Bill Gates is one of the most famous billionaires in the world. Originally known as the tech genius who co-founded Microsoft, Gates is now the co-head of one of the largest philanthropic organizations in the world: the $77 billion Bill & Melinda Gates Foundation. His own personal net worth is estimated to be $108 billion, enough to rank him the 13th-richest person in the world according to Forbes.
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But unlike many billionaires, Gates calls out the American tax system as being decidedly unfair and in favor of the rich — and he wants to change it. As Gates put it during a 2023 “Ask Me Anything” session on Reddit, “I’ve been disproportionately rewarded while many others who work just as hard struggle to get by.”
But what is Gates’s own tax history, and how does he compare to other billionaires? And what exactly does he propose to change about the tax system?
One of the often-overlooked keys to building wealth is preserving it. It’s one thing to earn a big salary, but if you give it all away in taxes, it’s hard to become affluent. This is one of the edges that billionaires have over everyday working folks in America.
Salaried employees and wage earners have to pay ordinary income taxes on their earnings. Billionaires, on the other hand, tend to generate wealth through investments and inheritances. The way the current tax structure is set up, this penalizes lower- and middle-class Americans in comparison to the ultra-wealthy.
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In some cases, it’s really true that billionaires end up paying $0 in federal income taxes. Even Jeff Bezos and Elon Musk, the respective CEOs of Amazon and Tesla, have had years in which they were already billionaires and still paid $0 in federal income tax.
Many other important figures in the financial industry who may be lesser-known names to the general public, like Carl Icahn, George Soros and Michael Bloomberg, have also avoided paying any federal income taxes in the past, in some cases multiple times.
A 2021 analysis by ProPublica pointed out how this level of tax avoidance isn’t restricted to just a few individuals. The ProPublica data shows that from 2014 to 2018, the 25 richest Americans only paid a “real” tax rate of 3.4% on the wealth they gained over that period. Bloomberg’s rate was 1.3%, while Bezos’s was less than 1%.
Although Gates is clearly a charitable person, having donated more than $77 billion to worthy causes through his foundation, he’s clear that he shouldn’t be expected to pay more taxes than legally required.
Just because he’s a billionaire, he doesn’t feel like he should be expected to fork over everything he has in an effort to bail out the federal government — an act that he points out would be futile, because even his vast wealth wouldn’t make a dent in the huge national deficit.
That being said, Gates does seem to pay more in taxes on average than the ultra-wealthy who manage to avoid paying any federal income tax. The ProPublica data shows that Gates pays an effective tax rate of 18.4%. That’s actually higher than many lower-income Americans pay, and certainly far above the 0% rate achieved by some other billionaires.
While Bill Gates isn’t going to voluntarily hand over his fortune to the United States government, he is more than willing to pay more in taxes if he is legally required to — and he’s actually pushing for that very scenario.
For example, Gates says that the estate tax should be raised, so that there is no dynastical wealth in America. He also believes that capital gains should not have a special tax rate. Currently, long-term capital gains can be taxed anywhere from 0% to 20%, but the highest ordinary income tax bracket sits at 37%.
Gates says that these types of tax breaks disproportionately benefit the wealthy.
Another tax break for the rich that Gates would like to see go away is the “carried interest” loophole.
Currently, wealth managers can pay a special capital gains rate of 20% on certain types of profits they generate from the funds they manage, rather than the top ordinary income tax rate of 37%. They also don’t have to pay the 15% self-employment tax on those profits.
Gates, along with many other economists and legislators, would like to see that benefit go away.
Although Bill Gates manages his tax burden as effectively as he legally can, he still manages to take advantage of various tax breaks that most average Americans can’t avail.
Yet, he is far from the worst tax avoider among the elite club of billionaires in America. In fact, he is one of the biggest advocates for major changes to the tax system that he sees as benefiting the uber-rich.
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This article originally appeared on GOBankingRates.com: Bill Gates Notoriously Calls for Higher Taxes on the Rich — But Here’s His Own Tax History
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