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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 $21 trillion

These detrimental effects are particularly 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.

Community and family members gather in unity on the eve of the decision in the Derek Chauvin trial in April 2021.
Attribution
Brain Feinzimer / FCNL
Community and family members gather in unity on the eve of the decision in the Derek Chauvin trial in April 2021.

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.

This economic racism in housing isn’t just in the past; it’s happening today through home devaluation.

This economic racism in housing isn’t just in the past; it’s happening today through home devaluation because the owners are Black.

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.

A school’s resources deeply affect the quality of education students receive. 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 no deduction or credit for renting. All over the tax code, benefits are given to people who have wealth.

FCNL’s Work on These Issues 

Racism has cost the U.S. economy trillions of dollars, but FCNL is working against this. We have lobbied and supported bills that increase funding for housing, mainly focusing on eliminating the historic discrimination against families of color.

Thanks to our continued efforts, Congress increased funding for housing by $4 billion this fiscal year.

Thanks to our continued efforts, Congress increased funding for housing by $4 billion this fiscal year. This means more funds for programs that will increase access to affordable housing, such as housing choice vouchers and rental assistance.

This 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.

FCNL is also advocating for the Child Tax Credit (CTC). We held press conferences with congressional champions like Senator Sherrod Brown and led coalitions whose constituents consistently lobbied Congress to renew the expanded CTC. Research shows that children in families that receive the CTC perform better in school, are more likely to go to college, and are predicted to earn more as adults.

In 2021, Congress temporarily enabled people with little or no income to claim the CTC’s
full value.

The Center on Budget and Policy Priorities found that it would cause “Black and Latino child poverty rates [to fall] by approximately nine percentage points.

In addition, they found that “the disparity between Black and Latino child poverty rates and white child poverty rates could be cut by more than 40%.” However, 3.4 million children have fallen into poverty as Congress has not yet extended the CTC expansions for 2022.

FCNL has also lobbied Congress to enact a tax system that stops advantaging income from wealth over income from wages.

FCNL has also lobbied Congress to enact a tax system that stops advantaging income from wealth over income from wages. We have advocated 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.

Economists at Citigroup estimate that in the future, “roughly $5 trillion could be added to the U.S. GDP through 2025 from closing these [racial inequality] gaps.”

People: Abibat Rahman-Davies

Abibat Rahman-Davies

Domestic Policy Associate
Abibat Rahman-Davies is FCNL’s domestic policy associate. As a part of the domestic policy team, she supports the legislative director and domestic policy team’s efforts to change government policy and practice for the better.