility and well-being, and any serious agenda for change must have at its core wealth-building for those who need it the most.
For instance, there must be a robust portfolio shift in public investment for public goods through a transformed tax code. Currently the tax code subsidizes wealth accumulation and preservation for the wealthiest. More than $400 billion goes annually to incentivize individual wealth, with 53 percent of the individual wealth-creating benefits given to the wealthiest 5 percent, while the “bottom 60” percent of the population receives a meager 4 percent of the total. Instead, the savings and investment incentives embedded in the US tax code should bolster the households of modest means that need them the most. We need not abolish all tax expenditures or create huge, costly new programs. We simply need to redirect existing public investments to those for whom support will make the intended public good concrete and reachable. The results would be a deeper prosperity, improved family well-being, and perhaps another great leap forward for democracy—on par with some of the great, successful wealth-building policies of our past.
At their best, these grand policies of the past—for instance, those put in place by the Homestead, National Housing, and Social Security acts—were largely effective in bringing the sought-after public good to fruition. At the same time, however, these and similar policies were profoundly racist in design or execution and most certainly in outcome. Along with our tragic past from slavery to Jim Crow, they created and solidified the foundations of today’s racial wealth gap in the United States. For example, Social Security originally excluded agricultural and domestic workers, jobs with heavy concentrations of blacks and Latinos, locking them out of the nation’s basic retirement system for several decades. Two-thirds of those barred from Social Security were blacks. According to one estimate, $158 billion (in 2016 dollars) in benefits would have gone to blacks and other nonwhites had the Social Security system been inclusive from the beginning.4 Thus, moving forward in a purely color-blind fashion with bluntly universal policies is inadequate and will only sediment racial inequality deeper into American society. Instead, any agenda for change must recognize that the means of achieving shared public goods will differ according to context and constituency. Creating inclusive retirement security for all, for instance, requires targeting the populations and communities that lack access to structured accounts at their workplaces. Efforts to enhance family prosperity and broad equity must reinforce one another. To do this, we must ask how much every policy proposal, existing policy, and suggestion for institutional reform would do to close the racial wealth gap.
In sum, two principles must anchor an agenda for change for America’s families: namely, wealth-building and racial justice. One connects our aspirational, democratic, and American values to public goods. As we have seen, the United States invests hugely in home ownership, retirement security, and education because we believe these goods benefit the largest number of people in the largest possible way while strengthening society. The other principle takes into account the biggest drivers of inequality that propel both historic income and wealth inequality and the widening racial wealth gap, turning them into equity investments.
We must put striving families, their economic security and futures, and equity front and center as our nation moves forward. I am confident that a vast majority of American families share most of the mobility and economic security challenges;5 at the same time, we should recognize that shared challenges and common goals do not necessarily mean one solution fits all or is appropriate for all constituencies or circumstances.
This chapter shapes an agenda for change. In doing so, it draws not only on my researching and writing about these critical issues but also on my experience as an activist for change in grassroots organizations, state and national coalitions, and local, state, and national policy spheres. Over the years of this study, for example, I was a commissioner on the Massachusetts Asset Development Commission and a member of the Commonwealth of Massachusetts Economic Prosperity Advisory Council, the Tax Alliance for Economic Mobility, the Federal Reserve Bank of Boston’s Working Group on Reducing Racial Wealth Inequality, and the National Closing the Racial Wealth Gap Initiative. I have heard from residents and community organizations across the country in places like East St. Louis about how the racial wealth gap plays out in their locales, and I’ve joined a working dinner with the secretary of the Treasury to discuss housing finance reform options in the wake of the foreclosure crisis.
Shaped by these experiences, the policies discussed here echo great ideas from many sources. In most cases, I will detail the key features of policies needed for change, leaving the precise design and mechanisms and the tactical work of actually executing change to advocates, policymakers, and politicians. I will highlight proven policies and tools already at our disposal and recommend new ones that would place more families on the road to prosperity. Details matter, of course, and no policy proposal should pass muster unless it actually improves well-being, equity, and racial justice for the many people who have lived so long without them.
Previous chapters have detailed how even universal-appearing policies have fostered wealth-generating opportunities in white communities while excluding families of color. Social Security, the Federal Housing Administration (FHA) programs, and the GI Bill created opportunities for many World War II veterans and helped an entire generation of white families build wealth through home ownership and higher education; overwhelmingly, however, these advantages did not extend to families of color. FHA became the foundation of residential segregation after World War II. Some policies were racist in design and execution; others were well intentioned but benefitted whites disproportionately by largely excluding families of color. Even today, public school financing and housing policies that are racially neutral on their face reinforce patterns of segregation established years ago, leading to very real and negative consequences for school quality and for home equity values in communities of color.
Given these realities and that burgeoning wealth inequality and the widening racial wealth gap have common drivers, policymakers and analysts must consider how a broad array of policies—from those targeting family finances, such as tax incentives and savings matches, to wider-ranging ones in such areas as education or housing—impact family wealth. And the policy design process must candidly incorporate the goal of racial equity. We need to know how any prospective policy might affect family savings and family wealth by race and ethnicity. Applying such a racial justice filter to both new and existing policies can ensure that they foster equitable wealth building in communities of color, both avoiding past policy errors and countering ongoing, often hidden discrimination.
