On August 17, 2019, Taylor Nicole Rogers writes on Business Insider:
- Wealth inequality is projected to cost the US economy up to $1.5 trillion between 2019 and 2028, according to McKinsey.
- The wealth gap between the median black and white families in the US has jumped $54,000 since 1992, McKinsey found.
- Presidential candidates and billionaires alike have proposed a wealth tax to close the gap, Business Insider previously reported.
The United States’ wealth gap is hurting more than just the poorest Americans. It’s stifling economic growth too, according to a new report by consulting firm McKinsey & Company.
The concentration of wealth among America’s highest earners will cost the economy between $1 trillion and $1.5 trillion between 2019 and 2028, McKinsey estimates.
The United States’ wealth gap is steadily widening, especially along racial lines. In 1992, the median net worth of white families was $100,000 above that of black families, according to McKinsey. By 2016, the median white family was $152,000 wealthier than its black counterpart. During that period, the median wealth of white families grew over $50,000, McKinsey reports, but the median wealth of black families did not grow at all in real terms.
The gap reduces the buying power of black families and prevents investment in the housing and equities markets, according to McKinsey. If the gap between black and white families were closed, the US would add an additional 4% to 6% to its GDP by 2028.
Persistent discrimination and a lack of social connections that typically lead to new opportunities have kept black families poor, according to McKinsey. The amount of wealth held by black families fell 3.4% each year between 2004 and 2016.
The student debt crisis also hurts African Americans more than their white peers, Business Insider‘s Allana Akhtar and Hillary Hoffower previously reported. On average, black college graduates owe $7,400 more in student loans than their white peers. Black college graduates also earn less than white graduates on average, making it harder to pay back their loans.
Proposed solutions for closing wealth gaps in the US
The problem of economic inequality has received growing interest from presidential candidates and billionaires alike in recent months. A new tax that would require ultra-wealthy Americans pay the federal government a small percentage of their net worth each year has been proposed by Senator Elizabeth Warren, Business Insider previously reported. Warren estimates that the tax would generate $2.75 trillion in revenue in a decade that could be used to close the wealth gap by funding programs that benefit poor Americans.
An INSIDER poll shows that more than half of Americans support Warren’s proposal. And they’re not the only ones: In June, a group of 19 ultra-wealthy Americans including George Soros, Abigail Disney, and members of the Pritzker and Gund families published an open letter supporting a moderate wealth tax.
However, such a tax would face substantial legal challenges and would likely not raise as much revenue as its advocates expect, former Department of Justice tax attorney James Mann, who is now a tax partner at law firm Greenspoon Marder, told Business Insider.
