Chapter 7 Lesson 4: The History of Taxation and the Power of Corporations

I still remember the stories I heard about Robin Hood and his fellow green men in school. My teachers thought Robin Hood was a typical romantic hero, a hero who robbed the rich and gave to the poor.But my rich dad thought Robin Hood was not a hero. He called Robin Hood a thief. Robin Hood has been dead for a long time, but his disciples are many.I often hear this: Why not let the rich pay or the rich should pay more taxes to benefit the poor. Today, Robin Hood's idea of ​​robbing the rich and giving to the poor has become the biggest hidden pain for the poor and middle class.Thanks to Robin Hood's ideals, the middle class now bears a heavy tax burden.The rich aren't actually taxed, it's the middle class, especially the educated upper middle class that pays the tax for the poor.

To make this clear, we need to look back at the history of historical taxation. My highly educated dad was an expert on history, and my rich dad made himself a popular tax history expert. Rich dad told Mike and me that in the early days of Britain and the United States there were no taxes, except for a few temporary war taxes, which kings and presidents called contributions.Britain levied taxes from 1799 to 1816 to fight Napoleon, and the United States levied taxes from 1861 to 1865 to combat the Civil War. In 1874, England stipulated that paying taxes was the long-term obligation of the citizens.In 1913, the United States passed the Constitutional Amendment (Article 16), which stipulated that the collection of income tax was legal.Americans once opposed taxation, and the excessive tea tax triggered the establishment of the Tea Party in Boston Harbor and the outbreak of the War of Independence.The United Kingdom and the United States have spent almost fifty years cultivating public awareness of income taxation.

Rich dad wanted Mike and me to understand that these taxes were originally only for the rich.He explained that the method of paying taxes was made by the masses and agreed by the majority. It was to show the poor and the middle class that the tax was to punish the rich. Therefore, the masses voted for it and it was enshrined in the constitution to pay taxes according to the law. .A tax that was meant to punish the rich actually punished the middle class and the poor who voted for it. Once the government got a taste of money, its appetite grew.Rich dad said: Your dad and I are at odds on this.He's a government official and I'm a capitalist, and we both get paid, but our measures of success are the opposite.His job is to spend money and hire people, and the more money he spends and the more people he hires, the bigger his institution will be.In government, the larger the institution, the more respected he is.And in my organization, the fewer people I hire and the less money I spend, the more respect I have from investors.That's why I don't like government officials, they don't have the same goals as most business people.As the size of the government increases, the government needs to collect more taxes to keep the government running.

My educated dad genuinely believed that the government should help the people.He loves and adores John.Kennedy, in particular, admired Kennedy's Peace Corps program.He advocated the program so much that both he and his mother worked in the Peace Corps, training volunteers to go to Malaysia, Thailand, and the Philippines.He's always looking for grants and increased budgets to hire more people for his Department of Education and the Peace Corps. Since I was ten years old, I've heard from my rich dad that government people are lazy thieves, and my poor dad said that rich people are greedy robbers and that rich people should pay more taxes.I'm sure there's something right on both sides, however, the tangle of working for the biggest capitalist in town and living with my dad, who is a prominent government official, is clearly becoming more and more difficult to reconcile.

However, an interesting phenomenon emerges when you study tax history.As mentioned earlier, the tax was accepted because of popular belief in Robin Hood's economic theory of taking from the rich and giving to the poor.The problem is that the government's social security system and various expenditures are getting bigger and bigger, so that the middle class is also taxed, and the tax level keeps rising. Rich people, on the other hand, see opportunity and they don't play by the same set of rules.As I said, they understand very well the magic of corporations, which are becoming increasingly common in the commodity economy.The rich set up a company to limit the risk of their assets, just like sailing with a ship, the rich put money into the company to sail the ship, and the company hires a group of employees (crew) to sail the ship to the new world to find treasure .Once the ship sinks, the crew dies, but the rich man loses only the money he invested.

