Taxes: Income and Property

“In this world, nothing is certain except death and taxes.” Ben Franklin

After-tax income inequality has grown over the long term. Between 1979 and 2018, the share of aggregate after-tax income of the top 1% of households grew significantly from 7.4% to 13.6%. In contrast, the shares for the bottom 90 percent of households declined. Tax Policy CenterWealth inequality has also widened. The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time. Tax Policy Center

Virtually all families hold some amount of financial assets, broadly defined as brokerage, checking, savings and retirement accounts to name a few. While 98% of families held checking or savings accounts in 2019, only 50% of families held retirement accounts and 15% owned stocks. Tax Policy Center

Salaries and wages are the largest sources of income for most households. In 2018, they comprised 68% of total adjusted gross income across all individual income tax returns, but only 17% for those with incomes over $10 million. Tax Policy Center

Income from capital gains made up about 8% of aggregate adjusted gross income (AGI) in 2018, but this varied by income level. For those with AGI over $10 million, capital gains accounted for nearly half of their income. Tax Policy Center

In 2019, the median net worth for those with college degrees was four times higher than for those with high school diplomas and nearly 15 times higher than for those without high school diplomas. Tax Policy Center

Overall, the share of US families with education loan debt went from 9% in 1989 to 21% in 2019. About 30% of Black families had education loan debt in 2019, compared with 20% of White families and 14% of Latino families. Tax Policy Center

Federal taxes are moderately progressive overall. In 2018, the top 1% had 16.6% of total income before taxes and 13.6% after taxes. Contrastingly, the lowest quintile had 3.8% before taxes and 7.1% after taxes. Tax Policy Center

In fiscal year 2019, state and local governments raised $577 billion in property taxes. As a share of general revenue, New Hampshire relied the most on property tax revenue (36%) whereas Alabama and New Mexico relied the least (7%). Tax Policy Center

State and local taxes as a share of income ranged from 7% in Tennessee to 15% in North Dakota in 2019. This does not measure comparative tax burdens on states’ residents because it includes taxes on business activities borne by residents of other states. Tax Policy Center

Total tax revenue (including federal, state, and local taxes) as a share of GDP was 24.5% for the US in 2019. Tax Policy Center

Wealthier Americans may be more stressed regarding inflation, economic uncertainty and market volatility, but lower-income Americans have much more to fear from rising prices and are experiencing greater daily impact to their wallets. They tend to have less financial cushion to handle higher prices for food, gas, and other necessities, according to the Tax Policy Center.

The above financial inequality and tax snippets are interesting facts/information garnered from the nonprofit Tax Policy Center.


References:

  1. https://www.taxpolicycenter.org/fiscal-fact/top-1-income
  2. https://www.axios.com/wealth-inflation-fears-money-financial-assets-52779e2d-8940-4b87-85cd-29c65744fb29.html

Building Black Wealth Insights Study – U.S. Bank

The racial wealth gap constrains the U.S. economy as a whole, resulting in $1-1.5 trillion in lost economic output and a 4-6% drag on America’s GDP.

The racial wealth gap in America is not just a ‘Black problem.’ It’s a problem that effects all Americans and is an ‘all of us’ challenge to remedy, according to U.S. Bank. “Extreme disparities and their persistent harm reach into every American’s future. We can all be energized by the opportunity to provide the tools of financial prosperity for Black families and other historically disadvantaged members of the American fabric because those benefits will be felt throughout our entire country. By working to close the racial wealth gap, we’re creating economic prosperity – more jobs, economic vitality – it’s better for business, for families and for communities. The racial wealth gap must be closed if we are to achieve our full potential as a nation,” says Greg Cunningham, SEVP, Chief Diversity Officer U.S. Bank

Building wealth and achieving financial security is a primary aspiration for most, but many communities, especially the African American community, face distinct systematic challenges in reaching these goals. And, the financial industry has an important role to play in eliminating the barriers and closing the racial wealth gap.

While everyone has a unique definition of financial security, it’s often defined as having peace of mind that their income is enough to cover both expected and unforeseen expenses.

