Why is This Man Smiling?

Why is Warren Buffett smiling when he knows that tax rates are going to rise?  He says “Tax the rich, we can take it”.

Perhaps he knows something that most people do not know.

Perhaps he knows that most of his wealth will IN FACT NOT be taxed.  Why?  Because the vast majority of his wealth is NOT SUBJECT to the income tax!

In “The Millionaire Next Door”—New York Times best seller in 1996—Thomas J. Stanley Ph.D. tells us that millionaires remain millionaires because only 2% of their wealth in any given year is subject to income taxes.

Mr. Buffett is worth $46 billion.  But his taxable income is a very small fraction of that amount.  And, the majority of his income consists of capital gains which occur only when HE decides to take those gains!  Capital gains are taxed at a flat rate which is much lower than the high marginal rate of 39% that he and president Obama want imposed on the “rich” of this country.

The truth is that high marginal income tax rates are NOT a threat to the wealth of Warren Buffett, Bill Gates, or any of the other billionaires on the Forbes 400 list.  High marginal income tax rates are a threat to the wealth accumulation of the average wage earner and tax payer.

The only way that I can accumulate wealth is by investing my available capital.  My available capital is limited if the government takes more of my wages thereby limiting the capital I have available to invest!  High marginal income tax rates are a BARRIER to the wealth accumulation of those who are not yet wealthy. 

If you desire to be wealthy, not just a high wage earner, you need to do what Warren Buffett and Bill Gates did.  Lower the income that is subject to the high marginal income tax system and invest in the types of assets that are either exempt from the income tax system or are deferred from the income tax system.

Did you realize that different types of income are subject to different types of tax?

Warren Buffett knows that.  Maybe that is why he is smiling!

The Eldridge Group specializes in tax strategies that allow you to protect what you earn. If you are interested in keeping more of what you earn available for investment by reducing your tax burden, please do not hesitate to contact us at 765.827.1040.

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