When It Comes To Money, Shouldn’t We Trust Rich People Who’ve Been Poor?

If you’re about to have heart surgery, you’d rather have an experienced surgeon operate rather than a first year resident wouldn’t you?  If you’re looking for some entrepreneurial advice, you’d rather pay $300 to listen to Ron Conway, the godfather of angel investing, rather than some 19 year old kid with a failed start-up correct?

Given you agree with me 100%, why on earth would you ever listen to someone who proposes tax policy on higher income earners if they don’t make much themselves?  If you make $60,000 a year, you have no business telling what someone who makes $200,000+ a year how they should spend their money, how they should feel about paying more taxes, how much they are paying in taxes and why they should pay even more taxes.  Why?  Because a $60,000 income earner has no idea!

If you are making hundreds of thousands of dollars or more a year and once made just $25,000 dollars, you have way more credibility talking about appropriate tax policy and how to make money, at the very least.  You might even be able to talk about the merits of education and work ethic.  But of course, those who make less will get all up in your face for saying work ethic, education, and tenacity aren’t correlated.  They aren’t if you don’t want to make money.  They are, if you do want to make money.

If you’re making a middle class salary, good for you!  America cannot prosper without a strong middle class.  But, if you are an honorable middle class citizen, you just don’t have a say on how to tax those who make more.  If you so happen to be one of the lucky tens of millions who don’t pay any net Federal taxes, you should consider not voting on candidates who want to tax the upper income earners more.  Just count your blessings that you don’t have to give money to a government that is skilled at wasting your money.  The more noise you make, the more you will draw attention to yourselves, and the Sentinels will find and destroy you.

No income earner is better than another.  Whether you make $50,000 a year or $500,000 a year, you have the same liberties.  There’s only a problem when someone who has no idea of what it takes to make over $200,000 complains that the “rich” should disproportionately pay even more of their income to taxes.

Readers, shouldn’t we trust all wealthy people who’ve been poor before instead of poor or middle class people who don’t know what it’s like to earn more and pay more taxes?

Why do people in the lower income tax bracket think they know what’s best for those in the highest income brackets?

* $200,000 is an arbitrary number since this is the income level that is considered rich by the current administration.  $60,000 is less of an arbitrary number as it is roughly 20% higher than the median per capita income.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. whimsicalmelange says

    I’m one of those middle class voters, but I’ve never thought that the rich should pay a higher percentage of income tax than me. They should pay more because they make more that’s all. It should be the same percentage I pay, and they should should have access to the same percentage of deductions I do. If I made that much money, there’s no way I’d want uncle sam taking it all from me. Hell I don’t want uncle sam taking the money he takes now, but I do like my trade-offs, so I’ll live with it. As for trusting any politician, that’s just a joke. Could we please have the tax code written by intelligent, fiscally-responsible people with no political influence whatsoever?? Oh wait, I just took a trip to fantasy land.

  2. Value Indexer says

    This reminds me of a quote from Winston Churchill that was brought up recently, for which I am planning to write a post soon relating it to personal finance:

    “Civilization means a society based upon the opinions of civilians. It means that violence, the rule of warriors and despotic chiefs, the conditions of camps and warfare, of riot and tyranny, give place to parliaments where laws are made, and independent courts of justice in which over long periods those laws are maintained”.

    If you agree with that, do you think the authority to make the rules comes from those with the most power? If you don’t agree, what warlord have you sworn your life and property to? :)

  3. Romeo says

    Um, no. We shouldn’t trust all wealthy people. For me, it all depends on how their wealth was acquired. That being said, I would trust a wealthy person who started with little more than one who grew up “wealthy.”

  4. PKamp3 says

    “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. ” – Generally attributed to Alexander Tytler, but who really knows.

    So yeah, put me in the anti-attack the rich camp, but historically the quickest way to democratic (small ‘d’) collapse is class warfare on the high earners. Luckily for us, the United States is still a lot better than other places worldwide, and as long as there is a competitive advantage we’ll do fine.

