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In this episode, Chelsea dissects our cultural misconceptions about billionaires, the origins of success, and the bootstrap mindset that plagues our understanding of what people can realistically achieve with hard work alone.

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Hey, guys.

It's Chelsea from The Financial Diet. And this week, we are going to be talking about Taxing The Rich.

See this very ill-fated dress. But more specifically we are talking about changing our relationship to the uber wealthy in this society. We have this situation where we sort of simultaneously understand that the super wealthy are a big part of a lot of our social problems.

But we also tend to idolize them in our culture and/or assume that there is something unique about them that led them to be super wealthy in the first place, even when their personal lives are a hot mess. See Elon Musk's aggrieved first wife and 17 children, Jeff Bezos's cringe-worthy divorce, or Richard Branson's teeth. The Uber wealthy may be able to launder their reputations to the extent that we still perceive them in a sort of superhuman way, but another part of the problem is that our concept of what the rich actually is, especially when we talk about things like taxing them, is very skewed.

As I've said before in this channel, I am a normal, regular, degular wealthy person. And, yes, that means that there are a lot of elements of my life that are easier. And as a business owner, that means that my business is successful and profitable.

But the life that I live and the constraints within which I live it are still much closer to a person on a normal middle class income than they have anything to do with a billionaire. And when it comes down to who is truly not paying their fair share, or being held accountable to society, the upper middle class, and I'm not saying this to save my own skin, are generally not the problem. So when it comes to understanding and dismantling our relationship with the uber wealthy, first we have to define our terms.

And when we talk about the super rich, often we can't even conceptualize what that means because it's so far outside of any normal scales that we would use. As one recent article in The Guardian put it, the data tells us that the 15 best CEOs in tech have a combined annual income of over $83 billion, which is greater than the entire gross domestic product of hundreds of countries. Tech moguls are now so rich that it's not unusual to see shocking comparisons that demonstrate exactly how egregious their salaries are.

When Bezos was touted to soon become the world's first trillionaire, and he isn't yet, but his net worth of $144 billion puts him on track to become one by 2026, we learned that he was richer than entire countries, and later also found out that he was richer than combined countries. Take, for example, Jamaica, Iceland, Tunisia, and Estonia. And, as for Elon Musk, he could pay this author's monthly rent after less than 30 minutes of work, which makes you wonder why he violated California's stay at home order to keep the Tesla factory open and why he sued local authorities after he was forced to shut it.

We can all understand how eager he must be to continue his work, but a global pandemic feels like a good moment for pause. But, then again, when you have so much money, it may just not matter. Musk's net worth is almost 20 times the entire budget of the county that he sued.

So when we're talking about the wealthy here, we're not even talking about the same scale that we would use to compare one person's income to another person's. We're talking about disproportionate levels of power that put them more on par with entire governments. And when one person has more wealth than five or six combined nations, we're talking about a level of disproportionate power that puts them in an entirely different category.

But part of what keeps us from really holding these people to account is our persistent misconception that the rich are that rich because they work so much harder. And let's be clear. It is simply impossible that any executive, even some of these amazing mega-mind ones, could work 66,000 times harder than one of their entry level employees, which is what their pay differential would put them at.

But when it comes to this perception that working harder automatically equals being wealthier, it's just not true. And, first of all, [BLEEP] working harder, in general. Why are we even aspiring to that?

It is 2021. The entire point of optimization and our combined productivity with both human and computability was supposed to make life easier and less work heavy for all of us. Why are we going in the wrong direction to try and prove how busy we all are to each other?

The fundamental perception that working harder equals earning more money just infinitely scales makes no sense in practice. Because, yes, there are limited ways in which certain data will show to us that wealthier people tend to work more hours than lower income folks. But that completely sets aside the fact that for most of those super wealthy people, they actually have no need to work.

So their work is not being fueled by a desire to advance as much as it is fulfilling an addiction to the work itself, as well as the power status and comparative wealth that it generates for them. But someone working a few more hours a day, even if it were true across the board, should not translate to them automatically deserving to be paid 1,000 times more, or more, than another person in the organization. But more than a third of all Americans, and more than half of all Republicans, believe that the rich are rich because they worked harder than everyone else.

