Berkshire Hathaway chairman and CEO Warren Buffett told CNBC’s Becky Quick that, in America, the “wealthy are definitely undertaxed relative to the general population.” Bill Gates has recently made the same points. Here are their suggestions for a fix.
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Warren Buffett doesn’t think the rich in America are paying enough in taxes.
As industries become more specific and as workers develop more specialized skill sets, Buffett said in an interview on “Squawk Box” on Monday, it’s the wealthy who benefit.
Back in the 1800s, for example, when most people worked on farms, those who were stronger and worked harder still earned more, Buffett explained, but “the top person working on that farm would be worth one-and-a-half to two times what the bottom person was.”
However, that disparity has grown. Today, the richest 10 percent of people worldwide own 85 percent of global wealth, according to Credit Suisse’s 2018 Global Wealth Report. And as the market system continues to become increasingly specialized, “the rich will get even richer,” Buffett said.
To Buffett, that means the next step should be figuring how to take care of people like “a guy who is a wonderful citizen” but “just doesn’t have market skills.”
His solution: Expand the earned income tax credit, which benefits people with low incomes. Even though “that probably means more taxes for guys like me,” Buffet said, “I’m fine with it.”
Fellow billionaire Bill Gates has made similar comments. “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 during a recent conversation in New York City. “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, like Buffett, acknowledges that he’s among those whose taxes should go up. “I need to pay higher taxes,” he told CNN’s Fareed Zakaria during a 2018 interview. “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.”
In order to keep up with the growing deficit and also fund programs that provide health care and pensions, for example, the government needs to bring in more revenue, Gates says. Plus, “some people think the government should provide new promises, which is fine. It just emphasizes there’s no free lunch here, you’d have to collect more money,” he told Zakaria in 2019.
One way to collect more money, Gates says, is to hike the capital gains tax, which would increase how much the wealthy are paying on their investments.
“I think our system can be a lot more progressive (that is, richer people paying a higher share),” he wrote on Reddit on Monday. “A key element is making capital gains taxation more like ordinary income and having an estate tax more like we had in the past.”
Buffett doesn’t think he and Gates would be alone in supporting or accepting higher tax rates, either. Though some critics contend that the tax changes proposed by politicians like Bernie Sanders and Elizabeth Warren would provoke the rich to flee the U.S., the idea doesn’t scare Buffett.
He could move to a state like South Dakota or Wyoming that doesn’t impose an income tax, after all, he told Quick, but he doesn’t. “I think people want to come here,” Buffett said, not leave. Even with higher taxes, he thinks, “they would come.”
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Warren Buffett and Bill Gates agree that the rich should pay higher taxes—here’s what they suggest | CNBC Make It.