Should the NAACP Worry About Estate Taxes?

President Bush, in his address to the NAACP said that "the death tax will prevent future African American entrepreneurs from being able to pass their assets from one generation to the next."

Is that concern justified? No. "[O]nly 59 African-Americans will be subject to the estate tax in 2006, and 33 in 2009."

The total number of American decedents subject to the estate tax in 2006 will be about 12,600, and about 7,100 in 2009. So, African-Americans will make up about 0.5% of people who owe estate taxes in 2006, and about the same percentage of people who owe estate taxes in 2009, even though 12.8% of Americans are African-American.

Put another way, about 290,000 African-Americans died in the United States in 2002 (Table 99). In 2006, just 1 African-American decedent in 4,915 will be subject to estate taxes. In 2009, just 1 African-American decedent in 8,789 will be subject to estate taxes.

While we're at it, we should also note how many farms and small businesses in the United States are affected by the estate tax. In 2006, just 123 farms and 135 small business will be subject to the estate tax at all. In 2009, the number will be 65 farms and 94 small businesses. Only about 2% of decedents subject to the estate tax have estates with farms or small businesses.

By comparison, there are 2,129,000 farms in the United States (Table 797) (about 90% are sole proprietorships or owned by a family, about 9% are other partneships, and about 0.4% are corporations (Table 795)). There are about 25 million non-farm small businesses in the United States (Table 726), defining small as receipts of under $1 million a year.

Thus, one in 2,000 farms each year is subject to the estate tax, and about one in 20,000 small businesses each year is subject to the estate tax in 2006.

Most estate with farms and small businesses in them also have ample liquid assets with which to pay estate taxes. For example, in 2009, just 13 farms estates, in the entire United States, will be subject to the estate tax and not have enough liquid assets to pay the estate tax in a single lump sum immediately. Even those that don't have those kinds of liquid assets are unlikely to have to sell land or a business. Farms and small businesses are allowed to pay estates taxes at an artifically low interest rate in payments over fourteen years.

If African-American estates are typical of those of similar size, then only one or two African-American owned farms or small businesses will be subject to the estate tax in either 2006 or 2009, and probably at most one from 2006-2009 combined will not have sufficient liquid assets on hand to pay the estate taxes due immediately.

President Bush and reality aren't friends.