When pressed for proof, they'll usually point to surveys showing that the rich spend more hours working and fewer hours in leisure activities than everyone else. But, first of all, the rich work more because they can. They have the option to work more hours.

Most middle class and poor Americans have very little control over their work schedules, and that is assuming they can even find a job in the first place. 13% of workers can't find a full time job. And virtually none of these workers are in the 1%. Even if we were to make the argument that working harder generates more money, the idea that this would scale infinitely makes no sense and is also incredibly damaging paradigm for us all to be chasing after.

It's a lot of what puts people on this hamster wheel of constantly feeling the need to be busy, to prove their worth in purely capitalistic terms, or to take on more work than they need to buy things that they don't. Even if it were somehow true that Jeff Bezos works a billion times harder than everyone else, why would that be something that we would want to reward as a society? And, lastly, it is ridiculous to think that working more hours is what generates the majority of rich people's wealth after a certain point when the majority of their wealth comes through passive streams of income, like the stock they own in their companies or their various investments and assets and real estate and all of that shit that they have going on all over the world at any given time.

But the idea that people get super rich just because they work super hard becomes even more laughable when you consider that most wealthy people are not truly self-made when we take into account economic class. Yes, it's true that most of them did not start as billionaires, but there is a big difference between coming from nothing, a la Don Draper, or my more underrated but in my opinion better Nucky Thompson from Boardwalk Empire, which I recently binge watched. Coming from an upper middle class or even upper class background that just happens to not be a billionaire background, does not mean your self-made.

But the media does basically everything it can, both in pop culture representations and in the very selective propagating and boosting of dubious data, to perpetuate the myth of the self-made billionaire. To quote one piece from, of America's current 400 richest people, gushed Forbes, 70% made their fortunes entirely from scratch. Forbes made the same observation last year, too.

And most news outlets took that claim at face value. But in its just released new report, United for a Fair economy extends the baseball analogy to last year's Forbes 400. UFE defines born in the batter's box, those Forbes 400 rich who hail from poor to middle class circumstances.

About 95% of Americans overall currently live in those batter box situations. And just over a third, or 35%, of the Forbes 400 come from these backgrounds. Just over 3% of the Forbes 400 have left no good paper trail on their actual economic backgrounds, but over 60% remaining, all grew up with substantial privilege.

Those born on first base and upper class families with inheritances up to $1 million make up 22% of the 400 richest. On second base, households wealthy enough to run a business big enough to generate inheritances over one million made up another 11.5%. On third base, with inherited wealth over 50 million, sits 7% of America's 400 richest.

And last, but not least, the born on home plate crowd, which represent 21.25% of the total Forbes list, all inherited enough to "earn" their way into the top 400 status. The entire idea of the self-made billionaire assumes that coming from basically anything short of already being a billionaire qualifies you as self-made. But anyone who's lived in America for more than a week is aware of the fact that, if you grow up in a household where you're inheriting a $1 million or in a household where everything from your education to your basic safety and needs are met without question to growing up in a condition where you may not have enough food to eat, all basically determine your future in totally different ways.

We actually compared to most European nations have fairly low class mobility. And, on aggregate, most wealth in this country is inherited. But we have such a hard time letting go of this idea that the rich get rich because of their own hard work and ingenuity.

And this false notion of class mobility is, basically, the entire premise of America and Shark Tank, both of which are dear to my heart. But what's perhaps most dangerous about this misconception about wealth, and our refusal to count growing up in privilege as what it actually is, is that it leads us all to believe that if we just work hard and play it right, we could become billionaires, too. It prevents us from advocating for ourselves on a class basis if we're always aspiring to that higher class and imagining that it's just a matter of working harder to get there.

To quote the somewhat disputed John Steinbeck quote-- and, honestly, it doesn't matter who said this [BLEEP] [? banger ?] either way-- "socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires." And perhaps where we most need to get some class consciousness going in the chat is when it comes to our understanding of exploitation and how the super wealthy actually earn their wealth. You do not need to be a Marxist-- scholar in order to understand the basic concept of economic exploitation as he laid it out. To paraphrase, workers in a capitalist society are exploited insofar as they are forced to sell their labor power to capitalists for less than the full value of the commodities they produce with their labor.

