Sunday , January 19 2020
Home / EconLog Library / Second Richest Man Spouts Nonsense

Second Richest Man Spouts Nonsense

Summary:
In a New Year’s Eve blog post, multi-billionaire Bill Gates Jr. called for raising taxes even higher on rich people like himself. Here are some relevant parts of his post (in boxes) along with my comments. Although I’m not an expert on the tax code, here are some steps I think America should take to make its tax system more fair. We should shift more of the tax burden onto capital, including by raising the capital gains tax, probably to the same level as taxes on labor. (bold in original) It is true that shifting more of the tax burden onto capital would likely reduce inequality, the thing he worries about. But I for one am not upset that he is substantially richer than me: he earned it. (Indeed, he would likely be even wealthier if the feds hadn’t pursued his

Topics:
David Henderson considers the following as important: , , , , , ,

This could be interesting, too:

Scott Sumner writes You can’t have it both ways

Bryan Caplan writes My Hayek Memorial Lecture

David Henderson writes NAFTA 0.0

David Henderson writes Trump’s Proposed Wealth Tax and Incentives

In a New Year’s Eve blog post, multi-billionaire Bill Gates Jr. called for raising taxes even higher on rich people like himself. Here are some relevant parts of his post (in boxes) along with my comments.

Although I’m not an expert on the tax code, here are some steps I think America should take to make its tax system more fair.

We should shift more of the tax burden onto capital, including by raising the capital gains tax, probably to the same level as taxes on labor. (bold in original)

It is true that shifting more of the tax burden onto capital would likely reduce inequality, the thing he worries about. But I for one am not upset that he is substantially richer than me: he earned it. (Indeed, he would likely be even wealthier if the feds hadn’t pursued his company with an absurd antitrust suit that I wrote about. The economy is unfair: to him.)

What I don’t want is for tax policy to discourage accumulation of capital, which is what his proposal would do. With less capital accumulation than otherwise, the ratio of capital to labor would be lower than otherwise and, therefore, productivity and real wages would be lower than otherwise. So inequality would fall and most of us would be worse off than otherwise. Thanks, Bill.

At least he admits he’s not an expert on the tax code.

He writes:

I don’t see any reason to favor wealth over work the way we do today.

I don’t think he’s looked hard. There’s an obvious reason: it’s called double taxation, or even triple taxation. You get taxed when you earn wages or salaries (once), then you get taxed when you invest some of the savings (twice) from those wages into corporations (you’re taxed implicitly on the dividends), and then you get taxed again (triple) on the capital gains when the value of the stock rises. And part of this last tax is a tax on phantom capital gains because the capital gains are not adjusted for inflation. If a stock holds its real value at $100 over 10 years, but cumulative inflation over those 10 years is 20 percent so that the nominal value of the stock is $120 at the end of the ten years, you get taxed on that $20 phantom gain if you sell.

Gates writes:

I’m also in favor of raising the estate tax and closing the loopholes in it that many wealthy people take advantage of. 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 and contribute to the economy. It’s one of the many reasons that Melinda and I are giving almost all of our wealth back to society through our foundation, rather than passing all of it along to our children. (bold in original)

That’s now quadruple taxation. Bill Gates has his own value judgement and wants to act on it. Good for him. And notice that he gets to choose whom to give his wealth to, which is not something that would be true with a loophole-free estate tax. Would he be indifferent between spending more on helping dirt-poor people in Africa, which his and his wife’s foundation do now, or having the Pentagon have more money to spend on arms? How much thinking did he really do on New Year’s Eve?

And notice his idea that he’s giving their wealth back. No they’re not. They didn’t take it. They earned it. Maybe I should wish that he hadn’t dropped out of Harvard where, had he taken Ec 10 from Marty Feldstein, he would have learned a thing or two. And what about people who want to give their wealth to their children? Like him, I think it could be a bad idea, but why shouldn’t those parents be able to deploy their wealth according to their wishes? Bill Gates, with his and his wife’s foundation, truly does have a noble idea about how to use his wealth to help others. But he has a lot of gall in proposing that the government take wealth from people who don’t share his idea.

Next up: Billionaire Mark Cuban spouts nonsense.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

Leave a Reply

Your email address will not be published. Required fields are marked *