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THE TRUTH ABOUT TAXES: Here's How High Today's Rates Really Are


chons

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http://www.businessinsider.com/history-of-tax-rates


 


As the US struggles with amassive budget deficit, the conversation has obviously turned to taxes.


Specifically, what should be done with them.


Obviously, no one likes paying higher taxes, and everyone likes paying lower taxes. But we live in the real world, not fantasy-land. And in the real world, sometimes people have to do things they would prefer not to do--like pay taxes.


But the disagreement on this issue, as well as the facts surrounding it, is intense.


Democrats, to the extent they care about the budget deficit, want to raise taxes, which they say are too low--especially on rich people.


Republicans, meanwhile, generally say that taxes are far too high and that the budget deficit should be addressed with spending cuts. To get the economy back on track, Republicans argue, you need to give Americans an incentive to work hard--by letting them keep more of what they earn. Republicans also argue that raising taxes would clobber an already fragile economy.


So who's right?


Are taxes too high? Or are they too low?


Do high tax rates on "rich people" create a lazy population in which no one has an incentive to work hard?


And what about the Republican mantra that cutting taxes is always good for the economy, while raising taxes is always bad?


Thanks to the Tax Foundation and other sources, we've analyzed tax rates over the past century, along with government revenue and spending over the same period.


This analysis revealed a lot of surprising conclusions, including the following:


  • Today's government spending levels are indeed too high, at least relative to the average level of tax revenue the government has generated over the past 60 years. Unless Americans are willing to radically increase the amount of taxes they pay relative to GDP, government spending must be cut.
  • Today's income tax rates are strikingly low relative to the rates of the past century, especially for rich people.  For most of the century, including some boom times, top-bracket income tax rates were much higher than they are today.
  • Contrary to what Republicans would have you believe, super-high tax rates on rich people do not appear to hurt the economy or make people lazy: During the 1950s and early 1960s, the top bracket income tax rate was over 90%--and the economy, middle-class, and stock market boomed.
  • Super-low tax rates on rich people also appear to be correlated with unsustainable sugar highs in the economy--brief, enjoyable booms followed by protracted busts. They also appear to be correlated with very high inequality. (For example, see the 1920s and now).
  • Periods of very low tax rates have been followed by periods with very high tax rates, and vice versa. So history suggests that tax rates will soon start going up.

Don't take our word for it, though.


 


TopTaxBracket_TaxRate.jpg


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Interesting read.

 

I sometimes wonder though how big an issue the current debt really is.  10 year bonds currently yield 1.7%.  As the world's reserve currency, the chance of a run on American bonds is virtually zero.  It's therefore probably much more palatable for any POTUS to carry on racking up debt than make the huge structural changes that are needed to reduce the debt (let alone the deficit).

 

I don't really like that the world works that way, but apart from the faff of getting a debt ceiling approved I'm not sure if the $18 trillion+ debt is such a big deal.

 

I'm also more and more convinced that the increase in deficit and subsequently debt in the early 2000s was not really driven by any side of the political spectrum, but was actually a consequence of the debt-fuelled boom that preceded the crash.  Our financials during that period were very similar to the US' yet we had a left-wing(ish) government in charge when you had Bush.

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I don't understand this graph... Why is it saying  the income tax rate hit 94% in 1944?

 

Surely that can't be an accurate depiction of what Americans where paying out of their weekly income checks?

 

If they made $1000 they can only kept $60? Doesn't sound like that actually occurred....

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I don't understand this graph... Why is it saying  the income tax rate hit 94% in 1944?

 

Surely that can't be an accurate depiction of what Americans where paying out of their weekly income checks?

 

If they made $1000 they can only kept $60? Doesn't sound like that actually occurred....

Simply read the title of the graph. 

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I don't understand this graph... Why is it saying  the income tax rate hit 94% in 1944?

 

Surely that can't be an accurate depiction of what Americans where paying out of their weekly income checks?

 

If they made $1000 they can only kept $60? Doesn't sound like that actually occurred....

It's the top-rate tax.

 

So yes, in 1944, the very highest tax bracket for wealthy Americans was 94% - I assume that doesn't mean all their income was taxed at 94%, just income above a certain level.

 

Your example is correct.  There was a war on though, to be fair.

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This explains more how taxing works and how no one really paid those high rates anyway. 

 

 

 

 

The 90% Tax Rate Myth
 
There is a "myth" that the economy of the United States chugged along at least in part due to higher taxes on the wealthy in the past. First, this myth, like so many about creating prosperity, ignores that U.S. growth came after two world wars wiped out most of our competitors. Second, the implication is that "the rich" were actually paying 90 percent taxes at some point in history. That's never been the case.

