Nearly two decades ago, I set out to learn how wealth — not just income — shapes family choices and how assets affect economic mobility. My colleagues and I interviewed 187 families from Boston, Los Angeles, and St. Louis who represented different walks of life, with hopes, dreams, and frustrations emblematic of those shared by millions of Americans trying to get ahead.
When we checked back in with them to see how things had gone, again and again we saw that personal virtues could not ensure positive life outcomes. Instead, families with access to asset wealth were often able to overcome setbacks and pass on their status to their children. But families without such resources found it nearly impossible to overcome challenges like weak school systems, fragile communities, a stagnating and stumbling economy, and poor health or family troubles. It was much harder for these families to pass on their status to their children, let alone improve it.
In the wake of the Great Recession, the country is seeing the emergence of toxic inequality — an unprecedented convergence of historic and rising levels of wealth and income inequality, stalled social mobility, and a widening racial wealth gap. Toxic inequality results from the rules and choices that structure America’s economy. We can produce a more equitable society, but we must make policy based on the needs of working families, not the wealthy and corporations. There are dozens of things we could do, but here are seven high-impact ideas for every stage of life:
1. FUND “BABY BONDS”
Giving children a trust at birth that would increase progressively until they reached 18 could reduce the racial wealth gap by 20 to 80 percent while raising the wealth levels of all groups. Federal funds should seed each account, with larger deposits for infants in low-income families with minimal savings. At age 18, a young person could use the money for tuition or training, to start a business, or to buy a home. The Annie E. Casey Foundation last year estimated an initial cost for such a program at $21 billion, but this investment in children could reduce dependence on public benefits, increase consumer buying power, boost investment in businesses and homes, and move our country to greater equity.
2. LEVEL THE EDUCATION PLAYING FIELD
Because property taxes are the primary source of local funding for public schools, richer districts have greater capacity to provide quality education and poorer districts are continually strapped for resources. A few states are trying to ameliorate this disparity by using formulas to reapportion this common resource. More should do so. Such formulas will go a long way toward making resources and chances for success more equitable.
3. CREATE FULL EMPLOYMENT
At the heart of rising inequality and the racial wealth gap is the difference between those who have quality jobs with benefits and those who have fragile employment. Underemployment, frequent and extended spells of joblessness, and lower wages significantly reduce families’ capacity to generate wealth or even to put enough aside for emergencies and tough times. Current monetary policy protects big financial institutions against inflation risks at the expense of prioritizing full employment. Full employment ought to be the goal.
4. CAP MORTGAGE WRITE-OFFS
Mortgage and property tax deductions primarily subsidize the wealthiest households, which get the highest tax deductions for housing. If we cap these deductions wisely, it lets us redirect these subsidies away from the wealthy, who don’t need them, to low-income homeowners who do, without passing any new taxes.
5. OFFER UNIVERSAL RETIREMENT ACCOUNTS
Low-income families are less likely to have access to workplace retirement plans than the general population. Establishing universal matched retirement accounts, with workers automatically enrolled and given an opt-out choice, will help. Ideally, these accounts should have a federal contribution of up to $1,000 that would match a percentage of annual earnings for low- and moderate-income workers.
6. LAUNCH UNIVERSAL PRE-K
There is good evidence that early childhood education could help eliminate the achievement gap between socioeconomic groups. States should create, with federal support provided in the form of revenue and subsidies, pre-K educational systems that provide every young child with quality, publicly funded preschool.
7. BRING BACK PENSION PLANS
Defined benefit plans are more effective than defined contribution plans at ensuring individuals have retirement security, because they offer higher benefits and deliver payments almost exclusively through annuities.Thomas M. Shapiro is director of the Institute on Assets and Social Policy at Brandeis University’s Heller School. Excerpted from “Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, and Threatens Our Future” by Thomas M. Shapiro. Copyright © 2017. Available from Basic Books, an imprint of Perseus Books LLC, a subsidiary of Hachette Book Group Inc. Send comments to firstname.lastname@example.org.