Black Death

In early April, a group of prominent African-American businessmen led by Black Entertainment Television mogul Robert Johnson ran a full-page advertisement in The New York Times and The Washington Post calling for an end to the estate tax. What was notable about the ads wasn't their message -- the movement to repeal the estate tax has been building for some time -- but who was paying for it. As a group, African Americans -- traditionally Democrats -- are not who you'd expect to see agitating to abolish a tax that affects only the wealthiest Americans.

Johnson's ad repeated the arguments estate-tax opponents commonly employ to sway public opinion to their side: The tax hurts small businesses and farmers; it represents a "double tax" on wealth; and it is levied "simply because you die." Each of these points is misleading and easily refuted [see "Meet Mr. Death" and "The Estate Tax as Robin Hood?" TAP, May 21, 2001]. But Johnson's group added a new argument: The estate tax discriminates against African Americans. The estate tax, the ad claimed, "will cause many of the more than one million black-owned businesses to fail or be sold"; will add the insult of a burdensome tax to the injury of discriminatory policies that make it harder for blacks to get loans; and will unfairly penalize newly wealthy blacks. Killing the estate tax, the ad said, will help close the wealth gap between blacks and whites.

The ad generated considerable news coverage -- none of which pointed out that its claims are blatantly, egregiously false. Let's examine each of the falsehoods in turn.

Falsehood 1: Repealing the estate tax would help blacks close the wealth gap. This is preposterous. Estate-tax repeal would blow the gap wide open. Only the richest 2 percent of Americans pay the tax -- and this group is white by a margin of more than 10 to one. So eliminating the tax (estimated to cost $662 billion over 10 years) would amount to an enormous tax cut for the wealthiest Americans, few of whom are black. Moreover, to recoup the revenue shortfall that would result from estate-tax repeal, the government would have to shift the tax burden to all Americans, causing many more blacks (and whites) to be hit with a new tax. Thus, eliminating the estate tax would likely raise taxes for most blacks.

Falsehood 2: Blacks who pay the estate tax suffer more than whites who pay it. The tax is levied on wealth, not on race. But Johnson insists that "old wealth" is easier to protect than "new wealth," the category into which most rich African Americans fall. This may have been true a century ago. The Rockefellers, the Vanderbilts, and other "old money" families who've been rich for generations didn't have to pay the estate tax (which, in its modern incarnation, was instituted in 1916) when they bequeathed assets to their heirs. Today, by contrast, a family of black Robber Barons would be taxed when they passed on their estate. But so would any wealthy family -- be it the Rockefellers or the Johnsons -- regardless of race or family history.

Worse, Johnson and other pro-repeal business owners rely on uncomfortable racial stereotypes to make their case that blacks suffer the effects of the estate tax more than whites. One common refrain is that wealthy whites avoid the tax through legal maneuverings that blacks are somehow incapable of emulating. "They've already got their money set up in offshore accounts, they've got their little tax shelters," complains Harry Alford, Jr., the president, CEO, and co-founder of the National Black Chamber of Commerce. "We don't know how to play that game or can't afford a Price Waterhouse accountant to perform such a service." Besides, says Alford, "We've come a long way in three generations, and for the government that started this mess of slavery to turn around and take 60 percent of the money we leave to our kids, it isn't just taking money away, it's knocking out a legacy."

Falsehood 3: The estate tax will especially hurt African-American small businesses and farmers. This is a version of the canard that estate-tax opponents frequently trot out; and it's no less fraudulent when applied to blacks than to whites. Few small businesses or farmers were ever subject to the tax in the first place, and the tax code was amended in 1997 to protect farms and small businesses. As a result, only 2 percent of estate-tax revenue collected last year came from these sources, a tiny fraction of which came from blacks. Opponents counter that eliminating the estate tax will "permit wealth to grow" in black communities. It will -- if you're already rich. But if the goal is to create new black businesses, as Johnson's ad suggests, there are much more efficient ways to do so. Enforcing the Community Reinvestment Act and bolstering commercial-lending programs would let black entrepreneurs start new businesses while at the same time eliminating the "government discrimination" Johnson's group claims hobbles black businesses.

Like all opponents of the estate tax, black business leaders discuss the issue in the abstract in order to divert attention from the tiny number of people who actually pay it. This year only about 47,500 estates in the entire country will face the estate tax. The government doesn't break that figure into racial categories. But according to research by Edward N. Wolff, a professor of economics at New York University, the 1998 Survey of Consumer Finances revealed that less than one-third of 1 percent of black heirs will face the estate tax this year. At TAP's request, Wolff cross-referenced that figure with recent mortality rates from the National Center for Health Statistics to determine how many families among those 47,500 are black. The answer: 223.

This means that Johnson's call for repeal on behalf of "one million" black business owners is blatantly self-serving, even selfish: The 49 people who signed his ad in the Times and the Post represent 22 percent of the total number of African Americans who are expected to face estate taxes this year.

Johnson's campaign may be a cynical ruse, but it's a great way to curry favor with the new administration. "If this administration is smart," he said recently, "it will use this issue as a way to reach out to the black middle class." Since President George W. Bush has a notoriously poor record with blacks, embracing Johnson's plea to abolish the estate tax on behalf of blacks allows him to appear to reach out to African Americans while providing valuable cover to distract attention from those who really benefit from repeal. Johnson isn't the only one to recognize the potential importance of having a tax-cut ambassador to traditionally Democratic blacks. According to the National Journal, the chief lobbyist for Americans Against Unfair Family Taxation -- a coalition of about a dozen trade groups that recently hired lobbying and public relations firms to press for the tax's repeal -- recently told the White House that "it might be helpful to focus on how the estate tax affects minorities." That strategy seems to be working. Bush recently invited several groups of black business leaders, including the Black Chamber of Commerce's Alford, to the White House to discuss tax cuts. Meanwhile, the Bush administration has rewarded Johnson's efforts by naming him to a high-profile position on the president's Social Security Commission.

Fortunately, there appears to be little movement among African Americans in Congress to support repeal. When the House of Representatives voted in April to phase out the tax, only four members of the Congressional Black Caucus supported it. Representative James Clyburn of South Carolina, who voted against repeal, pointed out that abolishing the estate tax would hurt charitable giving, which has broad benefits to blacks. "I couldn't possibly understand why any black organization would support an initiative that would erode funding for the NAACP," he said.

Despite the credulous news coverage, relying on Johnson's ad to draw conclusions about African-American support for estate-tax repeal would be a mistake. The black business leaders who joined Johnson, many of whom are nominal Democrats, placed their personal financial well-being ahead of the broader public good. As Alford put it, "It just makes good business sense." There's a name for people, black and white, who are given to this tendency: Republicans.