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Authors: Robert T. Kiyosaki
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employee
S stands for small business or self-employed
B stands for big business (500 employees)
I stands for investor Chapter Two 60
It takes all four quadrants to make the world of money go around.
The quadrants are not professions. For example, a medical doctor can be an E, such as a doctor who works for a B (a big business such as a hospital or drug company). A doctor can also be an S, working as a self-employed, small-business owner in private practice. A doctor can also be a B, the owner of a hospital or a drug company. And the doctor can be an I, an investor.
There is often confusion about the I quadrant. Many people invest their own money in pension or retirement plans by buying and selling stocks and/or mutual funds. That is not the same type of I referred to in the I quadrant. True I’s have people send them money. Most small investors send their money to true I’s. Again, the I quadrant is defined by the direction cash is flowing, and that makes a difference in who pays the most in taxes. If you send your money to others to invest for you, you pay more in taxes than the person you send your money to.
My poor dad sent his money to people he trusted to invest for him. My rich dad had people like my poor dad sending money to him.
The difference, from a tax perspective, is like night and day.
FAQ
Which quadrants pay the highest taxes?
Short Answer
The people in the E and S quadrants.
Fin Ed History
The following is a diagram of the CASHFLOW Quadrant showing the historical changes in tax laws:
The U.S. Congress passed the “Current Tax Payment Act of 1943” when the United States needed money to fight two wars, one in Europe and one in the Pacific. The 1943 change gave the government the power to force employers to deduct taxes from the employee’s paycheck. In other words, the government got paid before the employee got paid. The E quadrant lost control over their money. Today, when employees receive their paycheck, they notice there is a lot of money missing, the difference between net pay and gross pay. ES BI 1943 1986Unfair Advantage 61
Due to our present financial crisis and the government’s need for more money, the gap between gross and net pay is increasing for those in the E quadrant. Employees work harder, earn more, and take home less.
In 1986, Congress passed the “Tax Reform Act of 1986.” The purpose of this act was to plug the tax loopholes that people in the S quadrant were enjoying. Up until 1986, most in the S quadrant were using the same tax loopholes the B quadrant enjoyed. Since the government needed more money, they went after the doctors, lawyers, small-business owners, and specialists, such as consultants, real estate brokers, stockbrokers, and other self-employed people.
It was the 1986 Tax Reform Act that helped trigger the 1987 stock-market crash and the 1988 crash of the savings-and-loan industry, which led to the real estate crash, which led to the last recession. It was a great time for B’s and I’s to get ahead.
Today, doctors, lawyers, and accountants in the S quadrant pay the highest percentages in taxes.
Taxes Are by Quadrant, Not by Profession
It is important to note that taxes are defined by quadrant , not by profession. Again, a doctor can be a doctor in all four quadrants. Different quadrants follow different tax rules.
When I was in school, I asked a classmate what his father did for a living. His reply was, “My dad is a garbage man.”
I did not think much about it until I was invited to his home for Thanksgiving dinner. Rather than pick us up in his car, his dad flew us to their home in his private jet, two hours away from New York. Needless to say, his home was a mansion.
When I inquired about his dad’s profession as a garbage man, he said, “My dad owns the largest garbage-collection company in the state. He has over two hundred trucks and over a thousand employees. He also owns the land where the garbage is disposed. His biggest customer
S stands for small business or self-employed
B stands for big business (500 employees)
I stands for investor Chapter Two 60
It takes all four quadrants to make the world of money go around.
The quadrants are not professions. For example, a medical doctor can be an E, such as a doctor who works for a B (a big business such as a hospital or drug company). A doctor can also be an S, working as a self-employed, small-business owner in private practice. A doctor can also be a B, the owner of a hospital or a drug company. And the doctor can be an I, an investor.
There is often confusion about the I quadrant. Many people invest their own money in pension or retirement plans by buying and selling stocks and/or mutual funds. That is not the same type of I referred to in the I quadrant. True I’s have people send them money. Most small investors send their money to true I’s. Again, the I quadrant is defined by the direction cash is flowing, and that makes a difference in who pays the most in taxes. If you send your money to others to invest for you, you pay more in taxes than the person you send your money to.
My poor dad sent his money to people he trusted to invest for him. My rich dad had people like my poor dad sending money to him.
The difference, from a tax perspective, is like night and day.
FAQ
Which quadrants pay the highest taxes?
Short Answer
The people in the E and S quadrants.
Fin Ed History
The following is a diagram of the CASHFLOW Quadrant showing the historical changes in tax laws:
The U.S. Congress passed the “Current Tax Payment Act of 1943” when the United States needed money to fight two wars, one in Europe and one in the Pacific. The 1943 change gave the government the power to force employers to deduct taxes from the employee’s paycheck. In other words, the government got paid before the employee got paid. The E quadrant lost control over their money. Today, when employees receive their paycheck, they notice there is a lot of money missing, the difference between net pay and gross pay. ES BI 1943 1986Unfair Advantage 61
Due to our present financial crisis and the government’s need for more money, the gap between gross and net pay is increasing for those in the E quadrant. Employees work harder, earn more, and take home less.
In 1986, Congress passed the “Tax Reform Act of 1986.” The purpose of this act was to plug the tax loopholes that people in the S quadrant were enjoying. Up until 1986, most in the S quadrant were using the same tax loopholes the B quadrant enjoyed. Since the government needed more money, they went after the doctors, lawyers, small-business owners, and specialists, such as consultants, real estate brokers, stockbrokers, and other self-employed people.
It was the 1986 Tax Reform Act that helped trigger the 1987 stock-market crash and the 1988 crash of the savings-and-loan industry, which led to the real estate crash, which led to the last recession. It was a great time for B’s and I’s to get ahead.
Today, doctors, lawyers, and accountants in the S quadrant pay the highest percentages in taxes.
Taxes Are by Quadrant, Not by Profession
It is important to note that taxes are defined by quadrant , not by profession. Again, a doctor can be a doctor in all four quadrants. Different quadrants follow different tax rules.
When I was in school, I asked a classmate what his father did for a living. His reply was, “My dad is a garbage man.”
I did not think much about it until I was invited to his home for Thanksgiving dinner. Rather than pick us up in his car, his dad flew us to their home in his private jet, two hours away from New York. Needless to say, his home was a mansion.
When I inquired about his dad’s profession as a garbage man, he said, “My dad owns the largest garbage-collection company in the state. He has over two hundred trucks and over a thousand employees. He also owns the land where the garbage is disposed. His biggest customer
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