How might this work? The Institute on Assets and Social Policy (IASP), working with the public policy organization Dēmos, has created a policy analysis framework, the Racial Wealth Audit (RWA), to examine and measure how a particular policy might generate wealth and for whom. Using national data on household wealth, the RWA assesses the distributional consequences of a particular policy by race and ethnicity, highlighting the expected changes to median wealth among white families and families of color. This specific focus on the policy’s impact by race and ethnicity will help avoid seemingly positive policies that may increase family wealth in general but have distorted effects across communities and worsen wealth disparities.
To see how the RWA operates, consider the example of the US Treasury Department’s late 2015 launch of myRA retirement savings accounts. Two in five workers without a retirement account have jobs that do not offer one, and more than three in five part-time workers do not have employer-backed accounts. The policy innovation, designed and implemented by Treasury, thus aimed to boost retirement savings among workers, particularly those without access to plans offered by employers, almost as starter plans. Households with incomes below $131,000 ($193,000 for couples) are eligible and can save up to $15,000 in these new myRA accounts. Contributions can be taken directly from paychecks, bank accounts, or tax refunds. Workers contribute money after income taxes are paid, and any investment gains and withdrawals are then tax-free. To assess this policy’s potential, IASP focused just on households in the thirty-five-to-sixty-four age group, those families most likely to be saving for retirement, and assumed that everybody in the targeted population would participate and reach the maximum savings amount, $15,000. Both of these assumptions are unrealistic in practice, but they help to reveal the maximum feasible benefit. Given the policy target of reaching workers without access to retirement accounts through their jobs and who meet eligibility criteria, the RWA revealed that 30.6 percent of white families, 48.1 percent of African American families, and 70.2 percent of Latino families are eligible for myRA accounts, suggesting that myRA is a means toward a common, universal goal that takes account of different groups’ particular situations—and, specifically, of the heavy concentration of workers of color in firms and sectors of the economy, especially in the private sector, whose employers do not offer workplace-based access to retirement savings. And RWA modeling, again assuming maximum participation, further revealed that the retirement account alone could reduce the black-white wealth gap at the median (that is, in the fiftieth percentile) by $7,000, or 4.6 percent for this age group; the white-Latino gap would close by $10,100, or 6.9 percent. Changes at lower wealth levels would be even more robust. In the twenty-fifth wealth percentile, myRAs could close the white-black wealth gap by 23.2 percent, or $7,890, and the white-Latino gap by 23.8 percent, or $7,410. RWA analysis demonstrated, then, that myRA would build wealth for all who are eligible while adding wealth disproportionately to more working families of color.6
We must keep several final points in mind regarding an ambitious reform agenda. First, any universal, race-blind policy will be inadequate to correct the persisting legacies of centuries of discriminatory policy. Indeed, the word “universal” itself warrants rethinking. When a policymaker or politician calls a process or policy universal, we generally take this to mean that everybody is equally eligible. Instead of seeking universal eligibility, however, we should pursue universal goals. Once we have defined the universal goal, whether it’s early childhood development, pre-K education, housing stability, higher education, quality health care, or a secure and dignified retirement, then we must recognize the need for a variety of strategies or means to move families and communities in different situations toward this outcome. The myRA is one example of such targeted universalism.7 While providing benefits to those eligible, this approach disproportionately touches the most disadvantaged and provides results most likely to enhance retirement security and close the racial wealth gap.
The second consideration is affordability. Politicians and conservative commentators have taught many Americans to throw up their hands and say the nation cannot afford the policies needed to produce a more equitable society. That is false. We choose how we spend, and we spend over $600 billion on the military and $400 billion on individual wealth-generating provisions in the current tax code. Currently, public investments for public goods, especially the mortgage interest deduction and tax expenditures related to retirement savings, overwhelmingly favor the wealthy. Regarding tax expenditures, as a nation we need merely rebalance our portfolio of public investments; carrying out a truly transformative, equitable, and prosperity-building policy agenda would require no new net tax expenditures. Resourcing new mobility and equity policy strategies, however, will necessitate new investments. When feasible, I will indicate the approximate costs of new policies and suggest how to pay for them. The ultimate question, however, is which investments best accord with our values. We owe it to ourselves as Americans to choose investments that match our democratic aspirations.
Third, we must distinguish between policies that improve individuals’ or families’ economic mobility and those that push in the direction of greater equity. For example, a proven program like Family Self-Sufficiency (FSS) greatly assists participating families in moving from subsidized rents and poor neighborhoods to more stable communities, housing security, and possibly home ownership. Witness Patricia Arrora’s journey. However, FSS does little to narrow wealth inequality or the racial wealth gap because the program lacks the scale necessary to include all eligible families. Similarly, a children’s savings account (CSA) is crucial to putting young people on the road to college enrollment and completion and a brighter future. However, in the context of rising college costs and debt, CSAs by themselves will not do much to reduce wealth inequality; nor will they close the racial wealth gap. Family economic mobility is important, and as mobility strategies, both FSS and CSAs are vital. For this reason the policy agenda in this chapter includes them and similar programs. However, we must never lose sight of the need to narrow our wealth divides—and mobility policies alone cannot do this work.
Fourth, ambitious policy innovations should be future-proof, at least to some extent. To maximize its chances of success, or even to allow it to operate long enough to learn if it works effectively or to gather enough information to know how to improve it, a policy cannot be at the mercy of changing political winds and shifting fortunes. Changes in the tax code, for instance, are more difficult to reverse than partisan congressional legislation and often persevere for decades; legislation with some bipartisan buy-in is more enduring.
