Wealth Formula Episode 316: The War Against the Wealthy


Catch the full episode: https://www.wealthformula.com/podcast/316-the-war-against-the-wealthy/

Buck: Welcome back to show everyone today. My guest on Wealth Formula Podcast is Derek Bullen. Derek is the Founder and CEO of S.i. Systems, one of the largest professional services companies in Canada, with thousands of information technology consultants working on projects for blue chip corporations and government agencies across Canada. He’s also the author of In In Defence of Wealth: A Modest Rebuttal to the Charge the Rich Are Bad for Society, which is something we’ve heard quite a bit lately. Derek, welcome to Wealth Formula Podcast.

Derek: Thank you. Pleasure to be here.

Buck: So you’re an entrepreneur, and I’m curious. Obviously, we were talking offline you’re very much into entrepreneurship. What inspired you to write a book about defending wealth?

Derek: It was three conversations that I had, the first being that one of my high school friends after the Panama Papers came out and said, hey, you’ve got money. If you’re hiding it offshore, you better bring it back or you should leave Canada. And it was pretty bold for someone to actually say that friend to say that on Facebook. And I actually checked into it and I wrote them back and I said, the top 10% of income earners in Canada is everybody earning 90 grand or more. It’s not a very high bar. And I said, we pay for half of the income taxes. And I’m like, you could wish that we weren’t here, but if we weren’t, you would have half the hospitals, half the schools, half the roads, half the firemen, half of everything, because there’s very few of us that are earning more than 90 grand a year. Apparently, we’re all working very hard for it and we’re carrying half the load. And so I was like, I got to get that narrative out because when I told him, he was like, Holy cow, I had no idea. And the other conversation was at a private clinic in the States. In Canada, we have public health care, which is wonderful for lots of acute conditions. But if you have something that’s elective, it’s a very long wait list that the care is good, but it’s a long wait list. So Canadians who can will go to the States for those operations. And so anyways, I was in a clinic and an employee of Amazon was in an extensive rehab program, like one year expensive rehab program. But he couldn’t say enough how Amazon didn’t pay any taxes and it wasn’t fair. And they’re making all this money on top of everyone. And I looked into it and I was like, Amazon could pay like 60 billion in taxes, but they have an offset. They’re investing 62 million in research and development. And I told the guy said if a company in Canada invested 62 billion a year in research and development, that would be like Nassau moving to Canada. Like the jobs, the spin off, everything we create. It’s amazing. And I’m like, it’s an elective by the government. You can spend on taxes or you can spend an R and D, but they’re drilling 62 billion into the economy of fresh cash. Anyways, he didn’t talk to me for the rest of the time. And the clinic would go outside to have his IVs and everything like that. But I thought I got to get this narrative out. Like people just don’t understand that it’s hard to make money. It’s even harder to keep it. And that when you make a lot of money, you pay yourself last. You pay out a phenomenal amount of money before you take a payday yourself. So that was my inspiration for the book.

Buck: Yeah. So, I mean, it is, as you’ve called it, sort of the war against the wealthy. Right. And then it’s misguided. You tell me about what your perspective is. Is this a phenomenon that’s been around forever? Is it getting worse? Is it changing in the US? I do see it as very much a new phenomenon, at least in my lifetime. Maybe it’s a pendulum, I don’t know. But I was a kid in the everybody was excited about getting wealthy and idolized rich people. And I even feel like in the 90s that was the case. But in the last few years, with the rise of a lot of characters in the US, I not get into politics, but, you know, the rhetoric that comes with the AOCs and all that about Elizabeth Warren about vilification of the rich in your perspective, is this new? Is this evolving?

Derek: I’ll tell you the facts. So in the United States, the political viewpoint is very stable, virtually unchanged over the past 30 years. 31% are right or far right, 43% are moderate, 24% are left or very left. And that hasn’t changed. But what has changed is representative representation in the media and in the University. So in the universities, faculty are 60% left or far left, twice as high as the general population, 38% are moderate, about the same, and only 12% on the right or the far right.

Buck: Has that changed?

