Bill Gates' solution to income inequality

[Rob L 3,811]

The billionaire philanthropist wants to distinguish between the wealthy who are using their money for good and those who are merely consuming it.

http://fortune.com/2014/10/15/bill-gates-income-inequality/?xid=ob_rss

It might not come as a surprise to many that Bill Gates, whom Forbes’ magazine ranks as the second wealthiest man in the world, doesn’t agree with the ideas of French economist Thomas Piketty.

It’s Piketty, after all, who made a big splash this year with his book Capital in the 21st Century, which argued that it is a fundamental law of capitalism that wealth will grow more concentrated absent destabilizing events like global wars. Piketty’s solution? A global tax on capital that could help governments better understand how wealth is distributed and stem the tide of inevitably increasing inequality, which Piketty believes is socially destabilizing.

If you believe the Forbes list, there is nobody in the world besides Carlos Slim who has more to lose than Bill Gates if Piketty’s global tax on wealth were to be instituted. ButGates’ critique of Piketty’s work, published Monday on his personal blog, isn’t completely self-interested. After all, Gates has already pledged to give away half his fortune over the course of his lifetime, a much larger amount than the 1% or 2% wealth tax, proposed by Piketty, would confiscate. His problem isn’t with the idea that the super wealthy should spread their fortunes around, but ratherwith Piketty’s mechanism and the incentives it would create:

Imagine three types of wealthy people. One guy is putting his capital into building his business. Then there’s a woman who’s giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it’s true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third. I wish Piketty had made this distinction, because it has important policy implications.

Gates shares Piketty’s goal of spreading wealth, yet he doesn’t want to discourage the uber wealthy (like Gates) who are taking risks, investing in value-creating businesses, and helping the world through philanthropy. Gates’ solution? Shift the American tax code from one that taxes labor to one that taxes consumption. Now, this sounds like standard, right-wing economic theory. Consumption taxes are usually favored by the wealthy and by conservative economists because they tend to be regressive in nature. Since everyone—rich and poor—have to consume some amount of goods and services, and because the proportion of income spent is much higher for the poor than the rich, consumption taxes like state and local sales tax burden the poor more than the rich.

But this doesn’t necessarily have to be the case. Economists like Cornell University’s Robert Frank have long advocated for progressive consumption taxes that could do much to solve what they perceive as the ills of growing income inequality. As Frank writes:

Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. A family’s annual consumption is simply the difference between its income and its annual savings. That amount, minus a standard deduction—say, $30,000 for a family of four—would be the family’s taxable consumption. Rates would start low, like 10 percent. A family that earned $50,000 and saved $5,000 would thus have taxable consumption of $15,000.

Consider a family that spends $10 million a year and is deciding whether to add a $2 million wing to its mansion. If the top marginal tax rate on consumption were 100 percent, the project would cost $4 million. The additional tax payment would reduce the federal deficit by $2 million. Alternatively, the family could scale back, building only a $1 million addition. Then it would pay $1 million in additional tax and could deposit $2 million in savings. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth. Either way, the nation would come out ahead with no real sacrifice required of the wealthy family, because when all build larger houses, the result is merely to redefine what constitutes acceptable housing. With a consumption tax in place, most neighbors would also scale back the new wings on their mansions.

As you can see, one of the strategies behind this tax regime is to reduce the incentive to consume. With less conspicuous consumption, the poor would suffer from the negative effects of having less than those around them. As many behavioral studies have shown, relative wealth has more of an impact on personal happiness than absolute wealth.

Such a regime could appeal to both the right and left sides of the political spectrum. For those on the left, who are sometimes uncomfortable with the effects of a culture based around consumption, this tax would discourage such behavior. Meanwhile, a regime that encourages savings and investment would appeal to conservatives.

But for a progressive consumption tax to be truly progressive, there would need to be a hefty estate tax to prevent the rich from simply letting their wealth grow over generations through interest income. But Gates argues this is not a problem, because we have the ability to institute estate taxes, a policy which he is a “big believer” in.

[LibCampFireClub 635]

What a nice fella. He ends up being one of the richest men in the world, which in his mind earns him the right to choose how everyone else spends their money. Cool. Spread that wealth around people. You didn't build it.

Edited November 10, 2014 by ExExpat

[Rob L 3,811]

What a nice fella. He ends up being one of the richest men in the world, which in his mind earns him the right to choose how everyone else spends their money. Cool. Spread that wealth around people. You didn't build it.