Finally, what I call policy articulation is critical. As reforms or new investments are made in one area, we must protect other interconnected parts of the system to ensure that new resources actually add to existing supports. For instance, when it comes to CSAs for higher education (discussed later in this chapter), policy articulation would require some measures that protect against new tuition increases simply because universities and state legislators anticipate young college applicants with new access to small pots of gold.
A tentative, piecemeal, or fragmentary response will not suffice to create equity and family prosperity; instead, we must take bold steps and enact multiple, interconnected policies to transform America. As the families highlighted in this book suggest, any agenda for change must strengthen housing and community stability for families, emphasize quality jobs with higher wages and benefits, ensure retirement security, provide quality education, encourage savings, and reform tax policy to foster both equity and mobility.
Strengthen Housing and Community Stability for Families
Patricia Arrora’s home was underwater; Rachel and Shawn Andrews’ was located in a weak and disinvested neighborhood; the Medinas’ was in a community rapidly transitioning from home owners to renters and absentee landowners. Linda Diamond’s daughter was killed by a stray bullet in a neighborhood where gunshots are commonplace, Cindy Breslin’s rent far outpaced her social assistance and rental subsidy, and Michelle Johnson’s family home was in foreclosure. Lindsay Bonde needed new housing because she could no longer climb stairs. Meanwhile, the Ackermans’ home increased in value and withstood the ravages of the Great Recession and housing crisis; the Clark and Mills families, with the help of parental support, owned homes in middle-class communities; and Reese Otis had a home on the island where she grew up.
Home equity and community stability remain key components of wealth acquisition and growth for most Americans. Both are more accessible to whites than to people of color. Tellingly, of the seven families we interviewed between 2010 and 2012 that had been threatened with foreclosure, were already in foreclosure proceedings, or had been foreclosed upon, six were African American. This tracks national data that the housing meltdown, predatory lending, actual foreclosures, and the resulting tremendous destruction of wealth hit communities of color hardest.8
Ensuring housing stability, then, must be a centerpiece of transformative policy. We must first stop the harm of impending foreclosure by means of principal reductions and loan modifications through Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market. The government’s Home Affordable Modification Program, for example, reduced mortgage payments by adjusting interest rates, extending loan terms, and reducing or forbearing principal. This program, however, is set to expire at the end of 2016. Reinstating it would ensure an important tool for ending the lingering harms of the 2008 crisis.
Tax benefits to support home ownership—including deductions for mortgage interest and property taxes—are the largest individual tax expenditures, but they primarily subsidize wealthier households. Only one out of four taxpayers claims the home mortgage interest deduction, and of households that take it, the greatest subsidy goes to the wealthiest households because the higher the filer’s tax bracket, the greater the value of the deduction; and the larger the home—and loan—the greater the amount of mortgage interest eligible for deduction. The Tax Alliance for Economic Mobility has outlined several approaches to redirect mortgage interest deduction benefits so as to allow lower-income households and households of color more capacity to purchase a first home and build home equity.9 One is to reform the mortgage interest deduction itself, capping the deductible amount of mortgage interest or turning the deduction into a credit. As only 11 percent of filers with incomes under $40,000 itemize deductions, the vast majority of lower-income families could potentially benefit if the deduction were a credit instead.
Another approach would be to adjust the portfolio of public investments and pivot to tax benefits that encourage wealth-building through home ownership among lower-income families. Some options include a first-time home buyer’s credit, a refundable tax credit for property taxes paid, and an annual flat tax credit for home owners. Each would cap the home mortgage interest deduction at 15 percent, repeal the property tax deduction, and retain the existing tax treatment of capital gains on owner-occupied housing. For people who sold their home, the first $500,000 of financial gain would be exempted (for a couple), and anything over that amount would be subject to a 14 percent capital gains tax rate.10 A version of the first-time home-buyer tax credit was implemented during the Great Recession and phased out after 2010. A new, refundable version of this credit would allow low- and moderate-income first-time home buyers access to home ownership. As in previous versions, the maximum credit would be $7,500, and it would have an income phaseout ($150,000 to 170,000 for joint filers).11 Such features would ensure that it targeted the American families most in need of affordable housing. While some of the ideas under discussion represent different paths, many can work together.
An even more ambitious proposal calls for a twenty-first-century Homestead Act. This would create a government-backed, preferred-rate, thirty-year fixed mortgage, with preference given to families—as opposed to speculative investors—purchasing homes foreclosed due to proven mortgage fraud. It would also provide home-improvement loans targeted to families who purchase foreclosed homes in areas stricken by the mortgage crisis or in disinvested communities, like those in which the Andrewses and the Medinas lived. This would augur a far better future than one where financial speculators like the Blackstone Group and the Lone Star Funds continue to buy distressed and foreclosed properties and bundle them together for absentee landlord-investors.
Housing stability involves both home ownership and renting, and federal policy should address the latter as well. Indeed, the mortgage crisis led to highly restrictive lending by financial institutions; as a result home ownership rates have been falling since the mid-2000s, and rents are increasing faster than incomes. A federal renters’ tax credit, administered by states, would augment renters’ stability. Each state would receive a fixed dollar amount of credits allocated for renters and for developing affordable housing. The state of Massachusetts, for instance, already has a proven and effective renter’s tax deduction. Renters are eligible for a deduction of up to 50 percent of rent paid for a principal residence, up to $3,000 annually. This deduction gives Massachusetts renters access to some of the supports that home owners receive, though they still lag far behind. A national version of this deduction would go a long way to making rental housing more affordable. Policy articulation would ensure that rules are in place to prevent rapacious landlords from simply scooping up the tax credit by raising rents.
