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Obama’s New Deal for Blacks in America

Barack Obama’s overwhelming support among African-Americans may seem like an exercise in blind faith or racial pride, but policy, not skin color, is driving this enthusiasm.

Obama’s campaign positions speak directly to the everyday issues that low- and middle-income African-Americans face. His initiatives address their personal difficulties with poverty, unemployment, crime, credit and the effects on families of widespread long-term incarceration. While some Americans may view Obama’s proposals as a path to big spending, big taxes and big government that would do more harm than good, most African-Americans, like millions of other Obama supporters, are strongly attracted to what amounts to his version of a New Deal. Lower taxes on dividends and capital gains are not very important to people who have no investment portfolios or who are looking at 401(k) plans to which they cannot afford to contribute.

As African-Americans, we know firsthand that Obama’s rise to the top of the Democratic Party ticket makes the American Dream seem much more tangible. It does not surprise us that more than 90 percent of black voters are likely to support Obama. Race alone, however, explains neither the breadth nor the intensity of his support. The Rev. Jesse Jackson, a prominent civil rights leader whose political and economic philosophies are comparable to Obama’s, drew enthusiastic African-American crowds when he ran for president in the 1980s. But Alan Keyes, a conservative Republican who is African-American, never received much support in three tries for his party’s nomination. Granted, few black Americans vote in Republican primaries, but Keyes showed no ability to draw strong black support even when he could. When Keyes opposed Obama in 2004 for a U.S. Senate seat from Illinois, Obama drew 70 percent of the vote to 27 percent for Keyes. According to voter interviews conducted for The Associated Press, Obama won the support of nine out of 10 black voters during that Senate election.

In the 1930s, President Franklin D. Roosevelt’s New Deal greatly expanded the government’s role in the economy in an effort to help the United States recover from the Great Depression. Roosevelt pushed for public works programs to reduce unemployment, which reached 25 percent when he took office in 1933. The New Deal is widely, though not universally, credited with easing the worst of the Depression’s misery. However, there is great debate as to whether Roosevelt’s New Deal resulted in upward mobility for the black community.

Table 1

Estimated number of inmates in state or federal prison or local jails per 100,000 residents

WhiteBlackHispanicAsian
MALE 7734,6181,747No Data
FEMALE95348146No Data

Source: Bureau of Justice Statistics, “Prison Inmates at Midyear 2007,” June 2008

Percentage of unemployed persons 16 and over by race
WhiteBlackHispanicAsian
MALE 4.2%9.1%5.3%3.1%
FEMALE4.0%7.5%6.1%3.4%

Source: Bureau of Labor Statistics, “Unemployed persons by marital status, race, Hispanic or Latino ethnicity, age, and sex,” 2007

Obama, like Roosevelt, proposes a variety of new federal programs to try to lift America’s poor from the lower rungs of the economic ladder. Obama wants to create a National Infrastructure Reinvestment Bank that will be funded with $60 billion of federal money over 10 years to finance transportation infrastructure projects across the country. He estimates that these projects will create up to 2 million new jobs per year and stimulate approximately $35 billion per year in new economic activity. Through significant funding of clean energy technology, Obama also says he would create 5 million new jobs. In addition, he wants to allocate $1 billion to create temporary, subsidized transitional jobs and career pathway programs to provide low-income Americans with the training they need to procure unsubsidized jobs in both the private and public sectors. Though not explicitly targeted at minorities, these and other public works programs could provide employment opportunities for a large portion of the black community.

In addition to creating government-funded jobs, Obama proposes to spur entrepreneurship and reduce barriers many ethnic minorities and women face. A study conducted by the National Bureau of Economic Research found that minority business owners often receive less favorable borrowing terms than their white counterparts do, even when controlling for creditworthiness. Obama hopes that reforming the Small Business Administration will allow those businesses to compete on an equal footing in the marketplace.

Besides providing access to capital, Obama says he would commit upward of $250 million per year to fund business incubators in low-income communities. Incubators allow start-up companies to share resources, ideas and experiences to avoid potential pitfalls they may encounter. Obama realizes that if the free market were to determine where to allocate these resources, the black community would continue to be overlooked. Having access to business incubators will increase the likelihood that minorities will pursue their entrepreneurial endeavors and capitalize on their opportunities for advancement.

Obama’s New Deal also addresses the need to provide former prisoners with opportunities to obtain gainful employment and reduce the likelihood of returning to prison. Recidivism is a major issue in the black community, especially when a black man is more likely to reside in a prison cell than a college dorm. According to a June 2007 bulletin issued by the Department of Justice, about 4.6 percent of all black males in the general population were in prison or jail, compared with 1.7 percent and 0.7 percent for Hispanics and whites, respectively. This staggering statistic represents one of the driving forces behind many fatherless homes in the black community. The effects bleed into the next generation, making it less likely that a child will graduate from high school or college and more likely that he will be incarcerated. Barack Obama recognizes that in the land of supposed second chances, many ex-offenders rarely receive one. In many instances, they are forced to revert to the criminal activities that caused their initial arrests.