    The second issue I have is complaining about incomes when most people actually have a problem with wealth. When the income tax increases it also hurts people that CNN once called HENRYs – High Income, Not Rich Yets. a perfect example is your software engineer buddy making $450,000 a year but with less than $1,000,000 in savings. When you increase taxes on income you’re hurting the generation of wealth – you’re making it harder for people to become rich. We make this mistake when pointing to things like the Gini Coefficient of United States incomes (it’s something like .48) versus Sweden (.23) and call Sweden ‘equal’. Okay, but as Wikipedia tells me, “77% of the share value owned by households is held by just 5% of Swedish shareholding households”.

    So yeah, we should listen to rich people who’ve been poor. We should also learn from poor people who’ve been rich. What we shouldn’t do is declare high marginal tax rates the panacea to fix our ailing economy. Also, I should write an article on why the Gini Coefficient is unreliable, haha.

    • Financial Samurai says

      I like that a lot, “we should also learn from poor people who’ve been rich.”

      We probably learn a lot more from them!

      I haven’t heard the acronym HENRY’S brought up in a while. Good point!

  5. Patrick says

    I agree 100% that if you have never made more than $60,000 a year you have no business telling those who make more how they should spend their money. It’s like Oprah giving advice on raising children or a Catholic priest giving martial advice, if you have no experience then out of the conversation.

    My biggest problem with Congress is that most of them are responsible for the failed policies that lead to the financial and housing meltdown, why would we trust them to now make better policies? Congress has proven that they cannot manage money so they in no way need more money to spend. I would be much happier if Social Security and Medicare/Medicaid were run as fully independent institutions that were audited by both a Congressional Oversight Commission and an third party with prison time and financial punishment dealt for any wrong doing.

    • Financial Samurai says

      And I want to make it clear I’m not picking on people making $60,000. The amount is probably something under 100K, b/c where the high and lower income earner lives, how much tax subjection there is and all that is different.

      But even if you earn $150,000… it’s MUCH different from someone earning $600,000. $200,000K and below is a protected class, and that’s great. Let’s just protect everyone under $1,000,000.

      • Patrick says

        Another point to consider is the following quote: “Work expands so as to fill the time available for its completion.” ~ C. Northcote Parkinson, Parkinson’s Law.

        In economic terms it has been described as the human nature to spend what you earn. So regardless of whether you make $100,000 or $400,000 you will spend that money. A bigger house, a better car, more vacations, etc. Yes, they might save more, but even then if they put their savings in a bank it allows a bank to make loans, thus it still helps the economy.

        A major point of Parkinson is that Government is always inefficient, so there is no reason to give them more money in the form of taxation because it will just get spent.

  6. Srinivas says

    I think this is good advice for life in general. Taking advice from people who have no experience with the very thing you’re dealing with makes little sense. You wouldn’t want to take financial planning advice from somebody who has no money. You wouldn’t want to take marital advice from somebody who is miserable and unhappy in their marriage. You wouldn’t take fitness advice from a person out of shape.

  7. krantcents says

    I would never look for recommendations from either one. The rich have a vested interest and the lower income individuals are outsiders. Revamping the tax code needs sensitivity to the goal and the impact of the changes. The best people may be tax accountants, lawyers and the Congressional Budget Office.

  8. Income Pirate | Plundering Wall Street for Dividend Treasure! says

    What we need is a flat tax or a fair tax. Just because someone makes more money than someone else, that shouldn’t justify that they should pay more. Poor people aren’t creating jobs. Rich people and entrepreneurs are creating jobs. If you over tax them they will stop creating jobs and takes steps to shelter their money. Net effect is less revenue and less jobs. Nice article…

    Income Pirate

  9. My University Money says

    While I ideologically agree with all of you, how do you best answer that devil’s advocate argument? The USA has seen some pretty decent growth numbers when they had huge marginal tax rates, and an undeniably larger middle class. Was this purely due to a lack of competitiveness around the world in the post-WWII era?