Finally, we must do more to end racial segregation in housing. The 1968 Fair Housing Act promoted real progress; yet place of residence persists as a strong predictor of success and life chances. Residential segregation remains high, and racially concentrated areas of poverty exist in virtually every metropolitan area, with high costs in the form of weak and declining infrastructures and services for families living in those locales. Racial discrimination continues to steer families into residentially segregated communities. No new laws are needed to end discriminatory practices; simply updating and rigorously enforcing existing laws would be sufficient. The Fair Housing Act tops the list of housing nondiscrimination laws needing strengthening and enforcement; others include Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, Section 109 of Title I of the Housing and Community Development Act of 1974, Title II of the Americans with Disabilities Act of 1990, and the Architectural Barriers Act of 1968.
Passing a law is very different from enforcing it. We need enforcement of existing fair housing laws because discrimination persists in housing markets. The US Department of Housing and Urban Development (HUD) issued a ruling in July 2015 based on a mountain of research documenting discrimination against minorities at every stage in real estate transactions—in the search for, purchase, and rental of homes, in the assessment of closing costs on loans, and in steering minorities into segregated neighborhoods.12 Discrimination results in higher housing costs in terms of rents, purchase prices, and mortgage terms. Nearly fifty years after landmark legislation, researchers still found that realtors’ marketing efforts increase with house price for white customers but not for black customers, and black customers are more likely to experience steering. The houses that agents show are more likely to deviate from the initial request when the customer is black as opposed to white. Minority home seekers hear about and see fewer homes and apartments than whites, raising the costs of housing searches and limiting choices. African Americans and Hispanics pay higher closing costs than whites with equivalent credit scores and loan amounts. The HUD summary reinforces uncontested social science findings on a significant link between race and the value of home ownership. These findings are consistent with discrimination on the part of real estate agents and financial institutions that results in restricted housing choices for minorities and vastly diminished home equity prospects.
Systemic discrimination is not limited to home ownership and extends deep into rental housing. Regardless of structure and neighborhood characteristics, African Americans experience discrimination, which increases as neighborhoods reach a “tipping point” (from 5 to 20 percent minority share of the community). Segregation persists and maliciously parcels opportunities in the context of toxic inequality, where better-off communities hoard resources and the advantages they transmit. That is why the Orinda Union School District in California persecuted Vivian and her family for daring to attend a public school in a community in which they could not afford to live.
Residential segregation bakes inequality into the lives of families by reproducing parents’ disadvantages for their children. Significantly, these involuntary harms are not intractable; we can reverse them. Major recent studies, for example, document substantial improvement in family incomes and lasting educational attainments for children whose families move away from high-poverty neighborhoods and live in lower-poverty ones for several years.13
Create Quality Jobs with Higher Wages and Benefits
Employment fragility for some, alongside quality jobs with benefits for others, is at the heart of rising inequality and the racial wealth gap. The experiences of the Medinas, the Barzaks, and even the Ackermans illuminate how underemployment, frequent and extended spells of joblessness, and lower wages significantly reduce families’ capacity to generate wealth or even to put enough aside for emergencies and tough times. We need bold and transformative policy to change the current direction of the economy so as to address these inequities.
Full employment ought to be a goal. Currently, monetary policy protects big financial institutions against inflation risks at the expense of prioritizing full employment. Additionally, we need public investment to make the United States a world leader in innovation and modern manufacturing, thus creating a foundation for long-term job growth. Such investment would build better roads and bridges, expand public transit options, provide access to the digital economy through the Internet, produce advanced aviation technology and modern airports, develop a world-class high-speed passenger rail system, and construct a twenty-first-century energy infrastructure. These improvements will not be cheap, with a likely price tag in the range of $50 billion a year for five years. They are, however, essential not only to our ability to compete globally but also to Americans’ well-being and safety. The cost of doing nothing is exorbitant.
The revelation in early 2016 that Flint, Michigan’s water supply had delivered poisonous levels of lead mostly to low-income, minority neighborhoods represents the tip of the iceberg, a warning of imminent dangers posed by our decaying infrastructure. A major infrastructure investment would open up job and subcontracting opportunities to communities denied them in the past, and expanding public transportation would promote equal access to jobs and opportunities long after infrastructure projects were completed.
Alongside ambitious new investments to create jobs, other reforms would expand the employment capital provided by new and existing jobs. A significant portion of the private sector has shifted from defined benefit pension plans to defined contribution or cash balance plans. As states face high funding deficits for their state and local pensions, public pension systems are also shifting away from defined benefit plans. Despite these shifts, defined benefit plans are more effective at ensuring individuals have retirement security, because they offer higher benefits and deliver payments almost exclusively through annuities. Federal guarantees should protect current and future defined benefit pension holders, particularly those who work in the public sector. An agency like the Pensions Benefit Guaranty Corporation, which insures pension plans for the private sector, could do the same for public defined benefit and cash balance plans. Such an entity could also strengthen the funding requirements and expand this regulation to state and local public plans. While states must understandably implement innovative strategies to decrease actuarial deficits, they cannot implement such reforms on the backs of individuals in or near retirement or lower-paid workers.
