- REUTERS/Brendan McDermid
- The billionaire philanthropist Bill Gates says there’s a “misfocus” in the way America’s wealthiest residents are taxed.
- He told The Verge’s Nilay Patel that if you focus on raising the ordinary income tax rate for America’s superrich, “you’re missing the picture.” The highest earners often have wealth tied to company stock, which isn’t taxed as “ordinary income,” Gates said.
- “We can be more progressive without really threatening income generation – what you have left to decide how to spread around,” he said.
There’s been a lot of talk lately of upping taxes for America’s highest earners.
But Bill Gates thinks there’s a “misfocus” on how the US government taxes the wealthiest residents, he said during a recent podcast interview with The Verge’s Nilay Patel.
“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,” said Gates, who’s worth about $96 billion.
Gates said America’s wealthiest people have complicated financial situations that the US tax system doesn’t recognize.
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“They have income that just is the value of their stock, which, if they don’t sell it, it doesn’t show up in income at all, or if it shows up, it shows over in the capital-gains side,” he said. “So the ability of hedge-fund people, or various people – they aren’t paying that ordinary rate, ordinary income rate.
“The one thing that never gets much press: The IRS shows the statistics for the top 400 people of the highest income and the rate they pay … It’s about a 20% rate, so it has nothing to do with the 39.6% marginal ordinary income rate,” Gates said. “So it’s a misfocus. If you focus on that, you’re missing the picture.”
For the 2014 tax year, the most recent data available from the IRS, the average top tax rate for the 400 Americans with the highest adjusted gross income was 23.13%.
Since the start of the year, there’s been a flood of wealth-tax proposals. Rep. Alexandria Ocasio-Cortez has suggested a 60% to 70% top tax rate for Americans earning $10 million or more. Sen. Elizabeth Warren introduced a plan to levy a 2% tax on wealthy Americans’ assets over $50 million and 3% for assets over $1 billion. Sen. Bernie Sanders’ “For the 99.8% Act” would impose a graduated scale for the estate tax that increases to a 77% rate for assets in excess of $1 billion.
The US operates on a progressive tax system. How much you pay in taxes depends on several factors, including whether you’re single or married, and, of course, how much you earn. President Donald Trump’s tax plan went into effect in January 2018, mandating new income tax brackets for American taxpayers; the top marginal tax rate is 37%.
Your tax bracket applies to only the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same amount of federal income taxes as everyone else, even if they earn less overall.
“I believe US tax rates can be more progressive,” Gates said. “Now you finally have some politicians who are so extreme that I’d say, ‘No, that’s even beyond.'”
He continued: “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.”
- Read more about Bill and Melinda Gates:
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- Inside the marriage of Bill and Melinda Gates, who met at work, live in a $124 million home, and will leave their children only a small fraction of their fortune
- Bill and Melinda Gates revealed their 9 biggest surprises from 2018 in a letter dedicated to Microsoft’s late cofounder
- Bill Gates is worth $96 billion and he plans to give most of it away – here’s how he spends his money now, from a luxury car collection to incredible real estate