  10. YFS @ Yourfinancessimplified says

    By your logic, it sounds like you’re in favor of the Buffet tax. But to answer your question: “Readers, shouldn’t we trust all wealthy people who’ve been poor before instead of poor or middle class people who don’t know what it’s like to earn more and pay more taxes?” Hell no!. I wouldn’t trust the Koch brother with tax policy just like I wouldn’t trust Buffet with tax policy. Everyone has an agenda and sorry but the rich guys seems to only want things which will benefit them. Tax policy should be structure to be the best for the majority not the minority.

  11. Marcus Baraed says

    The premise of this article seems a little off. It’s probably true that most people who become rich do so through hard work, talent, and tenacity. That explains how they got there, but not why, and it’s probably safe to say that many are driven by greed*. I mean none of the negative connotations associated with the word, they’re simply individuals driven, for better or worse, by an intense desire for personal wealth or power. And as such, I wouldn’t trust this group to develop a tax policy that applies to themselves.

    Then again, I wouldn’t trust any subset of Americans to develop a tax policy that applies only to themselves. It’s just a flawed premise from the start.

    *Of course, not all people who become rich are driven by greed. Many professional athletes grew up quite poor and became high income earners through hard work and talent. Maybe they should write the tax code. Obviously not, but a wacky article deserves a wacky reply.

    • Financial Samurai says

      Sometimes, when things make too much sense, as this article does, it makes readers confused.

      You just have to keep on trying to understand. I’ll write another parable for you, to help you understand why it’s better to get heart surgery from an experienced doctor rather than a 1st year resident.

    • Value Indexer says

      Wanting to make more money isn’t always “greed”. If an athlete plays their sport whether they earn $150 or $150m we don’t call them greedy, so why do we put that label on someone who sees making money as a sport?

  12. Milissa says

    The rich have been telling the poor what they think is best for them for years. Remember trickle down economics.

  13. Sid says

    This is, perhaps, one of the oddest posts I have read in some time. Two assumptions that I hear, 1: the rich (especially those who have been poor) are uniquely qualified to determine their own tax burden. 2: this doesn’t work in reverse–the rich should be the ones to establish the middle class’ tax rate.

    You want to create an oligarchy, though in all practicality we have one at present. This will be our downfall.

    By virtue of your arguments, the best person to decide tax rates for the middle class is one who had riches but lost them.

    Your argument seems to be that the rich should not pay taxes or at least that they should determine their own rate. I would be very surprised were they not to relieve themselves of any obligation.

    Another central assumption at the core of your argument is that it is common, or even expected, that a person can move from one class to another with ease. Check out these interesting graphs from Business Insider read.bi/omdmNq and especially bit.ly/rfQ3l0

    • Financial Samurai says

      There is no argument that the rich should not pay taxes.

      The argument is simply that the middle class, poor, or people who don’t pay federal taxes should be able to raise taxes on the rich who pay the majority of taxes already. If that’s the case, America will always be robbed blind as I would say the large majority of people want to improve themselves.

      The Tea Party might be nuts, but they serve well to provide a checks and balances against a runaway spending government which is robbing tax payers of their money that can be spent more efficiently.

  14. George says

    > Why do people in the lower income tax bracket think they know what’s best
    > for those in the highest income brackets?

    Because there are more voters in the mid- & lower-income brackets.

    • Financial Samurai says

      So you are saying, just because there are more people in the mid-to-lower income brackets, they know what’s best for everyone?

