Unfair Advantage 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 stockmarket 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 is the state and city government.” 61
by Rich Dad, Robert Kiyosaki