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10 Ways the Rich get Richer

Our article How the Rich get Richer: An Exhaustive Report will go into great detail in unveiling many of the layers of the topic; including methods, statistics and examples on the subject. This article will offer a brief look at ten reasons or methods used. Yet, first let us define who we are talking about.

According to Supermoney.com (2017) “although a million dollars isn’t worth what it used to (be), it’s still a popular asset threshold to determine whether you’re rich.” About 16 million individuals of America’s 325 million people (12/2017) are millionaires.

According to Wealthengine.com (2017) and The 2017 U.S. MILLIONAIRE REPORT, they gather data ‘for over 240 million individuals in the U.S.’ (the over age 20 population) and found “the number of millionaires has increased significantly over the years… in 2017, about 7% of the adult population is worth greater than $1 million… The majority of those are individuals with a net worth between $1 – $5 million – about 95% of all millionaires fall in this range. However, there are some ultra-high-net worth individuals… 4,000 individuals are worth over $500 million…”

The Report also revealed that of the 16 million Millionaires in the United States: 3.78% of Americas have between $5M-$10M in Net Worth; 1.24% between $10M-$25M; .3% between $25-100M; .07% between $100M-$500M and .02% more than a half a billion dollars. It showed that about 21% of U. S. millionaires are between 50 and 60 years old; about 91% over the age of 50; only 2% are less than age 40.

For the purposes of our article, TheTruthSource considers one to be rich if they are a millionaire or if their household income exceeds $150,000. This is only based on top developed countries and of course not on global income inequity from which prospect a family with home, car, school and health insurance for their children, and income could be considered rich.

Note: the importance of this subject is not simply one of justice, fairness or inequality; it is a fact that the U.S. has a National Debt nearing $21 trillion ($20,600,000,000,000; 12/2017) and soon to be $23 trillion by the next presidential election.

10 Ways the Rich get Richer

As stated before, our article, How the Rich get Richer: An Exhaustive Report will go into significant detail. The following is to reveal the manner; not to investigate it. These are not necessary in order of significance or importance:

1. Law and Order
If it were not for our federal and local governments and the protection afforded Americans by the military, police and other agencies, we could be like the old west, medieval Europe, or worst – bartering for goods and services (which on one hand would require many in the elite-rich class to actually have to work), and subject to rampant stealing and killing – survival of the fitness (which was a means by which some did and have become rich).  Law enforcement protects the lives and riches of the rich – which would simply be taken by stronger (and at times – more just) individuals.

2. The post 1980 Tax Rates (Reduced Income Taxes on the Rich)
After every major war, including the Civil War, the U.S. government increased taxes to pay for National Debts. Before 1980 (Ronald Reagan) the United States National Debt was less than $1 Billion. After the introduction of the Federal Reserve, income taxes in 1913 on the super-rich were 7% on incomes over $500,000. In 1917, after WWI the top bracket reached 67% on incomes over $2 million and it was 50% to 65% depending on incomes between $300,000 and $1.5 million. The next year, 1918, incomes over $1 million were taxed 77%.
And this lasted until 1921 and the depression decade; yet, the national debt was held in check. Nevertheless, incomes of $200 and more were taxed 58% until reduced to 44% in 1924 and 25% on $100 or more 1925 – 1931. After the depression and seeing unrest in Europe; again the tax was 63% on incomes over $1 million and 56% at $100,000. Before WWII, from 1936 to 1940 the top bracket was 79% at $5M; and in 1942 and 1943 income tax was 88% on income portions over $200,000; reaching 94% in 1944 and 1945 – with 65+% on incomes over $26,000.
After WWII the top rate slowly fell as National Debt can under control. The rates held around the 1946 rates of 91% on $200,000 (and 50+% on $16,000 or more) until about 1956 when the top rate income was raised to $400,000 Married Filing Jointly (MFJ) 91% and at $20,000 was 38% and $32,000 at 50%. This held until Kennedy was elected and in 1964 (after his death, when Johnson inherited the office) the rates were dropped to 34% on $20,000 (MFJ); 50% on $40,000; 77% on $400,000 (MFJ). In 1966, the top rate was 70% over $200,000 and that rate and National Debt held until 1982 when the top bracket was dropped to 50% on $85,600 (MFJ; increase to $175,000 in 1986).
THEN, in 1987, the door was open for millionaires to significantly get richer when the TOP BRACKET was REDUCED to 38.5% on incomes over $90,000; then 28% in 1988-1990; then 31% on incomes over $86,500 in 1992; settling around 39.6% on top bracket ($250,000+) in 1993 to 2002; 35% on amounts over $300,000+ from 2003 to 2012; then back to 39.6% in 2013.
Thus, after 1980s most of the very rich became super rich by paying less than half of previously required income taxes.

