Wall St and Business Wednesdays: Estate Tax Helps Fund the Dream by Darius Ross
A cynical few are saying the estate tax hurts African Americans in some disproportionate way. But they're overlooking common-sense 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 black entrepreneurs especially hard, forcing them to sell family businesses to pay the tax.
The U.S. Small Business Administration states that the main reasons family businesses fail are lack of business viability, lack of planning, little desire by the owner to transfer the firm, and reluctance of offspring to join the firm.
Note that paying the estate tax isn't 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 a million or more dollars increased from 61,000 to 109,000. Many get their wealth from family businesses,funeral homes, medical practices, and real estate, construction, and service businesses.
If there are challenges in passing on the family business, let's not kid ourselves that it¹s 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 among my wealthier African American friends,not all of them, but many. Patriarchs and matriarchs are not training heirs in business succession.
These wealthy folks seem to be envisioning a Brinks truck following right behind the coffin. There are no legal agreements in place to ensure the continuation of their businesses. Their kids are caught in a cultural trap that makes it difficult to discuss death and money.
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 They stand to gain $72 billion if the estate tax is repealed.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 worth their while to exploit family businesses by using them as poster children for repealing the estate tax.
But it's all cynical nonsense.
They've spent hundreds of millions of dollars to spread deception about the estate tax. As a result of their efforts, many Americans think they will be subject to the estate tax when they die. Not true. Only one-quarter of one percent of the deceased will pay this year. That means that over 99% of us can leave everything to our heirs tax-free.
Since the majority of African American families have $21,000 or less in net worth, most blacks won't even come close to owing the estate tax after they pass away. Compare the $21,000 black median wealth with the $2 million exemption from the estate tax, and you'll see that the typical black family has barely a penny on the dollar of the minimum taxable amount.
People think they will lose half their estate to the tax, also untrue. The effective rate on big fortunes is about 20%.
The idea that the estate tax forces lots of African Americans to sell their family businesses is just the latest myth. People this rich have the
capacity to do basic financial planning. We know how to buy the insurance necessary to pay the estate tax so our heirs won't be affected.
The reason to care about keeping an estate tax in place is simple. Wealthy people of all races have benefited from government investment-education, infrastructure, loans, public contracts-to create our fortunes. It's only right that we pay something back, so the ladder of opportunity can be extended to those coming after.
What could persuade the rich to give back, if the government didn't mandate it? Human benevolence alone is not going to cut it.
Make no mistake, we need the $20-30 billion the estate tax generates each year. Unemployment ravages the African American community. Medicare will soon be required to support the baby boomers. Kids are dropping out, with too little encouragement from government-funded after-school programs. Which is more important, spending on these needs or a tax break for multi-millionaire heirs?
Repealing the estate tax would help squeeze the middle class into a permanent underclass.
For some of us, there has been a rich gravy train in this country. So if you've enjoyed the ride, now pay the toll.
Darius Ross is a New York City real estate developer, entrepreneur and fourth-generation Southern landowner. He is a member of Responsible Wealth(www.responsiblewealth.org). He can be contacted via email at email@example.com
Wednesday, September 27, 2006