The United States of America is the greatest country on Earth. It is the greatest country because of "our free society" and capitalism. Capitalism is defined in Webster's Dictionary as the economic system in which the means of production and distribution are privately owned and operated for profit. Capitalist has two definitions. Definition No. 1: An owner of wealth used in business. Definition No. 2: Wealthy.
Wow! The above is a perfect description of the typical successful business owner/reader of this column.
For you entrepreneurs who have worked your tail off (success in business, in my experience, is never plain luck) and have become affluent, you have been shoved into your own separate new minority group, usually referred to as "the rich." Make no mistake about the rich in America. They are under a relentless attack in the media, in the public and in private conversations.
Certain politicians love to attack us and propose to take bigger portions of our wealth by various obscene taxing schemes (higher income tax and capital gains rates, and killer estate tax rules and rates are just a few of these schemes). "They can afford it" is the smug explanation. As a voting group we are a small minority. Our campaign contributions are valued more than our votes. Sad!
My research has failed to discover an authoritative source as to who is considered rich. Based on my 50-plus years of consulting with them, here are my three categories:
Rich: A net worth of $4 million to $10 million, but to varying degrees, these individuals are still concerned about maintaining their lifestyle to the day they die.
Ultra rich: A net worth of $10 million to $25 million (these individuals are no longer concerned about maintaining lifestyle).
Mega rich: Worth more than $25 million (these individuals are more concerned with not losing any of their net worth and conservatively growing it). Of course, some in this group are worth $50 million, $100 million, or more.
Almost all the rich have a fetish about overpaying their taxes (yet begrudgingly are honest taxpayers); the value of their time; the efficiency and competency of their employees (particularly top management) and outside professionals (i.e. their CPA and lawyers). Appropriate and timely follow up is a must, plus, avoiding hassles and welcoming convenience.
Most of those still in business are on a constant search for relief from stress, time pressure and responsibility. Yet, they rarely become a member of the "paralysis-by-analysis" club. Try to rip 'em off and you are toast.
The rich are an essential ingredient of the fabric that makes America great. Let's take a look at some undisputed facts that prove the rich are a necessary cog in the wheel of a prosperous American economy.
Taxes: How much of the income tax burden is borne by the rich? The most recent IRS data available shows the top 1% of taxpayers (earned $410,000 or higher in 2007) paid a whopping 40.4% of all federal income taxes. This is amazing because those taxpayers only made 22.8% of all the reported adjusted gross income. So much for the myth that the rich don’t pay income tax.
Now hear this and share it with everyone you know: In 1993 Burt Hauser, an economist, published new data about the income tax system. As a result, Hauser's Law was created: "No matter what the tax rates have been in postwar America, tax revenues have remained at about 19.5% of GDP." The simple truth is that an increase in GDP increases tax revenues while an increase in tax rates reduce tax revenues.
Want further proof? Three times in our country's history, across-the-board income tax rate reductions, during the administrations of John F. Kennedy, Ronald Reagan and George W. Bush, all resulted in increased income tax revenues in the years immediately following the rate reduction. Hey, you guys in Washington — want more tax revenues? Increase the GDP, not tax rates.
Jobs: Who creates two-thirds of all the jobs in the United States? Closely held business … translates into the rich (business owners).
Charity: The rich are the backbone of philanthropy in our country. Their contributions (often in the millions of dollars) fund medical research, universities, hospitals, education and the endless number of other charities in the U.S.
Maybe we can pound these facts into the heads of our politicians: The rich, by any definition, are the only Americans with excess wealth beyond what is needed to meet their basic living expenses. They don't put this excess wealth in their mattresses. They invest it in Wall Street (support larger companies), put it at risk in their own businesses (create more jobs), fund various charities and yes, are guilty of spending a portion on high-end goods and services (create jobs).
Note: It may surprise you, but most of the rich do not flaunt their wealth. You can’t tell they are rich by the clothes they wear, the cars they drive or the homes they live in.
Redistribute the wealth of the rich and you have socialism, which has created misery wherever it’s been tried. We have seen the wonders of capitalism for over 200 years. It works. The U.S. is the most powerful and wealthy nation in the world. Anyone in our country, sometimes not even a citizen, has an open door to earn his/her own wealth and become rich.
Simple logic tells you that destroying the rich by taxing away a large portion of their wealth will not help the poor. In the long run, excessive taxing of the rich will backfire, reducing the tax revenues to Washington.
It's time for us to fight back! How you may ask? Keep your net worth confidential, except for your professional advisors who need to know. Although your tax burden may become more onerous, use every legal trick and strategy to cut your tax bill. There are two taxes we know how to legally avoid: the capital gains tax and the estate tax.
Unfortunately, taxes and politics have been and probably will continue to be inexorably intertwined. So the most essential things to do are to use a portion of your wealth and time to influence and support the candidates for the House and Senate (and when the time comes, president) that understand the economics and will pass the kind of laws that return our country to a level of normalcy where the marketplace, not the government, determines the amount of your wealth.
Now, a seeming shift, which you will see is really not a shift, in subject matter of this column. Even though the tragic earthquake in Haiti happened five months ago, there is still a need for us to open our hearts and help the Haitian people. As usual, the Red Cross has been on the scene, helping in every way possible. As part of its largest international response since the 2004 Indian Ocean tsunami, the Red Cross network has helped approximately 1.9 million Haitians since the earthquake, and it will continue to support hundreds of thousands of additional survivors in the years ahead.
Here's a little plan to help you save a ton of taxes while helping the people of Haiti. My book, Tax Secrets of the Wealthy sells for $367. It really shows you step-by-step how to totally eliminate the estate tax, whether you are worth $3 million or $33 million or more. Simply write a check to the Red Cross, for any amount ($50, $100, $150 … it's up to you), and the book is yours.
Send your check, payable to the Red Cross, to me, Irv Blackman at Irv Blackman, 4545 West Touhy Ave. #602, Lincolnwood, IL, 60712. I’ll do two things in return: I will send you a copy of Tax Secrets of the Wealthy (as my gift to you) and pay the shipping via UPS. Please affix your check to your letterhead with your business card (just your name, address and phone number if you are not in business). I'll forward your check to the Red Cross and ask them to acknowledge receipt directly to you.
As always, if you have a question, call me (Irv) at 847-674-5295.
Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein LLP and chairman emeritus of the New Century Bank, both in Chicago. He can be reached at 847-674-5295, e-mail [email protected], or on the Web at WWW.TAXSECRETSOFTHEWEALTHY.COM.