Growing income inequality is a hot topic during the presidential primaries, particularly among anti-establishment voters on both the right and left, but candidates and voters should look harder at the growing problem of wealth inequality.
In North Carolina today, 51.5 percent of the households are considered “liquid asset poor,” which means they do not have enough cushion to live at the poverty level for just three months if faced with a job loss, medical emergency or other major income loss. The picture is even bleaker for households of color. More than two-third (68 percent) of African-American households are liquid asset poor in our state.
In addition to providing a little something to fall back on during hard times, wealth means having enough saved to send your kids to college without tapping out your retirement fund. Wealth is what you need for a down payment on your first home or to start your own business. Whether we have a lot or a little, wealth equals opportunity – and it is increasingly unfairly distributed.
The wealthiest 0.1 percent of Americans today own about as much wealth as the bottom 90 percent combined. The racial wealth divide is especially egregious. Median wealth for white households is almost $112,000 compared with a little more than $8,000 for African-American households.
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How did the richest country in the world end up like this? The answer lies not only in a sad legacy of racial discrimination, but also in our nation’s “upside-down” federal tax system. Under this system, a millionaire in the top 0.1 percent gets tens of thousands of dollars every year from tax deductions, credits, deferrals and other lopsided tax programs, many of which support wealth creation in the form of homes and retirement savings. By contrast, a typical working family gets little or nothing at all.
These tax programs could be expanding financial security, boosting retirement security or increasing homeownership and college savings for working class families. Instead, they are helping the richest households get even richer.
One part of the solution to wealth inequality lies in comprehensive federal tax reform. But there are also wealth-building ideas that we can adopt right here in North Carolina. One is endowing all children with nest-egg savings accounts as early as birth.
A 529 for all
Several states offer a useful model for North Carolina. For example, Maine establishes a 529 college savings account with a $500 deposit for every newborn in the state. In addition, the state encourages families to continue saving for their children by providing a 50 percent match on savings of up to $300 a year, with no lifetime maximum. The only stipulation is that funds provided by the state be used for qualified education expenses. Other states, such as Nevada, have followed Maine’s lead. Last year, Vermont passed legislation to establish a higher education savings account for every child born or adopted in the state, with special benefits for low-income kids. Each child will receive $250 at birth, with low-income children receiving an additional $250. Similar legislation has been introduced or is pending in Washington, Colorado, Wisconsin and Maryland.
Building wealth through even small investments early in life can have a huge impact later on. Research shows that low- and moderate-income students with just $500 or less in an account are three times more likely to enroll in college and four times more likely to graduate. Another recent study found that a large-scale, nationwide children’s savings program could reduce the racial wealth gap by as much as 50 percent.
The problems of growing inequality and stagnating opportunity demand solutions at both the federal and state levels. I hope presidential candidates will tell us how they intend to help all families build wealth and how they might turn America’s pro-inequality, anti-opportunity federal tax programs right-side up.
Carl Rist is senior director of Children’s Savings for the Corporation for Enterprise Development’s Durham office.