Derek: It changed in 30 years. 30 years ago, it followed the population shift. Okay. And in Canada, it’s even more acute. It’s 73% of the academic faculty identifies left or far left. So it used to follow the population. So the general population, those of us living in the United States or in Canada, we’re really like a third on the right, third on the left, middle third. But the universities are really two thirds on the left and the majority of media is two thirds on the left. So it’s new, and it’s easy to understand the emotional appeal of socialism because it’s a viewpoint founded on compassion. We’re going to take care of each of others. It plays well politically. It’s righteous, it’s very virtue signaling. But what’s not talked about is tremendous cost. It’s like presenting a balance sheet with just the assets but not the liabilities. Like, for example, if socialism is so great, let’s take Venezuela. Since becoming socialist, 90% of Venezuelans live in poverty. Just before covet hit, inflation was like 10 million%. That means that at the end of the year, a loaf of bread cost you 10 million times what it costs you at the beginning of the year. And the average Venezuelan lost £24 due to malnutrition. And this country has massive wealth, more oil reserves. In the United States, there’s been this massive shift, the last. And they’re portraying socialism without the whole picture. They’re just portraying the feel good part of socialism without the it doesn’t work part of socialism. A lot of people die part of socialism.

Buck: Right. And you also mentioned the media, which I think is a significant part of the perception, at least because the media is on television in the US, which is highly polarized. Right. I mean, you get the left and you get right TV. Nobody’s interested in moderate TV because it’s probably just not interesting. Right. And then if you look at social media, whether it be Facebook, Twitter, all these things, again, it’s like, what kinds of things get bigger responses. And what’s more interesting, to say that the rich are stealing from the poor or to have a moderate dialogue. Right. So I think, obviously you get more clicks if you’re polarizing. And I feel like that’s part of the problem. What do you think of that?

Derek: It’s absolutely true. I used to write for the Calgary Herald in the early nineties. And the thing was, if it bleeds, it leads misery and fear sell, and it gets people to do it. And you can see it like, here’s a stat that shows you how skewed the media is. So if you talk to the FBI, violent crimes has decreased by 49% over the last 30 years. And if you talk to the Bureau of justice, they would say it’s declined by 74% for the same period. These are public records, right? At the same time, how the media reports violent crime has risen substantially. And even though only 7% of all crimes committed are for violent crimes, they get 75% of the press. Right. So that just shows you how the press magnifies what will sell papers. And unfortunately, the press is entirely skewed to the left as a group. And what sells in the news will always privilege certain understandings over others. And here we’re privileged in the understanding of the left. So a recent study by Arizona State and Texas A and M Universities on financial journalists, which should be right of center, you would think, found that 60% of them identified as left to very left, exactly like the universities these days. So, yeah, they’re also profoundly to the left. And if you looked at media as a block, it’s highly biased. Social media is alarming, too, because if you’re not subscription based, if you’re advertising based, you just want engagement. And someone like Facebook, it’s like an Echo Chamber. Whatever grabs your attention, feeds back at you. But the algorithms don’t know. Are they grabbing your attention because you’re angry or fearful, or are they grabbing your attention because you really enjoy it? And we tend to kind of have this feedback loop that right now is really promoting interests of the left without the whole story being out there.

Buck: Let’s talk a little bit about disparities. I would say that there’s probably some real issues around wealth disparity that are going to be of significant interest to wealthy people, too. Even though the Cook brothers got into this issue, how do we address those? And is there a responsibility to do that from the wealthy?