Additionally, the federal government should strengthen the right to bargain by easing legal barriers to unionization, imposing stricter penalties on illegal antiunion intimidation tactics, and amending laws to reflect the changing workplace. Corporate practices in the twenty-first-century global economy—from growing reliance on a contingent workforce, to keeping work hours just below minimum requirements for benefits and Affordable Care Act coverage, to releasing workers and rehiring them as so-called subcontractors, to imposing just-in-time work scheduling, to outsourcing, to offshore avoidance of income taxes, to wage theft—are squeezing working people in new ways. Unions can attend to some of these issues, but government needs to set the standards by attaching strong pro-worker stipulations to its contracts and development subsidies, increasing funding for enforcement, and raising penalties for violating labor standards.
A living wage should be the goal; building to that by raising the minimum wage is a good interim step forward. Minimum-wage campaigns, like that for $15 an hour, are increasingly popular and successful in city and state initiatives. Given what we know about the racial and gender bias in who has access to employment-based benefits, living- and minimum-wage initiatives must combine wealth-protecting and -escalating benefit structures (paid sick leave, retirement, medical, and dental) with the bare bones of hourly wages.
Together these ideas for full employment, infrastructure improvement, pension reform, workers’ rights, and a living wage would build wealth and reduce the racial wealth gap significantly. A more ambitious reform—a federal job guarantee—could have even more impact. This ambitious reform would entitle people looking for jobs or with less than thirty-five hours per week of paid employment to perform work of public benefit at an enhanced minimum wage. This would replace unemployment and underemployment with paid employment for up to thirty-five hours per week. A federal job guarantee is a sure path to full employment and could be pegged to stronger workers’ rights in conjunction with public infrastructure projects. Some of these approaches overlap, but taken together they would transform the workplace from a site of inequality into one of equity and racial justice.
Policy affords formal paths for opportunity, access, and inclusion, but informal employer and workplace discrimination persists to erode gains, block pathways, and undermine policy success. Evidence abounds detailing that discrimination in employment is far from a thing of the past and remains deeply embedded today. It is so strong that a white applicant with a criminal record is just as likely as a black person with no criminal history, if not more so, to get a callback or job interview. This drives home just how much race matters in employment, “with being black viewed as tantamount to being a convicted felon.”14 Another study underscores the deep entrenchment of implicit bias; “job applicants with African American–sounding names get far fewer callbacks for each resume they send out.”15 Further, the study found, it is hard to overcome this hurdle in job callbacks because improving credentials and social skills did not necessarily overcome discrimination in getting callbacks for job interviews.
We must also firmly enforce existing laws and policies regarding employer discrimination. Good laws on the books already include Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex, or national origin; the Equal Pay Act of 1963, which protects against sex-based wage discrimination; the Age Discrimination in Employment Act of 1967, which protects individuals age forty and older; Titles I and V of the Americans with Disabilities Act of 1990, which prohibit employment discrimination against persons with disabilities; Sections 501 and 505 of the Rehabilitation Act of 1973, which prohibit discrimination against qualified individuals with disabilities who work in the federal government; and the Civil Rights Act of 1991, which provides monetary damages in cases of intentional employment discrimination.
Fair housing and employment laws reveal some important lessons. Persistent bias undermines the best of intentions; and although good laws exist, their effectiveness depends upon rigorous enforcement. We cannot attend only to the formal policy arena but must address informal bias as well.
Ensure Retirement Security
While the Arrora, Andrews, and Medina families’ stories suggest the challenges of preparing for a secure retirement, the Ackerman family offers a model of what strong, employer-based benefits comprise. The Ackermans’ benefits included a matched retirement savings plan in which the employee is enrolled by default. While these ample benefits sometimes appear in public and nonprofit employment sectors (e.g., private universities), one should not be fooled into thinking that offering them is a private, virtuous, or voluntary choice on employers’ part, because a robust system of public investment subsidizes these benefits. We need federal and state incentives to encourage all businesses, up to a reasonable minimum of employees, to offer retirement plans, and we should reapportion the current public investment to extend tax benefits to larger portions of the workplace.
Most Americans rely on Social Security as their main source of income during retirement, but this relatively modest program is inadequate on its own and needs strengthening. Social Security is the bedrock of retirement security for most low- and moderate-income families, and its disability and survivor protections are especially important for those who depend on them to cover the largest share of their living expenses. We should increase Social Security benefits with a focus on economically insecure beneficiaries who do not have the necessary savings or income to get by in retirement or in the event of a family member’s disability or early death. The Commission to Modernize Social Security, for instance, developed a plan to extend Social Security’s solvency while improving benefits for the vulnerable.16 The plan would, among other things, raise revenue by lifting the cap on wages taxed, flattening benefits for high earners, and gradually increasing the payroll tax by 1 percent over twenty years, while expanding benefits for the very old and those with very low incomes. Additionally, the plan reinstates Social Security survivor benefits for students over the age of eighteen attending college and provides credits for workers who take time out of the paid workforce for caregiving purposes. Indeed, for a more thorough option, we could eliminate entirely the cap on wages subject to the Social Security payroll tax—$118,500 was the limit in 2015—to extend the solvency of Social Security and make the necessary adjustments that will ensure it better meets the needs of the nation’s most vulnerable citizens.
