Study Session for Chapter Four, Part One of Two

The History of Taxes and the Power of Corporations

Additional Questions

As in prior posts, I recommend formulating your answers to the following questions before reading my answers (which are written below).

If you feel like putting the Blockchain to work for you, please turn your answers into a post and direct me to it by leaving a link here in the comments. If you don’t have time to make your own post, please feel free to strike up a conversation in the comments section about any of the following questions and answers.

1 Do you agree with rich dad’s assessment of Robin Hood, that he was a crook? Why or why not?
2 Have taxes created a bigger problem with government spending?
3 Do you think members of the middle class and the poor realize that the burden of taxes has fallen to them? What effects of that do you see?
4 Do your beliefs fall more under the banner of capitalism or socialism? What are the benefits and downfalls of each way of thinking?
5 Are the rich right to use the advantages of corporations to avoid paying taxes? Do you think more people could follow suit if they understood the system better?
6 What are specific ways that you yourself could benefit from using a corporation for your assets?

My Answers

1 Do you agree with rich dad’s assessment of Robin Hood, that he was a crook? Why or why not?

To be honest, there isn’t much to base the answer to this question on. Kiyosaki doesn’t explain his rich dad’s assessment of Robin Hood. He just says that his rich dad thought Robin Hood was a crook, and that’s it.

Was Robin Hood a crook? Well, yes, he was. He stole money and valuables from people he deemed to be wealthier than anyone had a right to be.

Was he a hero? Many people think so.

I think I would label him more as a reckless and foolish person myself. I’m not of the mind that just giving people with financial problems money will definitely make their lives better. Yes, I think in some cases, it can and it will help them, but in many cases, I think that free money also leads to more problems when it isn’t properly earned and people don’t know how to be responsible with it.

My guess is that Robin Hood, as many people who have good intentions do, created more problems than he solved. And, yes, he was a thief, which is another word for a crook, but with less of a negative connotation (I think).

2 Have taxes created a bigger problem with government spending?

This question, too, I feel is difficult to answer. I don’t know enough about taxes or government spending to actually be able to give what I feel is a credible response.

According to Kiyosaki, government organizations are granted certain amounts of money through budget allocations. If those organizations don’t use all of the funds they were granted, they risk losing some of their funding the following year. The reason for this, I assume, is that the government, when redistributing its limited amount of funds, sees a surplus at the end of the year as meaning that too much money was granted to an organization the previous year. Due to this point of view, funding is reduced/cut the following year.

Is this true? I don’t know. If it is true, then what Kiyosaki goes on to say, that government organizations are encouraged to spend as much as they are granted, and more, each year so that they can continue to receive the same amount of funding (and more) in following years, makes sense. This type of pattern would lead to an increase in spending, which would then lead to an increase in taxation to support that spending.

Have taxes created a bigger problem with government spending? I don’t know. Do people create government initiatives just because we have taxes and tax money to spend? I would like to think that it is the other way around, that people create government initiatives first. These initiatives then need to be funded, which leads to taxes that increase in proportion to the number of government initiatives that have been created.

My guess is that rather than taxes, it is the various beliefs in charity and the benefits of subsidization that people hold, along with the practices of granting contractual kickbacks, etc. that lead to bigger problems with government spending.

3 Do you think members of the middle class and the poor realize that the burden of taxes has fallen to them? What effects of that do you see?

Again, I feel out of my range trying to field this question. According to Kiyosaki, the rich really don’t pay taxes. Or, when they do, they pay a smaller percentage of their income in taxes than the middle class and the poor. The reason for this is that the rich are clever and use corporations, among other things, to write their income off and spend their earnings with pre-tax dollars.

It seems to me that most people in the middle class want the people they consider to be rich to pay more taxes so that they can pay less. In this sense, I would guess that many of these people feel like the tax burden is falling more severely on them. Do they know that it is in the sense that Kiyosaki is implying? I don’t know.

When addressing the second half of this question, the only effect of having the tax burden fall on the middle class and poor that I can think of is the widening gap between the, for lack of a better term, haves and the have-nots.

4 Do your beliefs fall more under the banner of capitalism or socialism? What are the benefits and downfalls of each way of thinking?

The questions in this chapter review are really challenging me. Economics is something that I have never really spent any time thinking about. In order to answer this question, I had to stop writing this post for a couple days to think about how I feel about capitalism and socialism. Both of them come with quite a history of misconceptions and manipulations. I really don’t have a very good understanding of either of them, so I am reluctant to speak about them in a public forum. However, I also don’t want to avoid doing the work that is a part of this study session.

