As I’m sure you’ve all heard, the U.S. Senate unexpectedly passed the Tax Cuts and Jobs Act in the wee hours of last Saturday morning, complete with handwritten changes and not a single Democratic vote. Republicans say the bill “will help small businesses and families…” but really, it will help large corporations and wealthy families the most. This is a capitalistic society after all, right?
Not only do the individual income tax provisions in the bill expire after 2025 (i.e. tax cuts, for now), but there’s also an easy-to-overlook provision that’s sure to keep the wealth gap in America anchored open ― regarding the estate tax, which really only applies to the top 0.2 percent of the population. The House attempted to eliminate the estate tax entirely after 2025 ― a move lauded by Donald Trump himself ― but the Senate version of the bill just doubled the allowable deduction for singles to now be $11 million. This means only wealth being passed down above $11 million is subject to the 40 percent tax in question.
I mean, who TF can relate... ?
“If they pass the bill they’re talking about, I could leave $75 billion to a bunch of children and grandchildren and great-grandchildren. And if I left it to 35 of them, they’d each have a couple billion dollars... Is that a great way to allocate resources in the United States? ... The wealthy now are so much wealthier than they were 25 years ago... We’re talking about the 400 [richest] now having $2.4 trillion... 25 times as much money.” — Warren Buffet, October 2017
I started my career as an analyst in the J.P. Morgan Private Bank, where our clients were ultra high net worth individuals, and these were the sort of things our clients were always thinking about in terms of estate planning. Given this country’s despicable history, it should come as no surprise that there is a gaping wide racial-wealth gap in America.
To put this gap in perspective, the median black family has just $1,700 in wealth (total assets minus total debt) compared to $116,800 for the median white household!
It’s easy to want to blame ourselves and our spending habits as a part of the problem (they aren’t), but the ugly truth is that it is policies like the Tax Cuts and Jobs Act, for example, that have systematically ― over many decades ― made the playing field far from even.
One of the best examples of this is how the Home Owners’ Loan Corporation and the Federal Housing Administration intervened in the housing market as a part of the New Deal in the 1930s. With the help of the government, home ownership became a staple of American life, however Blacks and other minorities were deliberately excluded through the practice of redlining. This essentially denied certain families the opportunity to own homes in suburban neighborhoods until the practice was finally outlawed in 1968. But by then, the damage had been done.
Considering this country was literally built on the backs of Black labor, white folks have had one hell of a head start! White people have been accumulating and passing down assets in this country for more generations than I care to count.
So WTF do we do?
This message (among many others), to me, is why 4:44 should maybe win Album of the Year over Kendrick Lamar’s DAMN. It’s THAT important. It’s everything.
A primary motivation behind #FinanciallyLit is to jump start the dialogue between minorities on how we are going to plan for not only wealth creation but the passing down of this wealth to the next generation. Just as we are standing on the shoulders of our ancestors ― and we are indeed their wildest dreams, if we’re being honest ― we can never forget the duty we owe to our children, even if they aren’t born yet. It’s the long game. As Jay Z said recently, “I play for forever.”
As annoying as it is to see everybody and their cousin talk about Bitcoin (a convo for another day), it makes me happy to know that dialogue about wealth creation in our community is becoming more prevalent. The game is all about starting where you are, increasing assets and decreasing liabilities, period (see above Net Worth equation) — and I’m here to help us win.
Businesses, stocks/bonds, real estate, commodities, cryptocurrencies and life insurance are all great examples of assets we can build or acquire to put us in position to make our money work for us. We must shift our focus towards creating wealth to pass down to the next generation if we ever hope to close the wealth gap in America.
Let’s get to work!
This post was originally published on Grits & Gospel.