- Microsoft co-founder Bill Gates recently explained why he believes why the rich should pay more in taxes
Microsoft co-founder Bill Gates, the second richest man in the world (net worth of over $113 billion), believes that wealthy people should pay more in taxes. While Gates generally uses his platform to discuss the work done by the Bill & Melinda Gates Foundation, he wrote a blog post right before New Year’s Eve about the tax system in the U.S.
“The wealth gap is growing. The distance between top and bottom incomes in the United States is much greater than it was 50 years ago. A few people end up with a great deal—I’ve been disproportionately rewarded for the work I’ve done—while many others who work just as hard struggle to get by,” said Gates in a blog post. “That’s why I’m for a tax system in which, if you have more money, you pay a higher percentage in taxes. And I think the rich should pay more than they currently do, and that includes Melinda and me.”
The U.S. government collects around 20% of GDP in taxes while it spends around 24%. And the cost of commitments has been going up. So Gates recommends that the tax burden should be shifted onto capital by raising the capital gains tax to about the same level as taxes on labor.
As of now, the U.S. government depends on taxing labor as about three-quarters of its revenue comes from taxes on wages and salaries. And most people get all of their income from salary and hourly work — which is taxed at a maximum of 37%. However, the wealthiest people get a tiny percentage of their income from a salary since most of it comes from profits on investments like stock or real estate, taxed at 20% if held for over a year.
“I’m also in favor of raising the estate tax and closing the loopholes in it that many wealthy people take advantage of. A dynastic system where you can pass vast wealth along to your children is not good for anyone; the next generation doesn’t end up with the same incentive to work hard and contribute to the economy. It’s one of the many reasons that Melinda and I are giving almost all of our wealth back to society through our foundation, rather than passing all of it along to our children,” Gates added. “Other steps toward a fairer tax system include removing the cap on how much income is subject to Medicare taxes, closing the carried-interest loophole that allows investment-fund managers to pay the lower capital gains rate on their income, and taxing large fortunes that have been held for a long time (say, ten years or more). Very wealthy people often have large investments they’ve held for long periods, and if those investments aren’t sold or traded, the money is never taxed. That doesn’t make sense.”
Gates pointed out that people ask why he does not voluntarily pay more in taxes than the law requires. And Gates said that the answer is simply leaving it up to people to give more than the government asks for is not a scalable solution as “people pay taxes as an obligation of law and citizenship, not out of charity.” To build a vibrant economic system, it will depend on setting expectations for who pays how much.
Along with fair taxes, Bill and Melinda believe that there is value in allowing the wealthy to put money into private foundations since they play an irreplaceable role that is distinct from what governments do well. For example, philanthropy is good at managing high-risk projects that governments cannot take on and corporations will not such as eradicating malaria.
“The country does need to be thoughtful about how high taxes should be raised. One of the reasons that innovators flock to the United States is that this country makes it easy to start a business, invest capital, and earn a profit. We shouldn’t destroy those incentives, but we’re a long way from that point now. Americans in the top 1 percent can afford to pay a lot more before they stop going to work or creating jobs. In the 1970s, when Paul Allen and I were starting Microsoft, marginal tax rates were almost twice the top rate today. It didn’t hurt our incentive to build a great company,” Gates wrote. “It’s great that Americans are debating who should pay more in taxes and how. I’ll continue to focus on the issues our foundation works on as well as climate change, so I will not take a position on the proposals that are being debated during this campaign season. But I believe we can make our system fairer without sacrificing the incentive to innovate. We’ve updated our tax system before to keep up with changing times, and we need to do it again, starting with raising taxes on people like me.”