The 2016 recommendations of the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings also aimed to improve benefits for those most likely to be financially insecure. These recommendations include an attempt to make the benefit formula more progressive, a basic minimum benefit designed to be more effective than the existing special minimum benefit, an enhanced elderly survivors’ benefit, and the continuation of survivors’ benefits for students through age twenty-two. These benefit improvements are very much needed. Social Security won’t have sufficient revenue from payroll and other Social Security taxes to cover full benefits for program participants after 2034. The report also includes several measures to restore the program’s long-term solvency by gradually raising the payroll tax and raising the maximum cap. But it also shortchanged some of the most vulnerable workers with a revised benefit formula and raised the age for receiving full retirement benefits.17
Due to the wide and persistent racial wealth gap, communities of color experience economically perilous retirement years. Beyond strengthening Social Security, we need to take several steps to create a retirement future that is secure for all. Establishing universal matched retirement accounts is one. Low-income families, communities of color in particular, are less likely to have access to workplace retirement plans than the general population. Many don’t have enough money saved to meet a minimum for opening an investment account on their own. As a result, millions of workers in America lack options to save for retirement. To supplement employer-based benefits, universal retirement accounts, under federal oversight, should be established and workers automatically enrolled with an opt-out option. Ideally, these accounts should have a federal component matching a percentage of annual income up to $1,000 for low- and moderate-income workers.
Earlier we saw how the US Treasury developed myRA accounts to address some of these common barriers to retirement saving and to provide a simple, safe, and affordable option for working people. Working people can open a myRA account with no start-up cost and pay no fees for its maintenance; myRA has no minimum contribution requirement, so savers can contribute the amount that best fits their budget. The Treasury backs the investment, and the myRA carries no risk of losing money. Future strengthening of myRA should expand it by raising the $15,000 limit and enabling other similar simple options in order to increase access to tax-preferred retirement savings accounts.
The federal government is not the only place where retirement reform is percolating. States are taking similar policy action to provide simple and accessible ways to begin planning for retirement. They could follow the progressive lead of Illinois and California, which are launching workplace-based retirement plans designed for working people not offered access to plans at their places of employment.
Provide Quality Education
The five-year-olds we first met in 1998 are by now on divergent pathways to adulthood, and their experiences in educational systems helped to shape their vastly differing life chances. The stories of St. Louis youngsters Peter Ackerman and Tina Medina capture this clearly. We must improve higher education prospects for people like Tina, ensure that middle-class young adults like Andy Mills can pay for college, and improve the disinvested, frail, and vulnerable school systems that failed Keneysha Breslin and Desi Johnson. Education is a critical public good and, once acquired, a key individual asset, one of the most pivotal resources for family economic security. But great disparities remain in access to education and educational quality in America. We must strengthen the entire spectrum from prekindergarten to higher education.
Universal pre-K is a crucial tool for reducing poverty and improving subsequent educational and economic outcomes, particularly among vulnerable youth. There is good evidence that early childhood education could help eliminate the achievement gap between socioeconomic groups. A 2013 study of low-income children randomly assigned to a two-year, center-based early childhood education intervention found that it significantly boosted their school readiness. These effects remain substantial for several years of early schooling. States should create, with federal support provided in the form of revenue and subsidies, pre-K educational systems and thereby provide every young child with quality, publicly funded preschool.
Today, the majority of high-paying jobs demand education beyond a high school diploma, especially those requiring science, technology, engineering, or math degrees. These account for more than 10 percent of jobs in the United States, and many of them pay wages close to double the US average. Yet the United States has one of the highest high school dropout rates among industrialized nations and ranks low in college attainment. This national challenge is accompanied by a severe achievement gap between white students and students of color, who disproportionately attend schools with fewer resources and poorer educational quality. Leveling educational disparities requires adequate resource allocation, including equitable state financing for schools and districts as well as improved support for and distribution of highly qualified and effective teachers and principals. Property taxes are the primary sources of local funding for public schools, meaning that richer districts have greater capacity to provide quality education and poorer districts are continually strapped for resources—even as children there start school further behind and arrive at school with more health conditions and learning challenges. A few states try to ameliorate this disparity by using formulas to reapportion this common resource, and more should do so. Equitable formulas will not be a magic solution to school achievement inequality, but they will go a long way to making resources and chances for success more equitable.
Stephanie Andrews grew up in a chancy St. Louis neighborhood, but rather than choosing to pay for private schooling, her parents enrolled her in a great magnet school that kept her somewhat close to home and in the public school system. But schools like Stephanie’s are too rare, and lacking similar resources, the other public schools around her were very weak. More equitable distribution of resources could ensure that vulnerable communities have access to magnet schools that prepare students for careers of the future—focusing, for example, on entrepreneurship, business, technology, creative arts, social media and communications, and health care—and use digital learning platforms and strategies.
Beyond secondary school, tuition costs that outpace inflation at a time of stagnant or reduced family income endanger college access and completion. Policymakers must champion affordable and equitable access to higher education, and tuition increases at public and private universities must be held to the rate of inflation to limit the financial burden on students. Attaching federal aid, tax subsidies, and research grants to tuition-control measures is one way to accomplish this. The larger issue, however, is the reduction of investment in public higher education. The cutbacks have come largely at the state level. In the face of the multiyear, nationwide fiscal crisis, many states have reduced financing for public universities, cut back on enrollment and university resources, and increased tuition and fees to compensate. These public spending cuts and private revenue increases have diminished higher education access and quality without addressing the need to reduce universities’ internal inefficiencies. At the federal level, Pell Grants must be reinvigorated so that they serve their intended purpose of adequately supporting college attendance and completion among low- and moderate-income students. The alternative is even higher student debt and an even wider college-completion divide between young adults from rich and poor families.