I can't understand what you are objecting to. Bill Gate's view on moving from Income taxes to consumption taxes? That he does not have a right to express an opinion? The move toward estate taxes? Can you be specific?

[LibCampFireClub 635]

On earth, there will be rich and there will be poor. Some are born into a rich family. Some made good business decisions. Capitalism rewards hard work. Socialism spreads the wealth around. Increased taxes kill growth and business.

[Merle 458]

On earth, there will be rich and there will be poor. Some are born into a rich family. Some made good business decisions. Capitalism rewards hard work. Socialism spreads the wealth around. Increased taxes kill growth and business.

If there was some way to take all the money in the country and evenly distribute it amomg each and every working age person there would be rich people and poor people again within a decade or less. Some people are poor for a reason and the same can be said for the rich.

[LibCampFireClub 635]

If there was some way to take all the money in the country and evenly distribute it amomg each and every working age person there would be rich people and poor people again within a decade or less. Some people are poor for a reason and the same can be said for the rich.

You bet there is a way to take away rich people's money and give it away. Robin Hood did it in the fabled stories of the UK, Hugo Chavez in Venezuela, Castro in Cuba, countless names in Russia, Mao in China, and so many others. It just never seems to work out. It's like giving money to an irresponsible teenager, friend, spouse, whatever, and then watching it disappear. They always reappear though asking for more and never seem to self-sustain. Whether it's for a reason or not, it's just the way it is on this earth. So many have tried to change it and believe all people will pull their own weight. Like 0bolaCare, Karl Marx said:

"From each according to his ability; to each, according to his need."

It's just that the people with more ability get real sick and tired of giving to the ones always in need.

Edited November 11, 2014 by ExExpat

[Rob L 3,811]

no one has addressed the ideas laid out: Move from a tax on income to a tax on the part of their income not committed to savings. This will promote all parts of society to save and form capital ( the basis if Capitalism) while discouraging the rat race of consumption that drives our unsustainable ways. This could be structured to be revenue neutral. This is not a Socialist manifesto.

Edited November 13, 2014 by Rob L

[UncleBeer 244]

Dear Bill: If you so object to others' accumulation of wealth, then by all means set an example: Give yours away or STFU.

[Póg mo 1,749]

If there was some way to take all the money in the country and evenly distribute it amomg each and every working age person there would be rich people and poor people again within a decade or less. Some people are poor for a reason and the same can be said for the rich.

Really, you don't say? Somebody find out who this guy is in real life and get the man or woman some form of medal or award for such insightful and original words of wisdom.

[Póg mo 1,749]

Dear Bill: If you so object to others' accumulation of wealth, then by all means set an example: Give yours away or STFU.

Dear old Unclebeer, if you took the time to read the article, you'd already know that Bill Gates already plans to give away half of his wealth before he dies.

[Póg mo 1,749]

no one has addressed the ideas laid out: Move from a tax on income to a tax on the part of their income not committed to savings. This will promote all parts of society to save and form capital ( the basis if Capitalism) while discouraging the rat race of consumption that drives our unsustainable ways. This could be structured to be revenue neutral. This is not a Socialist manifesto.

So you want the wealthy to accumulate even more wealth than they already have? Shouldn't we be more concerned with fixing the system that forces people to accumulate debt which mainly benefits people of means?

[Póg mo 1,749]

On earth, there will be rich and there will be poor. Some are born into a rich family. Some made good business decisions. Capitalism rewards hard work. Socialism spreads the wealth around. Increased taxes kill growth and business.

What does Corporatism reward? Usury? Many, many people work hard their entire lives under Capitalism and never get rich. Where is their reward? In the after life?

[eieio 1,594]

What does Corporatism reward? Usury? Many, many people work hard their entire lives under Capitalism and never get rich. Where is their reward? In the after life?

They get to complain that life isn't fair.

[UncleBeer 244]

Dear old Unclebeer, if you took the time to read the article, you'd already know that Bill Gates already plans to give away half of his wealth before he dies.

Why did you assume I didn't? And if Bill's truly miffed at the unfairness of it all, why would he stop at half his money? A real altruist would give almost all away, leaving just enough for sustenance.

[Merle 458]

Really, you don't say? Somebody find out who this guy is in real life and get the man or woman some form of medal or award for such insightful and original words of wisdom.

Ok Einstein, let's hear your solution to this inequality problem.