By understanding the tax code and the legal system, the rich stay one step ahead of the systems designed to rein them in.

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When Robert was back in school, one of his favorite stories was the tale of Robin Hood and his band of Merry Men – the pack of traveling vagabonds who stole from the rich to give to the poor. It was a thrilling story, he thought – but his rich dad disagreed. To him, Robin Hood seemed like a crook.

You see, rich dad blamed the Robin Hood fantasy for inspiring the tax system he despised. Just as Robin Hood took money from the rich and gave it to the poor, so too did the government try to take from the rich to give to the needy. But, as rich dad explained, they didn’t actually succeed. 

The way rich dad saw it, it was the middle class that ended up shouldering the burden of taxation, not the rich. The rich were far too clever and well-equipped for that, and deflected tax with sophisticated tools.

One of the tools that the rich use to shelter themselves from tax is the corporation. A corporation is allowed to spend pre-tax dollars, after all, and is only taxed on what remains after expenses. Individuals, on the other hand, are taxed first – and only then are they allowed to spend the remainder. 

It’s an important distinction. Imagine if you were only taxed on the part of your salary you didn’t spend! By shielding their assets using corporations, the rich can avoid paying tax like the middle classes and the poor do.

But that’s not the only benefit a corporation offers the rich. When you form a corporation, it limits the amount of money that you can lose if your enterprise goes under. Think of it this way: if you, as an individual, default on a loan, you need to sell your possessions, declare bankruptcy, and do whatever else the law of the land requires.

But if a corporation fails and can’t repay its creditors? Well, the owners lose their investment – but that’s it. No one comes and takes their personal belongings. No one reclaims their houses. Corporations allow the rich to reap huge financial rewards without facing comparable risks.

So what’s the lesson here? It’s this: By understanding the tax code and the legal system, the rich stay one step ahead of the systems designed to rein them in.

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