Microsoft founder and CEO Bill Gates — who is worth about $96.5 billion — said in a recent interview that while he doesn’t oppose the idea of raising taxes on the rich, he also believes “extreme” tax ideas like that of Rep. Alexandria Ocasio-Cortez’s marginal tax rate on income above $10 million is “missing the big picture.”
Gates, speaking on “The Vergecast,” said marginal tax rates in the U.S. can be “more progressive,” or higher, but there are some politicians who are “so extreme” that their ideas would lead to wealthy people hiding income and stashing it in offshore bank accounts.
Ocasio-Cortez’s (D-N.Y.) plan calls for a 70 percent tax rate on those making more than $10 million. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., also have proposed variations of their own so-called “wealth tax.”
Gates also noted that the world’s wealthiest people actually have very little “income” because they don’t generally make a traditional salary. Instead, they sell stocks and other assets to generate cash, which isn’t taxed as income.
Per The Verge:
The top 400 earners in the US are only paying something like a 20 percent tax rate, he pointed out. “It has nothing to do with the 39.6 percent marginal ordinary income rate. So it’s a misfocus. If you focus on that, you’re missing the picture.”
Gates said he approves of a general wealth tax, the estate tax and changes to Social Security to increase tax revenues.
“But we can be more progressive, the estate tax and the tax on capital, the way the FICA and Social Security taxes work. We can be more progressive without really threatening income generation.”
Gates also said ideas like “modern monetary theory (MMT),” an economic theory growing in popularity with the Ocasio-Cortez’s and Sanders of the world. MMT suggests that governments shouldn’t be concerned with deficits because all they have to do is tell their central banks to just print more money.
Of course, that leads to higher inflation, which they say could be managed through interest rates.
“That is some crazy talk,” Gates told me. “It will come back and bite you.”
A recent Politico poll shows a staggering 76 percent of registered U.S. voters think the wealthiest Americans should pay more in taxes. About 61 percent approve of Warren’s wealth tax, which would levy a 2 percent tax on Americans with assets above $50 million, and 3 percent on assets above $1 billion.
The poll showed 45 percent approval for Ocasio-Cortez’s tax, with 32 percent opposed.
The following is a large chunk of the interview, via The Verge, that offers more context:
We’ve heard it a lot over the past few weeks now, that we should just tax folks like you at a 70 percent marginal tax rate, and that that money should be used to build infrastructure and services like this. Does that appeal to you? Do you think that’s just ridiculous? Do you think that what you’re doing on the private philanthropy end is more effective?
GATES: Certainly, the idea of government being more effective in terms of how it runs education or social programs, there’s a lot of opportunity for improvement there. In terms of revenue collection, you wouldn’t want to just focus on the ordinary income rate, because people who are wealthy have a rounding error of ordinary income.
They have income that just is the value of their stock, which if they don’t sell it, it doesn’t show up as income at all, or if it shows up, it shows over in the capital gains side. So the ability of hedge fund people, various people — they aren’t paying that ordinary income rate.
I believe US tax rates can be more progressive. Now, you finally have some politicians who are so extreme that I’d say, “No, that’s even beyond.” You do start to create tax dodging and disincentives, and an incentive to have the income show up in other countries and things. But we can be more progressive, the estate tax and the tax on capital, the way the FICA and Social Security taxes work. We can be more progressive without really threatening income generation — what you have left to decide how to spread around.
So tax systems are always being debated. [Thomas] Piketty actually is the one who put this idea of the wealth tax on the table. The only asset class that you have that traditionally is for real estate, which makes a lot of sense. Real estate is special in some ways. Certainly, we have a government that’s spending more than it’s taking in, so the idea that at some point, if you want to avoid massive inflation, you need to probably raise more money because what you need to do in terms of your medical care promises will make expenditures even higher than they are today.
So you’re not an adherent of modern monetary theory that says “Don’t worry about the deficit. We’ll just print the money and do it”?
GATES: That is some crazy talk.
I mean, it’s certainly out there. It’s gaining currency.
GATES: Well, that’s crazy. I mean, in the short run actually because of macroeconomic conditions, it’s absolutely true that you can get [debt] even to probably 150 percent of GDP in this environment without it becoming inflationary. But it will come and bite you. The people you owe the money to, you will have a problem.
You can read or listen to the full Vergecast interview with Bill Gates here.