Without a concept of the real value of labor, we have a tendency to forget what the workers, producers, laborers, and facilitators are actually creating within a company and even subconsciously believe that if a few executives at the top are earning massive disproportionate salaries, it's because it's only their expertise and ingenuity that's allowing the business to be successful and profitable. But this is absolutely not true. The vast majority of the value of these companies come from the labor of their workers and the commodities that those laborers produce.

And especially when you consider companies which are publicly traded and are therefore more beholden to their shareholders than they are to their employees, it almost guarantees that employees will never be truly compensated as their worth because that cuts back on the profit they're able to display quarter over quarter. But when we look at all of these mega billionaires that are constantly being idolized in our society, you peel back the curtain slightly and you can see that it is a very clear pattern of exploitation that allowed them to accrue that level of wealth. Bill Gates became wealthy through other people's labor.

He built Microsoft through relentless resource extraction. The plastic rare metals and energy to build and power the computers and manufacturing plants are the results of slavery, oil drilling, and child labor. And these exploitative processes happen wherever you look.

Jeff Bezos is the world's richest man, and his Amazon employees qualify for food stamps and can be fired for taking bathroom breaks. While Mark Zuckerberg became a billionaire primarily by exploiting our privacy and our psychology. There are undoubtedly periods in billionaires back stories where their ingenuity and some good timing allowed them to make huge advances more or less on their own where their competitors didn't but there comes a point at which the accumulation of wealth and power, both against their own employees and their customers and the infrastructures in which they are carrying out business, essentially guarantee that the continued exponential growth comes from exploiting others.

And it's not just individuals. See Amazon, basically, shaking down various cities like mob bosses to get the best deal on a new factory. And this becomes all the more insulting when you consider that the super rich on the whole do not pay taxes like the rest of us have to.

One important distinguishing factor between the everyday wealthy and the super wealthy is that most people who are everyday wealthy are still being heavily taxed because most of their income is likely coming from their actual salary, and they are carrying out their day-to-day business in a way that subjects them to all kinds of oversight and being obligated to follow the tax code as it exists for everyone. But let me say, that being said, even amongst the more marginally wealthy, like myself, taxes should be higher, especially in certain states and cities throughout the country. For example, when we were incorporating TFD as a business, most of the professionals we consulted advised us to do it in Delaware or another state that's very friendly for business taxes.

We chose to do it in New York City because that's where we live, and that's the community we want to be supporting. But that does mean a higher tax burden for us, and the fact that it's so easy to simply get around that, even for a tiny upstart business is, in and of itself, a problem. But the improvements that need to be made around both business and individual taxes at the, let's just say, large range of normal, don't even hold a candle to the changes that need to be made for the uber wealthy and the corporations that they control.

Because, when it comes to their personal taxes, these people are paying amounts nowhere near reflective of what they actually are worth because the vast majority of their income is not in any kind of salary or bonus. Billionaires don't pay much income tax as they don't have much of an income. They have capital gains and dividends from investments.

In short, their money creates more money, not their labor. And the United States taxes this much lower than wage income, and they further reduce this rate by doing charity and taking deductions for interest payments to credits for business owners, et cetera. According to ProPublica, Warren Buffett's wealth grew by $24.3 billion between 2014 and 2018.

He paid 0.1% taxes on it. Meanwhile, Elon Musk's wealth grew by $13.9 billion, and he paid 3.27% in taxes. And then come the corporate taxes.

In 2018, Amazon posted income of more than $11 billion, but the company paid zero in federal taxes. In fact, thanks to tax credits and deductions, Amazon actually received a federal tax refund of $129 million that was a year after Amazon received a $137 million refund from the federal government for 2017. And Amazon actually did pay federal taxes in 2019.

Yes, king. But the idea that we should be surprised, or even praising these massive corporations for paying taxes, is a huge part of the problem. Because, while we like to make such a huge distinction in this country between private enterprise and the government that's always getting in their way, private enterprise only thrives in a healthy infrastructure provided by a solid government.

