Why the rich are not taxed.

Hey friends,

I was reading rich dad poor dad book. There I found about the topic that has been discussed below. I hope you like it.

The topic starts-

Why are the rich not taxed.

 I often hear people say, "Why don't the rich pay for it?" or "The rich should pay more in taxes and give it to the poor.”

The reason the middle class is so heavily taxed is because of the Robin Hood ideal. The reality is that the rich are not taxed. It’s the middle class, especially the educated upper-income middle class, who pay for the poor.

Again, to understand fully how things happen, we need to look at the history of taxes. Although my highly educated dad was an expert on the history of education, my rich dad fashioned himself as an expert on the history of taxes.

Rich dad explained to Mike and me that originally, in England and America there were no taxes. Occasionally, there were temporary taxes levied in order to pay for wars. The king or the president would put the word out and ask everyone to “chip in.” Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America to pay for the Civil War from 1861 to 1865. 

In 1874, England made income tax permanent levy on its citizens. 

In 1913 an income tax became permanent in the United States with the adoption of the 16th Amendment to the U.S. Constitution. At one time, Americans were anti-tax. It had been the tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.

What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. It was at this point that rich dad wanted Mike and Robert to understand. He explained that the idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal. 

Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class.

From the time I was about 10 years old, I would hear from my rich dad that government workers were a pack of lazy thieves, and from my poor dad I would hear how the rich were greedy crooks who should be made to pay more taxes. Both sides had valid points. 

Yet when you study the history of taxes, an interesting perspective emerges. As I said, the passage of taxes was only possible because the masses believed in the Robin Hood theory economics: Take from the rich, and give to everyone else. The problem was that the government's appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept trickling down. 

However, the rich saw an opportunity because they don't play by the same set of rules. The rich knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasure. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage. 

The diagram that follows shows how the corporate structure sits outside your personal income statement and balance sheet. 

lt is the knowledge of the legal corporate structure that really gives the rich a vast advantage over the poor and the middle class. Having two fathers teaching me, one a socialist and the other a capitalist, I quickly began to realize that the philosophy of the capitalist made more financial sense to me. It seemed to me that the socialists ultimately penalized themselves due to their lack of financial education. No matter what the "take- from the rich” crowd came up with, the rich always found a way to outsmart them. That is how taxes were eventually levied on the middle class. The rich outsmarted the intellectuals solely because they understood the power of money is a subject not taught in schools.

How did the rich outsmart the intellectuals? Once the "take-from-the-rich" tax was passed, cash started flowing into government coffers.

Initially, people were happy. Money was handed out to government workers and the rich. It went to government workers in the form of jobs and pensions, and it went to the rich via their factories receiving government contracts. The government received a large pool of money, but the problem was the fiscal management of that money.  If you fail to spend your allotted funds, you risk losing it in the next budget. You would certainly not be recognized for being efficient. 

Business people, on the other hand, are rewarded for having excess money and are applauded for their efficiency. 

As this cycle of growing government spending continued, the demand for money increased, and the "tax-the-rich" idea was adjusted to include lower-income levels, down to the very people who voted it in, the poor and the middle class.

 True capitalists used their financial knowledge to simply find an escape. They headed back to the protection of a corporation. But what many people who have never formed a corporation- don’t know is that a corporation is not really thing. Using it, the wealth of the rich was once again protected. It was popular because the income tax rate of a corporation is less than the individual income-tax rate. 

This war between the haves and have-nots has raged for hundred of years. The battle is waged whenever and wherever laws are made, and it will go on forever. The problem is that the people who lose are the uninformed: the ones who get up everyday and diligently go to work and pay taxes. 

If they only understood the way the rich play the game, they could play it too.  Then they would be on their way to their own financial independence. This is why I cringe every time I hear a parent advise their children to go to school so they can find a safe, secure job. 

Average Americans today work four to five months for the government just to cover their taxes. In my opinion, that is simply too long. The harder you work, the more you pay the government. That is why I believe that the idea of "take-from-the-rich" backfired on the very people who voted it in. 

 Every time people try to punish the rich, the rich don’t simply comply. They react. They use their resources to effect change.

The Tax Code of the United States also allows other ways to reduce taxes. Most of these -vehicles are available to anyone, but it is the rich who find them because they are minding their own business. For example, "1031” is jargon for Section 1031 of the Internal Revenue Code which allows seller to delay paying taxes on piece of real estate that is sold for capital gain through an exchange for more expensive piece of real estate. Real estate is one investment vehicle -that has a great tax advantage. As long as you keep trading up in value, you will not be taxed on the gains until you liquidate. People who don’t take tax advantage of these legal tax savings are missing a great opportunity to build their asset columns. 

The poor and middle class don't have the same resources. They sit there and let the government’s needles enter their arms and allow the blood donation to begin.  Today, I am constantly shocked at the number of people who pay more taxes, or take fewer deductions, simply because they are afraid of the government.

But the price of working from January to May is a high price to pay for that intimidation.

