Wealth gap grows after recession as minorities struggle to recover

Wealth gap grows after recession as minorities struggle to recover
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Most Americans are still struggling to recover wealth lost during the worst recession in modern history, but those on the higher end of the economic spectrum are rebounding much faster, according to new government data.

The rising inequality is most pronounced along racial lines.

White households, especially wealthier whites, have recovered well. Black and Hispanic households are taking far longer to recover, however, fueling a growing chasm between those with financial means and those without.

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The median U.S. household held $97,300 in assets in 2016, according to the Federal Reserve Board’s Survey of Consumer Finances. That figure is well below the $139,700 in assets the median household held in 2007, just before the recession began.

The median white household has $171,000 in assets, according to a Pew Research Center analysis of the Fed data. That’s 10-times larger than the $17,100 in wealth held by the median black household and eight times more than the $20,600 in wealth owned by the median Hispanic household.

The recession, in short, wiped out decades of slow but steady gains among minority households who now hold assets similar in size to the median household in the late 1990s.

“We’re talking about being set back 20 years or more for Hispanic and black families,” said Rakesh Kochhar, Pew’s associate director of research.

Lawmakers on Capitol Hill have offered various plans they hope would reduce the gap between the wealthy and those struggling to catch up, with limited success.
 
Republicans on Thursday unveiled a massive package of tax cuts and reforms they said would spur economic growth and deliver tax relief to middle-class households.
 
Democrats argue the package would disproportionally benefit the wealthy, exacerbating inequality. They point to the plan's elimination of the estate tax and argue that while the corporate tax rate would be permanently lowered to 20 percent, a new $300 tax credit for each child, intended to benefit the middle class, expires in five years.

The studies released this week show that when it comes to income, a racial gap persists across the economic spectrum.

Among low-income households, the median white family holds three times the wealth of the median Hispanic family and more than four times the wealth of the median black family.

Middle-income whites have four times the wealth of black families in the same bracket and more than three times the median wealth of middle-income Hispanic families.

Median net worth among all households remains below median wealth levels in 1998, 2001 and 2004, according to an analysis by Cheryl Russell, editorial director at the New Strategist Press.

“The fact that net worth in 2016 was lower than in the years 1998 and 2004 is troubling,” Russell wrote in her American Consumers newsletter. “Net worth rises with age and should be at or near an all-time high today because of the aging of the baby boom generation.”

"Instead, net worth is well below the levels reached when the demographics were far less favorable,” Russell wrote.

The collapsing housing market is mostly to blame for falling wealth, Kochhar said, especially among minority households. Those households with fewer assets to begin with had a higher proportion of their wealth tied up in their homes, meaning they suffered most when the bubble burst.

Wealthier households held more diverse financial portfolios, which meant a relatively smaller portion of their assets took a hit. And with the booming stock market, which has more than tripled since the depths of the recession, those who had financial investments in the market recovered more quickly.

“The recession went hand in glove with the housing market and the financial sector crash. As a result, pretty much anybody who was a homeowner saw their wealth fall,” Kochhar said. “The housing market continues to loom large. I don’t know when housing values will recover to a point they were prior to the recession.”

Just 45 percent of black households owned their own homes, Russell’s analysis showed, compared with 72.5 percent of non-Hispanic white households. Home ownership rates among blacks have fallen farther than rates among non-Hispanic whites. And homes owned by African-Americans declined in value almost twice as much as homes owned by whites.

“Fewer households now are homeowners than they used to be,” Kochhar said. “It’s not just [that] the value of the asset has diminished, but the ownership of the asset has diminished.”

A previous Pew study found a similar story among Hispanic homeowners. Hispanics were twice as likely to live in the regions hit hardest by housing downturn, meaning their assets were uniquely vulnerable to the collapse.

The Survey of Consumer Finances does show a few bright spots in the post-recession economy, however. The median household has seen its financial assets, like investments, grow by 7 percent in the last three years, to $23,500. The median value of nonfinancial assets, like homes, rose 4 percent over that timeline.

And the average American holds less debt now than in pre-recession times. The median household carries $59,800 in debt, 23 percent below 2007 levels.