Derek: Yeah, well, I’ve got a lot of things to say about that. So the average CEO, when a public company, the one that you got to Hunt the rich, they’re making too much money. They made 17.2 million last year average. And these are people who are creating hundreds of thousands of jobs and billions and billions in income for everybody in the community average getting 17.2 million. That’s great. That’s like totally great. But then if you start looking at and say, you know, what would it be like if we took a look at other people, you know, who are earning like movie stars. So let’s just go and take a look at movie stars and sports stars, the people that make more money than the elite CEOs are the top ten sports players. Like, Go, look at them, they’re averaging 25 million. And then if you look at the top ten musicians, they’re averaging 180 to 200 million. But nobody demonizes them and says, oh, my God, let’s go after them. It just seems to be sport to go after the CEOs. And then the other thing is, Bill Clinton started this high compensation for CEOs because he tried to limit the compensation you could pay a CEO. And when Bill Clinton brought this in, it was in the 90s. He introduced Section 162 of the Internal Revenue Code. He thought it was going to limit what a CEO could earn. But what it did was it caused public companies to say, okay, we’re not going to pay you more than a million dollars a year. And a good CEO is like a great athlete or a great musician. Like, they perform. They create wealth for everybody, the shareholders, everybody. They started to now say, we’re going to pay you that. We’re going to also pay you in options. And so if it’s a year when a CEO cashes in their options, turns them to shares, buys them and gets the gain that year, the CEO makes a lot of money. But what people are forgetting is that’s a one time transaction, you cash in your options, you don’t get to cash in those same options next year. So even then the CEO pays kind of skewed. And then thirdly, a lot of people will look at somebody like Abyss or Tesla and say, this is the value of your asset. It’s not what you earned. It’s the value of your asset. And you could say that same thing for a house owner. Like if you own a house and the value of your house goes up half a million, you didn’t earn half a million. You don’t have half a million sitting around in bags of cash that you can spend. You could if you sold your home, but you can only do it, then you can only do it one time. And I think the press often intermingles what your assets are worth versus what you actually made this year. And then they also missed the point that if you’re Bezos or Tesla, you created that company and you only own a small part. So let’s look at Amazon. So Bezos owns 9%. Who Bezos is primarily making money for are pension funds and institutions and governments. So if there’s a teacher on a pension fund in California where you live, most likely that pension fund is owning and benefiting of the shares of Tesla or of Amazon. And if Amazon goes up and say its market value goes up this morning by 10 billion, that means that 1 billion of those assets Jeff Bezos has if he wants to sell. But it means that nine times more is there for the pension funds in the institution and all the shareholders to benefit the society so I think the press misses that point, too. And then lastly, if you look at how much wealth a company has to create in order for the owner to create it, nobody just sits in their bedroom or just as a single person. Maybe if you’re a YouTuber. And by the way, the top ten YouTubers own way more than the top CEO. They earn double what the top CEO earns. But you can’t create wealth without creating and paying a lot of people. Like even my company. So I sold two thirds of my company in 2018, and it was over 100 million in sales. And people like, oh, that’s amazing. You’re so lucky. And I’m like, if you look at the 25 years I ran the company until then, I paid out to my employees $4 billion. And then I got to keep just over 100 million at the end. And that’s after 25 years of work. So I think people really misrepresent and misunderstand how much CEOs make. And they don’t put it in the context of how much other people make in society. And they don’t put it into the context of how much we make for other people. And a good CEO, you want to pay them that much because they’re creating billions of dollars of wealth for everybody.

Buck: I think there’s in general with poor and middle class, there is this feeling of that there is a finite amount of resources and the feeling that if somebody else does really well, it means that others are going to do worse.

Derek: A lot of people think, well, it must be nice. And if I had money, it would just all work out. But you could say, let’s take a look at how that really works. And let’s take a look at lottery winners. Right. And 70% of lottery winners are in debt. At the end of two years, they win millions of dollars, and then two years later they’re in debt. And it just shows you that giving someone money doesn’t teach them how to be responsible or use money in an enabling way. And it also doesn’t teach them how to magnify that and create more millions for everyone in their community. I think there’s a real lack of understanding there. And CEOs and entrepreneurs, they don’t make their money on the backs of everybody. They make their money by paying everybody for the value they provide. And it’s a meaningful exchange of energy. Like if you’re a worker for Amazon and you don’t have a high school degree, that’s okay, they have a job for you. And the job has benefits. And it’s a meaningful exchange of energy for how you showed up with the job. If you went to school and you went to MIT or Harvard or to talk to your University and you have a Masters, Amazon has a job for you, too. And it’s a meaningful exchange of energy for the investment that you’ve made to enter the workforce in that place. And so you’re entering the company at different levels. But it’s in relation to the investment and preparation you made. And then I don’t know what it’s like inside Amazon, but I would imagine it’s like my company or any company that the cream rises to the top. And if you’re good at the job, you’ll find a way to the top and the company will move you there or other companies will alternative opportunities come available. So I think this notion, I don’t know where they get it, that everybody made it on the backs of other people. They didn’t. We made it by paying other people fair money and a reasonable exchange of value for the services they provided.