Knowledge of the law about business gives the rich a huge advantage over the poor and the middle class.With two dads teaching me, one a government official and the other an entrepreneur, I quickly realized that the entrepreneurial philosophy made more sense for me to accumulate wealth.It seems like most people are punishing themselves due to their lack of financial literacy, no matter how loud the call to rob the rich is, the rich will always find a way out of it, which is why taxes always end up falling on the middle class.Rich people outperform smart educated people simply because they understand the power of money, a subject not taught in school.

How do rich people outperform someone with expertise?Once the tax laws for robbing the rich were passed, money started flowing into the government.People were happy at first, but the money was distributed by the government to the employees and the wealthy.Taxes go to government employees through jobs and pensions, and to the wealthy through government purchases. The government has become a huge money pool, but the problem is that there is also budget management, which is not an automatic repeating system.In other words, it's government policy that if you're a government official, you should avoid having too much money; if you don't spend your budget money, you run the risk of having it cut in the next budget, and you won't They are seen as efficient and rewarded for having savings; to avoid being cut from the budget, government employees spend and hire heavily, possibly wastefully.Businessmen, on the other hand, are considered efficient because they have savings.

As government spending continues to expand, so does the need for money, so the idea of ​​stealing from the rich no longer applies, and taxes fall on the middle class and the poor. The real capitalists used their financial knowledge to get away.They resort to corporate protection to evade taxes.Corporations do protect the wealthy, but many people who have never established a corporation do not understand this, because a corporation is not necessarily a real entity, a corporation can be just some legally-required documents that are registered with the government and put in In the lawyer's office.A company does not mean a building, a plant, and employees with the name of the company engraved on it, it can just be a soulless legal entity, but the wealth of the rich is protected here.Once the income tax law was passed, forming a company became popular because the corporate income tax rate was lower than the personal income income tax rate.In addition, certain expenses of the company can be deducted before tax.

The struggle between haves and have-nots has been going on for centuries, it is a struggle between the rich and the rich. This struggle occurs whenever and wherever laws are enacted.The struggle will continue, and the losers must be the ignorant, those who get up every day and work hard and pay taxes without thinking.But if they understand the game the rich play, they will play it so they can become financially self-reliant.Every time I hear parents persuade their children to go to school in order to find a stable job, I feel worried, because an employee with a stable job, without financial acumen, still cannot escape the financial pitfalls.

Americans today work for the government five to six months a year, and they have to earn enough tax money.In my opinion, this is really too long.The harder they work, the more they pay the government, which makes me even more convinced that people with ideas of stealing from the rich are dealing against themselves in the end. Whenever people want to punish the rich, the rich will not accept but will fight back. They have the money, the ability, and the desire to change the situation.They will never sit idly by and pay high taxes, they will find ways to minimize taxes.They hire smart lawyers and accountants, they convince politicians to change the law or exploit it, they have the power to turn things around.The tax code in the United States allows people to use reasonable methods to avoid taxes. Anyone can use these methods, but only rich people often use them because they care about their careers.For example, Section 1013 (of the Internal Revenue Code) allows sellers to defer taxation on capital gains on the sale of existing real estate to purchase more expensive real estate.

