Rich dad poor dad chapter 4 summary (lesson 4 – The history of taxes and the power of corporations)

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In chapter 4 lesson 4 of Rich Dad Poor Dad, Robert Kiyosaki discusses the history of taxes and the power of corporations. He explains that the rich utilize corporations to protect and grow their wealth, while the poor and middle class rely on jobs and pay the majority of taxes. 

Kiyosaki traces the roots of modern taxation, arguing that taxes have been used since ancient times by governments to fund wars and expand empires.

He contends that big business and government have become intertwined, with politicians supporting policies that benefit corporate interests rather than citizens.

Kiyosaki advises seeking financial education to understand how money works and using legal entities like corporations to build assets and minimize taxes.

In this blog post, I’ll explain the rich dad poor dad chapter 4 summary with important points, keynotes, Analysis, and the complete review and reflections. So, let’s dive in.

Rich dad poor dad chapter 4 summary

Rich dad poor dad summary chapter 4 lesson 4 – The History Of Taxes And The Power Of Corporations

In Chapter 4 rich dad poor dad, Robert Kiyosaki shares the fascinating story from Rich Dad Poor Dad about the history of taxes and how the rich use corporations to their advantage. 

Robert recounts the lessons his two fathers – his educated but poor dad, and his undereducated but rich dad – taught him about money, taxes and corporations. 

Robert starts by telling us how his educated dad admired Robin Hood as a hero who stole from the rich to give to the poor.

But his rich dad called Robin Hood a crook, saying “Why don’t the rich pay for it?” or “The rich should pay more in taxes and give it to the poor” has caused great pain for the poor and middle class. The reality is that it’s the educated upper middle class who pay the most taxes, not the rich. 

The rich dad explained to Robert that originally in America, there were no taxes except for temporary taxes to fund wars.

But in 1874, England introduced permanent income tax on its citizens, and in 1913, the USA did too after the 16th Amendment.

Initially, these taxes only applied to the rich. The idea was sold to the poor and middle class as a way to punish the rich.

But the government’s appetite for money grew, and soon taxes trickled down to the very people who voted for them.

While the poor and middle class don’t have the resources, the rich use their money and power to minimize taxes and change laws to protect themselves.

They hide behind corporations – which are just legal documents, not physical things. The income tax rate for corporations is lower than personal rates, and expenses can be paid pre-tax.

Robert’s highly educated dad advised him to get a secure job and work his way up the corporate ladder. But his rich dad chuckled, “Why not own the ladder?”

Rich dad reminded Robert about the power of money and corporations. If you work for money, you give your power to your employer. If money works for you via a corporation, you keep the power.

When Robert was in his mid-20s working for Xerox, he finally understood. His paycheck deductions were so high, the harder he worked, the less he seemed to benefit.

On his rich dad’s advice, Robert started his own corporation in 1974 and invested in real estate. Soon he was making more money from his assets than from his Xerox salary. His money was now working for him.

The financial intelligence Robert gained from his rich dad allowed him to gain power and get out of the rat race early.

Robert explains the four main areas of financial intelligence:

  • Accounting,
  • Investing,
  • Markets,
  • Law.

Mastering accounting allows you to understand financial statements and see strengths/weaknesses of a business.

Investing provides strategies to make money grow.

Understanding markets helps supply/demand analysis.

And legal knowledge, especially regarding corporations, provides protection and tax advantages.

Robert emphasizes how corporations allow so many more tax deductions and pre-tax expenses.

For example, vacations as board meetings, car payments as expenses, and so on. Corporations also protect your assets from lawsuits.

The rich use them to hide and control their wealth while owning nothing themselves individually. 

Also read: Rich Dad Poor Dad Chapter 1 Summary (Lesson 1: The Rich Don’t Work For Money)

Important discussions:

The chapter discusses the history and purpose of taxes, the power of corporations, and the importance of financial intelligence.

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Taxes

– Originally, taxes were only temporary levies to fund wars. Income tax was made permanent in England in 1874 and in the US in 1913. 

– Taxes were initially portrayed as only applying to the rich. But government spending increased, and taxes expanded to include the middle class and poor.

– The “Robin Hood” ideal of taking from the rich to give to the poor backfired, as the rich found ways to protect their money while the poor and middle class paid more in taxes.

– The rich use legal loopholes, corporations, tax advisors, and their financial knowledge to minimize taxes. The poor don’t have these resources and get “bullied” by the tax man.

– The author worked 5 months just to cover taxes. Taxes increase the harder you work. The rich aim to have their money work for them, rather than working for money.

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Corporations

– The rich protect their assets and minimize taxes through corporations. A corporation limits liability and allows tax advantages like deducting expenses.

– Corporations enabled the wealthy to limit losses to the amount invested in each voyage in the days of sailing ships. The poor didn’t have this advantage.

– Despite his educated dad advising him to work for a corporation, the author started his own corporation early on. His real estate investments through his corporation exceeded his salary.

– The author’s first Porsche was bought by his corporation, using pre-tax dollars. His money worked for him, instead of him working for money.