Buck: Yeah. And I think the other thing is generally, I think, a lack of appreciation for the fact that entrepreneurs, particularly in the United States and Canada and Western world, have raised the quality of life globally for people over the last hundred years. I mean, incredible amounts. And again, it’s easy to look at someone who’s got money and vilify them. But I think facts are facts there.

Derek: Right. And, you know, most billionaires and millionaires made their fortune in their lifetime. It’s not this whole crew that have forever money and just keep inheriting it and inheriting it. In fact, most people that inherit money will lose it by the time they have grandkids. Most of them made it in their lifetime. And you’re right. If you look at things like the smartphone, the computer, the electric car, the cold beverage that you drink, it was created by an entrepreneur, a CEO, small or large, that started risking their time, money and vision to bring something new in the world. And the other thing that people don’t understand is when you’re bringing something new into the world, like a Gates or a Bezos or a Musk, there’s not this massive choir going that’s perfect. Bring it on. There’s a whole choir of dissenters. They’ll never land a rocket ship down. There will never be a computer on everybody’s desktop. Nobody needs a phone that does more than dial a phone number. You have to as an entrepreneur, you have to encounter all that resistance and work really, really hard. And then only if you did a really good job do you actually get the rewards from it. A lot of people nobody talks about when a company goes under and somebody worked there, worked very hard for a long period of years and nothing’s, you know, nothing is there like, you know, nobody ever talks about the dramatic losses taken by the people who ran Yahoo in the last five years, the people who ran Blockbuster in the last five years of its existence.

Buck: Right. What do you think taxes should be for? The other thing is we have to define this rate. It’s funny, because a decade ago I was practicing surgery and I thought I made a lot of money. And now I make a lot more money than I used to make. And then I moved to Montecito, and I’m like, I make no money compared to these guys, some of these guys around here. So you got to define that wealth level as well, because there’s a substantial difference between when somebody is called wealthy and then sort of the level above that. Right. But let’s talk a little bit about taxes. What’s fair? Because you often hear about people saying you want the rich to pay their fair share. And obviously, we’re talking about Canada and the US. We have different tax laws and different rates and all that. But what is fair?

Derek: Well, first of all, they’re not my opinions. I just relay what the facts are. And tax revenue for our country goes down when income taxes are over 50%. That’s just the stats. And the other thing people don’t understand is that people are mobile. Capital is now mobile. People are mobile. And it’s been that way forever. I mean, there was a time in France where they expelled all the Hugonauts because they were Protestant, and they all went over to England, and then all of a sudden, England’s fortunes rose because you’re sending a whole group of entrepreneurs out. Or you probably remember when Uganda sent out anybody, all the Indian merchants out of the country and reallocated their assets, and it was economic ruin. And so you can tax the wealthy, but they’ll leave. So the most recent one was in France introduced its crushing wealth tax from 1998 to 2006. And, you know, they’re wealth tax generated about over that time frame, 26 billion in new revenue for the government offers. They lost so many millionaires and so many wealth creators who fled. Gerard departure is probably one of the more well known actors who fled, and that they lost, on average, 125,000,000,000 a year from wealth creators taking their money, their ideas, their wealth outside of the economy. And so when Macron came in, he canceled it. And Macron’s quote is that it’s all very good to want to spread the wealth, he said, but first, you need to produce to create wealth before redistributing it. That’s how it works. And he was bang on. So this whole idea of taxing the wealth, it doesn’t play well. You can even see people migrating from their head office or their primary domicile from California to Texas, because it just matters. You just pay a lot more tax. We have a lot of Canadians who are domiciling in Great Britain now or Italy or Cayman Islands. And just because the tax in Canada have flipped over 50% and it’s just not productive, that’s the stats, not my opinion. That’s where it fails.

Buck: What are they up there?

Derek: Tax rate in Canada is 54%

Buck: For what, is it based on how much you make?

Derek: Yeah, if you make over 90 grand, every dollar over 90 grand is 54% tax. We have provinces instead of States, and so federal and provincial tax would be 54%. And there’s not a province that really offers you a break on that.

Buck: Do you have like long term capital gains and capital gains and all that, too?

