Dear Mr. Gates:
You recently sat for an interview with Andrew Ross Sorkin at an event sponsored by the New York Times. In it you made some remarks about taxing the rich, especially yourself. I have seen enough of the clip to know that you did not intend your remarks to be taken completely seriously. But I seriously invite you to address how wealthy people like yourself and large corporations like Microsoft should be taxed.
The thrust of the commentary on your remarks is that you are feuding with Elizabeth Warren and her "wealth tax" proposal. Supposedly you are shocked and appalled by what she is proposing. I think that is far from the truth. You are a thoughtful and public spirited person. You are known for taking a deep dive into what interests you.
Senator Warren is running for President. As such, she needs to construct her proposals with an eye to how they will be perceived by voters and the press. This is not necessarily bad. I do not know if, absent these considerations, she would or would not be proposing something different. But her current circumstances prohibit even the possibility of doing that. You don't operate under that constraint. You are much more free to say what you mean and mean what you say.
And, based on your words and actions, I think you and the Senator are actually in close agreement as to the overall goals and objectives a tax system should support. You (and your close friend and fellow mega-billionaire Warren Buffet) have frequently stated publicly that the wealthy should be taxed more heavily than they currently are, for instance.
And your past remarks on increasing taxes have usually been in the context of tax rates on current income. But that is not at all the same thing as a "wealth tax" that goes after your assets. So one might think that when it comes to assets, your agenda and that of the Senator might diverge. But you have repeatedly and forcefully advocated for the "giving pledge". Subscribers promise to donate half their net worth to charity upon their death. That takes a far bigger bite out of a person's wealth than what the Senator is proposing.
Now there is a difference. You have contributed a substantial portion of your wealth to the Bill and Melinda Gates Foundation. But you and your wife control how and on what the Foundation spends the money. If you were to instead give the same amount of money to the government you would not control how it was spent.
Your foundation appears to be well run and has an excellent track record when it comes to spending money efficiently and effectively. And this track record applies both to the amount of money that goes to performing the actual work but also to what work the Foundation funds. You look for situations where the Foundation can be effective and can advance important goals.
But the same is not always true when it comes to the "charity" vehicles other wealthy people employ. In many cases their "charitable operation" is just a tax dodge or a public relations effort designed to burnish the reputation of the sponsor.
A classic example of this is the Donald J. Trump Foundation. Mr. Trump was recently forced to permanently shut his Foundation down, admit guilt to a long and shocking list of illegal behavior, and pay a $2 million fine. This is perhaps the most egregious example of this sort of thing. But less egregious examples of "charitable organizations" that perform little or no charitable or educational activities are two a penny.
A frequently advanced argument is that giant rewards must be available in order to simulate risky innovative activity which, we are told, eventually will greatly benefit society as a whole. But the life history of you and many others does not support this. Every case is a little different. But your case serves to illustrate this and it is one I am familiar with.
You were raised in an upper middle class family that valued hard work and encouraged excellence and competition. Although your home situation was more than comfortable it was definitely not "lifestyles of the rich and famous".
Your parents were, however, able to afford to send you to a private high school and then on to Harvard, one of the most expensive schools in the country. There, the level of financial support they provided, was not sufficient to enable you to keep up with the smart set. But it was sufficient to fund your frequent participation in poker games.
And, of course, you dropped out of Harvard and moved to New Mexico where your lifestyle was more "starving student" than it was "jet set". But your low rent existence was not a problem you felt needed fixing. You were completely focused on the goal of making Microsoft a success. Nothing else was important. And this singular focus on making Microsoft a success continued for many years afterwards.
But it was not until years later when Microsoft's association with IBM began paying off to an extent that no doubt surprised even you, that your financial situation improved substantially. During the period leading up to Microsoft's super-success you worked extremely hard, probably harder than you have worked at any time since.
But during this long period your expectation was not that Microsoft would eventually become the most valuable company in the world. Oh, you always hoped and expected that eventually Microsoft would become a success. But the degree of financial success you envisioned for Microsoft was several orders of magnitude smaller than what actually transpired. Yet that much more modest goal was enough to motivate you to go "all in" for a long time.
As soon as Microsoft hit it big you could have substantially changed your lifestyle. But you didn't. Oh, you bought a very expensive car and some other toys. You eventually built a $50 million house. But the sum total of all of these expenditures represented only a small portion of your income at the time.
And for several years after you hit it big you maintained a remarkably ordinary lifestyle. You were seen standing in line to watch a movie in a regular movie theater, just like everybody else, on several occasions during this period.
You did eventually go inside the bubble. But was not a choice you made because you found it appealing. Instead it was a direct response to a credible kidnaping threat involving one of your children. Given your net worth at the time, going inside the bubble was the appropriate response of a loving father concerned for the safety of his family.
And to this day you make a concerted effort to get outside the bubble. You can't do it in the first world due to security concerns, if for no other reason. But you can and do get out of the bubble during your frequent sojourns into the third world.
I think you enjoy the interactions you are able to have with regular people in poor countries. There the rules of engagement are different. These people don't really know who you are. They know you are some kind of foreigner. But for them you fall into the "stranger from a couple of villages over" category. They know how to deal with that category of people. And it does not require them to completely change their behavior.
I many places you fall into the category of people who are so famous and powerful that people you meet have inevitably developed preconceived notions about you. Such preconceived notions inevitably color an interaction. They feel they can't behave as they normally would.
So you can have normal conversations about normal things with the people you encounter when you are far off the beaten path in a way that is often no longer possible in the "civilized world". Being poor doesn't make people dumb or uninteresting. So these people have something to say that is worth hearing and I bet you routinely learn from them.