      What about a situation if there is a brilliant individual, or group of people who started in poverty, and made their way to the top 0.01% and understand every spectrum there is. Would they not be better suited to discuss and help those who want to do better

  15. Jimmy says

    The opening analogy doesn’t fit the overall point of this article. Having rich people decide on our tax policy is not like having a veteran surgeon operate on you. While the surgeon cares utmost about the health of his/her patient, the rich are not necessarily looking out for the best interest of the general public. Would you trust cigarette companies to tell you how healthy cigarettes are? Furthermore, just because you have money doesn’t mean you’re smarter or more informed than those who don’t. A law student that chooses to study corporate law over public interest law isn’t necessarily smarter or better than one who doesn’t, it just means the corporate lawyer will be wealthier in the future. Yes, the wealthy should have a voice in the tax policy discussion, but so should everyone else.

    • Financial Samurai says

      Should the poor have a voice on tax policy that affects others though, is the overall point of this article? Why should someone be able to raise taxes on another individual, when that someone doesn’t know what it’s like, or what it takes to make that other individual’s income?

      Imagine if the top 50%, let alone the Top 1% started voting to raise taxes on the 50% who don’t pay any?

  16. Brave New Life says

    Your argument is only valid if you believe that the rich (and their money) do not directly effect laws, regulations, and ultimately, bail-outs.

    As someone that grew up poor and makes aout $175K/year, I have to disagree. The decisions should be made by the majority- not by the rich/formerly-poor.

    • Financial Samurai says

      Your tune might change if you firmly make well above $200,000 or $250,000 as a couple (where the gov’t wants to raise your taxes). Remember, as an individual, you are not being assailed for making $175,000. It’s a great income, but not “rich enough” to feel the backlash of America.

      • Brave New Life says

        Well, luckily I’m planning to retire in 2 years and taking my income down to $36K – primarily from dividends and cap gains. So I won’t have to worry too much about that. :)

        If all goes well, I can get down to the 0% tax bracket. My target is to be a miniature Warren Buffet, where I can have all I need but very little taxable income.

  17. Money Reasons says

    As I drove home from work today, I noticed a new road sign unlike any other that I’ve ever seen before! It was a brite-lite looking sign that was hard to read because it looked like the individual lights were made of lightbulbs that were the size of headlight shining at you. When these bulbs burn out, someone will have to replace them. the entire thing looks like it cost at least $50,000! Talk about government waste of money? Our government (at all levels have got to be the most wasteful people ever!). I think some green, energy concerned protesters should protest such a stupid sigh! It’s something that I wouldn’t even mind protesting myself.

    It’s discrimination! There is nothing fair about it and a group is being singled out to be picked on and taken advantage of.

    Why try to do better if you will be punished for doing so? Horrible message folks in the white house! Their path leads to the destruction of the nation. All the while missing the real problems, instead attacking those that bust their butts and make things happen… sad.

  18. Natalie @ Mango says

    There is nothing like taking the advice from someone who has actually been there, in any situation. For example, did you guys see on the news recently this personal trainer who just intentionally gained 70 pounds? He did it so that he can relate to his clients in losing the weight, as he has never been naturally overweight before. This might be a little extreme, but I think he’s got the right idea. You can’t really speak about something unless you’ve been there; or at least not effectively. I mean, look at Oprah Winfrey. People LOVE her– not because she is rich and powerful, but because she started out at the very bottom and can relate to her viewers. If you’d like, check out our post at Mango about some of the other most powerful women who started out poor; it’s inspirational to see how far they’ve come: http://www.mangomoney.com/blog/trends/forbes-most-powerful-women

  19. jet says

    Here are just some random things to think about:

    This article is off base – it advocates the disenfranchisement of people based on economic class. It assumes that there’s some way to separate “rags to riches” from “born rich” individuals for voting, and completely neglects the “born rich” category altogether in its evaluation.

    Some examples that don’t work for your logic:
    - People who don’t murder shouldn’t have a say on punishment for murder. Don’t murderers know murder the best, so shouldn’t they decide what sentence they should serve?
    - People who don’t have slaves shouldn’t vote on slavery issues. If you don’t have a slave, you don’t understand what it’s like to be a slaveowner.
    The examples above don’t make sense because they assume that the Actors (murderers, slaveowners) are separate from Society as a whole. So, you assume that people that have money haven’t affected others in society in gathering their wealth.

