How do the wealthy pay for things?
"This is second hand information as I am not a millionaire, but I work with such people everyday and have an understanding of how they handle cash: The wealthy people don't. Simple. Definitely not if they don't have to. Cash is a tool to them that they use only if they get benefit of it being a cash transaction (one of my friends is a re-seller and he gets a 10% discount from suppliers for settling lines using cash). Everything else they place on a line of credit. For people who ""dislike"" credit cards and pay using ATM or debit cards might actually have a very poor understanding of leverage. I assure you, the wealthy people have a very good understanding of it! Frankly, wealthy people pay less for everything, but they deserve it because of the extreme amount of leverage they have built for themselves. Their APRs are low, their credit limits are insanely high, they have longer billing periods and they get spoiled by credit card vendors all the time. For example, when you buy your groceries at Walmart, you pay at least a 4% markup because that's the standardized cost of processing credit cards. Even if you paid in cash! A wealthy person uses his credit card to pay for the same but earns the same percentage amount in cash back, points and what not. I am sure littleadv placed the car purchase on his credit card for similar reasons! The even more wealthy have their groceries shipped to their houses and if they pay cash I won't be surprised if they actually end up paying much less for fresh (organic) vegetables than what equivalent produce at Walmart would get them! I apologize for not being able to provide citations for these points I make as they are personal observations." "While you would probably not use your ATM card to buy a $1M worth mansion, I've heard urban legends about people who bought a house on a credit card. While can't say its reliable, I wouldn't be surprised that some have actual factual basis. I myself had put a car down-payment on my credit card, and had I paid the sticker price, the dealer would definitely have no problem with putting the whole car on the credit card (and my limits would allow it, even for a luxury brand). The instruments are the same. There's nothing special you need to have to pay a million dollars. You just write a lot of zeroes on your check, but you don't need a special check for that. Large amounts of money are transferred electronically (wire-transfers), which is also something that ""regular"" people do once or twice in their lives. What might be different is the way these purchases are financed. Rich people are not necessarily rich with cash. Most likely, they're rich with equity: own something that's worth a lot. In this case, instead of a mortgage secured by the house, they can take a loan secured by the stocks they own. This way, they don't actually cash out of the investment, yet get cash from its value. It is similarly to what we, regular mortals, do with our equity in primary residence and HELOCs. So it is not at all uncommon that a billionaire will in fact have tons of money owed in loans. Why? Because the billions owned are owned through stock valuation, and the cash used is basically a loan secured by these stocks. It might happen that the stocks securing the loans become worthless, and that will definitely be a problem both to the (now ex-)billionaire and the bank. But until then, they can get cash from their investment without cashing out and without paying taxes. And if they're lucky enough to die before they need to repay the loans - they saved tons on money on taxes." I was once the personal assistant to two wealthy NYC sisters. They did not pay for anything. For example, if we were riding the subway, I would pay, and be reimbursed by the Company. They had multiple residences and investment properties. Each property was purchased through a separate Limited Liablity Corporation, and paid for by the Company. When they purchased, donated or sold art, it was through their family Foundation. Their income primarily came from a draw of funds from the family estate, although one of them worked as an architect, which provided further income.
