The Deep Roots of the Racial Wealth Gap—and How We Undo It

By Ericka Taylor

In the more than 150 years since the end of the Civil War, Black American wealth remains a fraction of that held by White Americans. Just after emancipation in 1865, African Americans owned 0.5% of national wealth. By 2019, that percentage had not risen above 2%. An analysis by the Brookings Institution found that the median wealth of White families stood at $188,200 while the median wealth of Black families was a mere $24,100. What’s worse is that this chasm has continued to grow. Between 1983 and 2016, adjusting for inflation, median White wealth increased by 33%, according to the Institute for Policy Studies. The median Black family, in contrast, saw their wealth decrease by more than half during that period. The pandemic has only exacerbated the situation. 

While closing this divide is essential to achieving racial equity in this country, it’s important that we apply the right tools for the job. We can’t properly solve problems without understanding their origins. The growing divide between White wealth and Black wealth is a product of economic systems designed to extract wealth from Black, Indigenous, and other people of color and redirect it to the wealthy, almost uniformly White elite. 

The Racial Wealth Divide Exists by Historical Design

Some of this extraction is obvious in a country built on stolen land with stolen labor. The United States became the wealthiest nation in the world (today, China has earned that distinction) as a direct consequence of dispossessing Native Americans of 1.5 billion acres of land and using enslaved labor to dominate the textile industry. Consider that, as was reported in Yes! Magazine, “at the outbreak of the Civil War, the market value of slaves in the U.S. exceeded that of banks, factories, and railroads combined.” That value can’t be understated.

The official end of slavery (except as punishment for a crime) was not the end of policies designed to keep Black people from accumulating wealth or to extract the wealth they managed to gain. Not only did the formerly enslaved not receive the 40 acres promised by Union Gen. William Tecumseh Sherman (nor clarity on how the 400,000 acres allocated would ever have sufficed for 4 million people), but many did not even receive a reprieve from free labor. That’s because thousands of Black men were rounded up as criminals so states could lease them to farmers and private businesses to perform unpaid manual labor. 

Their crimes were violations of Black Codes, laws passed to maintain racial hierarchy. In rural Alabama, changing employers without permission, false pretense, and “selling cotton after sunset” were all arrestable offenses by 1890. This “leasing” of human beings—a form of slavery by any other means—continued through the mid-20th century. It is not a stretch to think of incarcerated individuals as a contemporary extension of this history, as more than half of the 1.5 million people being held in federal prisons work for a few cents per hour, often for private corporations.

“Freedpeople” who were able to avoid imprisonment were often consigned to a different type of wealth extraction: sharecropping—what Ta-Nehisi Coates writing for The Atlantic describes as “debt peonage.” In Coates’ words, this was implemented by “cotton kings who were at once their landlords, their employers, and merchants,” and who drove Black farmers deep into debt. By 1890, 75% of Black farmers were sharecroppers.

By the early 20th century, U.S. laws hindered opportunities for Black people to create wealth on multiple fronts. Jim Crow laws allowed for legal discrimination against Black people, including restrictions on the kinds of jobs they could hold and the incomes they could make. The newly established Social Security program, by design, didn’t initially apply to agricultural and domestic workers—positions disproportionately held by Black people—so, in 1935, 65% of all Black Americans and 70–80% of Black southerners were ineligible to receive checks. 

Additionally, state-sponsored “redlining”—a notorious practice in which banks refused loans to those who lived in Black communities—kept Black people ineligible for home loans, and racial covenants prevented Black people from moving into White neighborhoods. Today’s Black homeownership rate of 43.4% is not only substantially lower than the White homeownership rate of 72.1%, but it’s also lower than it was 10 years ago.

These are just a few of the policies and practices, hardwired into the financial system dominated by Wall Street, that have contributed to the racial wealth divide. Each has made the intergenerational transfer of wealth more challenging for Black people. The website IsOurEconomyFair.org, which I run, details such wealth extraction—and exclusion—from colonization to the present day. My organization, Take on Wall Street, developed this interactive site to lay bare the extent to which our economy was designed for the needs of the elite, almost entirely White few. It reminds us of the vast scale of the problem, and underscores that the solutions must also be expansive.

How We Close the Racial Wealth Divide

The strategies we use to address these disparities should not only be structural in their nature, but they must also address the root causes of the problem. Financial literacy won’t address the wealth divide, because financial illiteracy didn’t create it; generations of wealth extraction and exclusion did. 

Reparations to address the harms of slavery and its deep-rooted legacy of systemic and institutional racism is one direct solution to the racial wealth divide. Having seen little movement on the federal level, communities around the nation are moving forward with their own reparations efforts. 

Many of those are at the municipal level—like the efforts led by Mayors Organized for Reparations and Equity—and aim to repair the harm done by generations of racist policies. There’s also a reparations task force in California that will release its proposal to the state legislature in June 2023, in the first-ever state-based reparations effort. 

Some reparations campaigns, however, have been initiated by the victims of racist policies themselves, such as an effort in Tullahassee, Oklahoma. The town is likely the oldest of dozens of Black communities established in the state between the Civil War and the Great Depression. Once a booming community, decades of disinvestment, banking discrimination, and the enduring legacies of slavery have left Tullahassee’s residents struggling to remain financially afloat. Now, led by Mayor Keisha Currin, they are fighting for reparations, aiming to revitalize the town and establish it as a safe haven for Black people.

Another state-level effort that doesn’t necessarily rise to the level of reparations centers on undoing structural racism embedded in state tax codes. Last year, the Oregon legislature’s House Revenue Committee held a hearing to identify how its tax policy harms communities of color and to examine strategies for repairing that harm. Advocates in New Mexico persuaded their lawmakers to address racial equity in their tax code by, among other improvements, expanding health and education access that benefit children of color by requiring New Mexicans with more wealth to pay more in taxes as a share of their income.

Tax policy on the state and local level has typically resulted in Black, Indigenous, and people of color subsidizing benefits that are often available only to White people, from the G.I. Bill in its earliest years, to student loan interest deductions, homeownership policies, and more. In an institution-based approach to reparations, the if Foundation, based in Washington, D.C., has launched a project to “illuminate the ways in which Black people’s labor and genius have been exploited and stolen to build philanthropic wealth in the D.C. region.” It intends, “by outlining the details of and quantifying harm on a foundation-by-foundation basis,” to build a case for D.C.-area foundations to engage in reparative philanthropy.

The scale of the problem of the racial wealth gap—and the harm—will ultimately require federal intervention. Communities and our elected representatives need to continue pushing for nationwide reparations for Black people harmed by generations of racist policies, while Congress can also advance targeted strategies, such as taxing the wealth, rather than merely the incomes, of the financial elite. Congress can also achieve some wealth redistribution by increasing taxes on corporations and adopting policies that improve outcomes for all, like baby bonds. 

The most important thing we can do is to remember that broad-based systemic harms require broad-based interventions. That means understanding how we got into this mess in the first place so that our solutions don’t treat the symptoms while ignoring the disease.