Bill Gates calls for higher capital gains taxes

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Bill Gates said investment gains should be taxed at the same level as ordinary income — a bold call for one of the world's largest investors.

Speaking Monday on CNBC's "Squawk Box," Gates said that he's "pleased" that there is more discussion around changing the tax code. When asked what he would alter, Gates sided with his pal Warren Buffett and said he supports raising the earned income tax credit.

But Gates also said he would raise the tax rate for capital gains — the largest source of income for the richest Americans. The current top tax rate on capital gains is 20 percent (with the highest earners paying an additional 3.8 percent surtax). The top tax rate on ordinary income is 39.6 percent.

"There's always been the question of whether taxes on capital should be a lot lower than taxes on labor," Gates said. "I tend to think they should be pretty much the same, and that that's an opportunity to be a bit more progressive."

Bill Gates
Lacy O’ Toole | CNBC

When asked in the interview whether "the same" translated into lowering ordinary income rates or raising capital gains taxes, Gates said he preferred raising capital gains taxes.

"Well, you have to fund government," he said. "And particularly given the promises that the government's made about medical costs and retirement costs, unfortunately the one that makes the numbers add up is to move the lower tax up higher, although people don't like that. Eventually, the math really matters — otherwise you get into a Puerto Rico-type situation."

Gates has advocated higher income taxes on the rich before, saying in 2011 that "certainly there's a case to be made that taxes should be more progressive." And in 2014, he called for a progressive tax on consumption targeting people who buy yachts and private jets.

Yet now, Gates is calling for a tax hike squarely aimed at wealthy investors — and possibly himself. Gates is one of the biggest investors in the world through his private firm, Cascade Investment, as well as through the Bill and Melinda Gates Foundation. While Cascade doesn't disclose its asset totals, the Gates Foundation's endowment totals more than $40 billion.

The lower capital gains rate — designed to encourage investment — mainly benefits the wealthy. For the 99 percent of taxpayers making less than $500,000, salaries and wages accounted for 75 percent of their adjusted gross income for 2012, according to the latest period available from Internal Revenue Service returns.

The DeepFlight Dragon, the $1.5 million submarine modeled after a drone.
The $1.5 million submarine that's modeled after a drone

Yet for those making $10 million or more, salaries and wages only account for around 15 percent of their income, while capital gains accounted for about half of their earnings.

In calling for a higher tax rate on capital gains, Gates is putting the need for tax hikes above his own economic interests. Then again, almost all of it will go to charity anyway.