Will you be better off in four more years?

Now that President Clinton has won a second term, B.E.'s economists assess whether African Americans will cross the bridge to a more prosperous 21st century - or get taken for a ride

For Carrie Baker, the greatest joy is spending quality time with her 11 grandchildren and two great-grandchildren. Yet Baker, who lives in Greensboro, North Carolina, says there are days when she can't help feeling a sense of dread when she thinks about their future. "I feel sorry for them. Before they leave this earth, they will experience a lot, and I don't know if they're going to be prepared for it," says the 61-year-old grandmother, who has seen several presidential elections come and go.

Like Baker, many African Americans are troubled about what government is or is not doing to improve the quality of their lives. Last fall, both Clinton and Dole laid out plans for taking Americans into the 21st century. But looking closely at President Clinton's rhetoric about cutting the deficit in half while creating new jobs and Dole's election year promise of a 15% tax cut and increased business productivity, one wonders about the real prospects for improving the lives of African Americans?

"A lot of people are angry and a lot are bitter," says Baker. "There's talk about these new jobs but where are they? There's talk but is anyone doing anything?"

The good news is that the outlook isn't all bleak and the current administration isn't necessarily all talk and no action - according to the Black Enterprise Board of Economists (BEBE), which met in Washington, D.C., to discuss the economic forecast for the country, particularly for African Americans, as we enter 1997.

Present were David H. Swinton, president of Benedict College; Margaret C. Simms, research director at the Joint Center for Political and Economic Studies; Cecilia A. Conrad, an economics professor at Pomona College; Marcus Alexis, a professor of economics and management and strategy at Northwestern University; Lucy Reuben, dean of the school of business at South Carolina State University; Thomas D. Boston, an economics professor at the Georgia Institute of Technology; Andrew F. Brimmer, president of Brimmer & Co.; and be publisher Earl G. Graves.

With the economy growing at a 3.1% rate over the last four years, Bob Dole faced an uphill battle last fall. Not only was the economy on an upswing, but President Clinton had cut the deficit in half. Moreover, some 10 million new jobs were created over the same period.

The President also took credit for increasing wages by signing a bill that raised the minimum wage. He ran on a platform proposing an expanded earned-income tax credit for 15 million families, and a proposed family tax credit of $500 per child. He also implied that he would sponsor tax credits for small business owners.

While BEBE members agreed that the nation as a whole has prospered under the Clinton administration, it's still up for debate how much of that prosperity has trickled down to the black community. "The problems in our community are so disproportionately severe that the kinds of incremental changes that we have been getting [over the last four years] will not affect structural changes," says Lucy Reuben.

Indeed, statistics show declining incomes in the inner cities: Between 1989 and 1993, median household income declined by an estimated 12%, from $30,260 to $26,626; in suburban areas, it remained constant at about $41,000. "So the areas where African Americans are most concentrated are those where we continue to see a decline in real income," says Thomas Boston. In 1993, almost 43% of the poor lived in central cities, and poverty in these areas continues to increase, he adds.

"We have to get out of the box and think more creatively about how we want to operate our economy - where all American citizens have a chance to participate. We don't have that type of system now, and we fault individuals when they're not given an opportunity to thrive in the system," says David Swinton.

On the flip side, the news could have been equally positive, depending on your income level and job status. Many of the new jobs created over the last four years have gone to people in the middle-income brackets, creating many new full-time workers, Andrew Brimmer says.

A LEERY AGING POPULATION

Carrie Baker's concerns are varied, but closest to home is the fate of Social Security, which she'll begin collecting in a few years. And she's not alone: many recent retirees, and even aging baby boomers, fear that Social Security will be eliminated.

"With the cost of living always going up," she reflects, "it would hurt us a great deal if that's suddenly taken away. Older people can't live like animals. We should be able to live with dignity."

Baker, who worked for the Metropolitan Life Insurance Co. in New York City for 25 years, has held numerous jobs, from office cleaner to security person. Now she and her husband, Maurice, live largely on the income supplied by their pensions and Social Security.

Baker should find some relief from Clinton's long-standing position that Social Security is off the table when it comes to budget cuts or reductions.

Adds Marcus Alexis: "If you wanted to do something for individuals on Social Security, and wanted it to be race neutral, then leave the limits in and reduce the rates. That would strike all incomes that are making contributions, and you'd get a better bang for lower-income minority contributors rather than simply lowering the ceiling."

AN UNCERTAIN FUTURE

Rechelle Fears, a few weeks away from delivering her second child, was anxious - not about the delivery, but about what happens afterwards.

"What if we wanted to have more children. Would we be able to afford it then? Would we be able to move into a larger place or a home with the economy the way it is? How can you really be sure of anything when you see people who are high-flying executives one day and destitute the next?"

