0% Tax Bracket Is A Race To The Bottom – Episode 484

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today, we’re gonna be talking about 0% taxes. Wouldn’t that be great? No, we’re gonna talk why it’s a race to the bottom. Kim, you actually shared this with me. So I’m looking to quote unquote, pick your brain to find out why this is something we should not be focusing on. Well, you know, it’s a great marketing line. Oh, 0% tax bracket. Oh, you know, that’s appealing. And you hear people like Robert Kiyosaki, Donald Trump, occasionally talk about this kind of thing. But I think more often you hear it from marketers that may or may not be involved in the life insurance industry. And the reason that they talk about it

[00:51] is that you can take, notice my words, money, not borrow against, although technically that’s what they’re doing from a life insurance policy and have it be tax-free. And that sounds super cool. You know, the idea of a 0% tax bracket is appealing even to me. And yet like so many things, it’s a one sentence lie and an entire paragraph to get the truth out. So that’s what our job is today really is why pursuing a 0% tax bracket is a race to the bottom. And I love the language of the race to the bottom because there’s a few other things that we do in our society that are races to the bottom. So let’s talk about those so that it fleshes out the context of the story. And I think one of the ones that everybody can relate to

[01:56] is cheaper and cheaper goods. So if you look at, I mean, just look at the shirts you and I are wearing right now. Like your basic shirt could have easily been $20, $30, $40 maybe, you know, I’m not talking to name brand, but I am talking with a little bit of quality. You can get them, again, with a little bit of quality for $10 today. And we all know that you can get a shirt for $2, right? And that probably doesn’t have quality. So this is an example of a race to the bottom. And I am going to say that Walmart has really supported this. And a lot of people go to Walmart for a lot of things and there’s nothing wrong with that. And yet the idea of something getting cheaper and cheaper and cheaper,

[02:46] and I am using the word cheap on purpose, is where we need to watch out because we vote with our dollars. We say, I’m okay driving down quality and driving down all the other pieces and the parts and the amazing things that Walmart does, like transportation and shelf space and all that kind of thing, yet that is a race to the bottom. I mean, I cannot get that shirt to be zero unless I’m trading it for time or something else. And so our tax environment is the same way. If we are trying to literally pay zero taxes, we are trying to race our dollars to the bottom and you cannot win that race, especially as an individual. No different than an individual could ever compete with Walmart as a general store.

[03:41] Even a tiny little miniature store, they probably couldn’t ever compete with Walmart as a general rule. One or two things, sure. So this race to the bottom mentality, I find is a little bit scary. And especially when it applies to our income because the way to have more lifestyle, the way to have more freedom, the way to have more capability is to earn more income. Does that require that you pay more tax? Yes. And so I think a fun, arguably trick question that we can ask our listeners is would you rather pay more tax or less tax? I’ll tell you which one hurts a little bit more. Ha ha ha ha ha ha. But it’s definitely a perspective, a way that we look at it. Yep. And I know for my life in the early years,

[04:40] I didn’t understand that distinction. And yet the more profit our businesses make, the more taxes we pay, the more income, so separate sentence, the more income that we earn, the more taxes that we pay, and yet we do everything possible, including owning businesses, having real estate, investing in oil and gas deals, doing all of the new stuff. So like the solar credit, the research and development credit, the employee retention credit, like we do everything legally possible to reduce our taxes. And yet I will never ever have a 0% tax bracket as my goal, ever. Yeah, so I want to, I’m not gonna push back, but there are narratives out there where I think it’s misleading people. And so I wanna use an example,

[05:38] and I came about this because I intentionally wanted to get a pulse on different marketplaces. So what I did is this, and it may sound strange to others, but I went and created a couple new Instagram profiles, and they were brand new accounts. And then I went and followed specific categories. So I went into like business and opportunities and side hustle categories, and then I went into like a finance, and I just followed accounts and I trained the algorithm. So now I can go through and I get a really clear pulse of what’s happening. So I wanted to give that context. So in one of the recent videos was Grant Cardone. He’s really well-known business person. And some may agree with him, many may not.

[06:28] That’s okay, no judgment at all. But one thing that he said was, hey, you know, like I pay less taxes than all of you, and I’m making all this money because I went and bought my Gulfstream jet. So as you mentioned, Kim, that is what will hook the people in as good marketing. But in reality, you’re seeing what’s happening. And you did mention all of the credits and those pieces. So that’s where I kind of knowing that landscape that listeners may have been aware of that. I wanna kind of push that towards you and then unpack it. Absolutely. Warren Buffett does the same kind of commentary. He’ll say, I pay less taxes than my secretary. Well, that’s not what he means. That is so taken out of context

[07:17] because while his tax bracket may be less percentage wise than his secretary’s tax bracket, who I’m sure is a very well-paid secretary, and yet because she is a W-2 employee and probably has no deductions, he as a business owner can deduct things. And so that causes his marginal tax bracket, which is the highest tax bracket, those dollars that come in at the very end of the year, if you will, it may be lower than hers because of that, but it isn’t less dollars. It might be the smaller percentage, but it’s not less dollars. That’s ridiculous. I mean, you just have to step back for that for a second and think about it. And my guess is that Grant Cardone’s similar situation. It might be the lower percentage tax bracket

