Racism is not only morally wrong, but it also has massive detriments to our economy. In a recent study by Citigroup, “Closing the Racial Inequality Gaps,” economists state that in the last 20 years, racism has cost the U.S. economy $16 trillion. This is not insignificant as the U.S. gross domestic product (GDP) is more than $21 trillion.

These effects are stark in housing, education, and tax policy.

Housing is a major source of intergenerational wealth for many people. However, public, private, and federal discrimination and policies like redlining prevented families of color from owning a home and devalued their homes.

Decades of obstacles to homeownership meant that families of color have missed out on the benefits of rising home values. This is critical, as owning a home is crucial for wealth accumulation.

A study by Princeton University notes “that even among Black families owning homes, properties do not appreciate at the same rate as properties held by other ethnic groups.”

In 2016, the Federal Reserve found that the median amount of housing wealth for a Black family was $124,000; for white families, it was $200,000.

All forms of discrimination are very costly to the economy. Economists estimate that $218 billion was lost in the last two decades due to discrimination in providing credit—lending and receiving loans—to families of color to purchase homes.

In February 2021, the Austin family bought and renovated a house in Marin City, one of the most expensive housing markets in the country. Despite the location and $400,000 in renovations, it appraised for $989,000, or just $100,000 more than its appraisal before the renovations.

The Austin family suspected racism and got a second appraisal. This time the house was staged to make it seem like a white family owned it. The house was appraised for $1,482,000, almost 50% more than its previous appraisal. A family of color in the U.S. cannot use their home to build wealth and contribute to the economy if their homes continue to be devalued.

The adverse effects of racism build upon themselves. Due to housing discrimination, the education of Black people suffered as well. Property taxes fund local schools; schools in wealthier areas receive more funding than those in poorer areas.

Due to years of racial segregation, families of colors’ homes are worth less, which means their schools are not as well funded. The result is that children of color often don’t get a high-quality education.

Education is fundamental to increasing a person’s income and potential. Over 40 years, a person with a college degree and advanced degree will earn $1.3 million to $2 million, respectively, compared with a high school graduate.

Since more Black students fail to access quality education at a younger age, the path towards college and advanced degrees is extremely difficult. The Citigroup study estimates that it costs the economy billions of dollars, as “$90 billion to $113 billion in lifetime income is lost from discrimination in accessing higher education.”

Racism also negatively impacts our tax system, which currently gives more advantages to people with wealth, which is highly concentrated in white families. According to the Brookings Institution, the net worth of a median white household is ten times that of the median Black household.

A lower tax rate on income from wealth versus wages perpetuates the existing racial wealth divide. While tax advantages like the mortgage interest deduction provide additional tax relief for homeowners, there is typically no deduction or credit for renting. All over the tax code, benefits are given to people who have wealth.

It is critical to address racism, as decades of housing discrimination in real estate, homeownership, lending, and federal policies means Black, Latino, and Native American households are more likely than white households to be low-income renters.

Congress needs to enact a tax system that stops advantaging income from wealth over income from wages. We should advocate for Congress to increase taxes on corporations and the capital gains tax.

The current capital gains tax allows families to transfer vast sums of wealth across generations with minimal tax from art, real estate, and stocks. By prioritizing the taxing of wealth, we are working to close the racial wealth divide.

It may seem that racism in our economy only affects people of color, but it costs all of us. It has cost us trillions of dollars and hurt our country’s economic potential, but we can change this.

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