As talk of recession reached a fever pitch last week, lawmakers scrambled to re-energize a beleaguered economy by approving a $146 billion economic stimulus plan to get tax rebates to workers in May. But some scholars say other measures need to be taken to help minorities, who are being hardest hit by the mortgage meltdown and lack of jobs.
Under an agreement reached by the White House and U.S. House of Representatives leaders, individual taxpayers will get up to $600 in rebates, working couples up to $1,200 and those with children an additional $300 per child. Eligibility for the full check would be capped at $75,000 in adjusted gross income for individuals, $150,000 for couples. Families who make at least $3,000 a year but don’t pay taxes would get $300 rebates.
But Senate Democrats are pushing for more stimulants such as extending unemployment benefits for workers whose benefits have run out, boosting home heating subsidies, raising food stamp benefits and approving money for public works projects.
Those measures may be necessary to better assist low-income Americans as the Bush stimulus package will largely benefit highly skilled and better-paid workers, says Dr. Alberto Davila, chair of the department of economics and finance at the University of Texas, Pan-American.
“In recent times, the earnings of highly-skilled workers have increased relative to those with low skills,” says Davila, adding that the income generated through the stimulus package will likely be disproportionately distributed to highly skilled workers.
The cut in federal interest rates and the proposed stimulus package of rebates are expected to put more money in the pockets of Americans and urge them to spend. But, some experts say people will simply pay down debt instead of purchasing new things. Other economists argue that much of what will be bought will be manufactured goods produced in other nations, thus nothing will be contributed to the U.S. economy.
While there is little empirical evidence relating tax rebates to the spending patterns of Hispanics and Blacks, data from the Consumer Expenditure Survey for 1986-2002 indicates that Black and Hispanic consumers spend more — up to an additional 30 percent — than Whites with comparable incomes on what the authors classify as “visible goods,” items such as clothes, cars and jewelry.
The majority of spending for all three groups, according to the Bureau of Labor Statistics’ Consumer Expenditure Survey of 2005, goes toward housing and transportation.
Severe economic woes come on the heels of a national housing crisis in which thousands of homes have been foreclosed. Many Americans, particularly Black and Hispanic homeowners, are finding themselves in dire financial straits as payments on their adjustable mortgages soar.
According to a study released to the Association of Community Organizations for Reform Now, Black and Hispanic borrowers were more likely to acquire high-cost mortgages than White consumers in 2006. The report, “Foreclosure Exposure: A Study of Racial and Income Disparities in Home Mortgage Lending in 172 American Cities,” revealed that Blacks and Latinos who purchased homes were twice as likely to get a high-cost loan than White borrowers.
Discrimination plays a factor in the foreclosure equation, suggests Valerie Rawlston Wilson, a senior resident scholar at the National Urban League Policy Institute. “Sometimes people perceive that Black or Hispanic borrowers may be riskier borrowers and charge them higher rates.”
Dr. William Spriggs, professor of economics and chair of Howard University’s department of economics, says a recession is on the horizon, insisting that foreclosures and a weak labor market have triggered the economy’s decline. He says, “George Bush is going to go down in history as being the worst at job creation next to Herbert Hoover.”
In a recession, low-income Americans are usually the hardest hit, says Spriggs. “The problem for African-Americans is that we always have higher unemployment rates and lower incomes. Anytime the economy slows down, it just exacerbates that position.”
Last December, the Bureau of Labor Statistics reported that the unemployment rate was 9 percent for Blacks and 6.3 percent for Hispanics. Scholars expect both numbers to surge, in the event of a recession. “During the initial stages of a recession, firms slow down their hiring. As the recession picks up speed, the firms go from slow hiring to firing, then layoffs,” says Spriggs.
Spriggs also suggests that Black wealth will suffer a catastrophic blow, following the onslaught of the foreclosures that have hit Black homeowners disproportionately as a result of subprime lending.
“A lot of the refinancing was among Black homeowners, and these people being foreclosed on are not poor people with poor credit. These were middle-class people who owned homes and are going to lose them. It will be another nine- or 10-year period before they can repair their credit and purchase new homes,” Spriggs says.
As the number of foreclosures rise, homeowners throughout the country will feel the blow. “Foreclosures affect the communities in which they occur. Research shows that other homes in neighborhoods where there are a significant number of foreclosed homes also lose value,” says Wilson.
Dr. Gregory Price, the Charles E. Merrill Professor in the department of economics at Morehouse College, says, “citizens must put pressure on the U.S. Congress to provide federal incentives for banks to restructure these [adjustable rate] home loans. The biggest fraction of wealth for any individual is associated with their homes. If African-Americans [and Hispanics] are losing their homes, it certainly will not do anything to decrease the wealth gap that exists between [minorities] and Whites.”
–Michelle J. Nealy
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