https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets

3. Reduction in Estate Taxes and Unlimited Marital Deduction
In 1862, to get more revenue during the Civil War, inheritance taxes were used. And the War Revenue Act of 1898 used inheritance taxes (in addition to traditional tariffs and real estate taxes) to raise revenue for the Spanish-American War. The tax was repealed after that War in 1902. Then after industries grew, corporation mergers and holding companies became common practice among the elite class and many called for inheritance taxes again. The Revenue Act of 1916 created a tax on the transfer of wealth from an estate to it beneficiaries. The rates varied from 1% to 10% on amounts from $50,000 to $5 million. In 1924, the Gift tax was added to transfers, only to be repealed (1926) and again reintroduced (1932). Marital deductions were added and later Generation-skipping transfers were address. In 1981, the marital deduction became unlimited on ½ of the joint property. And ESOP deduction was added in 1986 (dropped in 1989). In 2002, the Exemption portion increased to one million and to two million in 2006, with at 2007, a 45% top rate tax. In 2010, the exemption was unlimited and in 2011 back to $1 million. According to the IRS, the exemptions on ‘gross estate’ are: $5,490,000 in 2017 and $5,600,000 in 2018. Thus, over 90% of the Rich do not pay anything.

https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

4. Reduction in Capital Gains Taxes (historically 1/4 to 1/2 the top ordinary income rate)

From 1913 to 1921, capital gains were taxed as ordinary income. In 1921, the U.S. Supreme Court held that gains from the one-time sale of property constituted taxable income. The real issue was to ensure that wealthy Americans, who own most of America’s capital assets, pay their ‘fair share of income tax. Nevertheless, that same year, capital gains were set to be taxed at 12.5% for individuals and corporations, while the top bracket was at 77%. It was a loop-hole for the rich and super-rich; as well as an incentive for investing into corporations. The top rate increased to 17.7% (MFJ) in 1934 and to 22.5% in 1936. During WWII (1942) to 1967, the capital gains (assets held for more the 1 year) tax remained between 25 and 26 percent on both individuals and corporations – still almost 1/3 of the top income tax bracket rate on ‘ordinary income.’ In 1968 it rose slightly and climbed to 35% in 1972. In 1981 it was lowered significantly to 20% for 5 years and brought back to 28% in 1987 and back to 20% in 1997. THEN in 2003 until 2012, the rate was 15% on individuals, but 35% on corporations (1993-2017). AND in 2013 settled at 20%, still about half of the top ‘ordinary income rate.’

http://www.taxpolicycenter.org/statistics/historical-capital-gains-and-taxes

5. Step-up Basis

The wealthy transfer their wealth at death; but some avoid taxes altogether. According to the IRS question: “Is money received from the sale of inherited property considered taxable income?” They answer: “To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally… the fair market value (FMV) …on the date of the decedent’s death; or the FMV …on the alternate valuation date…” If the property is sold for more than your basis, you have a taxable gain. Sounds simple; but look at it this way. If a grandfather got his (land and home; or farm) for $50,000 and his son got it from him (paying on taxes on the $500,000 FMV at his death) and then at his death the third generation got it now worth $2,050,000 FMV; there is never capital gains paid on the $2 million transfer of the property. And this works with businesses and corporate stock; investment properties; business equipment; investments; mutual funds; bank accounts; boats; annuities; gold; etc.
There is still of course the issue of estate taxes, so all of the above are price value as low as possible; nevertheless, the assets often pass WITHOUT ANY income or capital gain taxes. The point is the rich and especially super-rich Have Stock in their own Corporation, or go buy a blue chip stock at let’s say $100 a share (a million dollars’ worth – 10,000 shares); then 20 or 30 years later at their death the stock was $200 a share (but also stock split 2 times and they now have 40,000 shares at $200). Thus, there FMV at death is $8 million. In this way, the rich transfer $7 million without paying ordinary or capital gains; and also exclude $5.6 million of it – but remember the spouse still has their Spousal Estate Tax exclusion and can do the same at their death.

