Darius Ross is a New York City real estate developer, entrepreneur and fourth-generation Southern landowner. He is a member of Responsible Wealth.
A cynical few are saying the estate tax hurts African Americans in some disproportionate way. But they’re focusing on wealth building and not wealth planning.
Here’s the deceptive reasoning behind their statement: It’s harder for African Americans to become millionaires (true), so the estate tax hits them especially hard, forcing them to sell family businesses to pay the tax.
Untrue.
According to the Small Business Administration, the main reasons family businesses fail are:
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Lack of viability of the business.
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Lack of planning.
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Little desire on the owner’s part to transfer the firm.
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Reluctance of offspring to join the firm.
Note that having to pay estate tax is not one of them.
It’s great that there are more African-American millionaires. I count myself fortunate to be among them. Between 1983 and 2001, the number of black households with net worth of $1 million or more increased 79 percent, from 61,000 households to 109,000. Many of these millionaires get their wealth from family businesses—funeral homes, medical practices, real estate, construction, retail and service sector businesses.
But if there are challenges in passing on the family business, let’s not kid ourselves that it’s due to the estate tax.
If anything, it’s due to a lack of legacy thinking and estate planning. There’s an “I’m Gonna Live Forever” attitude that prevails in many of the wealthier African-American families I know—not all of them, but many. Patriarchs and matriarchs are not thinking about the future, about training heirs in business succession planning or “key man” policy provisions.
These wealthy folks seem to be envisioning a Brink’s truck following right behind the coffin. There are no legal agreements in place to ensure the continuation of their businesses. Their kids are helpless, caught in a cultural trap that makes it difficult to discuss these kinds of issues.
Next thing you know, along come 18 super-rich families with a vested interest in repealing the estate tax. They are collectively worth $186 billion. They stand to gain $72 billion if the estate tax is repealed. It’s well worth their while to exploit family businesses, minority and Anglo, by using them as poster children for repealing the estate tax.
But it’s all cynical nonsense.
A recent report shows they’ve spent hundreds of millions of dollars to spread deception and misstatements about the estate tax. As a result of their efforts, many Americans think they will be subject to the estate tax when they die. Again, not true. Only 0.27 percent of us will pay this year. That means that 99.73 percent of us can leave all our possessions to our heirs tax-free.
People think they will lose half their estate to the tax—also untrue. This year, $4 million per couple is exempt. The effective rate on fortunes beyond that size is about 20 percent. The idea that the estate tax forces large numbers of African Americans to sell their family businesses is just the latest myth.
People this rich have the capacity to do basic financial planning. They should know to buy the insurance necessary to pay the estate tax so their heirs won’t be affected.
The reason we must care about keeping an estate tax in place is simple: Wealthy people of all races have gotten government investment and support, both direct and indirect, to create their fortunes. It’s only right that they pay back some reasonable amount, so the ladder of opportunity can be extended to those that come after.
What incentive could the rich possibly have to give back if the government didn’t mandate it by means of the estate tax? Sheer human goodness and benevolence are not going to cut it.
Make no mistake. We can put the $20 billion to $30 billion the estate tax generates each year to significant use. We need it to help fund the public good.
African-American millionaires like Robert L. Johnson are still less than 1 percent of black households. Unemployment still ravages our community. The median net worth of African American households was $19,024, compared to $120,989 for whites in 2001.
Medicare will soon be required to support the Baby Boomers. If you’re going to need that help, you don’t want to see these services cut. Seniors are being forced back to work, not through choice, but because of cutbacks in eldercare services. Our education system is at an all-time low, with graduation rates in the cities below 50 percent. Kids are dropping out everywhere, with no encouragement in the form of government-funded after-school programs.
Repealing the estate tax would help squeeze the middle class into a permanent underclass.
There has been a rich gravy train in this country. So if you’ve enjoyed the ride, now pay the toll.
