With a presidential election looming in November, 2020 is likely to be a year we talk a lot about taxes, who pays them, and who should pay more of them. As someone who is ever ahead of the game, Bill Gates has gotten a jump on the discussion by devoting his annual end-of-year blog post to offering his take on this contentious but important issue.
In a nutshell his conclusion boils down to this: the super rich should pay a whole lot more.
Dear U.S. Government, please tax me more.
It's not huge news that Gates favors a more progressive tax system that shifts more of the burden for financing the programs and services we all rely on onto the rich. Along with a handful of other billionaires, notably Warren Buffett, he's previously asked the government to please tax him more. He also agrees with progressive Congresswoman Alexandria Ocasio-Cortez that taxing automation is one likely route to aiding workers it displaces.
"I've been pushing for a fairer tax system for years," Gates himself points out in his year-end post. "It was nearly two decades ago that my dad and I started calling for an increase in the federal estate tax and for an estate tax in our home state of Washington." He also backed a 2010 voter initiative that would've created a state income tax in Washington.
But this latest post is the deepest dive yet into his thinking on taxes, going into detail about how he would change U.S. tax system. It starts from a simple premise: the government is underfunded. "The government collects about 20 percent of GDP in taxes while spending about 24 percent," he writes, proceeding from there.
The bottom line of the lengthy post is that the super successful should pitch in more. "The rich should pay more than they currently do, and that includes Melinda and me," is one bolded pull-out quote from the piece. But Gates also offers more specific suggestions:
Higher capital gains tax. "Today the U.S. government depends overwhelmingly on taxing labor--about three quarters of its revenue comes from taxes on wages and salaries. Most people get almost all of their income from salary and hourly work, which is taxed at a maximum of 37 percent. But the wealthiest generally get only a tiny percentage of their income from a salary; most of it comes from profits on investments, such as stock or real estate, taxed at 20 percent if they're held for more than a year," Gates writes. That means the likes of Gates often end up paying a lower rate in taxes than many middle class families. That's simply not fair.
A heftier estate tax and closing loopholes. Gates might be fabulously wealthy but that doesn't mean he wants his three kids to automatically be fabulously wealthy too. "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," he believes. That's why he's committed to giving almost all his fortune away and why he also favors increasing the estate tax and closing loopholes to dodge it.
A grab bag of other smaller changes. "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)," Gates also suggests.
While this list is interesting for the strong stance it takes on raising taxes on the most well off, it's also notable for what it doesn't include, specifically a "wealth tax" such as that proposed by Democratic presidential contender Elizabeth Warren. While Gates has been consistently in favor of higher taxes on the wealthy, he's expressed reservations about the idea of a direct wealth tax. (Warren countered that he'd misinterpreted her proposal and offered to meet with Gates.)
Gates also stresses that taxing the rich is a balancing act. You want to take in enough money to educate the workers, pave the roads, and build the courthouses and police stations that allow people and businesses to grow and thrive. But you don't want to kill the incentive to accumulate and invest wealth in bold, new ventures. Gates, for one, thinks there's a lot of room to run in the direction of asking the rich to pony up more.
"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 one percent can afford to pay a lot more before they stop going to work or creating jobs," he concludes.
What do you think of Gates' proposals?