The U.S. tax system uses an "Effective Marginal Tax Rate" model. The EMTR is applied on ranges of earned taxable income. Each taxpayer pays roughly the same amount on his or her income within these ranges. According to the IRS, the EMTR schedule for 2011 is:

Tax Rate Income Range Taxed 10% $0 – $8,500 $8,500 15% $8,501 – $34,500 $25,999 25% $34,501 – $83,600 $49,099 28% $83,601 – $174,400 $90,799 33% $174,401 – $379,150 $204,749 35% Over $379,150 N/A
Everyone paying income taxes pays the same 10% on his or her first $8,500. So, to calculate a person's "Composite Real Rate" you must average (in a manner of speaking) what he or she pays in overall taxes on earned taxable income. For example, if you earn $80,000 in taxable income in 2011, your taxes are  $16,125.10. That's a Real Rate of20 percent. Yes, the marginal rate is 25%, but the Real Rate of tax is weighted towards the 15% bracket.

An income of $150,000 a year? The Real Rate is 24 percent. And that's not the "real rate" as most of us would think of a "real" tax rate. Why is that? Because taxable income is not even close to what most people actual earn. Earned income and taxable income are two different things in government speak.

So, let's get more complicated. When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 — so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.

In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax calculations.

As a result of deductions and exclusions, even the theoretical maximum Real Rate of taxation at 60% in 1944 overstates taxation dramatically. The reality? On earned income, the richest U.S. taxpayers paid close to 40 percent of their earned incomes in taxes in 1944. We simply didn't count much of the compensation as taxable income. 

Allow me to introduce you to Hauser's Law. Published in 1993 by William Kurt Hauser, a San Francisco investment economist, Hauser's Law suggests, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." This theory was published in The Wall Street Journal, March 25, 1993. For a variety of reasons, we seem to balance tax collections within a narrow range.

Since 1945, U.S. federal tax receipts have been fairly constant in terms of Gross Domestic Product (GDP), with taxes ranging from 15 to 20 percent of GDP. The graph is as follows:

U.S._Federal_Tax_Receipts_as_a_Percentag

When people demand higher taxes on the rich, usually phrased as paying a "fair share," they are ignoring how our tax system has functioned historically. We could create more brackets, to tax the top 1% at a higher rate once again, but the net increase in tax revenues wouldn't be dramatic. Why not? Because government spending is near historical highs: we are spending at near-WWII levels. It would be nearly impossible to tax enough to pay the federal bills, and doing so would likely crush the economy.

So, how could we address income inequality if not through increasing taxes? That's really what people are asking when they demand fairness. The real complaint is the gap between rich and poor. I'll address that issue in an upcoming blog entry.

 

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It's the top-rate tax.

 

So yes, in 1944, the very highest tax bracket for wealthy Americans was 94% - I assume that doesn't mean all their income was taxed at 94%, just income above a certain level.

 

Your example is correct.  There was a war on though, to be fair.

 

Wow, and here I am thinking the 35% rate they have today is high. 

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FYI, the top tax rate was for $200,000 and over, which is supposed to equal $2.9 million today.

 

Woof. Imagine hitting that 200k mark back then... You'd only keep $6 per $100 you made after that. Talk about a Bonner killer.

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They did something similar here in the 70s.  It basically hit rock stars and meant once they were onto the second half of the year virtually everything they earnt went to the taxman.  Caused a lot of them to sod off to Monaco.

 

I think i agree with the conclusion of the last article.  The issue is not really how much you tax the rich, but how you close the gap between the rich and the poor.  I have no issue with bona fide once in a lifetime geniuses earning 10, 100, 1000x the national average.  But when fairly run of the mill guys working in financial institutions (such as fund managers) can earn 10x the average something is not quite right.

 

Hmmm. I am somewhat lacking in solutions.

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The desire for the accumulation of wealth beyond a certain can be seen as something pathological IMO, it's not natural, or healthy. 

 

Who sets this certain number tho?

 

For me, I'm never satisfied. Whatever I make or have I want more. I've been this way since I was a child. 

 

People call it ambition.

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Who sets this certain number tho?

 

For me, I'm never satisfied. Whatever I make or have I want more. I've been this way since I was a child. 

 

People call it ambition.

What is the difference between ambition and greed though?  Why do you want more? To buy more stuff, or something else?

 

Btw, I'm not calling you greedy. Just posing something for you to ponder.

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The desire for the accumulation of wealth beyond a certain can be seen as something pathological IMO, it's not natural, or healthy. 