According to this regulation, real estate becomes a tax-advantaged investment tool. As long as you continue to carry out the above-mentioned value exchange, you will not have to pay taxes until you realize the real estate.People who do not take advantage of these legal tax shelters miss out on many opportunities to grow their net worth. The poor don't have the same capabilities as the middle class, so they just sit there and pay their fair share of taxes.I am deeply shocked by the reality that so many people pay high taxes but rarely think of using reasonable and legal means of tax avoidance.I have friends who run businesses and find themselves terrified by the variety of taxes they face, and they quit their businesses. Even though I know this, it is too expensive to work for the government all year round from January to mid-May. Poor dad never fought against it, neither did rich dad but he did it smarter, he used the biggest secret of the corporate rich to get his way. You may remember the first lesson I learned from my rich dad when I was just a nine-year-old kid who had to sit and wait for him to decide when to talk to me, I sat in his office and waited for him to call Me, but he deliberately ignored me. He wanted me to realize his power and hope that one day I could have it myself.After studying with him for so many years, he always reminded me that knowledge is power, and the more money you have, the more knowledge you need. Without knowledge, the world will lead you along.Rich dad often reminded Mike and me that the biggest enemy is not the boss or the overseer, but the tax, and the tax will always try to take more from you if you let it. There is real power in having money work for me instead of me working for money.If you work for money, you give power to your employer; if money works for you, you control that power. When we have mastered the principles of making money work for us, rich dad wants us to be good at calculation and not let money do it for us. In addition, we also need to understand the law.If you know nothing about the law, you will easily do wrong things; if you know the law, you can make full use of the rights given to you by the law to achieve your own business.This is why rich dad hired smart tax collectors and lawyers at high salaries. He paid them much less than he paid the government.Being good at calculating and you will not be led by others is the best lesson he taught me, and I have used it almost my whole life.Rich dad knew the law because he wanted to be a law-abiding citizen and because he knew how expensive it was to be ignorant of the law.If you know you're right, you won't be afraid of being attacked, even if it's Robin Hood and his gang. My highly educated dad always encouraged me to get a good job at a big company.His values ​​are: follow the company's ladder and climb up step by step.He didn't know that if he only relied on the wages of his employer, he would always be a cow waiting to be milked. When I told my rich dad my dad's advice, he laughed, why not be the master of the ladder?That's all he had to say. As a young child, I didn't understand what rich dad meant by owning my own company. It seemed like a scary, out-of-reach idea.While I'm excited by this statement, I'm not old enough to imagine the possibility that grown-ups will one day work for my company. In fact, if it wasn't for my rich dad, I'd be ready to take my dad's advice. It was rich dad's reminders from time to time that the idea of ​​owning my own company never went away and led me down a different path.When I was fifteen or sixteen years old, although I didn't know what I was going to do, I knew that I would not continue to follow the path my dad suggested, which is the path most of my classmates took. changed my whole life. In my twenties, I began to really implement rich dad's advice.I just got out of the Marines and went to Xerox and I made a lot of money but every time I look at my pay slip I'm disappointed that the deductions are so huge and the harder I work, the deductions more and more.When I was more successful and my bosses talked about promotions and raises, I could hear my rich dad asking me who do you work for?who have you made rich? In 1974, while still an employee of Xerox, I established my first business and began to focus on my own business.I don't have much in my asset column, but I am determined to make it grow, and earning deductible wages over the years has made me fully understand what rich dad advised.If I continue to follow my dad's advice, I can already see my future. Many employers feel that advising employees to focus on their own careers is not good for their jobs.For some, that's certainly true, but for me, focusing on my own business and growing my assets has made me a better employee. Now that I have a goal, I have to wake up early and work hard so I can save money and start investing in real estate.Hawaii is being developed, and there are great opportunities to make a fortune.When I realized we were just starting to prosper, I decided to invest in real estate.To build up my asset base, I sold more Xerox machines.Because the more I sell, the more money I make, and of course, the more I earn, the more I deduct, which is not an exciting thing to do, but I can get out of being an employee by working hard. trap. By 1978, my sales performance was always among the top five in the company, and often number one. Although I was repeatedly rewarded by the company, I still wanted to get out of this rat race. In less than three years, I've made more money with my small real estate firm than with Xerox.And the money I make