My Poor dad never fought back. My rich dad didn't either. He just played the game smarter, and he did it though corporations -the biggest secret of the rich.

He wanted me to recognize his power and to desire to have that power for myself one day. During all the years I studied and learned from him, he always reminded me that knowledge is power. And with Money comes great power that requires the right knowledge to keep it and make it multiply. Without that knowledge the world pushes you around. Rich dad constantly reminded Mike and me that the biggest bully was not the boss or the supervisor, but the tax man.

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The first lesson of having money work for you, as opposed you working for money, is all about power. lf you work for money, you give the power to your employer. lf money works for you, you keep the power and Control it.

Once they knew of this knowledge of the power of money working for them, rich dad wanted them to be financially smart and not let anyone or anything push them around. If you know what you’re talking about, you have a fighting chance.

That is why, rich dad had smart tax accountants and attorneys. It was less expensive to have them than to pay the government. He knew the law because he was a law-abiding citizen "If you know you're right you are not afraid of fighting back. 

My highly educated dad always encouraged me to land a good job with a strong corporation.  When I told my rich dad of my fathers advice, he only chuckled.

As a young boy, I did not understand what rich dad meant by owning my own corporation. Although I was excited by the idea, my inexperience wouldnot let me envision the possibility that grown-ups would someday work for a company I would own.

 The point is that, if not for my rich dad, I would have probably followed my educated dad’s advice. It was merely the occasional reminder of my rich dad that kept the idea of owning my own corporation alive and kept me on a different path. 

It was not until my mid twenties that my rich dad’s advice began to make more sense to me. I was just out of the Marine Corps and working for Xerox. I was making a lot of money, but every time I looked at my paycheck, I was disappointed. As I became successful, my bosses talked about promotions and raises. It was flattering, but I could hear my rich dad asking in my ear: “Who are you working for? Who are you making rich?”

In 1974, while still an employee for Xerox, I formed my first corporation and began minding my own business. There were already a few assets in my asset column, but now I was determined to focus on making it bigger. Many business employers feel that advising their workers to mind their own business is bad for business. But for me, focusing on my own business and developing assets made me a better employee because I now had a purpose.

I came in early and worked diligently, amassing as much money as possible so I could invest in real estate. 

Hawaii was just set to boom, and there were fortunes to be made. The more I realized that we were in the beginning stages of a boom, the more Xerox machines I sold. The more I sold, the more money I made. And it was inspiring. l wanted out of the employee trap so badly that I worked even harder so I could invest more. 

In less than three years, I was making more in my real estate holding corporation than I was making at Xerox. And the money I was making in my asset column in my own corporation was money working for me, not me pounding on doors selling copiers. My rich dad's advice made much more sense. I was investing my commissions in my assets.

My money was working hard to make more money. Each dollar in my asset column was a great employee, working hard to make more Employees. I began to work harder for Xerox. It was made Possible because of the strong Financial knowledge I had acquired through rich dad's lessons.

Without this financial knowledge, which I call financial intelligence or financial IQ, my road to financial independence would have been much more difficult. I now teach others in the hope that I may share my knowledge with them.

I remind people that financial IQ is made up of knowledge from four broad areas of expertise:

1. Accounting: Accounting is financial literacy or the ability to read numbers. This is a vital skill if you want to build an empire. Financial literacy is the ability to read and understand financial statements which allows you to identify the strengths and weaknesses of any business.

2. Investing: Investing is the science of "money making money.",

3. Understanding markets: Understanding markets is the science of supply and demand. You need to know the technical aspects of the market, which are emotion-driven, in addition to the fundamental or economic aspects of an investment. 

4. The law: A corporation wrapped around the technical skills of accounting, investing, and markets can contribute to explosive growth. A person who understands the tax advantages and protections provided by a corporation can get rich so much faster than someone who is an employee or a small business sole proprietor. 

• Tax advantages

A corporation can do many things that an employee cannot, like pay expenses before paying taxes. Employees earn and get taxed, and they try to live on what is left. A corporation earns, spends and gets taxed on what is left.  (Which you can find in the book and other book mentioned in Rich dad Poor Dad book.)

Protection from lawsuits:

We live in a litigious society, Everybody wants a piece of your action. The rich hide much of their wealth using vehicles such as corporations and trusts to protect their assets from creditors. When someone sues a  wealthy individual, they are often met with layers of legal protection. (Which you can find in the book and the other book mentioned in Rich dad Poor Dad book)

Financial IQ is actually the synergy of many skills and talents. I would say it is the combination of the four technical skills listed above that make up basic financial intelligence.

1)Accounting,  2)Investing, 3)Understanding markets, 4) The Law.

If you aspire to great wealth, it is the combination of these skills that will greatly amplify  your financial intelligence.

Important things to keep in mind:

• The problem is the harder you work in a job, the more you must pay the government.

• Attempts to punish the rich rarely work, because the rich find ways to minimize their tax burden.

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