 

Once a certain level of wealth has been reached it is no longer about the money, it's about the buzz, the competition and the deal. For some it's about building a legacy, for others it's about being driven to push beyond their limits in their desire to achieve.

 

Some are in it purely for the risk, some succeed in business simply because it's a skill they possess, in much the same way as any top sportsman possess's skills in their chosen field.

 

 

My brother in law owns his own law firm and has over sixty full time employees. He is way past the point of needing any more money but he still enjoys the buzz and he says that he gets a lot of creative satisfaction by going to trial and often feels like an artist rather than a lawyer.

 

That's why he continues to work, purely for the buzz he gets from it, but of course, while he owns the firm he's making money, and lots of it.

 

 

People always assume the rich are in it for the money and of course, some are, but there are a million other reasons why wealthy people continue to work. 

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Who sets this certain number tho?

 

For me, I'm never satisfied. Whatever I make or have I want more. I've been this way since I was a child. 

 

People call it ambition.

 

I'm kinda like that too. Not that i want more, i actually spend very little on material things, it's just that once i find i can afford something i very rarely want it any more, so rather than waste money buying whatever it is i thought i wanted, i move onto the next thing. I guess it's my way of keeping myself motivated.

 

I think i'm more into achieving rather than owning, possessions mean almost nothing to me. Up until moving to Canada a few years ago, about the only thing i would spend money on was travelling around the Cote d'Azur. That and Ducati motorbikes, lol.

 

 

I should be out earning a crust rather than wasting time on here really. Maybe i'll have to think of something i don't really want to get me motivated, lol.  

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Who sets this certain number tho?

 

For me, I'm never satisfied. Whatever I make or have I want more. I've been this way since I was a child. 

 

People call it ambition.

I don't have an answer for that right now and I'm pretty sure no one does. 

 

You sound pathological to me... Not meant as a troll or a dis, as I'm pathological about certain things, just not money. 

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there should be a flat rate of tax for everyone except the top 1% and the poor

I can sort of agree with that, but... I'm reading up on consumption vs income tax right now. The more I'm reading on income tax in the States, no matter what the rate, it's all shenanigans. 

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Once a certain level of wealth has been reached it is no longer about the money, it's about the buzz, the competition and the deal. For some it's about building a legacy, for others it's about being driven to push beyond their limits in their desire to achieve.

 

Some are in it purely for the risk, some succeed in business simply because it's a skill they possess, in much the same way as any top sportsman possess's skills in their chosen field.

 

 

My brother in law owns his own law firm and has over sixty full time employees. He is way past the point of needing any more money but he still enjoys the buzz and he says that he gets a lot of creative satisfaction by going to trial and often feels like an artist rather than a lawyer.

 

That's why he continues to work, purely for the buzz he gets from it, but of course, while he owns the firm he's making money, and lots of it.

 

 

People always assume the rich are in it for the money and of course, some are, but there are a million other reasons why wealthy people continue to work. 

I seriously doubt the buzz would be the same if the money wasn't involved. 

 

I'll believe it when I see the wealthy continue to work without acquiring more wealth. Give me some examples. 

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I seriously doubt the buzz would be the same if the money wasn't involved. 

 

I'll believe it when I see the wealthy continue to work without acquiring more wealth. Give me some examples. 

I suspect there are a few examples out there (Bill Gates springs to mind), but they would be the fabulously, farcically wealthy who are multi-billionaires who become a bit altruistic in later life

 

There is nothing wrong with aspiration, but I think a lot of society aspires to the wrong thing(s).

 

One of my favourite quotes at the moment is "We give up our health to make money, then we give up our money to regain our health".  Kinda captures the futility of a lot of capitalist consumerist living....substitute health for family/happiness/contentment and it still holds true a lot of the time.

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I seriously doubt the buzz would be the same if the money wasn't involved. 

 

I'll believe it when I see the wealthy continue to work without acquiring more wealth. Give me some examples. 

 

 

I agree money is one of the key motivator's, especially in the beginning, but money also becomes almost a by product, as in the case of my BIL.

 

I've got wealthy mates back in the UK, some operate on the wrong side of the law, some are straight up legit, but they are motivated in many, many, different ways.

 

 

There is one thing they all share in common though, and i include myself in this, they do what they do because they love what they do and don't class it as work.

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I suspect there are a few examples out there (Bill Gates springs to mind), but they would be the fabulously, farcically wealthy who are multi-billionaires who become a bit altruistic in later life

 

There is nothing wrong with aspiration, but I think a lot of society aspires to the wrong thing(s).

