The BP Dividend Controversy: Why Communities of Color Should Care

This is a guest post by Professor Dorothy Brown 

BP yesterday agreed to establish a $20 billion escrow fund to pay off victims of the oil spill in the Gulf.  That’s a good start.  BP also agreed to not pay any more dividends until the end of the year. That’s even better.  Because if dividends were paid and BP found itself subsequently unable to pay off Gulf victim claims, that money is gone and cannot be used to compensate those victims. 

To begin at the beginning, dividends can only be received if you own shares of stock in a company.  According to the BBC, 39% of BP’s stock is held by Americans and a third of that is owned by individuals.  Americans can own stock via several different avenues.  First, we could own BP Stock directly.  Second, we can own BP stock indirectly by investing in a mutual fund that owns BP shares.  Third, our retirement accounts could have BP shares.  The first two methods of ownership could result in immediate taxable income; the latter does not until you retire and start to withdraw those funds.

Stock ownership either inside or outside of retirement accounts are race and class based.  The higher your income the more likely you are to own stock directly or in your pension account.  Whites regardless of income are more likely to own stock than blacks.  While the reasons for this are somewhat complicated – (see my research below that shows lower income whites are more likely to own stock than higher income blacks) – the fact remains.  One recent study, done by the Center for Budget and Policy Priorities tells us that over 75 percent of all capital gains and dividends that are currently taxed – not held in pension accounts - are taxed to households with income in excess of $200,000.  That represents only 3 percent of US households.

More individuals are likely to have pension accounts than own stock directly or through mutual funds.  About half of all private sector employees have a pension plan. The half that participates is most likely to be high income. That makes common sense.  Lower income employees have more pressing current financial needs that make it difficult for long-term financial planning.  There are racial differences as well.  Fifty-seven percent of white workers participated in an employer sponsored pension plan in 2008, compared to 45.6 percent of black workers, and 30.3 percent of latino workers. While the majority of white private sector workers participate in their employer’s pension plans, the majority of black and latino workers do not.  Worse still, black and latino account balances are most likely to be smaller than their white counterparts, due in no small part to the reticence on the part of black and latino workers to invest their pension funds in the stock market.

Every year since 1998, there has been a survey done jointly by Ariel Investments and Charles Schwab Investment Company of blacks and whites who earn more than $50,000 and what their preferred investments are.  Every year, whites are most likely to say stock and blacks are most likely to say real estate.  Since the stock market has historically provided the best yields, it is not surprising that the whites surveyed have higher retirement account balances than their black counterparts.  Retirement is something we all need to be better prepared for – especially communities of color.  For more commentary on the BP dividend controversy see my CNN Opinion piece. http://www.cnn.com/2010/OPINION/06/16/brown.bp.dividends/index.html

My prior research on pensions by race and class can be found at:

Pensions and Risk Aversion: The Influence of Race, Ethnicity, and Class on Investor Behavior, 11 LEWIS & CLARK L. REV. 385 (2007)

Race, Class and the Obama Tax Plan, 86 DENV. L. REV. 575 (2009)

Pensions, Risk, and Race, 61 WASH. & LEE L. REV. 1501 (2004)

Dorothy A. Brown is a professor of law at Emory University in Atlanta, GA and has published several articles on the race and class implications of employer provided pensions.