Episode 108: The War on Wealth with Derek Bullen

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This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to The WealthAbility Show, where we're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder, and CEO of WealthAbility.

                So the attack on wealth creation, is it an attack on the middle class? Is it an attack on business owners? Why is it that, and not just in the US but worldwide, there seems to be this idea that if you're wealthy or making money you're bad, and if you're poor that's virtuous? Or if you are an employee working for a union, that's virtuous, but if you're actually a wealth creator, somehow you're bad? So I've been dying to have this conversation with somebody who really understands it. And I've got Derek Bullen with us today, who has written a book In Defense of Wealth. And Derek, it is just great to have you on the show.

Derek Bullen:

Thank you, Tom. I'm pleased to have a discussion today. You're exactly right. The pejorative view against those that create wealth for everybody that benefit everybody, it's so commonplace and it's so wrong. And the facts say otherwise, wealth creators are immensely beneficial to society.

Tom Wheelwright:

A little bit about your background. I mean, I'm in this from the tax side and everybody knows me from that side. How'd you get into this topic and why are you talking about it?

Derek Bullen:

Well, Tom, I have a company in Canada, a company called S.i. Systems and we're IT consultants. And as we've grown it, I've just had more and more conversations with people. And it's just they demonize me for going out there and running a business, and paying taxes, and employing other people that pay taxes. And somehow there's this common thread that I'm part of some kind of problem. And it got exacerbated after the Great Recession and that whole, “We are the 99% movement.”

                I think my whole idea started with the book when somebody on Facebook said, “Hey, you don't pay your fair share of taxes.” And I said, “Hey, listen, the top 10% of people that earn in Canada, which isn't a high bar, it's over 90 grand a year.” I said, “We pay for half of the personal taxes every year. Just 10% of the people in Canada pay for half the taxes.” I said, “If you didn't want us in this country, you'd have half the roads, half the schools, half the hospitals, half the firemen, half of everything that you enjoy-“

Tom Wheelwright:

And half the jobs.

Derek Bullen:

And half the jobs, yeah. Probably more than half the jobs, because I think the top 10% probably creates most of the jobs.

Tom Wheelwright:

Yeah. Interesting that it's not just the US. I think this is fascinating, because we've seen this in the US. We have Alexandria Ocasio-Cortez wearing a dress to MET, a like $5,000 dress saying “Tax the rich” on it. And this has been this discussion for the last several years in the US, but you're finding this in Canada as well.

Derek Bullen:

Yes. And it's even more acute in the US. Like in the US, if you work really, really hard and you're in the top 1%, let's actually talk about the 1%, you made say $546,000 a year. You're the top 1% of taxpayers in the United States, and the US gets about 1.6 trillion a year in income taxes paid. That 1% that everybody demonizes in the US, they pay the same amount of personal income taxes every year as the first 90% in the US. The first 90% are getting a free ride on the 1%, but you never hear that in the mainstream press or from our politicians.

Tom Wheelwright:

So it's interesting. Where did this come from? Why do you think wealth creators, as you call them, which I agree with, it's basically entrepreneurs, where do you think this came from that wealth creators became the enemy?

Derek Bullen:

Well, I think there's a huge swing bias to the left. If you look right now in the States, right now the population of the States, 31% are on the right, 24% are on the left and the majority of 43% are in the middle, moderate. And that hasn't changed for 30 something years. However, when you go look at the universities and the media, oh, my gosh. In the universities, only 12% of the faculty is on the right. 60% are on the left. When you go look at the media, even if you look at something like financial journalists, two universities, Arizona State and Texas A&M went and surveyed financial journalists. Because they said, “These people must surely be on the right.”

                But even in that camp, only 4.4% of the journalists are on the right. 60% are on the left. And I think if you're teaching kids or if you're trying to sell papers, socialism ideologically, it's very popular when you first hear about it because it's based on empathy, and caring, and virtuosity. However, they don't tell you the ugly side of socialism that you will be poor and a lot of you will die. And so I think this media echo chamber on the left and public sentiment of being virtuous, I think that kind of exacerbates these stories about, “Let's demonize the 1%.”