Fears, a 27-year-old social worker, is in a better financial position to face the future than some. Along with her husband, David, a former stockbroker who now works as a small business consultant, the Harlem couple bring in over %50,000. So the idea of purchasing a home and living out the American dream at times seems very much within reach. "I think we're doing OK, but you can never be totally financially prepared," she says cautiously.

Compared with his wife, David feels "very optimistic" about the future. Although a registered Republican, he believes the country as a whole has prospered over the last several years, and that blacks have enjoyed some of that prosperity. "The question that's always asked is, `Are you better off now than you were four years ago?' I'm happier."

So what would David like to see from a second Clinton administration? For starters, he'd like to see the economy continue to grow while interest rates remain low. But more specifically, he thinks an adjustment in the capital gains tax, which now stands at 28%, would do a great deal to help small business growth.

Dole campaigned on a platform that would have cut this tax in half, while Clinton has kept mum on the issue, so far. David says that most of his clients are small start-ups that rely heavily on capital from private investors. Investors would be more willing to risk their money if there was a lower capital gains tax because they would have less tax liability when cashing out.

"Even if it was cut to 20%, that would help. But right now, a lot of people are holding on to their funds because the tax liability is so great," he says.

Also, as their family grows, so does the Fears' concern about the quality of public education. "If we had confidence in the school down the block, we could send our children there instead of exploring other options," says David. "Clinton needs to concentrate on fixing all schools, instead of focusing on just a few under a school choice banner." He is excited about Clinton's proposed education tax break, giving families a $1,500 tuition tax credit to send their children to college. He also likes Clinton's proposed $10,000 yearly tax deduction that would ease the cost of four-year colleges and universities. "I would love a $10,000 tax credit for my wife because she wants to go back and get a graduate degree. I think the credit to send my kids to college would be great, but will it still be around when my kids are ready?" David says a lot of African Americans could take advantage of the tax credit because, to some degree, it would reduce college costs.

Options on the education tax credit varied among Board of Economists members, but the consensus was that it potentially works in favor of African Americans. "If you look at the education tax credit issue in isolation, then it looks very attractive. But we have to consider what's happening to other funds for financing education, which may be more targeted at low-income families," says Cecilia Conrad.

EMPOWERMENT ZONES

Small business development was one of the themes Clinton touted during his reelection campaign. Perhaps the only real tangible effort on his part was to sign the Empowerment Zones Act, which is intended to spur small business development in urban areas across the country.

"But how much will minority businesses benefit from Clinton's program?" asks Boston. "There was much expected of the empowerment zones in Atlanta, for instance, but right now there's not a lot happening. Overall [empowerment zones] may be a good program or a good beginning, but a lot more needs to be done."

The verdict is still out on how effective these zones will be in the long-run. But for some, the idea itself was enough to provide a needed kick-start. A good example is Aliyyah Baylor, a 27-year-old Harlem native and single mother who has operated a bakery out of her home for the last several years. Her business has grown as her client list expanded to include major players like Bad Boy Entertainment and Universal Records.

Baylor dreamed of opening up her own shop, but "I got too caught up in being comfortable working out of my home." However, after Harlem became an empowerment zone, she began exploring locations for her own store. "Once there are financial incentives being offered, you have to get going. The procrastination stops," says Baylor, who ultimately found working out of her kitchen too limiting.

Her bakery, Make My Cake, had its grand opening in December, and she projects gross revenues of slightly under $200,000 for the first year of operation.

Baylor is an example of young blacks shunning the corporate nine-to-five grind and setting out on their own (see "From Buppy to Biz Whiz," this issue). "In schools today, one of our fastest growing programs is entrepreneurship. You can't get people to teach them fast enough," says Alexis. "Kids coming to our school don't expect to work for anybody for more than three to five years." Adds Earl G. Graves, "I believe that if we could create a greater entrepreneurial class, we would create more jobs and fix a significant part of the problem."

Still, are empowerment zones the answer? Some neighborhoods, such as Harlem, have attracted a great deal of activity. Yet others have gotten off to a late start, with would-be applicants bogged down in paperwork and red tape. The zones offer tax advantages to businesses that open in urban areas and tax credits if they hire within the targeted neighborhood.

The enterprise communities are 65 urban and 30 rural areas that received $3 million grants and smaller packages of tax incentives. The cities named as empowerment zones are New York, Chicago, Baltimore, Atlanta, Detroit and Philadelphia-Camden, New Jersey. Each received $100 million in grants and the right to $250 million in tax incentives for businesses over the next 10 years. "It's a big jump. It's not easy being a young black woman and trying to start your own business," Baylor says, adding, "and anything to aid you to land on your feet is a big help."

LOOKING FOR A MAGIC BULLET 

What's the solution to ensuring economic prosperity for African Americans in the near and not-so near future? BE's economists conclude that Baylor, and thousands more like her, are taking the first necessary step toward developing a legion of small black-owned businesses that can bring about significant change within the community.

