February 23, 2018 09:17 am CST
Does Bill Gates Want Higher Taxes?
By Geoffrey Pike, Wealth Daily

Bill Gates is still reported as the richest person in the world, with a net worth estimated at $80 billion. He has made more money than it is possible for one person to reasonably spend in a lifetime.

That is why he now focuses so much on his charity.

There is always a debate going on regarding Apple and Microsoft and which is better. I write this on my Apple computer using Microsoft Word. In my opinion, Steve Jobs was far more brilliant than Bill Gates in terms of technology and innovation.

But Gates was and is a great businessman. He put himself in the right place at the right time. He saw potential market demand, and he was able to launch his business and do a great job of marketing it.

As an advocate of the free market, I believe someone’s wealth, if obtained honestly and without force, is a reflection of the good done for society in economic terms. If you are a billionaire because millions of people voluntarily paid for your products and services, then you helped those people to the extent of the money you’ve made.

This is not always true, but it is still a decent measure. People who obtain wealth honestly do not take from others — they create wealth.

You can think about this in reverse as well. If someone opens up a restaurant that can barely break even and eventually closes, then it served almost nobody. It means he did not have the food and service people wanted at a particular price. He failed to meet consumer demand.

There is nothing wrong with a failing business when the losses are limited to the owners and the lenders. But the lack of profits sends a signal that consumer demand is not being met and that resources are better allocated to other areas.

I was a big defender of Bill Gates and Microsoft in the late 1990s when the Clinton administration went after him in an antitrust suit that claimed Microsoft was a monopoly. The problem with monopolies is when they are granted by government.

In the case of Microsoft, it is now evident that the company is not exempt from competition. I can safely say that on my Apple computer. I am waiting for a viable competitor against Microsoft Office, but who's doing a better job of meeting demand than the Windows operating system?

Being Rich Does Not Make One an Advocate of the Free Market

It is nice that Bill Gates is trying to give away a large portion of his accumulated wealth. However, there is an argument to be made that society would benefit more if he were to focus his attention on Microsoft.

If he had stayed on full time at Microsoft and prevented the disaster of Windows 8, the world would be much better off.

I find his charity a mixed bag. I have personal objections to some of the things that he funds. He is in bed with big government on many ventures.

Interestingly, Gates has made big donations to the Clinton Foundation. It was the Clinton administration that went after Microsoft in the antitrust lawsuit, and it is the Clinton Foundation that is currently under scrutiny for acting more as a lobbying group than a charity. The Gates Foundation is reported to have donated well over $25 million.

Now Gates is apparently joining the next richest American, Warren Buffett, in advocating for higher tax rates.

In a recent interview, Gates was asked about the idea of cutting taxes and regulations to unleash productivity in the economy. Gates responded, “The highest economic growth decade was the 1960s. Income tax rates were 90 percent. I mean, the idea that there’s some direct connection that all these innovators are on strike because tax rates are at 35 percent on corporation, that’s just such nonsense.”

So while Gates is not directly calling for higher taxes, he is basically saying higher tax rates would be acceptable to him. He does not think they hurt productivity.

His friend Warren Buffett is an advocate for higher taxes. It seems strange at first glance that these men who have benefitted so greatly from our somewhat capitalist system seem to be going against it.

Of course, they are not looking for total government control of the economy. They still want their profits and big money. They just have no qualms about using the power of government to protect themselves and their businesses from competition.

Most people don’t know this, but Warren Buffett’s father, Howard Buffett, was a U.S. congressman in the early 1950s. He was one of the few politicians of the 20th century who was a staunch defender of free markets and the gold standard. Warren did not inherit his father’s honesty or good sense when it comes to economics.

Warren Buffett was asked one time why — if he favors higher taxes — does he not just write a bigger check to the federal government. After all, you can actually donate extra money to the government, and it will gladly be accepted.

Buffett responded that he would rather give his money to a charity of his choice that would spend his money better.

In other words, Buffett thinks he is wise enough to choose what to do with his money, but he doesn’t believe anyone else is wise enough to spend or donate their own money in the proper fashion. They should be forced to pay more to the government so the government can act as the charity.

Misallocating Resources with Taxes

Gates was justifying higher taxes saying that innovators do not go on strike because tax rates are at 35%. But he is really missing the bigger points.

First, it is important to note that the 1960s was not the decade with the greatest economic growth. Much of the 19th century, especially if you exclude the war years, was far more prosperous. It was the era of people leaving farms for factories to find a better life, and it was really the greatest century of growth in the history of the world. This was all before the 16th Amendment came about in 1913, which established a federal income tax.

Tax rates are one factor in economic growth. Monetary policy is very important. Government regulation and bureaucracy, which we seem to get more of every year, has a huge impact on economic growth.

High tax rates may dissuade some from working harder. It would be hard to believe that a 90% tax rate would not do this to some, but this rate only applied to very high incomes back in the 1950s and early 1960s before the tax rates were lowered.

But the main problem with high tax rates isn’t that people will go on strike. We are not talking about a story out of Atlas Shrugged here.

The problem is that higher taxes go to the government and ultimately hurt investment and production in the future. The government will spend whatever is collected in taxes, plus the debt and inflation. If you pay higher taxes, that is more money for the government to spend and less money for each individual or business to spend, save, or invest.

So the biggest problem with high tax rates in terms of economic growth is that it misallocates resources. It means the government will spend it on its own boondoggles instead of people spending their own money on the things they want and need.

I would pose the same question to Gates as was posed to Warren Buffett: If higher tax rates are an answer to our problems, then why don't you donate tens of billions of dollars to the federal government?

Unfortunately, our tax rates really aren’t going to mean much in the near future. They probably won’t go up or down significantly, but the government is going to continue to spend massive amounts of money as long as it can. It will also continue to run up the national debt, which will hit $20 trillion in the next couple of years.

As long as spending stays high and regulations overwhelm us, economic growth is going to stay far lower than it should. This is why you should prepare for a bust of the government bubble. It cannot go on forever unless Americans are ready for a massive welfare state like Greece.

If Bill Gates and Warren Buffett want to help fund more government spending, that is up to them. But don’t force the rest of us to pay for it.

Until next time,

Geoffrey Pike for Wealth Daily

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