What does America’s second wealthiest man think of Ocasio-Cortez’s tax reforms? Bill Gates believes that talk of a top-rate tax of 70 percent is “extreme” and completely “missing the picture.”
In an interview with the Verge, Gates spoke out on his views of the taxation reforms. He conceded that taxes could be higher, or “more progressive”. However, focusing on ordinary income tax was misguided.
This was a not-so-subtle reference to one of Congress’ newest members Alexandria Ocasio-Cortez who proposed a 70 percent tax rate for the highest earners.
Reminder that their plan = no plan.
Why? Because for billionaires, things are already going fine. https://t.co/YrZlU5zvdh
— Alexandria Ocasio-Cortez (@AOC) February 13, 2019
A 70 Percent Rate for Ordinary Income Is a ‘Misfocus’
The main problem with an exorbitant income tax rate for the ultra-wealthy is that the ultra-wealthy don't earn ordinary income.
The reality of the highest earners in the US is that the majority of their wealth is held in stock. If they don’t sell it, it never even shows up on their income statement.
This means that hitting high earners with a 70 percent rate would be ‘misguided’, at best, since:
Hedge fund people, various people — they aren’t paying that ordinary income rate.
According to Gates, the IRS stats for the top 400 earners in the U.S. reveal that they actually pay around 20 percent in tax. This makes a marginal ordinary income rate of 39.6 percent a complete “misfocus”:
If you focus on that, you’re missing the picture.
He went on to say that this type of tax rate would only provoke the wrong type of behavior. This includes such practices as tax evasion and sending money offshore.
You do start to create tax dodging and disincentives, and an incentive to have the income show up in other countries and things.
Gates does, however, believe that the IRS can be “more progressive”. They can place more focus on taxation, but concentrating on the right areas that really affect high net-worth individuals.
This would be moves such as a general wealth tax, and changes to Social Security. Estate tax would also allow for a greater contribution than an opaque ordinary income tax which most of the truly wealthy are shielded from.
U.S. Debt Is Becoming a Problem But MMT Is ‘Crazy Talk’
Gates’ concessions to higher taxes come down to the fact that the U.S. deficit will have to be addressed. The government will need more money for medical care and other expenditures at some point.
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.
However, when asked how he felt about the modern monetary theory (MMT) made popular by the likes of Ocasio-Cortez, and Bernie Sanders, and others, Gates brushed it off as insane.
Corollary: Anyone OK with using MMT to pay for massive military spending (the status quo) cannot claim MMT not OK to pay for primary and secondary education, health care, national parks, etc...
— Ross Wenk 🏴☠️ (@RossWenk) July 10, 2018
MMT follows the thinking that modern governments should not have to worry about deficits since they can just print their own currency and control inflation with interest rates. Bill Gates says:
That is some crazy talk.
While the idea is gaining traction among various key figures in the United States, printing money has historically never been a good idea. Gates did agree that it’s possible to accumulate a debt of even up to 150 percent of GDP before it becomes inflationary--but that it’s definitely not a good idea.
It will come and bite you. The people you owe the money to, you will have a problem.
Featured image from Shutterstock.