 

One of my favourite quotes at the moment is "We give up our health to make money, then we give up our money to regain our health".  Kinda captures the futility of a lot of capitalist consumerist living....substitute health for family/happiness/contentment and it still holds true a lot of the time.

Logically, how is Bill Gates an example when he has acquired more wealth than almost anyone? 

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I agree money is one of the key motivator's, especially in the beginning, but money also becomes almost a by product, as in the case of my BIL.

 

I've got wealthy mates back in the UK, some operate on the wrong side of the law, some are straight up legit, but they are motivated in many, many, different ways.

 

 

There is one thing they all share in common though, and i include myself in this, they do what they do because they love what they do and don't class it as work.

How many in your example continue to work without acquiring more wealth? 

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How many in your example continue to work without acquiring more wealth? 

 

Question: do you see being a musician as work or are you lucky that you're able to do what you love doing and, i assume, make enough to get by?

 

If i remember, you said recently you were recording an album. If sales take off and you make a mint will you give up music?

 

If you make more albums you'll acquire more wealth whether you seek it or not but will your motivator remain your love of music?

 

 

 

To answer your question, they all continue to make wealth. 

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Question: do you see being a musician as work or are you lucky that you're able to do what you love doing and, i assume, make enough to get by?

 

If i remember, you said recently you were recording an album. If sales take off and you make a mint will you give up music?  

Hmm... sounds like you are avoiding my question, but I'm supposed to answer yours? 

 

I don't make money by playing music, I make money as a "sound engineer",. People in my line of music (being in a band costs money), don't make mint, but I'll play. If I made 10 million dollars (arbitrary number, could likely be considerably less), I would continue to make music, but not continue to take more money for it. I didn't say anything about giving up the job... 

 

So... again... who in your example continues to work without acquiring more wealth?

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To answer your question, they all continue to make wealth. 

 

 

 

Hmm... sounds like you are avoiding my question, but I'm supposed to answer yours? 

 

I don't make money by playing music, I make money as a "sound engineer",. People in my line of music (being in a band costs money), don't make mint, but I'll play. If I made 10 million dollars (arbitrary number, could likely be considerably less), I would continue to make music, but not continue to take more money for it. I didn't say anything about giving up the job... 

 

So... again... who in your example continues to work without acquiring more wealth?

 

 

You see it as work, others don't.

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You see it as work, others don't.

Semantics. I enjoy recording and mixing live music, it's still work. 

 

And your tricksy edit!

 

 

 

If you make more albums you'll acquire more wealth whether you seek it or not but will your motivator remain your love of music?

 

I can make as many albums as I want, this doesn't mean people will by them, or that the royalties will offset the cost of being in a band that plays the music I do. The motivator for everyone in the music scene I am involved in is either ego, or the love of music. Money being made is an incredible rarity, which is why 99.99% of all musicians in my scene have "normal jobs", on the side. I'm not exaggerating here. 

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Here's some insight on taxes...

 

I work and make a lot of money.  That puts me in one of the top brackets.  You can say my effective tax rate is lower, but whatever.

 

Add my wife to the equation.  Every dollar she works for is now taxed at high tax for federal and state.  Telling her that her effective rate is actually lower would be insulting.  The high tax rates do make it discouraging.

 

33% Federal

9.3% State

More taxes:

15% Self employment tax

?% Property tax

?% Gas tax
?% Sales tax
?% Medical taxes (obamacare really screwed us hard).  Why do I pay $400 a year in taxes just for my kids EpiPens?
?% other taxes

Those are todays taxes.  It's hard to compare our taxes to other countries taxes.  They have different benefits than us and are taxed for different things than us.  It's also difficult to compare today to the 1930's.  Were state taxes that high?  What about self employment taxes that didn't exist?  What about all the other taxes?

 

Back to the wife situation.  Last year she made $50,000 and we paid $25,000 for daycare for our kids.  After counting all the taxes, it actually cost us more to put the kids in day care and have her make $50,000 than if she just didn't work.  That is very discouraging.

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Logically, how is Bill Gates an example when he has acquired more wealth than almost anyone?

Because he continues to work without acquiring more wealth.

 

I guess it's fairly easy to be altruistic when you've made several hundred billion but he's still an example. He's definitely the exception not the rule so the point still stands.

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High tax rates work for boosting the economy in the short run because of spikes in spending. Long term though, as shown by crystal clear data literally all over the world, they do little to grow the economy. In fact they do the exact opposite. 

 

Rich people need money to give to middle class people with ideas and ambition. There is a reason we squash every other country when it comes to innovating. And not one of those innovations was the result of a government ordering it to be done. 

