How to widen the black-white wealth gap

Ignore the claims of rich, black estate-tax foes. The tax is good for African-Americans.

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On Wednesday, 49 prominent black business executives, led by Black Entertainment Television founder Robert L. Johnson, took out full-page ads in major U.S. newspapers calling for the repeal of the estate tax. A pointed rejoinder to February’s pro-estate-tax ads sponsored by Warren Buffett, Bill Gates Sr. and several Rockefellers, Johnson’s ad claimed the estate tax helps widen the gap between whites and blacks in net worth, and abolishing it “will help close the wealth gap in this nation between African-American families and white families.”

Nothing could be farther from the truth. The federal estate tax, which has been in place since 1916, affects only the richest 1.4 percent of the deceased, and there are only a relative handful of African-Americans in that group. As the law currently stands, the first $675,000 of individuals’ net estate value is exempt from tax. It’s $1.35 million for couples. A 1997 change in the law will gradually increase the exemption until it reaches $1 million for individuals and $2 million for couples in 2006. Exemptions are even higher for businesses and small farms.

The number of African-Americans who would benefit from estate-tax repeal is infinitesimally small. But repeal would be a windfall for the wealthiest whites in America. It would only exacerbate the black-white asset gap.

If one statistic captures the persistence of racial inequity in the United States, it is net worth, also called wealth, equity or assets. If you want to know your net worth, add up everything you own and then subtract your total amount of outstanding debt. When we do this for white and minority households across America, incredible differences emerge.

Overall, the typical white family enjoys a net worth more than seven times higher than its non-white counterpart. (Latinos, a very diverse group, fare slightly better than African-Americans, but still fall far short of whites on this indicator. So do Asians.) This disparity is far greater than racial differences in education, employment or income. To make matters worse, this “equity inequity” between blacks and whites has grown in the decades since the civil rights triumphs of the 1960s.

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That is because differential earnings alone cannot explain racial differences in wealth levels. In every income bracket, blacks own less wealth than whites. The typical black family earning $50,000 per year owns less than half the assets of its white counterparts. Among the wealthiest Americans, BET’s Johnson and Oprah Winfrey and are the only African-Americans on the Forbes annual list of the 400 richest people in the United States, and they are both at the lower end of the list.

This equity inequity is, in part, the result of the head start that whites have enjoyed in accumulating and passing on assets. Simply put, it takes money to make money. Whites not only earn more now, they have always earned more than African-Americans — a lot more. Wealth differences, in turn, feed upon these long-term income differences. Some researchers estimate that up to 80 percent of lifetime wealth accumulation results from family gifts in one form or another passed down from generation to generation.

These gifts range from a down payment on a first home to a free college education to a bequest upon the death of a parent. Over the long run, small initial differences in wealth holdings spin out of control. Estate and gift taxes are about the only social policies left that act as a small restraint on the runaway train of wealth inequality. Doing away with the estate tax would widen, not narrow, the gap between blacks and whites.

If legislators really want to promote the classic American values of savings, thrift and equal opportunity for blacks and whites, there are better policy options. One idea would be to loosen the asset restrictions currently built into the welfare system. If welfare recipients were able to save without being penalized for their asset accumulation, public assistance might truly become a safety net instead of a way of life. Millionaires don’t need any more incentives to save; poor folks do. Likewise, by selling public housing to its residents in a program not unlike the VA or FHA programs instituted after World War II, the government could create a whole new class of urban homeowners with a stake in the American dream.

Finally, there is the Savings for Working Families Act of 2001, which President Bush claims to support. This bill provides government matching funds to foster savings among the poor. If programs such as these target individuals and communities that are both income- and asset-deprived, they will inevitably chip away at the racial wealth gap while being ostensibly colorblind. And since it is generally agreed that stakeholders — those with something to lose — make better citizens, everyone would benefit.

Sixty-four years ago, W.E.B. DuBois claimed that if freed slaves had been provided with the “40 acres and a mule” they had been promised, it would have made for the basis of a real democracy, a republic of property owners. He is still right today. Robert Johnson is dead wrong: Doing away with the estate tax would benefit a tiny number of very wealthy African-Americans, and at the same time hurt many more by leading to cuts in social programs. It’s a prescription for greater inequity, not less.

Dalton Conley is University Professor and Professor of Sociology and Medicine at New York University. He is currently chair of the Children and Youth Section of the American Sociological Association. A Guggenheim fellow, Conley is also the first sociologist to receive the National Science Foundation’s Alan T. Waterman Award for best young research in any field. He lives in New York City.

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