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Bill Gates suggests higher taxes on the rich—the current system is 'not progressive enough,' he says

Bill Gates
Lacy O'Toole | CNBC

While the tax system in the United States is progressive — which means, generally, that the more money you make, the more money you pay in income taxes — "it's not progressive enough," Bill Gates said during a conversation with his wife Melinda and hundreds of high school students in New York City on Tuesday.

He and his wife run the Bill & Melinda Gates Foundation and are worth more than $90 billion.

"There's no doubt that what we want government to do in terms of better education and better health care means that we need to collect more in taxes, " he said, "and there's no doubt that as we raise taxes, we can have most of that additional money come from those who are better off."

Gates underlined this idea Tuesday night on an appearance on "The Late Show with Stephen Colbert" on CBS when he was asked what he would say to those who argue that perhaps billionaires shouldn't even be "a thing" because they represent a failure of capitalism.

"I think you can make the tax system take a much higher portion from people with great wealth," he said, adding, "These great fortunes were not made from ordinary income, so you probably have to look to the capital gains rate and the estate tax if you want to create more equity there."

Bill Gates has been consistent on the point that he thinks the country should ask more of those with means. As he told CNN's Fareed Zakaria last year, after the passing of the GOP tax reform, "I need to pay higher taxes. I've paid more taxes, over $10 billion, than anyone else, but the government should require people in my position to pay significantly higher taxes."

Other super rich individuals agree. "I don't think I need a tax cut," billionaire Warren Buffett told CNBC in 2017 regarding the tax reform efforts at the time. A handful of New York-based millionaires are asking for a new "multimillionaire's tax" to fund important priorities like affordable housing and schools.

And Howard Schultz, who is considering running for president, told CNN this week, "I should be paying more taxes, and people who are in the bracket of making millions of dollars, or whatever the number might be, should be paying more taxes."

When asked how much higher he would raise the marginal tax rate on the wealthy, though, he said, "I don't know," and he called Rep. Alexandria Ocasio-Cortez's proposed 70 percent marginal tax rate on income over $10 million "punitive."

I think you can make the tax system take a much higher portion from people with great wealth.
Bill Gates
co-founder of Microsoft

For practical reasons, Bill and Melinda Gates don't want lawmakers to get bogged down in arguments about the top marginal rate, which is currently 37 percent. "If you focus on that, you're missing the picture," Bill said in a recent interview with The Verge.

"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," he said. "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."

Instead, he suggested, we should be more progressive with "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." That idea might find favor with Sen. Elizabeth Warren, who has floated the idea of a wealth tax on households worth more than $50 million.

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In NYC on Tuesday, Bill and Melinda Gates specifically spoke out about the estate tax, which is levied on assets passed from one person to another, often from parent to child, at the time of death. Currently, it only applies to those who inherit estates worth more than $11.18 million.

If you're going to give money to your children, "you should be taxed at a very high rate for passing that on," said Melinda, "so that a lot of it goes to the government and some goes to your kids."

Bill chimed in: "You can go a long ways raising the estate tax, raising the capital gains tax and collecting more resources for the equity things we want government to be able to do."

Don't miss: About half of Americans don't know what tax bracket they're now in—here's how to find out

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Bill and Melinda Gates say it's unfair that they have so much wealth
Bill Gates
Lacy O'Toole | CNBC
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