Speaking on The Vergecast this week, Gates said that while marginal tax rates in the United States can be “more progressive” — higher, in other words — there are now some politicians who are “so extreme” that their proposals would lead to wealthy people hiding income and stashing it offshore. That’s a clear reference to new members of Congress like Rep. Alexandria Ocasio-Cortez (D-NY), who had just suggested a new top tax rate of 70 percent in the week before Gates sat for this interview.
Gates also said that the world’s wealthiest people only have a “rounding error” worth of actual income compared to their wealth — they don’t have a lot of salaries, but instead sell stocks and other assets to raise cash, which isn’t taxed as income anyway. 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.”
But Gates spoke approvingly of a general wealth tax, the estate tax, and changes to Social Security in order to increase tax revenue. “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 took exception to “modern monetary theory,” which is an economic theory with growing prominence on the policy teams of Ocasio-Cortez, Bernie Sanders, and others. MMT, as it’s known, suggests that governments need not worry about deficits because they can simply print their own currency, and should instead manage inflation with interest rates. (You can read more about it in this Vox explainer.) What does Gates think of MMT?
“That is some crazy talk,” he told me. “It will come back and bite you.”
(Interestingly, Gates did suggest that you could raise debt to 150 percent of the gross domestic product without a problem, which Vox’s Matt Yglesias tells me, puts Gates on the same side as MMT advocates for the foreseeable future even if they disagree about the long term.)
All of this was part of a wide-ranging conversation on The Vergecast about the philanthropic work Gates does around the world with his wife Melinda and their foundation — you can listen to the whole thing below or read the full transcript here. Below are Gates’ remarks about taxes and MMT.
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.
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. Anyway, you should look at that. It’s about a 20 percent rate, so it has nothing to do with the 39.6 marginal ordinary income rate. So it’s a misfocus. If you focus on that, you’re missing the picture.
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”?
That is some crazy talk.
I mean, it’s certainly out there. It’s gaining currency.
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.