And in response to heavy and increasingly unsustainable student loan debt, policymakers should expand early debt-assistance programs that allow graduates to cap federal loan payments at a percentage of their monthly income. Furthermore, opportunities for graduate debt forgiveness and loan modifications to reduce debt should be expanded. Dēmos and IASP have proposed ways to achieve the double bottom line of reducing student debt in a way that closes the racial wealth gap.18 One proposal, for instance, would eliminate student debt for households making $50,000 or below, and this step would reduce the racial wealth gap between black and white families at the median by nearly 7 percent. The effects of doing so would be far greater among households in the twenty-fifth percentile of wealth, where it would reduce the black-white wealth disparity by nearly 37 percent. Among such low-wealth households, eliminating debt for just those making $25,000 or less reduces the black-white wealth gap by over 50 percent.19
Tax expenditures are another area for reform when it comes to education. The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education, created in 2009 as part of the economic recovery package. More low- and moderate-income households qualify for the maximum annual credit of $2,500 per eligible student than for higher education tax subsidies like the Lifetime Learning Credit. AOTC is more accessible because it is a partially refundable credit, meaning that if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit (up to $1,000) can be refunded. Expanding the refundable portion of the AOTC would help to broaden access to lower-income households. Other reforms could increase access to the AOTC by allowing low- and moderate-income families to access the credit before they are required to pay for higher education expenses. The bipartisan tax deal at the end of 2015 made AOTC permanent.
Build Savings from Birth
Over 1.3 million American children—and more than half of minority children—are born each year into families with negligible savings to invest in their futures. Yet research indicates that lower-income children whose families have even moderate savings are more likely to be invested in their futures and succeed in life. Savings can offer another way to ensure wider access to higher education, for instance. Children in low- and moderate-income families with college savings of just $500 are three times more likely to enroll in college and four times more likely to graduate.20 And promoting college attendance and completion—and the accompanying increased lifetime income and economic mobility—is just one way that policies to encourage savings can help to build family wealth over generations.
Children’s savings accounts are one tool for accomplishing this. CSAs are based on the simple idea that all families, given the right support, will save and invest in the talents and aspirations of their children. The ideal federal CSA policy would create lifelong, asset-building savings accounts at birth for every child, with more incentives for those that need them the most. These accounts would support savings for higher education, home ownership, retirement, and other mobility-enhancing purposes. This is the aim of the ASPIRE Act, repeatedly introduced in Congress with bipartisan support since 2005. The act would create an account for all children at birth, seeded with $500, plus an additional deposit for children of low-income parents.
Policymakers should also reform federal 529 accounts, tax-benefitted college savings accounts created through federal policy and offered by the states. The accounts offer a universal savings platform, and all states have at least one plan. However, at present, lower-income households receive few benefits: those in the bottom half of the income distribution own less than 2 percent of all savings in these accounts. Federal legislation could facilitate, encourage, and subsidize more inclusive 529 plans in the states. Many states are already working to increase participation among lower-income populations through lower fees, matched savings, and outreach. The state-level experiments that are succeeding in increasing college savings among lower-income residents should inform changes to federal 529 policy.
Most ambitious would be a “baby bonds” trust program to mitigate intergenerational barriers to wealth accumulation for low-income families and people of color. In 2005, the Labour government in the United Kingdom implemented a program of baby bonds, the Child Trust Fund, creating endowed trusts for children at birth in amounts ranging from £250 to £500 depending on existing family resources. But created by administrative fiat, the program was summarily ended in 2011 when a new coalition government took office. In the United States, a more robust and future-proof, or sustainable, version of this program might endow children with a trust at birth that would increase progressively until they reached eighteen. Depending on the initial investment and future contributions, the accounts would reach $30,000 to $60,000 for those born into households in the lowest wealth quartile.21 An attractive feature of this endowment is the potential for private, family, community, and philanthropic participation. The federal government should provide these accounts for every child. Federal funds should seed each account, with larger deposits for infants in low-income families with minimal savings. At age eighteen, a young person could use the money for tuition or training, to start a business, or to buy a home.
IASP analysis of this ambitious policy suggests it could have a profound effect both on wealth accumulation and on the racial wealth gap among young adult households. Depending on funding and participation, these accounts could reduce the racial wealth gap by about 20 to 80 percent, while raising the wealth levels of all groups. An early 2016 report from the Annie E. Casey Foundation documented how implementation of baby bonds a generation ago would have entirely wiped out the black-white and Latino-white wealth gaps for all eighteen- to thirty-four-year-olds.22 It’s misleading to simply tally costs. While initially costing approximately $21 billion, this investment in children could reduce dependence on public benefits, increase consumer buying power, boost investment in businesses and homes, and move our country to greater equity.