My beliefs fall more under the banner of capitalism. My understanding is that capitalism is a system where time and labor is exchanged for a value that is determined by a market. Two problems that can appear with capitalism are based around what is considered fairness. The first problem is this: markets can be manipulated in ways that favor specific players over others. The second problem is this: market participants can use methods of force to smother competition and reserve larger portions of the market for themselves.

Ideally, neither of these problems would happen because the market would regulate itself through the opinions and actions of buyers, but as far as I know, historically, the markets have been manipulated in a variety of ways. In my opinion, capitalism, in its ideal form, would be a better economic system to pursue than communism.

That said, I do like the idea of having a basic universal income, a standard that allows all people to meet their daily basic needs without undue strife. I care about people and believe that we should all have a reasonable chance at living a life that allows us to pursue our dreams. For people living in poverty, people who whose basic nutritional needs cannot be met, I think that it is much more difficult for them to pursue the lives they envision for themselves than it is for those of the middle and upper classes.

While communism is supposed to grant people a basic level of comfort, food, and income (At least, I think it is supposed to do that.), it hasn’t done a very good job of this in its history. Addressing the economic aspects of communism and not the state-led aspects of communism, which has typically involved ethnic purging of some sort, many people have said that the problem with communism is that it doesn’t provide incentives for people to work and innovate. When people’s efforts aren’t compensated adequately, they often lose motivation, and if a person feels like he/she is being punished for earning and creating more, why would he/she want to do so?

5 Are the rich right to use the advantages of corporations to avoid paying taxes? Do you think more people could follow suit if they understood the system better?

To me, the better question to ask here would be about taxes themselves. Do you think the government is right to collect taxes? If so, is the current tax system one that is efficient and produces little waste? Does it function well and produce good results?

Whether the rich are right to use the advantages of corporations to avoid paying taxes or wrong to do so doesn’t matter. They can. It’s part of the current system. So why wouldn’t they use corporations to help them build wealth. They have very little control, if any, over how their tax dollars are spent, so why would they want to pay as much in taxes as possible? If they do so, will they feel like their money is being put to good use? Will they reap the benefits that the taxes they have paid is supposed to produce? Probably not.

Addressing the second half of this question, could more people follow suit if they understood the system better, of course they could. Again, a better question is, would they follow suit? My guess is that they would. Just about everyone I know is trying to save as much money as they can during tax season by writing off whatever expenses they can.

6 What are specific ways that you yourself could benefit from using a corporation for your assets?

Now, this is a question that I wish I knew how to answer. It almost seems like a tease to put this question at the end of this chapter, a chapter which doesn’t explain how to use corporations thoroughly enough to answer this question.

I almost have to wonder, is this question here to motivate people to get online and research corporations more on their own? I don’t know.

Kiyosaki explains that a corporation is just a piece of paper in a filing cabinet somewhere, a piece of paper that allows people to use their pre-taxed money to pay for expenses. In this way, they allow for people to save money before they are taxed. He shows that a typical money flow pattern is like this: Earn – Pay Taxes – Spend. Whereas the money flow of a corporation is like this: Earn – Spend – Pay Taxes. With the non-corporate money flow pattern, people aren’t encouraged to earn more. The more they earn, the more they lose to taxes, so their efforts aren’t fully rewarded. With the money flow of a corporation, people are encouraged to earn more because they can utilize the full power of their earnings to not only live their lives as they see fit, but also to make more money. The more they earn, the more they can use before they are taxed. The more they can use, the less they are taxed.

At least, that is my takeaway from this chapter. As I said, the chapter doesn’t really get into the full workings of a corporation. It just gives a basic overview of how the money flow between non-corporate and corporate earnings is different.

If I had a corporation, I could benefit by using portions of my income to invest in assets (things that produce income) before it was taxed. Essentially, I could use a portion of the money I typically lose to taxes, or maybe all of it, to invest in things that produce more income for myself.

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This concludes the second half of the study session for chapter four. Thank you for joining me.

If you would like to participate in this book club, buy or download a copy of Richard Kiyosaki’s book, Rich Dad, Poor Dad, and read it along with me. Each chapter is followed by a study session. I plan to read this book slowly, and to thoroughly explore each study session. I would love to do so in the company of others.

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Good discussion promotes deeper understanding and helps to reveal new and original ideas.

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I hope to write a post that explores the first half of the study session for Chapter 5 some time next week. If you would like to know when that post has been published, please let me know in the comments below and I will send you a link to the new post.

For those of you who missed the study sessions for chapters one, two, and three, you can find them by following the links below.

Chapter One: Part 1/2 | Chapter One: Part 2/2

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Chapter Two: Part 1/2 | Chapter Two: Part 2/2

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Chapter Three: Part 1/2 | Chapter Three: Part 2/2