How the Rich Use Corporations to Build and Protect Wealth

My rich dad just played the game smart, and he did it through corporations—the biggest secret of the rich.

I remember in school being told the story of Robin Hood and his Merry Men. My teacher thought it was a wonderful story of a romantic hero who robbed from the rich and gave to the poor. My rich dad did not see Robin Hood as a hero.

He called Robin Hood a crook.

Robin Hood may be long gone, but his followers live on. I often still hear people say, “Why don’t the rich pay for it?” or “The rich should pay more in taxes and give it to the poor.”

It is this Robin Hood fantasy,or taking from the rich to give to the poor, that has caused the most pain for the poor and the middle class. The reason the middle class is so heavily taxed is because of the Robin Hood ideal. The reality is that the rich are not taxed. It’s the middle class, especially the educated upper-income middle class, who pays for the poor.

Again, to understand fully how things happen, we need to look at the history of taxes. Although my highly educated dad was an expert on the history of education, my rich dad fashioned himself as an expert on the history of taxes.

Rich dad explained to Mike and me that originally, in England and America, there were no taxes. Occasionally, there were temporary taxes levied in order to pay for wars.

The king or the president would put the word out and ask everyone to “chip in.” Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America to pay for the Civil War from 1861 to 1865.

In 1874, England made income tax a permanent levy on its citizens. In 1913, an income tax became permanent in the United States with the adoption of the 16th Amendment to the U.S. Constitution. At one time, Americans were antitax. It had been the tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.

What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. It was this point that rich dad wanted Mike and me to understand.

He explained that the idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal. Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class.

“Once government got a taste of money, its appetite grew,” said rich dad. “Your dad and I are exactly opposite.

He’s a government bureaucrat, and I am a capitalist. We get paid, and our success is measured on opposite behaviors. He gets paid to spend money and hire people.

The more he spends and the more people he hires, the larger his organization becomes. In the government, a large organization is a respected organization. On the other hand, within my organization, the fewer people I hire and the less money I spend, the more I am respected by my investors. That’s why I don’t like government people. They have different objectives than most businesspeople. As the government grows, more and more tax dollars are needed to support it.”

My educated dad sincerely believed that government should help people. He loved John F. Kennedy and especially the idea of the Peace Corps. He loved the idea so much that both he and my mom worked for the Peace Corps, training volunteers to go to Malaysia, Thailand, and the Philippines.

He always strived for additional grants and budget increases so he could hire more people, both in his job with the Education Department and in the Peace Corps.

From the time I was about 10 years old, I would hear from my rich dad that government workers were a pack of lazy thieves, and from my poor dad I would hear how the rich were greedy crooks who should be made to pay more taxes. Both sides had valid points. It was difficult to go to work for one of the biggest capitalists in town and come home to a father who was a prominent government leader. It was not easy to know which dad to believe.

My rich dad did not see Robin Hood as a hero. He called Robin Hood a crook.

Yet when you study the history of taxes, an interesting perspective emerges. As I said, the passage of taxes was only possible because the masses believed in the Robin Hood theory of economics: Take from the rich and give to everyone else. The problem was that the government’s appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept trickling down.

However, the rich saw an opportunity because they don’t play by the same set of rules. The rich knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasure. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage. The diagram that follows shows how the corporate structure sits outside your personal income statement and balance sheet.

It is the knowledge of the legal corporate structure that really gives the rich a vast advantage over the poor and the middle class. Having two fathers teaching me, one a socialist and the other a capitalist, I quickly began to realize that the philosophy of the capitalist made more financial sense to me. It seemed to me that the socialists ultimately penalized themselves due to their lack of financial education. No matter what the “take-from-the-rich” crowd came up with, the rich always found a way to outsmart them. That is how taxes were eventually levied on the middle class. The rich outsmarted the intellectuals solely because they understood the power of money, a subject not taught in schools.