    A rational state should strive for “equality of opportunity” to enable such “rags to riches” stories. There are systemic issues that need to be addressed for equality of opportunity, such as fair access to decent education, healthcare, safety, etc. You address these inequalities with a progressive tax to enable social mobility. Anyone can name cases where people have gone from no wealth to extreme wealth, but the important thing is the larger picture: what is the likelihood of large wealth accumulation over a lifetime for someone born in poverty vs. middle class vs. upper class? Where you start inevitably makes a difference, so a progressive tax helps provide assistance to those who need equal opportunity.

      • jet says

        Yes, that’s exactly what I’m saying… we need to live in a classless society and erect the corpse of Mao Zedong on Capitol Hill. I’m glad we see eye to eye….

        I’m just pointing out that your logic doesn’t make sense. This was done by substituting other examples in the same logical structure. The take-home message that you chose to overlook by making a non sequitur about Communism is this:
        - Just because someone doesn’t have something doesn’t mean they shouldn’t be part of the decision-making process.

        People vote on things that don’t affect them directly all the time: gay marriage, abortion, immigration, etc. And usually the justification that’s used is “for the good of society” or something to that effect. So we as a society acknowledge that people can make decisions for the good of society, even if the decisions don’t directly affect them. Taxation is no different.

        • Financial Samurai says

          I guess it’s like the male lawmaker voting on a woman’s right to choose between keeping her baby or aborting.

          Why don’t we let the people who are affected choose? Who am I to vote on a policy to make you WORSE off?

          Look at all the negative responses I got from “Renters Should Pay More Taxes“. Kinda silly no for a group that pays much less taxes than homeowners. Yet, why is it wrong for those who pay the most taxes already, be upset for having others who don’t pay the most taxes raise their taxes?

  20. Greed Over People says

    When it comes to rape, shouldn’t we trust rapists more than the people who have never had the intention of raping in their lives? In fact, when it comes to murder, why not trust murderers over anyone else, since they should know best?

    ?????

    None of these arguments from you “Greed Over People” folk can serve to sugarcoat the passive and involuntary murder of the less fortunate that we privileged people (especially the SUPER RICH) are guilty of. Having $15 million in the bank or even buying a 5000 square foot house for a family of four is COMPLETELY unjustifiable in God’s eyes considering that there are people starving in the world and/or unable to afford health care.

    Now are you going to tell me that the starving children and the curable cancer stricken mother who work 50+ hour weeks in grueling third world jobs are suffering because they DIDN’T WORK HARD ENOUGH? Because they didn’t work nearly as hard as Paris Hilton or Nancy Walton or the news anchor making $20 million a year?

    ?????

    Or are you going to say “life’s not fair, get over it”? If that’s the case, then why are you crying that it is unfair to take away a tiny percentage of wealth from rich people in order to help others? Poor Carlos Slim Helu will only get to keep $66.7 billion instead of $69 billion!?!? What an injustice and a violation of human rights!!!!! The suffering that Carlos Slim Helu and other rich people will endure by having 5 or 10 (or even 90) percent of their wealth taken is exponentially worse than the suffering of all the starving children that could be fed by that money combined!!!!!!!!!!!!!!

      • Greed Over People says

        I’m not “comparing” anything. Hoarding millions in the bank while others starve and are unable to afford health care IS passive and involuntary murder. Rich people are only able to have that kind of money because others around the world are deprived of their basic rights. And the rich people definitely don’t DESERVE that money, unless you can prove that someone who has $20 million really works 100+ times harder than the average person who has, say, $50,000. And remember that the “average person” who has $50,000 is probably in America or one of the richest countries in the world, so even that person is LUCKIER than most people. Where some is BORN is a matter of luck- it has nothing to do with hard work.

