By Leonid Bershidsky
IN HIS NEW book on how to fix inequality, French economist Thomas Piketty may have gone a little too far with a call for a 90% wealth tax for billionaires and multimillionaires, but putting a tax on huge fortunes may well make sense. Bill Gates, the second richest man in the world, thinks so. His case makes it clear why governments should go for it.
Gates said in a Bloomberg interview that he “wouldn’t be against” a wealth tax, even though he doesn’t believe the US will introduce it. As an alternative, he proposed raising the estate tax to 55% for the top bracket from the current 40%.
As things stand, Gates’s net worth increased by $16 billion this year to $106.8 billion (according to the Bloomberg Billionaires Index). He gives away lots of money every year. He and his wife have donated more than $36 billion to the Bill & Melinda Gates Foundation since 1994, though the couple’s contributions to the trust that finances the foundation’s activities were relatively small in 2018 at $43.9 million. (They contributed almost $4.7 billion in stock and cash in 2017.)
Despite their generosity and a sober, goal-oriented approach to philanthropy, the family of the Microsoft founder cannot operate programs on the scale that a wealthy nation’s government does, even though it has resources comparable to that of a nation. The foundation’s expenses reached $4.8 billion in 2018 (which was at the lower end of its normal range of $4.5 billion to $6.5 billion); that’s about the size of the Republic of Georgia’s annual government spending.
It doesn’t make sense for the Gateses to give away much more; even with the best of advice, they cannot always pick the most efficient ways to spend money for the benefit of society. That’s the job democracies reserve for politically representative governments and parliaments, supported by diverse expert institutions which should be able to provide a nation with a 360-degree view of its priorities.
Even an extraordinarily talented individual like Gates finds it hard to analyze all the myriad inputs a modern state has to process. To give just one example from his Bloomberg interview, Gates is in favor of rolling back government subsidies to wind and solar energy producers, since renewable energy from these sources is already competitive with energy from fossil fuels. He thinks it’s time to shift incentives to areas such as energy storage and offshore wind generation, where technological progress is still lagging and costs need to be driven down.
It’s fine for Gates himself to make such a change in his own investing (for, apart from his philanthropic activities, he’s also launched an investment vehicle for projects in the field of clean energy). But it isn’t time for governments to scrap wind and solar subsidies yet: Even if the marginal cost of generating power now is comparable across different technologies, the economics of renewable energy still don’t allow for the natural, market-based replacement of fossil fuel-burning plants.
According to the International Energy Agency, the growth of renewable energy capacity stalled last year. Far less capacity is being added than necessary to meet the climate goals set by the 2016 Paris Agreement.
That’s one of the areas where a wealth tax could come in handy. In a paper published earlier this month, Emmanuel Saez and Gabriel Zucman from University of California, Berkeley, calculated that, had a wealth tax of 3% on fortunes above $1 billion been in place since 1982, Gates’s fortune still would have been enormous at $36.4 billion, but his extra taxes would have gone to useful government programs — and why not to clean energy subsidies?
Taxing Gates’s current fortune at this rate would yield $3.2 billion this year. That’s more than the $2.6 billion US spent on wind and solar subsidies in 2016, the latest year for which an Energy Information Administration estimate is available.
It’s laudable that Gates recognizes it would make sense to share more of his wealth with society even if he doesn’t get to decide how the money is spent. While Piketty’s expropriatory ideas are capable of scaring any reasonable person away from the idea of a wealth tax, it may well be the case that Gates isn’t alone among the super-rich who’d support a reasonable tax on their huge fortunes. Sharing more of this wealth through taxes can be a useful complement to targeted philanthropy. It doesn’t have to mean confiscating, Communist-style, the just rewards of exceptional business acumen.