Cory, a young man we know, has been in and out of jail since the age of 17. With his father and older brother both in prison, he began to sell drugs as a teenager to help provide for his mother and younger brother. After serving a five-year prison term, he returned home with every intention of becoming a productive member of society. However, his criminal record discouraged potential employers. About six months after his release, he reverted to selling drugs until he was arrested again five years later. He was sentenced to 14 years for his second conviction, and was released on parole last winter after serving seven years. Because of Cory’s criminal record and lack of formal education or work experience, he again found it difficult to obtain gainful employment. After only four months of freedom, he was back in prison for violating his parole and will likely have to finish the remaining seven years of his sentence. This story is all too common in many African-American neighborhoods. Obama wants to create prison-to-work programs and provide training services for former criminals, to prevent situations such as Cory’s from being repeated.

Some may look at the incarceration rates of African-Americans and conclude that they stem from a lack of personal responsibility or a lack of perseverance, instead of a lack of options. We have seen young men like Cory make serious efforts to walk the straight and narrow after their incarcerations, only to be shunned at every turn. As a result, these individuals often return to lives of crime to support themselves and their families, which ultimately leads back to prison. Obama’s plan certainly is not a cure-all, because making a means for ex-offenders to earn a living is only part of the problem. However, the fact that he would take measures to address this issue demonstrates his grasp of the struggles the black community faces.

While we believe many of Obama’s policies are likely to improve the lives of low- and middle-income African-Americans, we are skeptical of his support of tax credits to keep jobs from being sent offshore. Originally called the Patriot Employer Act of 2007, the legislation Obama co-sponsored — which did not make it through the current Congress, but will likely be reintroduced if he is elected — would provide a tax credit equal to 1 percent of taxable income to companies that:

  • maintain or increase the number of full-time workers in the United States relative to the number of full-time employees outside the country;
  • maintain their corporate headquarters in America if they have ever been located in America;
  • pay wages adequate for an employee to keep his or her family out of poverty;
  • provide a defined benefit retirement plan or a defined contribution plan that fully matches at least 5 percent of worker contributions for every employee;
  • provide health insurance by paying at least 60 percent of each worker’s health care premiums;
  • and support employees who serve in the military by paying the difference between their regular and military salaries and continuing their health insurance coverage during active duty.

We think this proposal is misdirected. Companies will usually act rationally when they decide where the locate or expand. Jobs that can be done more cost-effectively offshore will, for the most part, be done offshore. The proposed tax credit likely will subsidize jobs that would have been kept in the United States anyway. A few jobs on the economic margins might be retained or the benefits improved, but as with most forms of economic protectionism, the costs probably will outweigh the benefits.

Obama’s policies closely track positions favored by organized labor. Labor, in turn, makes up a core Democratic Party constituency, just as African-Americans do. And African-Americans, in turn, have the highest rate of union membership of any large American racial group. According to the Bureau of Labor Statistics’ Union Members in 2007 report, 14.3 percent of black workers were union members, compared with 11.8 percent for white workers, 10.9 percent for Asians and 9.8 percent for Hispanics. Overall, about 12 percent of the work force is unionized, and the rate in the private sector is below 8 percent.

Obama’s policies could enable unions to win wages and benefits through legislation that they have been unable to obtain by negotiations. Those near-term benefits might come at a price, however. The rise and fall of the United Auto Workers (UAW) union and the poor condition of the U.S. automotive industry should serve as a prime example. By the 1960s, the UAW was able to secure numerous health and retirement benefits for its members, who became one of the best-paid groups of industrial workers in the nation. But U.S. automakers have steadily lost market share since the 1970s in the face of rising global competition. Since then, the UAW has had to concede many of the benefits it fought for, as the U.S. auto industry underwent significant layoffs and a reduction in wages for existing workers.

Reducing corporate income tax rates, as Republican nominee Sen. John McCain proposes, would encourage more businesses to keep their headquarters in the United States and prompt more multinational companies to move their operations to America. This proposal would likely lead to higher job growth for the working class and the African-American community than Obama’s plan.

Lower- and middle-income African-Americans see Barack Obama’s presidential bid as the best chance to have their issues addressed. We agree. Regardless of the election’s outcome, the Obama candidacy has highlighted obstacles that many Americans face, and his policies are an attempt to provide a means to overcome them.

Managing Vice President Shomari D. Hearn, based in our Fort Lauderdale, Florida headquarters, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 2, “Relationships with Adult Children;” Chapter 9, “Life Insurance;” and Chapter 17, “Retiring Abroad.”

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