        If you had to bet your life on what God would say about this, do you think He would disagree with the basic premise of what I am saying? If you don’t believe in God, use your own mind and heart to decide. But think about this for at least a few days, because your vision is obviously clouded at this point.

        • Greed Over People says

          At this moment I am still a Ph.D. student, so I do not really have any disposable income yet. Thus far I have done volunteering here and there and donated small amounts of money, but I certainly DO NOT believe that is enough.

          Once I do have a job I am expected to earn close to $100k based on my current career plans, and I plan to give more than half of it to help the less fortunate once I am settled. I plan on buying a modest house around a city where the cost of living isn’t exactly low, but I do think that living on $60-70k a year (which would be less that half of the expected combined income of my wife and I) should be MORE THAN ENOUGH for my family.

          If my wife and I kept 95 or 99 percent of our income for ourselves (like almost all rich people do), we will probably be able to afford a 3500-4000 SQ FT house and drive Lexuses, but I DO NOT think we are entitled to do that while millions are starving and unable to afford health care. We both work hard and we both like nice things, but neither of us will ever work 3 times harder than the average person, such that we should DESERVE $140k while the average family in America has less than $45k.

          That is my perspective. If anything, I would guess that God expects us to be even more generous than we plan to be. I’m not saying it’s easy, but it is the right thing to do.

  21. Greed Over People says

    Who are rich people to vote on a policy that lets them buy a $20 million house while people starve?

    • sampson says

      “Greed Over People” seems to want to discuss the moral implications of having extreme wealth, which seems somewhat off topic in the context of your original post, but I can kind of see what he might be getting at in terms of the “rich people who have been poor before”. You cite things such work ethic and tenacity as the factors that bring people from rags to riches. However, while almost everyone from an underprivileged background must work very hard to achieve wealth, I think “Greed Over People” is trying to point out that it is certainly not the hard work or desire to succeed ALONE which enable people to rise up- there ALWAYS has to be a lucky break or opportunity that puts people in the position of being able to obtain extreme wealth. Take any rags to riches story and you will find a lucky break or opportunity that cannot be attributed to the typical less fortuntate person.

      Once someone gets into that lucky position, they usually have to work very hard to maintain it, but again, the extreme wealth they obtain can hardly be attributed to hard work alone. For instance, to use Greed Over People’s simple “linear model”, nobody with millions or billions of dollars (which is at least hundreds of times the typical person’s wealth) actually works hundreds of times harder, or even ten times harder, than a typical person. In fact, in all honesty, many of those people probably worked much less harder than lots of poor people who never had the lucky breaks or opportunities that they had. I know you’re going to say that a person’s wealth need not be proportionate to how hard they work, and I’m not saying that it should be- I do believe that “enhanced returns” for hard work are often necessary to provide sufficient incentives. I’m just saying that it seems illogical to credit extreme wealth to hard work (or even talent/ambition) without mentioning luck/opportunity at all, and I often wonder why people tend to do this.

  22. Shaun says

    I think the flat tax youre inherently advocationg for is a little extreme. I agree I’d rather a flat tax with no deductions rather than watch some rich people taxed into oblivion while others skate by on laws they wrote for themselves paying next to nothing and having markets manipulated by the tax code resulting in unintended consequences.

    However, what a flat tax essentially is is a proposal to tax the poor more and rich less. I would be ok with a flat tax after a certain point of income maybe 100kish but a progressive tax code helps to ensure the very poor arent starving and trying to rob you on the street because of it. A guy working minimum wage needs that money more than a guy making millions he just does. Try to support even just yourself on minimum wage. No reason these people should have their taxes raised because it wouldnt benefit society if that minimum wage worker could no longer afford his home etc or to keep his kids in scool. If those kids dont get to school the next generation has two dropouts instead of one to deal with so that the rich can hoard all the wealth.

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