                A, there's not a lot of them to fight back, and B, it's immensely politically popular. It sells a lot of papers and nobody's actually talking about the real story. They make them out as if they're a problem, but they're actually one of the core things that make society work. You could look at China without them and China with them. China without wealth creators in the 60s and China with wealth creators now, and you can see a radical transformation in the standard of living upwards.

Tom Wheelwright:

Yeah. Let me ask you though, but we do definitely have a wealth gap and there's no question. We have an income gap and a wealth gap. We have both of them. And that's true in every country and it's actually true between countries. I find it interesting, the bottom 1% of the US is in the top 1% of the world.

Derek Bullen:

Correct.

Tom Wheelwright:

And so we go, “Wait a minute. We're the 99%.” No, you're not. You're the 1%. You're actually the 1% of the world. But how do you deal with that wealth gap then? Because there's no question there's a gap there. I mean, I don't think there's any question, there's a big gap. And I think there's no question there are certain of the rich that I would argue don't contribute a lot to society, from the standpoint of the financial markets, the Wall Street people, the hedge funds and the hedge fund managers, et cetera, what are they doing to create wealth? Now, main street creates wealth all day long. What the solution there? I mean, we definitely have that gap. So what do you do about it?

Derek Bullen:

Well, there is a gap. But this is the thing, the global effect of wealth and poverty is that as the rich have become richer, more and more people have come out of poverty. And there's always a few bad actors in every crowd. But if you look at these people as groups, it's a myth asserting that as the rich get richer, the poor get poor. That's not true. And the business of creating wealth lifts over 50 million people a year out of poverty. In 1980, the world had about 15 billionaires in 1980. Today, there's almost 3,000.

                And the percentage of the global population living below the poverty line declined from 45% to 22%. Even in the States when President Johnson started the war on poverty in 1964, 19 and half percent of the US population lived below full income poverty line. And today, it's only 2.3%. And as you said, Tom, that 2.3% compared to people around the globe, they're actually faring quite well. So as the rich got richer, the pie got bigger and there was more for everyone. And there were other spinoffs too.

                Like you can go to an emerging market, a Third World country, and smartphones and the advantages of being connected and the advantages of being able to connect to an education, to knowledge, to facts, it's available to them. If you look at our largest companies in the United States, over 50% of their income comes from foreign countries, about 50%, over 50% for technology. And there's a cost of that because you have to put an infrastructure over there.

                And if you look at what these companies have done in places like India, which is our biggest business process outsourcer, they've given jobs that didn't exist before to women in India. Traditionally women did the free work in India, cook, clean, take care of the house. The men did the paid work, and now it's equal opportunity and women can get highly paid work in India, Over 50% of the BPO workforce in India servicing our US companies is female. It's a tremendous benefit. The spinoff just go on and on so as the richer got richer, the poor got less poor.

Tom Wheelwright:

Interesting. I have to admit, I was in Southern Africa a few years ago. And we ended up in this small village and I just happened to notice that most people in that small village, they had very modest housing and smartphones. And I thought how interesting that they would have smartphones in this small village in Zimbabwe. And even though they live very modestly, clearly it has raised their standard of living there. Why do you think it raises the poor when you raise global wealth? Why do you think that does raise them up? What's the cause and effect there?

Derek Bullen:

It's definitely new jobs and it's definitely global trade. So global trade is the exchange of money between nations. So in 1991, global trade, the exchange of wealth between nations was about 3.9 trillion. Today it's 30 trillion. It's up almost 800%. And as money trades, so does profit. When Boeing outsourced a lot of their 777 jet, they realized they also outsourced much of its profit. The US is still the greatest nation on the planet. It's a third of the global GDP in the US.

                And as the US started to outsource its manufacturing to China, it outsourced much of its profit to China, and brought China up from almost the 20th largest economy on the planet to be the second largest economy on the planet, just by outsourcing to China. So this global exchange of money raises the income of other countries. If you outsource to a country, you also outsource some of your profits to that country. I think that's what's raised it. And you know Tom, there will always be poor people.

                There's people who can't work. There's people who aren't interested in working. I think that's the majority of the two, and there will always be a group like that. When you have wealth creators around, the group that are truly poor is much smaller. When you remove the wealth creators or penalize the wealth creator, the group that's truly poor becomes much larger.

