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Wealth vs. Income

Warren Buffett (Photo by Alex Wong/Getty Images)

There seems to be an awful lot of press being devoted to who makes what in terms of income. CEO’s are sited as making several times what the rank and file worker is making. The gap between the rich and poor, according to many, is widening. The rich are getting richer while the poor are getting poorer.

Wealth and Income Are Not The Same

Many pundits seem to use wealth and income interchangeably in their writings. But there is one big difference most of them miss. Income is taxed; wealth is not. People like Warren Buffett have great wealth but little income and that accounts for why his secretary pays a higher tax rate than he does.

Buffett simply takes his income as dividends that are taxed at a much lower rate while his secretary’s income is taxed under the normal progressive tax brackets.

As you can see it’s very possible for someone to have a lot of wealth but to not actually be rich. Warren Buffett’s salary is reported to be around $100,000. Well below the $250,000 target that the president has his sights set on.

Which Would You Rather Be

Which would you rather be? A brain surgeon making $300,000 a year or a middle management executive making $150,000 in his or her job and $150,000 in income from hotel ownership? If anything happens to the brain surgeon that income stops. But if the middle management person loses his job he still has enough passive income to keep a roof overhead and food on the table while he replaces his lost income.

The Rich are Bad Because?

For those that benefit from the vilification of the rich there is no better target than corporation CEO’s. None of these people could possibly be worth that much money for running companies that employ thousands of people. Their salaries and compensation packages are off the charts obscene to the average rank and file worker. They are the worst bloodsucking parasites on the planet.

Yet no one seems to vilify Oprah for her wealth and net worth. I don’t see anyone complaining about Kobe Bryant’s paychecks. Is Carrie Underwood grossly overpaid for singing a few songs?

Some Final Thoughts

When we put things in their proper perspective, there are good and bad people up and down the income ladder. There are always going to be people who set up fly-by-night businesses to take advantage of the weak and vulnerable.

Real wealth seldom happens unless you help someone. CEO’s serve at the pleasure of a board of directors. That CEO can be shown the door at any time. The fact that he or she negotiated a favorable severance pay should fall on the shoulders of the board of directors who ultimately answer to the stockholders of the company — not the CEO.

There are many reading this that would consider the accumulation of wealth as greed. I would consider the accumulation of wealth as security. Is investing part of your salary into a retirement plan greedy? Is a contribution to a health savings plan selfish? Are you a bad person if you belong to a health club when you could be giving that money to charity? Some would say yes. What would you say?

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