The rich pay more in taxes. It would be hard to cut taxes in a way that *didnt* help the rich. I'm more concerned with what it does for the middle and lower classes. I don't care that much if it helps the rich.  EDIT: Okay, so let's say you give the top third of the population (by income) a 1% income tax cut. The middle third got a 5% cut, and the bottom third got a 10% cut. In dollar value, the rich are still getting a larger cut, simply by virtue of how much they pay in taxes.  Someone made a point about property tax. Speaking very generally, poor people rent and rich people own. So a property tax inherently benefits the wealthy, because they own more property. Certainly any kind of corporate or capital gains cut would benefit the wealthy, since they own the corporations and are more heavily invested. Even a sales tax cut would benefit the wealthy more than the non-wealthy, simply because they spend more money.  But what frustrates me is how hung up people get on the fact that something is good for the wealthy, (such as with the headline of OPs article) as if we should actively try to avoid helping anyone rich. As I stated above, I don't care that it helps the rich, as long as it's helping the rest of us, too. And if the rich are getting a bigger benefit than I am by virtue of being rich, I'm not bothered, because I can do math. As someone who has worked for both an insurance carrier and an insurance agent, the reason people buy insurance is two fold: to spread risk out, and to get the benefits (when applicable) of approaching risk as a group. What you are really doing when you buy insurance is you are buying in to a large group of people who are sharing risk.  You put money in that will help people when they take a loss, and in exchange get a promise of having your losses covered.  There is an administrative fee taken by the company that runs the group in order to cover their costs of doing business and their profits that they get for running the group well (or losses they take if they run it poorly.) Some insurances are for profit, some are non-profit; all work on the principle of spreading risk around though and taking risk as a larger group. So let's take a closer look at each of the advantages you get from participating in insurance.  The biggest and most obvious is the protection from catastrophic loss.  Yes, you could self-insure with a group size of one, by saving your money and having no overhead (other than your time and the time value of your money) but that has a cost in itself and also doesn't cover you against risk up front if you aren't already independently wealthy.  A run of bad luck could wipe you out entirely since you don't have a large group to spread the risk around.  The same thing can still happen to insurance companies as well when the group as a whole takes major losses, but it's less likely to occur because there are more rare things that have to go wrong.  You pay an administrative overhead for the group to be run for you, but you have less exposure to your own risks in exchange for a small premium. Another significant but less visible advantage is the benefit of being part of a large group.  Insurance companies represent a large group of people and lots of business, so they can get better rates on dealing with recovering from losses.  They can negotiate for better health care rates or better repair rates or cheaper replacement parts.  This can potentially save more than the administrative overhead and profit that they take off the top, even when compared to self-insuring. There is an element of gambling to it, but there are also very real financial benefits to having predictable costs.  The value of that predictability (and the lesser need for liquid assets) is what makes insurance worth it for many people.  The value of this group benefit does decrease a lot as the value of the insurance coverage (the amount it pays out) decreases.  Insurance for minor losses has a much smaller impact on liquidity and is much easier to self insure.  Cheaper items that have insurance also tend to be high risk items, so the costs tend to be very high relative to the amount of protection.  If you are financially able, it may make more sense to self-insure in these cases, particularly if you tend to be more cautious.  It may make sense for those who are more prone to accidents with their devices to buy insurance, but this selection bias also drives the cost up further.  Generally, the reason to buy insurance on something like a cellphone is because you expect you will break it.  You are going to end up paying for an entire additional phone over time anyway and most such policies stop paying out after the first replacement anyway. The reason why people buy the coverage anyway, even when it really isn't in their best interest is due to two factors: being risk averse, as base64 pointed out, and also being generally bad at dealing with large numbers.  On the risk averse side, they think of how much they are spending on the item (even if it is less compared to large items like cars or houses) and don't want to lose that.  On the bad at dealing with large numbers side, they don't think about the overall cost of the coverage and don't read the fine print as to what they are actually getting coverage for.  (This is the same reason that you always see prices one cent under the dollar.)   People often don't really subconsciously get that they are paying more even if they would be able to eat the loss, so they pay what feels like a small amount to offset a large risk.  The risk of loss is a higher fear than the known small, easy payment that keeps the risk away and the overall value proposition isn't even considered. "&gt;Boss: Amazon is threatening to shut us down because we ship too many orders late. How do we fix this?  &gt;Me:   Ship every order on time.  &gt;Boss: No, I meant, ""How do we fix this with software?""  I've noticed they have fixed this with software. They pretend they have shipped it way before they do.   Also amazon has fixed the problem they had with amazon prime customers ordering too many things with free shipping. They have made more and more things ""amazon marketplace"" so you have to pay $4 or $5 shipping. Sometimes even things ""fullfilled by amazon"" will be in the used page for books and won't be free shippings.   More and more things don't have free shipping for Amazon prime members." "Instead of getting into complex economic theories, here are the few places I can tell you where the cash has disappeared to:  1. Apple - holding over 100b cash in their vault more than any banks have in their reserves in the world and more than enough to pay off all of the debts of the U.S.  2. Real Estates.........in developing countries, that is :p. You may keep hearing how real estates are de-valuing in the U.S., but in developing countries like the BRICs, they are going higher. Think Hong Kong, Tokyo, Beijing, Shanghai, etc. Yes, it's a proven bubble there. If you have access to their regional news, just listen to how many people in Asia have to borrow from loan sharks to keep their finances afloat.  3. Gold - go see for yourself on goldprice.org, that's where the wealthy individuals put their cash in the so-called ""safe haven"" next to shotguns. Yes, it's ridiculous and is totally out of anyone's league beyond basic things like air, water, and food.  4. Commodities (gas, food, basic materials) - enough said, check out your local gas pumps and grocery stores." "That's incredible! I'm a second-year college student taking Macro-Economics class, a lot of these technical things are all news to me.   Thank you for the wealth of information!   1) That's an interesting thought. Does that basically translate to ""less tax on poor/wealthy (since there are a lot more of them in numbers) to promote entrepreneurship?   2) Someone pointed that very thing out. Rich using money to grow their own wealth. But wouldn't that mean as a byproduct, jobs will be made? I probably made another dangerous assumption here.   3) I don't think I understand this one at all. What is compensation? Will you rephrase it for me?  4) I hear that ""effective,"" tax rate can be very misleading to the general public. (I learned how to calculate the average tax rate a few weeks ago and understood what the folks were talking about!) I did hear from my professor and the educational videos he had shown us that the capital  tax is one of the highest among the other OECD nations. My question for that would be, why can't we just close loop-holes instead of choosing to slash capital tax? I feel like the majority will be more than okay with closing the loopholes.  5) I think citizens of the country aligning with the county's companies without asking questions is a terrible, and a dangerous idea. (Asian Depression in the mid 90's really showcased it for me, since our family was practically evicted from Korea) Major conglomerates held all the power and the federal government was really just a puppet. I think it's in each company's best interest to further their own agenda, and that agenda usually means bad for the majority. Let me know if I'm way off base here but ""one person's spending is another's income."" So using that logic, the company can't make money unless I spend money. So we have a conflict of interest here, because as a consumer, I want to get the best deals, be thrifty. Company wants to charge me as much as they can, to maximize profits.   Thank you in advance for your time." Right, because all of that overtime money just comes out of thin air. It's not like people who use transportation services (ie, everyone in New York) end up paying for it through increased MTA, Metronorth, LIR, etc. prices. Buffett says the rich aren't taxed enough after he's already made and paid taxes on his income.  The real problem is he can put his fortune in a Trust and avoid the inheritance tax.  This puts his $75 billion in a non-taxable trust fund, and instead of $40 billion going to the government to pay for job training for the poor, a program he said he supports, it goes into a non-taxable trust.  His kids get to sit on the trust board and draw multi-million dollar salaries for dolling out millions to Asian countries.  He's a hypocrite and isn't really interested in helping the country that made him rich. First of all, it's not the 1% that run things. It is more like the 0.1%. They run things because they run the government, not because they cannot be challenged in the market.   We should expect the courts to be less corruptible because their proceedings take place in public, whereas the Executive bureaucracy and most of the Congressional machinations occur behind closed doors. Deals are made that we have no knowledge of. That is where the 0.1% operates. They are as afraid of the light of day as vampires.   There is usually a cycle of wealth that lasts three or four generations unless that cycle is interrupted by collusion with the government. Europe's rich stayed rich because they became the government. Their thefts were sanctified by making them nobility and protecting them with the state.   Look at the makeup of Obama's inner circle. It is the banking nobility. Those banks and banksters would all be broke now if they had not harnessed the government to steal from thee and me to give to them.   Small government that debates everything in the open will not protect the very rich. Without government protection their wealth will return to the general pool in three generations.