https://www.irs.gov/pub/irs-utl/21_-_inherited_assets_-_stepped-up_basis.pdf

6. Credit and Loans

Credit Scores, interest rates and rewards for the rich create a significant gulf between the rich and the poor. Legally, the banks do not have to give credit cards to anyone; nor are any forced to give loans, unless they are student or mortgage government subsidized or backed loans. But, Congress allows financial institutions to give 0% interest credit cards with 2% to 4% rewards to the rich, and 28% to 32% interest cards to the poor. Of course, there are default risk to be weighed, but charging 28 times a much to the poor and burdening them with usury debt is both wicked (evil) and unjust.
Credit scores (and income) allow the rich to borrow to by businesses and investment properties; while the ‘lower class’ is not allowed that luxury. Moreover, the super-rich have access to super amounts – millions and even hundreds of millions to borrow for special banking – and thus become richer; while the children of the poor and middle class fight for the freedoms of the rich and are not afforded the same rights.
Unsecured personal loans can range from 15% to 36% (even with Lending Club, OneMain, etc.) and many like Lending Club require an additional approximate 6% in the form of an UP FRONT Orientation FEE of for example, $1,000 of an $17,000 loan – thus, you get $16,000, then pay about 14-20% on average for the loan (typically 3 years). One Main has no orientation usually, but charges about 6%-10% more for the rate (can be paid off early). Payday loans can have APR of 500% to 1000%. On the other hand; the rich get airline tickets and cash back with no interest paid on most of their credit cards.

7. Illegal and Willfully Immoral Means

Many millionaires and billionaires have become rich through some of the following means: theft, corruption, white collar crimes that carry low federal sentences, illegal off-shore tax heavens, selling stolen or illegal goods, money laundering, fraud, forgeries, forming monopolies and buying up weak and small competitors, charging unjust high usury or prices, unfair lobbying and or coercion, insider information, nepotism or preferentialism.
8. Private Wealth Management (also called Asset Management)

Private Wealth Management (Min. investment Fidelity – $2M; gen. eligibility $10M; fee .4-1%), low fees with special loan options; ETFs (Exchange Traded Funds); Stock Hedging; Annuities (Tax Deferring); Securities-Based Lending (Big loans using owned securities as collateral); special aircraft finance; TRUSTS and Estate Planning; Custom credit and banking; BUSINESS ownership and transferring; LAND ownership (Tax advantage Transferals); INCOME producing properties (Investment Properties) and 1031 Exchanges (Tax Avoidance); Non-qualified Deferred Compensation [Owners and Key Employees (selected employees) can discriminate against all other classes and Deferred as much income as they choose (into Life Insurance and other investments, including company stock) and not have to pay taxes either until retirement or at death; when they could avoid all income taxes passing the deferred amount (principal income, interest, and tax avoided gain) to family beneficiaries or they partners or the corporation through a Buy-Sell Agreement.

9. Bankruptcy laws

The difference in bankruptcy laws for the rich and poor are significant. First, the laws changed in 2005, and Congress made it more difficult for many people to file Chapter 7 Bankruptcy (where trustee cancels many or all of your debts; can’t use if used Chapter 7 in last 6 to 8 years; or if your income and debt can be worked out by Chapter 13). There are a few reasons why there is a vast gulf of difference between bankruptcy for the rich and super-rich; and the other Americans. First, the amount being filed for – the difference could be $50,000 for a low middle class American verses $50 million for a 1 Percenter. Secondly, the rich typically diversify their investments and like Polaroid (of America, Germany, etc.) or New York Cab companies – will bankrupt one division or car and allow CEO/owners profit packages from the other. Lastly, many American’s can’t afford bankruptcy, and some such as me paid back $100,000 in debt because of religious conviction (although Dave Ramsey, Disney, Trump, etc. used bankruptcy laws in their advantage).

10. Health Care and LTC vs Medicare

The rich can afford to by quality Health Insurance and pay the stop-losses (typically $7,000) and high deductibles; and they get Long Term Care policies and Medicare Supplements, as well as benefit from Medicare. The very poor are also covered for health insurance and LTC – that is free nursing homes, etc. But the middle class often see their assets drained for health insurance premiums and by yearly coinsurance; and more over in retirement or post-retirement in Assisted Living or for Alzheimer’s Care; At-Home Care; and with $50,000 to $70,000 per year Nursing Homes.

 

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