There's a reason people have been using the expression "the rich get richer" for so long. It's true.
“Class warfare:” Lately this old term has been taking on new life as political theater, a way to rebuke Wall Street protestors, and, predictably, fodder for Fox News. According to Google, in just the last month alone, 3,870 articles have been published containing these words.
Another way to express the concept of rich vs. not-so-rich is the expression, “The rich get richer and the poor get poorer.” It’s been around for a long time: According to Wikipedia, William Henry Harrison went there in 1840…
“I believe and I say it is true Democratic feeling, that all the measures of the government are directed to the purpose of making the rich richer and the poor poorer.”
And long before that, even the Bible weighed in…
“For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.”
– Matthew 13:12, King James translation
I’m not going to take a stand on either side of the “class warfare” debate by saying that the rich do or don’t take unfair advantage of the rest of society. This is America, where we all have the potential to become rich, and this is a website designed to help you do just that. But I will say this unequivocally: The rich do get richer, or at least have the potential to. Let’s count the ways…
1. Housing bargains – but only for the wealthy and uber-wealthy
The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors — vulture funds. These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value. You and I will not be allowed to participate.
The reason “you and I will not be allowed to participate” is that these properties will only be sold to those that can bring “a billion dollars or more to each transaction” – entities like hedge funds, foreign sovereign wealth funds, or companies like Goldman Sachs.
Even if you’d like to buy just one home at public auction, prepare to show up with serious cash. Traditional foreclosure auctions where individual properties are sold at the largest discount typically require cash within 24 to 48 hours. See our story How to Buy a Foreclosure.
2. Tax breaks are good – especially if you’re rich
As we said in How the Price of Milk Might Lower Your 2012 Taxes, inflation-indexed tax brackets and exemptions translate to lower taxes for all taxpayers. But if you’re a single filer with taxable income of $50,000, you’ll only save $95 in 2012 over 2011. A couple filing a joint return with taxable income of $450,000 will pay $732 less. Granted, the wealthier couple also paid a lot more in income taxes, but when you consider the amount of money that results from tax breaks, you’re talking Mercedes payment vs. cell phone bill.
Mother Jones has more eye-popping numbers regarding taxes in this article. One example…
Bush’s tax cuts gave a 2-child family earning $1 million an extra $86,722 – or Harvard tuition, room, board, and an iMac G5 for both kids. A 2-child family earning $50,000 gets $2,050 -or 1/5 the cost of public college for one kid.
3. Hedge funds: You must be this rich to ride this ride
Hedge funds are investment pools that allow their managers to use sophisticated (and sometimes risky) techniques and investments like futures, shorting, and borrowed money to try to beat market averages. Some are successful, some aren’t. But if you want to sit down and play this game, bring lots of chips. A typical minimum investment is $2.5 million, but many have much higher admission prices.
4. Borrowing is easy – if you don’t need the money
Mark Twain is credited with the expression, “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
For the first time since records have been kept, rates last week for 30-year mortgages dropped below 4 percent. Unfortunately, to get those rates you’ll need plenty of money down and an excellent income and credit score. No problem for the rich, big problem for the struggling.
5. Buy low and sell high: easier if you’re rich
The greatest advantage the rich have over the not-so-rich is the ability to capitalize on bad times. Whether it’s cars, boats, houses, stocks – even household help – prices plummet as demand drops and supply increases. If you’re one of the huddled masses, you’re focused on staying alive until next week. Those with the cash have the ability to focus on the future, buying low now to sell high years from now.
6. Good credit is money in the bank
Unless you’re an idiot, the more income and money you have, the easier it is to maintain a good credit rating. A good credit rating means paying less for everything from borrowed money to car insurance.
Bottom line? Being rich is good
As I said above, I’m not offering an opinion on whether the rich should pay “their fair share,” or whether either political party best represents “the people.” And I don’t believe in warfare, class or otherwise. But there’s one thing that’s undeniable: Having money makes it easier to get more.
That’s why this website is called “Money Talks” and hopefully why you’re here!