"But it's not a magic bullet, it's a stepping-stone," says Boston. Margaret Simms adds, "If we're going to encourage the creation of new businesses or entrepreneurial behavior among African Americans, then we have to look at where the markets are going, and who they will be selling to. It's fine to produce more small businesses but if we want to get fast employment effects, we want to produce bigger ones. So access to capital becomes even more important than it has in the past."

The small but growing number of successful black entrepreneurs who are currently generating jobs is an encouraging sign, notes the BEBE. "The issue now is how to multiply that number by 3,000-fold," Boston emphasizes.

The bottom line is that there's no quick-fix answer as to what African Americans can expect during a second Clinton administration. It all depends on who you are and your financial situation. But opportunities do exist. If you're a young adult looking for that first job, then you'd probably applaud Clinton's effort to increase the minimum wage to $5.15 per hour. On the other side of the spectrum, small business owners or would-be entrepreneurs should be pleased with the looming possibilities of the empowerment/enterprise zones and other small business incentive programs that are expected to come out of the White House over the next couple of years.

Adds Boston" "Any group that's existed in a state of underdevelopment, and then moved forward, did it by generating entrepreneurs who created jobs and economic opportunities. We have to understand the real solution is ultimately going to lie within our own community."

Also, Clinton's record in the last four years holds out morsels of hope. Since 1992, he's increased the minimum wage by 90 cents an hour; expanded the earned income tax credit, which will lift the incomes of approximately 15 million low-income families; and required employers to give workers extended family leave. The budget deficit is less than half of what it was when he took office and unemployment is at its lowest level in six years. The improved economy has given investors an incentive to either start new businesses or expand their existing ones.

Other aspects of his proposals are certain to benefit some African Americans. Any growing middle-income family like the Fears can take advantage of the $1,500-a-year tuition tax credit, available for up to two years for families earning under $100,000. Clinton proposes to follow that up with a $10,000-per-year tax deduction for college expenses. And another bonus for families is the proposed $500 tax credit for preteen children.

Women entrepreneurs like Aliyyah Baylor should find promise in Clinton's last-minute pledge to expand a Small Business Administration loan program. The women will be linked with intermediaries, who will help them plan and apply for SBA loans. The SBA also has a computer Web site, ACE-NET, that will allow small business owners to put their prospectuses on the Internet (http://ace-net.unh.edu/). These efforts, should prompt small business owners to be cautiously optimistic about the next four years.

While Clinton has already raised the minimum wage for those nearer the bottom rung of the economic ladder, perhaps the most promising news is the proposed education tax breaks. With additional schooling or technical training, those currently stuck in dead-end minimum wage jobs would be able to gradually make the transition to higher-paying skilled careers.

Will you be better off in four more years? Only time will tell. But right now, the signs are encouraging enough and offer some promise that the year 2000 might be one to look forward to.

Last year's moderate but steady expansion in the country's economic activity will enable blacks to improve their overall economic status in 1997 But African Americans will still suffer from significant deficits in both jobs and income, says Andrew F. Brimmer, chairman of the D.C. Financial Responsibility and Management Assistance Authority. A former member of the Federal Reserve Board, he says that African Americans can expect modest improvements in the coming year.

"My main point is that jobs have been increasing, and blacks have shared in that on a macro level. That increase in jobs will translate into a growth in the African American share of money income," Brimmer notes.

He also believes the economy will wind down slightly this year. While he anticipates that the gross domestic product will continue to grow overall, he predicts that the growth rate will be less than it was in '96. The federal government is expected to be a continued drag on the economy this year but not as much as in previous years with defense spending shrinking less rapidly.

Specifically, Brimmer estimates that unemployment among blacks may average 10.5% this year, compared with 10.6% last year. The unemployment rate for the total civilian labor face is projected at 5.4% and 4.7% for whites. If these projections play out, blacks would achieve a further modest improvement in their labor market status.

And what does this mean for Clinton, who touted the last four years as a period of economic recovery? "I think Clinton is right. He concentrated or reducing the deficit and lowering interest rates. Greater investment led to higher income. That's the sequence, and he's right."

In 1994, Brimmer noted that the money income of African Americans amounted to $340 billion, representing 8% of the $4.3 trillion earned by all Americans, according to Census figures. If blacks had received their parity share, their total money income would have been $473 billion in 1994. The African American income level rose to $352 billion in 1995, representing 7.8% of a $4.5% trillion total.

The slower growth in employment in 1996 is estimated to have produced a moderate rise in income. It's anticipated that total money income will have increased to $4.7 trillion in 1996; among African Americans, it's estimated at $374 billion, or 7.9% of the total.

In 1997, total money in the U.S. may increase to $4.9 trillion, while African American income may rise to $395 billion (nearly 8% of the total). However, parity income for blacks, at 11.6% of the total, would amount to $574 billion; their income deficit may expand to $179 billion, a gap of 31%.