Checkpoint: Racial Justice Through Intergenerational Redistribution

A “redlining” map of San Francisco, California. Between the 1930s and 1960s, municipal maps color coded desirable neighborhoods, based largely on their ethnic demographics, giving a visual representation of where federal housing subsidies, favorable real-estate developments, and financial investment projects were initially restricted and later encouraged to flow.

In November 2008 Barack Obama became the first African American President of the United States. Subsequently, racism was declared dead, and the black man in the White House was seen as the epitome of social progress. Then, racially motivated killings came into the national spotlight, and since 2014 many Americans have understood that if a police officer can murder a child playing in the park on little more than a race-based assumption of wrong-doing, whatever progress made was in name only. While racism and its gravity remain a contentious issue in America, most identify it as a problem, with 64 percent saying that is it a “major issue” today. Without a doubt, it is important to recognize that the disproportionate police violence towards unarmed black men is a contributing factor. However, excessive media coverage of those instances has meant that more pervasive causes are ignored. Understanding institutional racism also means acknowledging the complicity of government in creating conditions conducive to fostering racism itself.

One such condition is state-sponsored discriminatory housing policy during much of the twentieth century. Key is the difference between de facto and de jure segregation. De facto segregation is that which is perpetuated by private actors, whose discrimination is based on personal prejudices. In contrast, de jure segregation is that which is caused by government policy, where the explicit intention or implicit effect is to disadvantage minorities. In The Color of Law, Richard Rothstein attempts to dissect this distinction by focusing on federal housing policy from the New Deal onwards. He argues that by implementing discriminatory housing reforms that benefitted white Americans while excluding blacks, the U.S. government is responsible for an unconstitutional deprivation of opportunity.

Federal discriminatory housing policy originated in the attempts of the Roosevelt Administration to lift the nation out of the Great Depression. Under the aegis of the Public Works and Federal Housing Administrations, a concerted strategy of infrastructure investment was pursued in order to solve the dual issues of housing and unemployment. Concurrently, the entry of the United States into WWII led to a rural exodus into the cities, where wartime industry concentrated and housing needs exploded. At this point, the influx of black southerners led both agencies to institute segregation into their policies, requiring new construction to exclude blacks or provide for separate spaces. As a result, the leveling effect of the war did not affect African Americans. 

Come peacetime, the FHA guaranteed cheap mortgages alongside generous subsidies to real estate developments. However, these benefits were denied to African Americans and contingent upon the denial of black home ownership. The permeation of white-only housing throughout the country along with prohibitive zoning practices by municipalities created artificial barriers to black entry into many neighborhoods. As a result, despite the fact that many could afford to live in white communities, African Americans were forced into underserviced neighborhoods often clustered around noxious industrial areas. This segregationist sentiment encouraged private prejudice and led to the phenomenon of “white-flight” and the imposition of restrictive covenants on house deeds forbidding sales to African Americans. In effect, de jure segregation exacerbated de facto segregation.

Segregation was eventually removed from government policy, and measures were taken to improve the imbalance. While many of these had degrees of success, reversing generations of housing discrimination was not among them. The crux of the issue is that white Americans were assisted in accumulating wealth through home ownership while black Americans were hampered in doing so. Because of this, African Americans today have ten times less household wealth than whites and command only 2.6 percent (whites 90 percent) of the nation’s wealth despite making up over 13% of the population. Furthermore, efforts to make up for lost time are frustrated by vastly increased house prices and a hiatus to generous government loans for housing. With home-equity making up two-thirds of household wealth, it is clear that discriminatory housing policy contributed to racial inequality, especially when considering that FHA loans today are still denied to minorities at higher rates than whites. 

Unlike imbalances in education which will eventually level out, the disproportionate accumulation of wealth by Caucasians will be permanent barring intervention or upheaval. Through inheritances and bequests, the accumulation of wealth by whites becomes enduring as it is maintained post-mortem and transferred inter-generationally ad infinitum. For this reason, while African American incomes have risen since the inception of civil rights, their increase in the share of wealth has not. As a result, current government leveling policies aimed at increasing disposable incomes, such as Section 8 rental vouchers, do not tackle the persistent source of the problem. The most common sense approach would be to limit the amount of wealth that is transferable to the next generation and apply the proceeds to programs that facilitate the accumulation of home-equity wealth by African Americans. This can be easily achieved through an ad hoc estate tax that applies the receipts to comprehensive interest payment coverage for prospective black homeowners.

The federal estate tax has been in the spotlight recently as the Republican-backed Tax Cuts and Jobs Act doubled the exemption from $5 million to over $10 million until 2025. With that being said, a majority of Americans are opposed to any estate tax, buying into the Republican fallacy that the “death tax” restricts the ability of hard-working folk to pass on their life’s earnings. Evaluating and promoting this policy proposal, therefore, involves analyzing its means and its ends. A prerequisite to fairness, this tax would have to be ad hoc, that is, for one purpose only. Too often politicians are tempted to divert tax income into pork-barrel policies and ludicrous spending. As an ad hoc measure, this revenue source would ensure that receipts flow to the intended purpose. By doing so, it would ensure that the tax burden is understood by those who pay it, and would justify the redistributive scheme as a reparation for state-sponsored wrongdoing.

Since the goal of the tax would be to reverse the disproportionate accumulation of wealth brought on by discriminatory housing policy, the intended purpose of the charge must be to exclusively fund home-ownership by African Americans. Since most Americans do not have adequate savings, obtaining a mortgage is the primary way of purchasing a home. The function of amortized mortgages is that every monthly remittance contributes to paying off both the principal (i.e., money borrowed) and interest (i.e., borrowing fee) of the loan. What makes initial housing payments so imbalanced, however, is that for the first half of the standard thirty-year loan, interest payments make up 60 to 85 percent of monthly installments. These charges translate to high payments for little wealth accumulation, as most of the principal will still be owed.

To offset these costs to African American candidates, a government agency, ironically probably the FHA (coincidentally controlled by this Administration’s token black), would distribute this new tax revenue as interest payment vouchers to qualifying mortgage recipients. With the median sales price of new homes being $309,000 and the current preferred FHA down payment being 3.5 percent, an interest rate of 5 percent would amount to $278,000 in interest payments over the course of the loan or 48 percent of the total cost. Now assuming a 13 percent tax (a symbolic number representing the 13th Amendment) was levied on the estimated $269 billion in estate taxes revenue over the next decade, $35 billion in vouchers could be given, covering 50 percent of the interest cost for around 252 thousand homes. More impressive, applying that math to the $1.2 trillion inherited in 2012 could provide the same vouchers to over 8.6 million households, enough to provide every single African American with a reduced interest home in fifty years.

By implementing such a policy to meet a statutorily set standard (e.g., 10 percent of national wealth held by blacks), the legacy of housing discrimination could be reversed. Importantly, this policy would not be a handout, since prospective home-buyers would need to demonstrate financial responsibility by saving up for the down payment themselves. While not perfect (e.g., an argument could be made that such a policy would increase house prices and lead to speculation on what would transpire once government payments stopped), this policy seems to be the most effective and least onerous way of making amends with our past of government housing discrimination.