My wife Kim and I have hundreds of millions of dollars of debt. We pay little to nothing in taxes. We are very rich, members of the 1 percent that gets crowds screaming about economic inequality. And we sleep very well at night.
Debt and taxes: Those two words make most Americans feel anxious and keep many up at night. That’s because most Americans -- even highly-educated people with six-figure salaries -- lack basic financial knowledge about how to use debt to make money and how to avoid paying taxes, legally and ethically.
Love him or hate him, President Donald Trump knows a lot about debt and taxes. He knows how to use debt as a tool for building businesses and real estate. He also knows the real purpose of the U.S. tax law: to provide incentives to business owners and investors. When Trump’s 2005 federal tax return showed that he paid $38 million in taxes on an income of some $150 million, I’ll admit I was surprised. Dig deeper and I am certain that year’s return, leaked or not, was an anomaly. Most years, it’s likely Trump paid little to nothing in taxes. Yes, that makes him smart.
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How can debt and taxes make some people rich and other people poor? Why does this paradox exist? The culprit isn’t the gap in earning potential, career opportunities or social advantages between the rich and the poor. It’s our nationwide gap in financial education. In school, we don’t teach kids about money. Instead, we tell them to get good grades so they can get a job and make money. When they grow up and get a job, we tell them to save money. We tell them to save for the future by putting their money in 401(k) plans. No wonder so many people work hard all their lives and can’t afford to retire without government support like Social Security.
I was born into a middle class family in Hawaii, but I always felt poor. My father had a PhD and a top-level job in education but struggled financially. Fortunately, I had a second dad who was financially smart and a great teacher. At 9 years old, I chose to be rich. I asked a lot of questions about money and then questioned the answers. I learned how to use debt to acquire assets playing Monopoly. Buy four green houses. Exchange them for one red hotel. Today, I own 6,000 properties that have made me a multi-millionaire -- my real-life "red hotels."
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Our financial education gap leads to a cash flow divide. On one side, there are employees and small entrepreneurs, which include specialists like doctors and lawyers, as well as owners of startup ventures and local burger stands. The people on that side of the divide work for money and pay between 40 and 60 percent of their income back to the government in taxes. On the other side, there are big business entrepreneurs and the ultimate entrepreneurs: investors. The people on this side -- people like Ray Kroc and Oprah Winfrey, George Soros and Donald Trump -- work to make money work for them. They typically pay between 20 and zero percent of their earnings in taxes.