[08:13] because of the deductions that he gets from his jet, obviously helpful to him. And yet it’s not less dollars. And it is so easy to get mistaken around financial math. And then also when we start trying to compare percentages in dollars, which should not be compared ever, and yet we mix them up all the time, it really causes confusion. And there is great school math, and then there is financial math. And this is why I have been forever grateful for my husband and his Truth Concepts calculators. And actually, even before that, when I was 22 years old, literally straight out of college, I went straight into a training program at what was then Arizona Bank, it’s now Bank of America in Scottsdale, Arizona.

[09:03] I learned on an HP12C financial math, and it requires things like future value calculators, present value calculators, et cetera, et cetera. And I learned things like marginal tax brackets, which your average consumer shouldn’t really think that they know. I mean, they do think that they know it. That’s the sad thing, but they really don’t. I know I didn’t at that stage and had to learn it, and it’s been so valuable ever since. So like all things, we wanna shed a prosperity thinker’s lens on these comments, these little sound bites, like I paid less than taxes, or I want a 0% tax bracket, because wrapping it back around to the life insurance space, this scares me all the time. And that is you have these people saying

[09:57] that you can earn income from your life insurance policy. Again, nice sound bite, 100% correct, but taken out of context, because your life insurance policy should be the absolute last asset that you turn to for income. You should turn to all of your other things. In fact, primarily your qualified plan money, your retirement dollars, 401k, IRA, 403b, profit sharing, all of that space, all those dollars should be used first, because they’re the worst asset to die with. And then you should turn to real estate and stocks, bonds, mutual funds that are not in the retirement plans. And then towards the end of the game, you pick up social security and maybe some other things. And then the very end of the game,

[10:46] you want to take income from your life insurance policy. And sometimes it is actually better to actually take the income and pay some tax rather than borrow against it, which is what these 0% tax people are talking about, and use the loan to create the income, which you can absolutely do short-term, but holy cow, if you start that in your 60s and 70s, and you’re gonna live to 90, 100, 110, 120, there’s almost no way it can work. It can, I will admit, if you start a life insurance policy in your 20s, and you pay into it for 50 years into your 70s, maybe even 60 years into your 80s, yes, you could take some tax-free income. And yet, you still will get more benefit if you let that life insurance policy go

[11:38] to the last asset, and you stop having this race to the bottom goal that you’ll never ever win of a 0% tax bracket. Absolutely, that is 100% race to the bottom, as you mentioned. And I think that it’s the, as you let out the beginning of this conversation, we can get enticed, like we’re basically being fish, we’re getting hooked in with something, and then realizing it’s not what it is. I wanna add in one other piece, which is a question for you, and it’s a prosperity lens, a perspective to it. So it’s this, we know that we’re not going to be racing to the bottom so that we pay zero taxes, because if that’s the goal, we’re not really adding value. So what is the approach? What would you say would be the appropriate

[12:30] principle of prosperity that we focus on? Is it that multiply piece? Is it a flow? What would you say that is so that we’re looking to grow and not just defer and go 0%? So I think the goal should be efficiency and effectiveness of assets, and also the job of getting the dollars to keep moving. We talk about in our seven principles, move is the sixth principle. We want our dollars to be moving, because of course when they’re stagnant, like stuck in retirement plans, they’re not as effective or efficient. And then furthermore, to enable those moving dollars to get the multiplier effect of the way that I have said it for years and holy cow, if I can make this clearer to help people understand it,

[13:27] I would be so appreciative of anybody sharing with me, oh, this is what you do, or this is what you say, and this is how I finally got it, this multiplier effect of getting the dollar to do lots of jobs so that it’s more impactful. Real estate, $1 does six, seven, eight, nine, 10 jobs. Life insurance, $1 does six, seven, eight, nine, 10 jobs. You put those two together, you’ve got 16, 17 jobs, that a dollar moving through assets can do. And this is the multiplier effect. And I think Robert Kiyosaki, for example, has spoken about this for years, but people don’t understand how to actually do it. This is the conversation that listeners need to hear. Forget your 1% and really do this. Take the time to think it through.

[14:19] Kim, I think one of the best ways that people can do that is reaching out to you. There’s a link inside of the description of these show notes so that you can get specifics to your use case. And for me, I know early in my 20s starting, I thought that my situation was unique or I was gonna be able to shortcut something. Now in my 40s, I realized there are no shortcuts. You just have to get really good people to help you along the process. So you helped quite a bit with this. And for any of you, don’t worry about buying the Gulf Stream. Just focus on the principles of prosperity and you’ll do fine. Well said. Perfect. Thank you, Kim. It was a pleasure. Thank you for listening to the Prosperity Podcast.

[15:07] To take control of your money and have it work for you, visit ProsperityThinkers.com.