Reform Tax Policy
Tax policy affected every family highlighted in this book, as it does just about every family in America. Mortgage interest deductions, retirement savings tax expenditures, and Earned Income Tax Credit (EITC) refunds are just a few ways that tax policy intersects with families’ experiences in their homes and communities, with work and retirement. This chapter has already focused on some sensible ways to transform the mortgage interest deduction and tax mechanisms around retirement savings so as to better reach those families most in need, as opposed to largely advantaging those who are already wealthy. The EITC is a rare example of tax policy that provides major support for low- and moderate-income working people. Depending upon marital status, working families with children and incomes below $39,000 to $53,000 may be eligible for EITC. Those workers without children and with incomes below about $15,000 are also eligible. EITC is refundable even if the credit is larger than the worker’s tax liability. The average 2015 EITC refund was slightly over $3,000 for a family with children and under $300 for families without children. In 2013, 6.2 million more people would have been in poverty without EITC, and more than half of those were children.23 Twenty-six states supplement the federal credit. Massachusetts, for example, adds another 15 percent on top of the federal EITC.
A proven and effective policy tool like the Earned Income Tax Credit, which lifts more working families out of poverty than anything other than a good wage, should be strengthened. Raising the minimum wage is crucial, but to best serve working families, it and EITC should complement each other. At the end of 2015, two key improvements to EITC that were set to expire were extended through 2017—removal of the marriage penalty and the provision of larger EITC for families with more than two children. We should continue to strengthen EITC by gradually raising income eligibility and increasing the maximum benefit. In addition, more states also should augment EITC, and the twenty-six states that do so already could boost their supplement and broaden eligibility thresholds for the state matching component.
One additional area for reform is the federal estate tax, an enduring feature of the US tax code since 1916. In its present form, it is the clearest symbol of the power of today’s superwealthy families to pass along unearned privileges. Very few estates, just 18 in every 10,000, pay any estate taxes. The 2015 exclusion level below which wealth is protected is nine times higher than it was in 1997, and the top tax rate is 37.5 percent lower. In a better world, we would capture far more revenue from the transfer of unearned property and wealth from one generation to the next in order to provide real opportunities for those not born into affluence and who will inherit little money, or none. We could easily finance children’s savings accounts and even an ambitious program of baby bonds with a reformed estate tax. In 2016, the first $5.45 million is excluded for an individual, after which the tax rate is 40 percent. A responsible reform might drop the exclusion to $3.5 million or lower ($7 million for couples) while phasing in gradual increases in the rate, say 45 percent for an estate up to $10 million, 50 percent for estates between $10 and $50 million, 55 percent for those above $50 million, and 65 percent for billionaires. According to one conservative estimate, such a reformed estate tax would raise $30 billion in additional revenues.24 This would provide more opportunities to younger Americans while cutting back, even if only slightly, on a process that transmits and locks in inequality at birth.
TOXIC INEQUALITY IMPACTS SOME AMERICANS MORE THAN others, but its cumulative effects damage every family and community and harm our nation as a whole. Time and again, our conversations with ordinary people pointed to a spreading toxic inequality syndrome, in which the accumulation of stressful experiences—job loss, protracted unemployment, eviction or foreclosure, prolonged illness, the end of a relationship—overwhelms a family’s or community’s ability to stay above water. Toxic inequality syndrome is a product of sustained economic hardships, family adversity, frustrated aspirations, and the persisting uncertainties of life in communities with few resources in times when more and more risk has been shifted to families and individuals. Toxic inequality often produces not only material deprivation but also psychological and even biological changes in children, blocking and cementing families’ trajectories and poisoning the lifeblood of communities. We must reverse direction.
We can start by doing right by children. Tina Medina should have had higher education in her future, not dead-end service work. Mishaps easily surmounted by wealthier families should not have derailed Keneysha Breslin’s dream of becoming a doctor so easily. Desi Johnson deserved a school that could accommodate her Tourette’s syndrome and allow her to thrive, rather than abandoning her to the isolation of bullying.
In our interviews, we also heard many inspiring stories and learned of dreams and aspirations more easily attained with the kinds of policy reforms outlined in this chapter. Rachel Andrews’s nation, her community, her family, and she herself would be better off if she achieved her dream to “be of service” in the Peace Corps during her retirement. I suspect Patricia will sign up regardless, but realizing her goal of serving others would be less risky if her community were more stable and she could be certain her daughter would complete college and embark on the road to success. “Real freedom” for Reese Otis entails working with indigenous women in southern Chile, even at minimal pay. Though doing well, Reese is concerned about not having enough retirement savings, and she too would benefit from greater certitude and security. Policies discussed in this chapter would bring these women’s dreams closer to reality.
Placing people, families, and communities at the core of our values and our policy direction can also make America a better nation. We have seen how extreme wealth inequality and widening racial inequality reinforce one another, forming the bedrock of America’s twenty-first-century toxic inequality. The time has come for a reset. None of us can thrive in a nation divided between a small number of people who possess an ever-larger portion of the income and wealth and everyone else increasingly grasping for a declining share and feeling real pain. It tears at the fabric of our society, posing a fundamental problem for democracy and for the well-being of our families, communities, and nation.
Inequality goes far deeper than just income and wealth. It determines who can overcome obstacles: some have them cleared from their path, while others have trouble recovering from even minor mishaps. At its heart, inequality is about access, opportunity, and just rewards. For too long, toxic inequality has defined the landscape of our country, dictating where people live, how they fare, and what futures their children face. Its mechanisms can seem invisible, even inevitable. But they are man-made, forged by history and preserved by policy. Changing them is up to us.