                Like in Venezuela, when they became socialist with Hugo Chávez nationalized the industry, if you look at where that got the country, a very prosperous, wealthy country with one of the world's largest oil and energy reserves, and oil is like over $100 a barrel now, 90% of the population live below the poverty line there. The average Venezuelans lost 24 pounds due to malnourishment. That's what happens when you remove or handicap all the wealth creators in the society.

Tom Wheelwright:

That's exactly it. So that's the middle class. The middle class is really where the wealth comes from. It's that. The top 0.1%, I mean, there are some mega rich people in there. And yet I have always find it interesting that the people who complain about the mega rich order everything on Amazon, and I'm just going, “So how do you think Jeff Bezos got to be mega rich? It's because you're ordering on Amazon.” I find that so interesting that those who have facilitated our new economy, are the ones who are most demonized.

                But my real question is, so if we're going to bring people up, my theory is, and I just want to run my theory, my theory is this is an education issue. This is a matter of the middle class in any country comes because they've got better education than the poor. And the real solution to the poor is to increase their education. So I'd like your take on that theory.

Derek Bullen:

I think you're correct. I think it's education and I also think it's civil rights. If you look at the United States, China, Canada, Sweden, large modern economies, women have the same rights as men to participate in the economy. If you look at emerging markets, or markets that are handicapped or markets where there's a huge poverty class like Saudi Arabia or Malaysia, women don't have the same rights. And prior to women getting rights, you have to get this educational component where women have the same right to education, and then the same right to apply that education in society.

                And as well coming in with a sustainable population. If you look at countries that are educated, the population rate declines, and it allows us to moderate more how many of us there are on the planet in a very natural way. So women that are educated, tend to know when they want to have babies, and when they don't want to have babies. Women who aren't educated lose that right. So I think education and women's rights go hand in hand. And I think that as countries… Like I think, was it just Mexico or was it Columbia that finally allowed women to use birth control?

Tom Wheelwright:

I'm not aware of that one.

Derek Bullen:

I think it was Columbia. And that again is a byproduct of education. So equal rights between the two sexes, and equal ownership rights between the two sexes, and equal choices between the two sexes, and equal opportunity between the two sexes, I think comes after you have education. And I agree with you, Tom, education is a great equalizer in all societies.

Tom Wheelwright:

I think it's interesting to look at Afghanistan as a case in point during the US years. In Afghanistan, you saw women with jobs, you saw women getting educated, you saw a very different level. And I thought the worst thing we did was how we pulled out of Afghanistan, because we left those women to really who have always known prosperity to now be sucked back into basically the Middle Ages. And I think it's once we start that education, I think we have responsibility to keep going down that educational path.

Derek Bullen:

Correct. And again, back to your thing about the smartphones, we can begrudge people for making a lot of money for technology or other devices. I think Henry Ford and Rockefeller were two of the first original billionaires on the planet. But Henry Ford revolutionized transport, supply chain, everything, by building the Model T and everybody benefited. And we're benefiting people with the smartphones. And I think where… Like look at Afghanistan. Now women are back to doing free labor. You do the labor for free. Oh, and you're not allowed to be educated anymore.

                You're not even allowed to go to school in Afghanistan if you're female. That's a Taliban tenet. Now at least they have access to information. You can even see it now with this war in the Ukraine, Russia is really trying to limit the access to information coming over the internet. And when society has free access to information, I think the society gets better educated, it gets more prosperous. All these things, you're right. They just lead to prosperity.

Tom Wheelwright:

Hey, if you like financial education the way I do, you're going to love Buck Joffrey's podcast. Buck's a friend of mine. He's a client of mine. He's a former board certified surgeon and he's turned into a real estate professional. So he has this podcast that is geared towards high paid professionals. That's who he's geared towards. So if you're a high paid professional and you're going, “Look, I'd like to do something different with my money than what I'm doing. I'd like to get financially educated. I'd like to take control of my money, and my life, and my taxes,” I would love to recommend Buck Joffrey's podcast which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

                Yeah. Let me go back to one thing you said, which was how when you have more wealth that lifts everybody, right?