Taking the example of Amazon, where the hell do you think the roads come from that they have to drive on to make their deliveries? And, by the way, those deliveries themselves, especially in more rural areas, are massively reliant and subsidized by the US Postal Service which is, survey says, the government. And I mentioned the fact that charity is often used as a way to further offset these tax burdens.

But perhaps the most insidious way in which we misperceive the super wealthy in this society is by thinking that they are massively charitable, which they are not. And, even when they are, their charity is often something we should be much more skeptical of. First of all, as a percentage of overall wealth, studies after studies show that the very wealthy are not on average more charitable than people of normal incomes.

It sounds like they're giving a ton of money because the actual raw number is so high. But, when you consider it as a portion of their overall wealth, it's actually very much on par with average and often below it. But for the uber wealthy, their more elaborate foundations are often both a way to launder their reputations and to avoid and distract from more substantive policy changes that would make it so that one man didn't have the personal discretion to handle the wealth of several European nations exactly as he sees fit.

The extent to which these billionaire foundations, basically, get a free pass in terms of the glowing media coverage they provide is really egregious because anyone who takes a minute to look under the hood of some of these organizations, or see the result of some of their investments or the extent to which they rob governments of rightfully deserved tax money is pretty egregious. Let's take Bill Gates as an example. Last year Gates announced that he would be donating $300 million to COVID-19 Relief, and that is a massive number, but it's pocket change to the second richest person in the world.

According to his estimated wealth, it's a measly 0.3% of his overall net worth, and Mr. Gates earned back that $300 million within just two weeks of donating it based on what he earns from his passive investments. And the paltry amount that's actually being donated at scale is compounded by the fact that once the money is actually in these foundations, where it's going is by no means unproblematic.

The Bill and Melinda Gates Foundation, like many charitable foundations, has pretty little oversight over how its money is invested, and their foundation funds have been well invested. According to the nation, it has earned $28.5 billion in investment income over the last five years. During that same period, the foundation has given away only $23.5 billion in charitable grants.

At the same time, the foundation has turned to companies where they have invested their money to implement their charitable program. The foundation has made more than $250 million in charitable grants to companies in which the foundation holds corporate stocks and bonds with the grants directed at projects like developing new drugs and health monitoring systems and creating mobile banking services. And Linsey McGoey, a Professor of Sociology at the University of Essex, sees this as a dangerous conflict. "It's been a quite unprecedented development, the amount that the Gates Foundation is gifting to corporations," says McGoey. "I find it flabbergasting, frankly." They've created one of the most problematic precedents in the history of foundation giving by essentially opening the door for corporations to see themselves as deserving charity claimants at a time when corporate profits are at an all-time high.

And we're not even going to get into all the shit that's gone on in Africa with that foundation. But I'll link you guys to some reading material and description. And when you consider that so much of this charitable giving is money that was otherwise going to the tax base of the areas in which these businesses are operating, it's not as if they're really being that particularly charitable with their own money.

They're just not paying taxes the way they should be. But we allow ourselves to create a paradigm in which we think that an individual should have as much discretion with how to operate hundreds of billions of wealth as an entire society. And we have a tendency to forget just how much that society itself, both of the individuals and the labor they provide, as well as the government and the infrastructure that it enables, contribute to this vast wealth, and are just as deserving of having a say in it as that one weird guy who just loves getting divorced, like all of them do.

If there is one thing that we need more of in this country it is class consciousness. It is an awareness of who we're talking about when we talk about the rich and the extent to which inequality is a real problem. But we will never change and, ultimately, improve our relationship with these people if we don't first rid ourselves of the two worst misconceptions.

That there's something uniquely special about these people that made them super rich, incorrect, and that we maybe one day will be just like them, absolutely incorrect. These people are very much the opposition and we don't need to be dazzled by their acts of charitable giving and how many ribbons they love to cut. We need to be taking their money via taxes and spending it the way a healthy society should.

All right, comrades, as always, thank you for watching. And don't forget to hit the Subscribe button and to come back every Monday, Tuesday and Thursday for new and awesome videos. Goodbye.