U.S. Bank’s Building Black Wealth Insights Study attempts to understanding the needs, goals and challenges of the Black community. This research highlights many steps the financial industry must pursue to better serve the Black community, according to Gunjan Kedia, Vice Chairman, U.S. Bank Wealth Management and Investment Services.

In the United States, Black households hold significantly less wealth than white households, and over the last several decades, that gap continued to grow.2 While there has been some improvement, the net wealth of the average Black family today is less than 15 percent of that of a white family.1

The overall conclusion is that more work needs to be done to narrow the wealth gap; in fact, a 2018 analysis published by the Federal Reserve Bank of Minneapolis posited, “no progress has been made in reducing income and wealth inequalities between Black and white households over the past 70 years.”3

Also, according to the Q2 2021 Bureau of Labor Statistics report, the median weekly earnings for Black men were $877, or 78.7 percent of the median for white men ($1,115).4

It may come as no surprise, then, that our survey found Black affluent respondents feel they are at a disadvantage compared to rest of the population. Nearly twice as many Black affluent individuals as Hispanic individuals in the survey stated they had been treated differently by the financial services industry due to their race – and nearly four times as many compared to Asian and white individuals.

Despite these barriers, we found that Black affluent individuals are more likely than non-Black (white, Hispanic and Asian) affluent respondents to:

  • Have clearly defined financial goals.
  • Have a strong financial plan that helps guide their decisions.
  • Believe they are better at managing their finances than their parents.
  • Be more comfortable discussing money matters freely with friends and family.

U.S. financial institutions must acknowledge that they played a historical role in creating and sustaining present and persistent gaps in wealth by race and ethnicity. According to the Federal Reserve’s 2019 report, there is an 8:1 gap in wealth between white and Black families, and a 5:1 gap in wealth between white and Hispanic families.1 Financial institutions must not only acknowledges this history, but be willing to leverage the unique skills and expertise of its they possess to build wealth in African American communities and help close those gaps.

U.S. financial institutions must make a commitment to address this persistent racial wealth gap.

To help build wealth, banks and financial institutions must reduce actual and perceived barriers to their services, and redefine how they intend to serve the special needs of racially diverse communities. They must make a commitment to support businesses owned by people of color, help individuals and communities of color advance economically, and enhance career opportunities for employees and prospective employees

It must start by banks and financial institutions listening to and learning from their diverse customers and communities. “We are starting with the Black community, because that is where the wealth gap is greatest. We’ll continue to listen and learn in order to take steps to support lasting change,” explains Mark Jordahl, President U.S. Bank Wealth Management.

Despite the historical and current barriers faced by Black individuals, there are abundant opportunities by banks and financial institutions to cl,ose the wealth gap. And,
there is still much that industry leaders can do to support Black affluent individuals – and Black individuals at all economic levels. A few thought starters, according to U.S. Bank, are:

  • Advisor training – Ensure employees at all levels are trained to recognize their own individual biases and to treat all individuals with fairness – whether they’re greeting someone at a bank counter or considering approval for a loan product.
  • Advisor awareness – Acknowledge that working with a financial advisor may be uncomfortable for someone doing it for the first time or someone who has had a prior negative encounter. Consider how words and actions can impact an experience and commit to training client-facing advisors to enhance the client experience, especially for those from different backgrounds.
  • Diverse advisors – Know that representation matters. Expand hiring and retention efforts to ensure diversity doesn’t just occur at entry-level positions, but through all levels of client-facing roles and leadership.
  • Tailored advice – As with any customer, avoid making assumptions about financial goals and ensure financial planning advice takes into consideration the priorities of the individual or family. Examples may include ensuring current lifestyle needs are met, helping the next generation and leaving a legacy. Make real estatepart of the conversation and ensure fair mortgage lending.

https://www.usbank.com/dam/documents/pdf/wealth-management/perspectives/building-black-wealth.pdf


References:

  1. https://www.usbank.com/dam/documents/pdf/wealth-management/perspectives/building-black-wealth.pdf