Why The Rich Pay Less In Taxes
Patrick Bet-David sits down with Tom Wheelwright, CPA, author of Tax-Free Wealth, professor. Wheelwright sees taxes as a “burden” and knows how to navigate the 6,000 pages of tax law. In this interview, they discuss the history of taxes (income taxes always intended to be temporary) and how governments use taxes to incentivize behavior. Let Tom know your thoughts: https://bit.ly/3yUi6ZQ
Check out his book "Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes" : https://amzn.to/3wQCDN7
Recommended video:
- The Best Tax Lesson for Entrepreneurs by Economist Arthur Laffer: https://youtu.be/k_8LrE8jDb0
- Reaction To Biden’s Proposed Tax Hikes: https://youtu.be/PBkrsTjkCOs
Check out his website: https://bit.ly/3fVZeBa
About guest: Tom Wheelwright, CPA is the visionary and best selling author behind multiple companys that specializing in wealth and tax strategy. Tom is also a leading expert and published author on partnerships and corporation tax strategies, a well-known platform speaker and a wealth education innovator.
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Here’s how they do it
Some of the world’s richest executives, including Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk, pay little to no taxes compared to their wealth, according to a ProPublica report.
The reason for relatively low taxes is how the affluent earn and pay levies on investment income.
These findings offer insights for Americans looking to reduce taxes and build wealth, experts say.
Most people in the world earn money from their basic jobs. Some even work two or three extra jobs to make ends meet, while others live paycheck to paycheck. And every year, the government will knock on our doors, asking us to pay the taxes. If not, you’re committing tax fraud for not paying taxes.
While ordinary people have to work multiple jobs and pay taxes on what they have made, the elite smoothly goes on with their lives. Some might say they became billionaires due to their hard work, but why are they paying less tax than a person who makes less than $100,000 a year? First of all, let’s see how the rich make money.
Getting Richer Day By Day
Billionaires get rich every day without working. How? Apart from their salary, they get more money from income from interest and dividends, capital gains from their investments in the stock market, real estate, and whatnot. Unlike us, this money does not go to their bank accounts, but it’s reinvested into the sources mentioned above.
For instance, one of the wealthiest people, Warren Buffett, got a dividend of $3.8 billion combined with shares like Apple, Bank of America, Coca-Cola, etc. Buffett is the CEO of Berkshire Hathaway, which owns over 60 companies, including insurers Geico, Duracell, and Dairy Queen.
People like Buffett do not rely on one source of income. They have multiple sources of active and passive revenues, allowing a continuous source of income. But, they pay little to no amount of taxes. According to a ProPublica report, Amazon founder and CEO; Jeff Bezos managed to not pay any federal tax in 2007 and 2011, and Tesla CEO; Elon Musk also did not pay taxes in 2018.
Due to the wealth that multiplies each year, paying millions of dollars as taxes is spare change for them. Still, they pay less percent of tax than us.
Income Tax And Capital Gains Tax
The reason for such disparity is because of the different taxes. You pay income tax on your salary, while the wealthy pay capital gains on the shares. Here’s where things get interesting. Capital gain taxes are only paid when one sells a share or an asset and realize the profit.
So as long as they don’t sell their shares, they don’t have to pay the capital gains tax, plus they can use these shares as collateral to obtain loans from the banks, which repeats on and on.
Assume you have $500k by the end of the year; you are supposed to pay 37% as income tax, amounting to $185k. But when a billionaire sells shares worth $500k, they are paying $100k as 20 % capital gain tax. It means you’re paying around 55% more than them.
However, not all wealthy folks avoid paying taxes. Millionaires like Morris Pearl, who have high stakes in Berkshire Hathaway, Apple, etc., use their money advocating for rich people to be taxed more. Similarly, the Biden government plans to increase the capital gain taxes to 39.6% (an increase of 19.6%)
Even though this may not solve the issues for ordinary people who are still facing issues with minimum wages and healthcare, we can hope people like us will have a better standard of living in the coming years.
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