My point is that it was not necessary to dangle the real possibility that if you worked hard, took some risks, and were lucky, you would end up the richest man in the world. The reward of success was, no doubt, part of what motivated you to do what you did. But the possibility of a much more modest reward would have been more than sufficient to elicit your best effort. And you are very aware that, while you have gained much, you have also had to leave behind some things you value.
You mentioned in the Sorkin interview that you have paid $10 billion in taxes. That's a lot of money. And, by one account your net worth is a little more than $100 billion. Accepting that figure for the sake of argument, that means you have paid out about 10% of your net worth in taxes.
But consider a person earning $50,000 per year, or perhaps a family earning $100,000 per year. (These figures are at or above "median" income for American families.) They likely pay more than 10% of their earnings in taxes, a point your friend Mr. Buffet often makes. So your tax rate is actually on the low side.
But that's not the whole story. The income figures I just cited were "gross" income figures. They represented every dollar these people earned. But in your case, we are talking about "net", what's left of gross income after all expenses are paid.
For an average person, having a net income of 10% would be considered quite good. So they are paying more than 100% of their net income in taxes. One of the things that distinguishes the rich from the poor is that for rich people the percentage of their income that ends up as net income is fairly high (often well over 10%). For poor people the amount of net income they end up with varies from a small percentage (likely less than 10%) to none at all.
Now consider a large corporation like Microsoft. Microsoft employs a wide range of tactics to reduce its tax burden. And they are quite successful. A significant number of the Fortune 100 corporations pay no Federal Income tax at all. Many other Fortune 100 companies pay only a small percentage of their reported profit in Income Taxes. The combined Income Tax paid by the Fortune 100 is a very small percentage of their combined profit.
Now I freely admit that Microsoft and other companies pay large amounts of other taxes. But then so do ordinary people. We both live in Washington State which has a high Sales tax. Our state also has Business and Occupation taxes that apply to corporations, property taxes that apply to both corporations and citizens, and a variety of other taxes. The Federal government also engages in many forms of taxation. It doesn't limit itself to just the Income Tax.
But again, these other taxes apply to both average people and rich people. And these other taxes tend to burden the poor more than the rich. But you already know all this. And if you don't, you have access to very smart and skilled people who do. You also have access to smart and skilled people who know all about corporate taxes, an area I suspect you have generally had little interest in, in all their myriad forms.
So you agree with Presidential candidate Warren that taxes on rich people should be increased. Based on your giving pledge and your Foundation I would say you also agree that wealth should be taxed. I don't know what your thinking is on what is right and wrong on the Corporate tax front. But I suspect you think they too should pay more. So I am just going to assume you think that way. If you don't, go along with me anyhow, at least for the sake of argument. And I am absolutely positive you think the way corporations are taxed could be improved, a lot.
So I hope I have convinced you that your thinking and Ms. Warren's thinking is not all that different, at least at the conceptual level. But, as they say, "God is in the details". And when it comes to the details, I would be surprised if you didn't have some major disagreements with her proposals. After all, that was the thrust of the remarks you made that I started this letter off with. And it is in those very details that your skills and access to resources positions you to make a real contribution.
I invite you to propose changes to how personal income and wealth should be taxed. I invite you to propose changes to how corporations should be taxed.
You know a lot about these subjects but likely not enough. But in the past you have characterized yourself as having a "high bandwidth". By this you meant that you had the capability to quickly absorb large quantities of complex technical information and to be able to organize it so that you can make sense of it and act intelligently on it. Taxation is noting if not a large and complex subject.
Right now you probably don't know enough about it. I think you still have that high bandwidth capability. You also have access to the very best experts in these areas. Should you choose to do so, I think you can become a skilled expert in this subject area in a relatively short period of time. Once you have done so I sincerely want to know what you recommend.
To be fair to the Senator I would suggest you put together proposals that would raise roughly the same amounts candidate Warren proposes to raise. That would allow an "apples to apples" comparison to what Ms. Warren has proposed. But you will most likely find that you disagree with the revenue goals she has proposed. This is a contentious area and reasonable people can honestly come to substantially different conclusions.
I would like to see your recommendations (and the thinking that underlies them) as to what revenue goals you think are most appropriate. Revenue goals that differ significantly from hers lead naturally to different tax proposals. But there should be a lot of commonality. So putting out two sets of proposals, one that matches the Warren's revenue goals, and one that matches yours should not require much additional effort.
These issues are contentious. As a result most of what is said about them is heavily influenced by the position a particular commentator occupies on the political spectrum. As a result most people have little or no access to nonpartisan, fact based information. But you have been very successful in staying out of the partisan fray. Theoretically, you belong in the %$#@* billionaire pigeon hole. But that does you a disservice.
This is something you can do perhaps better than anybody else. Most people don't have the expertise and lack the means to acquire it. Many of those who do have the expertise have been captured by partisans of one flavor or another.
On the other hand, it takes a considerable amount of political skill to operate in the areas the Gates Foundation operates in. But you have managed to position yourself and the Foundation in such a way that you can and do work with everybody. That skill allows you to make a real contribution, a contribution that requires avoiding being seen as the pawn of one group or another.
When coupled with the abilities you possess and the resources you have access to it is easy to see that you are unique in your ability to perform this very valuable service. I think I have made a compelling argument for why it is important that the service be performed. You are able. The only question is: are you willing?
So out of a sense of patriotism and in a belief that you can actually do some good here, I invite and request you to undertake this project. You will have my deepest and most profound thanks if you do.
Respectfully,
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