Derek Bullen:

Correct.

Tom Wheelwright:

A rising tide lifts all ships, so to speak. And this idea that socialism… The question is, do you have unequal riches or do you have equal or poor? Are we equally poor or do we have unequal rich? Because that's really the trade-off. This is socialism. You tend to have everybody's poor. I mean, if that's your goal is for everybody to be the same, everybody's going to be poor. Not everybody's going to be rich. We've not seen that in society before.

                But there is this class warfare that's going on. But I think it's a class warfare between, like you say, the colleges, the universities, that group and the left and the middle class, as opposed to a class warfare really between the upper-middle class and the lower-middle class. How do you see that? And how can people that are… I mean, the primary wealth creators are this entrepreneur. That's the primary wealth creator. They create more per dollar and per hour than any other single group of people. What can we as entrepreneurs do about this class warfare?

Derek Bullen:

Yeah, I think you're right. The middle class, the top 1%, we're all on the same side. And unfortunately because of the bias in our universities, 50% of our Gen Z and 50% of our Millennials think socialism and capitalism are equally attractive. It's really, really sad. I think getting the real story out on a few things, like you brought up Amazon and Jeff Bezos is easy to demonize as, “Wow, you've got too much money.”

                But when you look at the story from the perspective lens of the middle class or the top 1%, you have to look and you have to say as a CEO or an entrepreneur, it's like you're creating a buffet for everybody, everybody in your community, you buy the food, you cook the food, you serve the food. And if at the end there's enough left that you can have a plate for yourself, you get to keep that. And these entrepreneurs, even Bezos, only keep a fraction of what they make.

                And so if you look at last year's narrative, “Wow, Bezos assets increased in value by 57 million,” what you're missing that benefits the working middle class and the top 1% equally, is that Amazon isn't owned by Bezos. He owns a small piece of the company he created. He owns 10%. The vast majority, 60% is owned by institutions, banks, insurance companies, governments. Bezos may have got 57 billion. They got half a trillion dollars.

                And that middle class area that's running, every time you get a bank loan, or the insurance company pays you to repair a house fire or some other similar disaster, or you borrowed money for a car, or if you're a teacher in California and you're getting a pension now because you're retired, Amazon's wealth creation was working for you. 90% of it was giving back to society, to those people. Bezos got to keep 10% of it. And people forget that narrative. And so I think, Tom, it's getting that narrative out.

                And then the other thing people demonized on is to say, “Oh, CEOs make too much money.” Well, first of all, it was a Democrat bill… Or sorry, it was Bill Clinton who put it in a Democrat. He said, “I want to cap the salaries for CEOs at a million dollars.” And that would be like saying, “I want to cap the total pay a top actor can make at a million. I want to cap that total pay a top musician can make at a million dollars a year. I want to cap when an athlete can make a million dollars a year.” You can see how wrong it is.

                So companies started paying in options and CEOs start to earn more. And so these are CEOs who are creating hundreds of millions, if not billions of dollars, in aggregate, in value. And they're paid on average 24.2 million last year, that was their average. And everyone was like, “Oh, my gosh, that was way too much.”

Tom Wheelwright:

It is a lot.

Derek Bullen:

Really? Not really. The top 10 YouTubers averaged 30 million. They made more than the top CEOs. The top 10 actors made 29. They made more. If you were a top 10 musician, you made 230 million. You made 10 times more than the average CEO of America's 350 largest companies. But if you were a top 50 athlete, you made 280 million. You were king of the pile. And so you look at it and you say, maybe these CEOs are as skilled, and practiced, and disciplined as a top athlete, a top musician, even a top entertainer on a new platform like a YouTuber.

                They're equally skilled and equally rare. And maybe 24.2, that's not a bad salary for the wealth that they created compared to the other stuff. But we don't demonize athletes for earning on average 280 million. Look at your top 50. So I think we're missing this narrative on the service to society. Nobody talks about these stories.

Tom Wheelwright:

Interesting. So let's turn just for a minute, because I can't go through this conversation without talking about taxes. And you mentioned how much tax the top 1% pays and the top 0.1% does pay a high amount of taxes. What's fascinating me though, because this is what I study every day is the tax law, is that there are a lot of wealthy people who pay very little on tax, but what we never hear is why they pay very little on tax. Because yes, you have the Jeff Bezos in the world. They're just not cashing in their options.

