A Policy Change To Build Black Wealth|
September 2, 2013
One potential benefit that can come from last week’s March on Washington 2013,
which commemorated the 1963 civil rights event, is the various data publicized
about the current state of affairs of black America vis a vis the rest of the
In particular, it has been an eye opener for many to see how little progress has
been made over the last 50 years in closing the economic gap, on average,
between blacks and whites.
I call shining light on the data a “potential” benefit because there is no
benefit if real remedial action is not taken to improve the state of affairs.
According to data from the Pew Research Center, the gap in median household
income in 2011 between blacks and whites was about $27,000 - $39,760 black
median income and $67,175 white median income. In 1967, this income gap
between blacks and whites was about $19,000. So it’s grown by $8,000.
The gap in median household net worth between blacks and whites in 2011 -
$91,405 white median net worth and $6,446 black net worth – was about $85,000.
This was up from a difference of about $75,000 in 1984, the first time this data
As we approach 50 years from passage of the Civil Rights Act in 1964, isn’t it
time for some new thinking? Shouldn’t black Americans be asking what can
be done to achieve some real economic progress?
There’s, of course, many factors dragging blacks down economically. But
one very straightforward policy change can be made that would have immediate
wealth creation benefits for blacks and all low income Americans.
It’s something I’ve written about many times. Personal retirement
According to a Pew Research Center study on wealth gaps between ethnic groups,
in 2009, 80 percent of whites had an IRA, Keogh, 401(k) or thrift savings
account. Only 41 percent of blacks did.
One can argue that with far less income available, blacks don’t have the
resources to invest long term in these wealth-building accounts. And
because so many don’t do it, blacks tend to understand these savings plans less,
which creates discomfort and bias on their part against doing it.
These are exactly the reasons why low income Americans should be given the
option to opt out of social security and use the funds they are forced to pay in
taxes to invest in a genuine wealth-building retirement account.
Let’s recall that Social Security is not an investment program. It’s
simply a tax on current workers that’s used to make payments to current
Social Security takes 12.4 percent annually from just about every income earner.
The employee pays 6.2 percent directly, and their employer contributes the other
In 2010, the Wall Street Journal published a study done by analysts William
Shipman and Peter Ferrara that analyzed what an average-income earning couple
would have accumulated over a 45-year working life if they could have put that
12.4 percent of their income in an investment account instead of paying Social
They assumed the couple retired in 2009 right after the stock market crashed and
they used actual historical stock performance data for the 45 years from 1965.
Even with the big market drop, their savings could have paid out about 75
percent more than they would have gotten from Social Security.
We should also be aware that Social Security taxes are paid just up to $113,700
in income. After that you are free. So Social Security is clearly
biased against wealth accumulation of lower income individuals.
We, of course, can expect that liberals will start screaming if anyone proposes
to allow low-income earners any choice - even an option - to get out of social
security and invest in a retirement account.
Black Americans can listen to them and watch their income and wealth stagnate
for another 50 years, while the wealth gap continues to grow.
Star Parker is founder and president of CURE, the Center for Urban Renewal
and Education, a 501c3 think tank which explores and promotes market based
public policy to fight poverty, as well as author of the newly revised Uncle
Sam's Plantation: How Big Government Enslaves America's Poor and What We Can do