A Tutorial on Wealth Creation(Tea Party Pay Attention!)

Dick McDonald

According to a recent Rasmussen Poll 63% of the people believe the American Society is fair and decent. Let’s check and see how you feel about that after you read the following.

Super rich people hardly pay any income taxes on their billions.

Bernie Sanders, the socialist Senator from Vermont, last week was railing against the passage of the Bush Tax Cut legislation by informing us that the super rich, according to a recent study of 400 billionaires pay on average only 16% in income and payroll taxes.

That is bunk. I say they pay at a maximum a small fraction of 1%. Generally their wealth is derived from stock ownership and their enormous wealth comes from the appreciation of that stock(s) over the years. As the appreciation in the value of stock is not taxed their wealth is accumulated FREE OF TAX. It is the ultimate tax shelter.

Warren Buffet’s wealth increased $10 billion in 2006 and he claimed in front of Congress that he paid 17% in taxes on his income that year. He testified that he should pay more in taxes because his staff paid on average 32%. He said that was unfair and that rich people should pay more in taxes.

What a whooper that was. He didn’t pay $1.7 billion in taxes he paid less than $10 million (or 10% of 1% - .oo1) in taxes because stock appreciation (his business) is not taxed. Now through some deceptive method of computation he probably said he paid 15.3% in payroll taxes on his $100,000 salary from Berkshire Hathaway and 1.7% in total in capital gains taxes to arrive at his fictitious 17%.

Of course Warren Buffet knew as did all billionaires the Bush tax cuts were of little consequence to them. They don’t pay tax on appreciation of their stock. And even in the case of dividends, they don’t have to pay them if the rate returned to Bush levels. Bernie Sanders and all the uninformed citizens and their propagandists in politics and media swallowed this tax cut propaganda.

Those who really get hurt are the millionaires who don’t use the tax-free stock ownership route and pay these absolutely confiscatory taxes on income. They are the primary job creators – small businessmen on the way up who use Subchapter S corporations and pay taxes personally to avoid corporate double taxation. Double taxation, of course, is just another fallacy. The super rich avoid all taxation on “income and wealth.” Double taxation for the super rich is a myth for public consumption.

Super rich people do not pay estate taxes

One of the stumbling blocks in the tax bill that passed was the rate of estate tax. Liberals were fiercely resisted lowering that rate to 35% for estates over $5 million. They wanted it to remain at 55% on “taxable estates” over $1 million. On the other hand conservatives grumbled that such wealth had already been taxed and to tax it again was unfair double taxation.

Well as any tax man will tell you billionaires don’t pay estate taxes. They take a deduction from the “taxable estate” for all amounts given to charity. As those charities are usually created by the billionaires themselves they can control their money from the grave.

All this publicity by Bill Gates and Warren Buffet getting billionaires to give half their estate to charity is so much baloney for public consumption. These guys are not going to pay any estate tax; they will give it all to charity.

Really intelligent super rich people’s kids don’t pay taxes on wealth

There are a number of devices available to the super rich to avoid having their kids pay estate taxes on the accumulated wealth. Here again the trick is to transfer the ownership of the assets – usually stock – to the kids early on in life and let the non-taxable appreciation accrue for the benefit of the kids. Those assets are then passed on to the kid free of tax at death of the super rich man or woman.

J. Paul Getty, the “first” billionaire, transferred 2/3rds of all he ever owned to his grandkids in trust in his 30’s. At death the remainder of his estate went to his Museum. He personally as well as his corporations paid no income taxes during his lifetime because of percentage depletion and the deductibility of intangible drilling costs; his corporations’ share of payroll taxes were paid for by passing those costs on to the consumer and he paid no death taxes nor did his kids or grandkids. As I said, the super wealthy pay no taxes.

The wealthy make the free market grow and the country prosper. Poor people are in line to do that too.

Now you may believe as many working men and liberals do that it is very unfair that the super rich pay little or no taxes. You may believe that the rich store that wealth in a way that it never comes back to benefit the economy. You would be wrong. Wealth is always at work benefitting the economy. If it is invested in stocks – it is working. If it is in the bank the bank has to lend it therefore – it is working.

The Pitch to the Tea Party

This little tutorial on wealth creation was written to expose the poor, the middle class and even the rich to the wonders of tax-free appreciation in stock. As you know we are in a world of hurt economically. If we could get all those citizens to follow the lead of the super rich and invest in the stock market two things will happen – (1) the less than super rich will get wealthy and (2) the economy will take off and millions of jobs will be created.

In this crucial time in our history, America needs new ideas on how to reform our government. I contend that to do that we need to avoid the austerity the politicians are planning to impose to make the government more solvent and promote a new blueprint that solves poverty, income discrepancy, freedom and free market problems at the same time. It is time we focus on prosperity. Are you listening Tea Partiers?

There is a blueprint of new ideas that you might consider. Going down the path the Debt Commission and all politicians are promoting will lead to riots in the streets. Those interested in a logical redo along the lines our Founders designed see here. More importantly it outlines where the poor get the capital to invest in stocks as well as where to get the funds to pay for our existing entitlement obligations.

Dick McDonald is a former Arthur Anderson C.P.A. who did the taxes of the richest man in the world at that time, J. Paul Getty