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Financial Intelligence 

– Corporations also provide legal protection. The poor try to own everything and lose it. The rich own nothing but control everything through entities.

The chapter emphasizes the importance of financial intelligence and owning corporations to build lasting wealth. This allows the rich to grow assets and minimize taxes in a way the poor and middle class do not.

In summary, Robert learned from his rich dad that financial intelligence, comprised of accounting, investing, markets and legal knowledge, is the synergy of skills that creates wealth.

Mastering the use of legal entities like corporations provides huge advantages, as business owners can earn, spend pre-tax and then pay taxes on what’s left.

Whereas employees earn, pay taxes, and only then spend. Robert advises readers to learn about protecting assets with corporations as part of their overall financial strategy.

Also read: Rich Dad Poor Dad Chapter 2 Summary (Lesson 2: Why Teach Financial Literacy?)

Rich dad poor dad lesson 4 (Review and Reflections)

Here is the Rich dad poor dad chapter 4 review and reflection briefly discussed with main points, key evidence and summary:

Introduction

In Chapter 4 of Rich Dad Poor Dad, author Robert Kiyosaki continues his comparison of the financial philosophies of his two fathers to teach readers about the history of taxes and the power of corporations.

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Rich dad poor dad chapter 4 lesson is that: “The rich utilize corporations to protect assets, while the poor work for money and pay taxes which support the rich.”

In other words, “Taxes and corporations have shaped history; The rich structure businesses and investments to minimize taxes; the poor pay taxes out of their hard-earned wages.”

The main purpose of this chapter is to explain how the rich utilize corporations to minimize taxes and protect their assets, while the poor and middle class lack this knowledge and end up paying more. Kiyosaki aims to educate readers on the power of owning corporations.

Main Points 

1. Originally, taxes were only temporary levies to fund wars 

– In England and America, there were no permanent taxes except occasional taxes to pay for wars 

– The first permanent income taxes were enacted in 1874 in England and 1913 in the U.S.

– Initially, income taxes only applied to the rich 

2. The idea of taxing the rich gained support through the “Robin Hood fantasy”

– The masses voted for taxes on the rich as a way to “take from the rich and give to the poor”

– Kiyosaki argues this Robin Hood mentality ultimately hurts the poor and middle class 

3. As government spending grew, income taxes expanded to the middle class 

– Once government got a taste of tax revenue, its appetite for money grew rapidly 

– To fund expanding government spending, taxes had to expand to lower income levels

– Kiyosaki says the poor and middle class suffer most from taxation

4. The rich utilized corporations to minimize taxes

– The rich put money into corporations to limit liability and reduce tax exposure

– Corporations can use pre-tax dollars for expenses and get taxed at lower corporate rates

– While income taxes expanded, the rich protected assets in corporations

5. Financial IQ and corporations are key to building wealth 

– Kiyosaki defines financial IQ based on accounting, investing, markets, and legal knowledge

– Corporations utilize accounting, investing, and legal skills to accelerate wealth growth

– Kiyosaki argues understanding corporations is vital to grow assets

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Key Supporting Evidence

– In 1874, England enacted a permanent income tax on all citizens, and in 1913 the 16th Amendment allowed the U.S. government to levy a nationwide income tax. This shows that income taxes are a relatively recent development.

– The taxes levied to pay for World War I were initially marketed as taxes on the rich but quickly expanded to the middle class. This demonstrates how “tax the rich” policies ultimately affect broader groups.

– Kiyosaki provides his own experience: he reduced his tax burden by putting assets in a corporation, proving the tax minimization benefits of corporations.

Conclusions

Kiyosaki concludes that financial knowledge, especially regarding corporations, is essential for building wealth and preventing the middle class from paying excessive taxes.

He predicts that the gap between the financially educated and uneducated will continue growing, as the rich utilize tools like corporations. The argument seems well-supported by historical examples.

Analysis  

This chapter contributes an important perspective on how tax policies impact the poor and middle class.

By tracing the history of income taxes, Kiyosaki shows how corporations have been used by the wealthy since the 1800s to protect assets.

However, the chapter is limited by providing only the author’s viewpoint without engaging with other perspectives on income inequality. 

The assessment that the middle class suffers most from taxation seems debatable. And the book lacks current data on economic trends.

But the chapter speaks to issues like tax avoidance by corporations that remain relevant. Overall, the chapter makes a thought-provoking claim that corporations propagate class divides.

Summary

Summary of rich dad poor dad chapter 4:

Rich Dad Poor Dad Chapter 4 summarizes the history of taxes, arguing they were originally limited to the rich but expanded to include the middle class over time.

As taxes increased, the wealthy utilized corporations to reduce their tax burden.

The chapter’s key point is the rich deploy financial tools like corporations unavailable to the poor and middle class.

Kiyosaki concludes that learning about concepts like corporations is necessary to build wealth and gain financial security.

While limited in scope, the chapter contributes a provocative perspective on the power of corporations in protecting the assets of the wealthy.

Also read: Rich Dad Poor Dad Chapter 3 Summary (Lesson 3 – Mind Your Own Business)

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