“The rich earn, spend, then pay taxes whereas the poor and the middleclass earn, pay taxes, then spend,” so says Robert T. Kiyosaki in his book: Rich Dad, Poor Dad, written with Sharon L Lecther, C.P.A.
How could this be possible! Well, Kiyosaki refers to the history of taxes to get a full explanation:
Most of us know the story of Robin Hood and his merry men. Summed up simply, Robin Hood stole from the rich to give to the poor. Kiyosaki said that his poor dad saw Robin Hood as a hero, whereas his rich dad saw him as a crook.
Kiyosaki pointed out that the Robin Hood concept still prevailed today when it was expected that the rich would pay for certain facilities for the poor or, said differently, that the rich should pay more taxes.
However, this very same expectation usually results in the middle class being inordinately taxed, particularly the educated upper-income middle class who pay as they earn and because they earn high incomes, they end up paying the brunt of the individual tax burden.
A short history of taxes reveals that originally there were no taxes in England and in America. Then taxes were only levied occasionally in order to fund costs related to wars. In the 1870s, England made taxes a regular and permanent burden. America followed in the early 1900s.
The idea of formalising taxes was sold to the masses as a mechanism to get money from the rich to help the poor. So, originally, only the rich were taxed. The majority of voters were in favour of this Robin Hood type concept: punish the rich and fund the poor.
Even today, we know that governments have an insatiable need for tax dollars. This is because governments consider part of their social responsibility to help disadvantaged people. So, unlike the private company that tries to contain expenses and generate higher profits in order to please its shareholders, government tends continually to utilize its full vote. So, when certain line items exceed their vote, government must then expand its vote for those items with a supplementary budget which expands the overall budget for the year. Government therefore tends to need more and more taxes.
Needless to say, governments soon get to appreciate this easy flow of funds from taxes. So much so that it didn’t take long before the tax net grasp every earner – rich, middle class and poor. Government benefited through the funds raised to pay salaries and pensions for civil servants and to pay for various capital projects.
The rich also benefited through the award of government contracts. There was limited benefit for the professional middle class working for private companies.
Then to extend the disparity further, the rich utilised the legal structure of a corporation to further reduce their tax liability. The rich exploited their financial knowledge in order to lighten their tax burden. No matter how the tax law changed, the rich continually sought ways of reducing their burden. The middle class therefore ended up with the heaviest part of the tax load.