Derek: We have capital gains. We have a 50% capital gains inclusion rate, so we pay 25% on capital gains. Unlike the US, we don’t get to deduct the mortgage interest on our mortgages, but yeah, we have capital gains and our dividend tax is pretty much the same as if you bonused yourself. It got raised recently. We have a very left of center government right now, and so taxes were hiked up considerably with the new government.

Buck: Do entrepreneurs have ways of certainly in the US, one of the great benefits of being in real estate for many of us entrepreneurs in that space is significant tax benefits. And do you guys have those kinds of benefits? If you’re an entrepreneur or you’re pretty much the same as the W two or equivalent of W two, no matter what.

Derek: I think that when you start to make money as an entrepreneur and you’ve got an operating asset, there’s always ways to optimize how you get the money. However, the money will always be taxed eventually, and most of it is actually tax deferral. And you can defer paying tax on something, but eventually it will come into your hands and when it does, it gets fully taxed and sometimes it gets double taxed. And so I think like every country, there are ways to optimize the cash flow so that while you’re alive, you can enjoy more of the cash. But at some point taxes will have to be paid. And I always tell everybody, if you’re paying taxes, yes, it’s painful, and yes, it might be unfair that you’re paying more than your fair share. Like in the US, the top tax bracket pays 27%, 27 times more than the bottom tax bracket per dollar earned. So it’s not fair. It’s already very punitive towards people making more money, but you should still be happy because you only pay taxes when you make money. So it does mean you’re making money. But yes, if it’s over 50%, it’s not productive for the economy.

Buck: So what kind of feedback have you gotten from people on your book?

Derek: The book has just come out, but what I’m getting from the book is a lot of surprise. I didn’t know that. But more surprising to me is I’m getting a lot of reinforcement. People saying I always thought there was more to the story. I always knew there was more. When I first started promoting it on LinkedIn just recently, I thought it was going to get trolled or slammed by people on the left. And instead people on the left mostly said, I view this as not only a kind way to talk about this, but also a very generous way to talk about this. Like what wealth creators do in society is very generative, and I didn’t know that. I really appreciate knowing it. So so far it’s been warm, but I am sure the woke left is going to at some point read the book in horror. And then we’ll see.

Buck: The title alone is liable to get you canceled in Defense of wealth. Right. A modest rebuttal to the charge the rich are bad for society. I’m certainly interested in it. You also have a [email protected] Is that just where this book lives or is there other things here?

Derek: No, I do have another book because I do run a very big consulting company. And I wrote a book called High Velocity, and it was just to help consultants have more engagement with their clients. But that’s an old book three years ago. So this website is entirely dedicated to defense of wealth. This podcast is going to go up there as soon as it airs. My blog is up there. Articles that have been picked up by the media are up there. So it’s entirely along this sideline. And so where the book ends, my blog continues. And there’s no end to the amount of amazing research that’s totally contrary to the narrative of the woke left on how much wealthy people do for society. Like, you can look at China’s cost of living or income per capita when they had no billionaires, and then you can look at their income per capita now. And next to the United States, China has the most billionaires on the planet. And by introducing these free economic zones in China, the wealth that has been created by the wealth creators, China just made an area for them. And the wealth creators showed up is staggeringly beneficial. And if you look globally, what’s not reported? Every year, over 50 million people get lifted out of poverty in the United States. The number of people lifted out of property from when Johnson was into now it’s staggeringly successful. You’ll never read that anywhere, but you’ll read about it in my blog.

Buck: Fantastic. Well, looking forward to digging in there a little bit. Again, it’s Derek Bowen. The book is available, I assume, everywhere. In Defense of wealth, the usual suspects, Amazon and wherever the people buy.

Derek: I would say Amazon. Amazon is just the fountain of youth for retail sales. And just saying it’s on Amazon is enough. Everyone knows how to get to Amazon right.

Buck: Did you do an Audible book yet?

Derek: It’s coming out

Buck: Because a lot of us physician types and stuff are a little bit too lazy to actually read anymore. We have to listen to things.

Derek: Yeah, it’ll be out for sure.

Buck: Good talking to you, Derek. And thanks for being on Wealth Formula Podcast.

Derek: Thank you, Buck. Take care.

Buck: We’ll be right back.