                You have Elon Musk who… Well, he actually had to cash in to actually exercise his options. That's why he cashed in. He didn't cash in just to pay tax, but he wanted to show. He says, “Okay, you want me to pay tax? I'll pay tax. It's not going to hurt me at all.” I actually think that was a positive message that, “Look, okay, I'll cash some in and I'll pay some tax here.” He paid, what? $11 billion in tax last year. And of course he actually exercised more options and he got richer from it.

                But the real reason is that most entrepreneurs, they plow their money back into their business. Most real estate investors, they plow their money back into their business. They're doing those things that the government says, “Look, if you reinvest the money, then we're not going to tax you on that money if you reinvest it. We're only going to tax you on money that you actually spend.” So what we've really come down to in the world is a consumption tax.

                Our income tax has become a consumption tax, where if you use it for personal purposes, if you use it for savings, then you get taxed on it. But if you use it for the common good, and doesn't matter if it's charity, if it's reinvesting in energy, in agriculture, in business, in real estate, all of those reinvestments get tax benefits because the government's saying, “Look, if you reinvest, that's good for the world.”

Derek Bullen:

I think that's true. And when people say you don't pay tax, everybody at some point will pay tax. You can defer it and pay less tax for a period of time. But at some time, you or the people in your estate or the organization's [crosstalk 00:25:57]-

Tom Wheelwright:

Somebody's going to pay tax.

Derek Bullen:

… someone pays money. You can't take it. And when I die, Tom, I can't take it with me. And wherever I'm going, it's no good. I know it's only good on planet earth. And somehow, somewhere it'll end up back in the economy. And in your company, nations compete for companies to come to them. Ireland gave a 20-year tax-free deferral for companies to locate R&D in Ireland, and they benefited from that substantially.

                And those companies said, “For those operations, we will run and pay tax in Ireland.” And individuals can say, “I'll keep my money in the company or I'll keep reinvesting it in the company.” The companies still have to pay tax. And then at some point, when you do decide to take it out of the company, put it in your own hands, you can buy something, a house, a car, whatever you want to buy-

Tom Wheelwright:

And you're going to pay tax.

Derek Bullen:

You're going to pay tax. Everybody's got to pay tax. That's the game. And even if somebody's super wealthy and they say, “I'm a pioneer in wealth. I made a whole lot of wealth for me and my family.” Generally, most of that will be gone by the time they have adult grandchildren. It's hard to make money. It's harder to keep it. And it will go back into the general economy. Sometimes if you're like, let's go back to Amazon. You might have a tax liabilities in organization of 60 billion, but you might have offsetting that you've invested 62 billion in research and development.

                I mean, if you look at the spinoff of NASA in income taxes, spinoff organizations, spinoff technology, spinoff things, it's massive. Amazon spends two thirds of the NASA budget on its own R&D domestically in the United States. The spinoff is amazing. Nobody who's making money really decries the progressive tax system. And in Canada, our taxes are quite high. We're a little bit more left of center as a nation, shifted a little bit more to the left than the United States. And as a result, our productivity is a little less. You lose that as you shift to the left and I pay 54% taxes.

                I think 50% is the tipping point. When you start saying to me, you are going to work more than the first six months of the year for the government, and then you can have what's left for yourself, I don't think it's fair. And studies show, when you start taxing people more than 50%, they leave or they stop working. It's like what you see in the States. People putting their primary residents in Texas or Florida instead of in California, and they're saying, “I'll give my tax money to Texas rather than California, because I just don't think the level they hit is fair anymore.”

Tom Wheelwright:

Yeah, I don't think there's any question. I mean, in the tax world, we talk about 40% as the level at which over that you start to think about taxes a lot more, and what are you going to do from a tax standpoint? If you're under 40%, you tend to think about it less, and you're talking about even, “Okay, but will my productivity suffer?” Clearly is suffers when you get up into those higher tax brackets. What a lot of people don't recognize is because they compare our tax rates to the 1970s, but in the 1970s and I was around in the 1970s, I'm old enough for that, there were so many tax loopholes and so many ways to avoid tax legally, that nobody paid 70%.

