The History of Taxes and The Power of Corporations

Hello people! We are approaching the fourth lesson- The History of Taxes and The Power of Corporations, taught by rich dad to Robert and Mike. In summary, rich dad explained the historical perspective of taxes and how the rich didn't play by the same set of rules as the poor and middle class did. In case, if you aren't aware of who rich dad or Robert or Mike is, make sure to read the blogs under the 'Recent Posts' section. (This lesson is narrated by Robert Kiyosaki)

How often you said or have heard people say, “Why don't the rich pay for it?” Or “The rich should pay more in taxes and give it to the poor.”

According to the rich dad, it is this idea of taking from the rich to give to the poor that has caused the most pain for the poor and the middle class. The real reality is that the rich are not taxed. It's the middle class who pays for the poor, especially the educated upper-income middle class. Rich dad explained to Mike and me that in England and America originally, there were no taxes. Occasionally there were temporary taxes levied to pay for wars. Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America, taxes were levied to pay for the Civil War from 1861 to 1865.

What these historical dates fail to reveal is that these taxes were initially levied against only the rich. 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.

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.'

The rich, on the other hand, saw an opportunity, which became popular in the days of sailing ships. The rich created the corporations-the biggest secret of the rich 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 treasures. 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:

The rich dad's best lesson to me, which I have used most of my life, is

“Be smart and you won't be pushed around as much.”

He knew the law because he was a law-abiding citizen. He knew the law because it was expensive to not know the law. In my mid-20s, 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 always disappointed as the deductions were so large. However, I could hear my rich dad asking me in my ear:

“Who are you working for? Who are you making rich?”

In 1974, while still an employee of Xerox, I formed my first corporation. In less than three years, I was making more in my own little corporation, which was a real estate holding company, than I was making at Xerox. It was possible because of the strong financial knowledge (which I call financial IQ) I had acquired through my rich dad's lessons. Whenever I do my talks, I remind people that financial IQ is made up of knowledge from four broad areas of expertise: No. 1 is accounting. What I call financial literacy. Financial literacy is the ability to read and understand financial statements. This ability allows you to identify the strengths and weaknesses of any business. No. 2 is investing. What I call the science of money making money. This involves strategies and formulas. No. 3 is understanding markets. The science of supply and demand. No. 4 is the law. An individual with the knowledge of the tax advantages and protection provided by a corporation can get rich so much faster than someone who is an employee or a small-business sole proprietor. It's like the difference between someone walking and someone flying. If you aspire to great wealth, it is the combination of these skills that will greatly amplify an individual's financial intelligence. In summary,

The Rich with Corporations 1. Earn 2. Spend 3. Pay Taxes People Who Work for Corporations 1. Earn 2. Pay Taxes 3. Spend

As part of your overall financial strategy, we strongly recommend owning your own corporation wrapped around your assets. I hope you learnt something through reading this blog. If Yes, then make sure to like the blog, comment, share and subscribe to the email newsletter if you haven't yet. I post a blog every Monday at 7 pm IST, until then Happy Reading!