Ever since emancipation, Black Americans have been subjected to a “Black Tax”. Even after 400 years, experts estimate African Americans own just 2% of US wealth. Data reveals that Black borrowers pay more than White borrowers due to receiving higher interest rates. According to Shawn Rochester, author of “The Black Tax”:
“When taking out loans, Black people will often pay more. A University of California Berkeley study found that Black mortgage borrowers pay an average of 0.08% more in interest than white borrowers with comparable credit, which costs borrowers over $760 million more every year.”
A growing body of research shows that municipal bond markets help perpetuate systemic racism. When cities need to raise money for roads or water lines, one option is to issue bonds and borrow from the credit market to pay for these new projects. Black towns and cities pay higher interest rates than their white counterparts, which has resulted in a “Black tax” of up to $900 million per year in the United States. This issue compounds the issues of infrastructural decay and climate change for Black communities, leaving them without access to capital to prepare for environmental events. Rochester points out:
“The inequality in the bond market perpetuates a cycle of debt and divestment in Black communities, but it also has huge implications for environmental justice and climate resistance. If local leaders can’t raise money to protect waterlines and prepare for flood, their constituents will end up reliant on decaying and vulnerable public infrastructure.”
Systemic racism permeates all major parts of American infrastructure, and although it can feel abstract, the concept of the Black tax demonstrates the real impacts and obstacles it creates for marginalized groups. Even municipal bond issues can reflect bias. The reality of the Black Tax is not only evident in higher interest rates for buying a family home but is also a challenge when Black communities plan projects that improve their infrastructure.
Beyond just municipal bond issuances, companies can also take action from this data. With some research, you may find that your industry has participated in perpetuating racism. Companies should work toward understanding how they can dismantle these challenges and move their organization and industry toward racial equity.
If you aren’t already signed up, subscribe to our complimentary ESG blog here: https://practicalesg.com/subscribe/ for daily updates delivered right to you.