 

Garbage post is garbage. You have no money, no ambition, and no drive chons. It's why the transfer of wealth is so appealing to you. 

 

Stay angry. Stay broke. 

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Because he gives away massive amounts of money to philanthropic endeavors to the tune of double-digit billions so far.

That has nothing to do with the point I was making.

 

Because he continues to work without acquiring more wealth.

 

I guess it's fairly easy to be altruistic when you've made several hundred billion but he's still an example. He's definitely the exception not the rule so the point still stands.

Are you claiming that Bill Gates no longer makes money for himself?

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That has nothing to do with the point I was making.

 

Are you claiming that Bill Gates no longer makes money for himself?

No.  He makes plenty of money for himself (without doing very much)

I'm claiming that he spends a lot of time doing work that doesn't increase his wealth. His foundation takes up most of his time apparently and gives away shedloads of money.

I don't think that the existence of a small number of very wealthy philanthropists undermines your point though.  I would agree that the vast majority of the rich work not for the buzz but to increase their wealth.  So let's park Bill.

 

What did you dig up on consumption v income tax?

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High tax rates work for boosting the economy in the short run because of spikes in spending. Long term though, as shown by crystal clear data literally all over the world, they do little to grow the economy. In fact they do the exact opposite. 

 

Rich people need money to give to middle class people with ideas and ambition. There is a reason we squash every other country when it comes to innovating. And not one of those innovations was the result of a government ordering it to be done. 

 

Garbage post is garbage. You have no money, no ambition, and no drive chons. It's why the transfer of wealth is so appealing to you. 

 

Stay angry. Stay broke. 

Personally I'd take a world where the majority shared Chons' economic world-view than your own.  I think most would be better off.

 

Trickle-down economics has been consistently shown to fail, and that makes people angry when not as much trickles down to tips for entitled waiters.

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I can sort of agree with that, but... I'm reading up on consumption vs income tax right now. The more I'm reading on income tax in the States, no matter what the rate, it's all shenanigans. 

every country has shenanigans, no matter what tax system used, closing the loop holes is the only way to go but as we live in a corporate world where these guys fund the government campaigns to get a say on policy, nothing gonna change really

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every country has shenanigans, no matter what tax system used, closing the loop holes is the only way to go but as we live in a corporate world where these guys fund the government campaigns to get a say on policy, nothing gonna change really

Flat tax rate with absolutely no loop holes is the only way to go but will never happen unfortunately

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Personally I'd take a world where the majority shared Chons' economic world-view than your own.  I think most would be better off.

 

Trickle-down economics has been consistently shown to fail, and that makes people angry when not as much trickles down to tips for entitled waiters.

 

Except if you have an idea right now thats good, specifically in tech, money will be thrown at you. Take at look at shark tank. Take a look at the amount of new startups created in America. It's never been a better time to be a middle class entrepreneur. There are websites dedicated to getting money from the rich. 

 

Check out https://angel.co/

 

You are wrong Bubba. Its working. Get an idea, find your ambition, move to America, and make it come true. Or sit in your ****ty class system you are in. Until then, stay angry.

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Except if you have an idea right now thats good, specifically in tech, money will be thrown at you. Take at look at shark tank. Take a look at the amount of new startups created in America. It's never been a better time to be a middle class entrepreneur. There are websites dedicated to getting money from the rich. 

 

Check out https://angel.co/

 

You are wrong Bubba. Its working. Get an idea, find your ambition, move to America, and make it come true. Or sit in your **** class system you are in. Until then, stay angry.

You seem to be a little bit out of date with regards to global macro-economics and the success rates of middle class entrepreneurs.

 

This is not about me; I'll likely retire in 10 years, which at 40 is a nice position to be in.  I'm the least angry person i know.

 

It's the inequality between the very rich and poor that is at question here.  I believe that a huge percentage of people are disadvantaged by the current system.

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You seem to be a little bit out of date with regards to global macro-economics and the success rates of middle class entrepreneurs.

 

This is not about me; I'll likely retire in 10 years, which at 40 is a nice position to be in.  I'm the least angry person i know.

 

It's the inequality between the very rich and poor that is at question here.  I believe that a huge percentage of people are disadvantaged by the current system.

 

Whats the success rate of an upper class entrepreneur? Businesses fail all the time. No doubt. But your best chances at starting a company and being successful is in America period. That is unquestionable. And its because we have people at the ready to give you their money. Its not taxed into Oblivion like other countries. Its you thats out of touch with whats happening in America. 

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