                So what happened in 1986 in the US is, but Ronald Reagan very much broadened the tax base, and so that a lot more income was taxed. And then what's happened is we've had bracket creep. So now we've actually, instead of being at a 28% rate like we were, now we're up to that 37% rate or 40%. And then you add the States, now you're at 50%. Most people in the US that are making a decent amount, are paying 40 to 50% in tax unless they reinvest it into the economy.

Derek Bullen:

And someone has to redeploy capital, it's true. What we don't hear a lot of in the narrative, is government saying what's necessary for government to spend money on and what's not. And how do we reduce and optimize our spending? And I think Reagan was very good at that. I think Reagan said that government spending was like a baby. Very high consumption on the front end and not much coming out the back end.

Tom Wheelwright:

Well, I mean, thing about this Derek. If the government spends a dollar, let's say they hire an employee, the best they're going to get in productivity is the dollar's worth of productivity. But if the government gives a tax incentive of a dollar, they can frequently get 10 times that in productivity. Because what's happening is the government's only putting 10% of it. Whereas the individual entrepreneur or the investor is putting in the other 90%, and the investor is saying, “Look, I'll put my money at risk.” Government, you put some money at risk too.

                And that's been going on for 60 years. Since the 1960s, is when we first really saw a lot of tax incentives and these incentives seem to have worked. So we see them in Canada. I do my share of study of Canadian tax law, but like you say, eventually we all pay tax. In Canada, you pay a capital gains tax at death, we pay an estate tax at death, but it's all the same thing. At some point, the minute you use that money or you try to get out of the world, then you're probably going to pay some tax.

Derek Bullen:

Correct. There's no island where you can go with all of your money, and just never pay tax and keep that money out of the economy forever. That money will always find its way back into the economy for the benefit of everybody.

Tom Wheelwright:

I love that.

Derek Bullen:

And you're right. The entrepreneur who's making the money along the way, is benefiting his community and actually the benefit reaches globally.

Tom Wheelwright:

Well, and in fact, the entrepreneurs' employees are paying tax. So the entrepreneur is paying the employees that you say the employees are paying the tax, but really that's still coming from the entrepreneur. Because the entrepreneur is paying enough to the employee to cover their tax liability, otherwise the employee would demand more money.

Derek Bullen:

Correct. Like even back to Amazon, Amazon paid 46 billion to its employees last year and they all are paying taxes on that 46 billion. The multiplier's huge. And the other thing, Tom, when my company was little, a lot of my company was just me and I was like every other small business anywhere in America. And I think I was working for less than minimum wage. If you looked at the hours I worked and the money I actually got for those hours, I think a lot of wealth creators start at that. And when people say, “Oh, it must be nice.” I'm like, “You wouldn't like it. You wouldn't like the work, and the sacrifice, and how many years it takes to get here.”

Tom Wheelwright:

One of my favorite sayings is from one of my business partners. He says, “Entrepreneurs are the only people in the world who will work twice as many hours for half as much pay.”

Derek Bullen:

Correct. Yep. Correct.

Tom Wheelwright:

Because we love it, because it's what we want. We want independence, we want the freedom, and we want to contribute and we want to contribute in our way, not in the way other people are telling us to contribute. So with that, tell us a little bit about where to find you, find your book in defensive wealth, and get more information about what you do, Derek.

Derek Bullen:

Thank you, Tom. So my book In Defense of Wealth is on Amazon and that's the best place to buy it. And it's there on Amazon. It's there as an ebook and it'll be coming out soon as an audible book. And you can also go to my website, bullenbooks.com, B-U-L-L-E-N-B-O-O-K-S.com. And thank you, Tom. It's been a pleasure to be on your show.

Tom Wheelwright:

Well, thank you. And just for everybody out there, so we have to acknowledge the wealth gap. We need to acknowledge that we need to work towards working with employees, working with people, working on education. But it truly, when we get more people educated, and I appreciate Derek spending the time to educate because the more educated we get, the more the general population gets educated, the more money everybody makes and the less taxes everybody has to pay.

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