in my own business is all for me, unlike the money I make knocking on doors and selling Xerox machines, rich dad's words are becoming more and more useful.Soon I bought my first Porsche with my company income, my colleagues at Xerox thought I was buying it with my salary, but in fact I was constantly investing my salary in an asset item that produced it for me money to buy what I want. My money earns me more money back, every dollar in my assets is an employee, they work hard and bring back more employees, and still buy me new ones with the pre-tax income Porsche.I'm still working hard for Xerox, but at the same time, my plans are on track, as evidenced by the Porsche. By applying the lessons my rich dad taught me, I was able to break out of the rat race spell early on, and the reason for my success is the financial literacy I learned from those lessons.My path to financial self-reliance would have been much more difficult without what I call Financial IQ (Financial I.Q.).I now teach this knowledge to others in seminars, and I hope others will share this knowledge with me.Whenever I talk about this knowledge, I remind people that financial intelligence is composed of four areas of expertise: the first is accounting, which is what I call financial knowledge.Financial literacy is a very important skill if you want to build an empire of your own.The more money you manage, the more precision you need, or the edifice will fall.This is what the left brain has to deal with, or details.Financial literacy will help you read financial statements, and through this ability, you will be able to identify the strengths and weaknesses of your business. The second is investing, which I call the science of money making money.Investing involves strategies and plans, which is what the right brain does, or creates. The third is to understand the market, which is the science of supply and demand.This requires an understanding of the technical side of an emotionally driven market. The success of the Tickle Me Elmo doll for Christmas 1996 is the best example of a market driven by technology and emotion. Another factor in the market is fundamentals, or the economic sense of an investment. Whether an investment makes sense ultimately depends on current market conditions. Many people think that investing and understanding the markets are too complicated for children, not realizing that children understand them intuitively.While parents are not yet familiar with Elmo dolls, the change in the street before Christmas brings news to children, most of them want an Elmo doll and put it at the top of their Christmas list , so the panic of huge demand and insufficient supply occurred.With no Elmo dolls in stores, speculators see an opportunity to make a fortune from desperate parents who will have to buy another toy for their children.So Tickle Me Elmo dolls quickly created a market myth with unbelievable popularity. While none of this concerns me, it serves as a good example of supply and demand.The same thing happens in stocks, bonds, real estate, and baseball cards. The fourth is the law.It helps you run a business efficiently and grow explosively into accounting, investing, and marketing.People who understand tax incentives and corporate laws can get rich faster than employees and small business owners.It's like one person is walking while the other is flying. In the long run, the gap is even bigger. one.Tax incentives.Corporations can do many things that individuals cannot, like pre-tax expenses.It's such an exciting field of expertise, but you don't have to get into it until you don't have enough assets or business. Employees earn money, pay taxes, and live on what is left over; a business earns money, spends its money, and pays taxes only on what is left over.This is the biggest legal loophole the rich exploit, and if you have investments that bring in cash inflows, companies can run easily and cheaply.For example, if you own your own business, the board of directors in Hawaii is your vacation, the purchase of a car and the insurance and repairs that come with it are also a business expense, health club memberships are a business expense, and most meals More business expenses, and they are all legally paid before taxes. two.Get protection from lawsuits.We live in a litigious society. Rich people use corporations and trusts to hide part of their wealth, and when someone sues the rich, they often run into the legal protection of the rich and discover that the rich actually has nothing.Is it strange?They control everything but own nothing.The poor and the middle class try to have it all, but end up paying the government and the small townsfolk who are happy to sue the rich and learn from the story of Robin Hood to steal from the rich and give to the poor. It is not the purpose of this book to teach you specifically how to own a business.But I would still say that any kind of legal asset that you own, I can think about finding out more benefits and protections that you can enjoy when owning the same asset in the form of a business.There are a lot of people who have written on this topic, and they will tell you in detail the necessary steps to establish a business and the benefits you can enjoy.There is a book called "Incorporated Corporations and Getting Rich" that provides a good perspective on the energy side of private companies. Financial intelligence is actually a combination of skill and talent.But I would still say it is a combination of the four skills listed above.If you want to get rich, the combination of the above will greatly increase your personal financial capabilities.