I like being civil and discuss important issues armed with facts; framed in reality. I’m also a mere human and I’ve reached my limit on this rich, middle class and poor crap, and a media (FOX, CNN, ABC, MSNBC) that make no effort to enlighten the communities they serve.

One such issue is the vilification of the wealthy in this country. So, let me share with you a few points you should all consider.

This article is written in the simplest language possible; however, I have the ability to discuss it at an econometric level with anyone who’s incline to get to that level of detail. I call it “How The Rich Invest”

How the Rich Invest

• All taxpayers work with two tax brackets: a marginal tax bracket and the effective tax bracket. The marginal tax bracket is that tax rate that applies to each new dollar of income. The effective tax bracket is the ratio of your actual tax liability to what you made. For example if your household gross income is $100,000 but with personal deductions and home mortgage interest deductions your adjusted gross income is only $60,000. Your effective tax bracket is based on your income after deductions not your gross. Your effective tax rate is your tax liability divided by your gross income times 100. Effective tax rates are ALWAYS less than marginal tax rates.
• The wealthy have access to investment instruments that an average taxpayer does not. The result is that wealthy individuals are able to drive their adjusted gross income as a percentage of gross income lower than an average taxpayer, using a variety of strategies. In our example above, the taxpayer was able to lower his or her taxable income to 60% of his gross. A wealthy individual may be able to get his taxable income to 30% or less of his actual gross income. All legal, all good.  In terms of real dollars, the wealthy do pay more. For example an individual working an hourly job after personal deductions etc. ends up with an effective tax rate of  say 13% and his actual tax burden is $3,000. A wealthy individual with a gross income of $10 million may have an effective tax rate of 13% as well, but he paid out $1.3 million in taxes.
• So how do the wealthy invest? They use a measure that I’ll call risk adjusted, after tax, rate of return – sounds difficult but it is not.
• Investment portfolios, which is what they’re called, are made up of a mix of products, which when combined reduce risk, volatility and achieve a desirable after tax return, commensurate with risk, on investment. They also use trusts and a variety of “legal” entities to protect their investments, take advantage of tax laws and protect their assets from law suits or other risks. It’s like baking a cake. You add a little of this and a little of that to make the cake rise, taste good and look good. Some recipes take years to evolve and are handed down to subsequent generations. Nothing evil here.
• Increasing marginal tax rates on the rich, in the absence of a flat tax, does nothing in terms of adding revenue to the Treasury because the wealthy will simply adjust portfolios (the cake mix) to keep their effective tax rate as low as possible. In fact, increasing taxes on the rich is more effective as a placebo to rationalize middle class tax rate increases.
• So how do we achieve investment in job creation and economic growth? By rewarding the desired behavior? Tax off shore investments, tax short term trading gains in stocks bonds and derivatives. Provide meaningful tax incentives for starting, expanding and modernizing businesses. The fiscal objective should be to make business creation a better choice by achieving a better risk adjusted, after tax, rate of return than the alternatives – like offshore investments, stock market and derivative speculation. When that happens, the wealthy will change the recipe to funnel greater investment in business creation and expansion.
• The rich are not evil or wicked. In fact they’d like to see you do well so they continue to do well.

I’m feeling much better now. Thank you for allowing me the space and if you know someone that can benefit from this post, please pass it along!