Bill Gates Was Right. Sort Of.

NEW YORK, NEW YORK - NOVEMBER 06: Bill Gates, Co-Chair, Bill & Melinda Gates Foundation speaks onstage at 2019 New York Times Dealbook on November 06, 2019 in New York City. (Photo by Michael Cohen/Getty Images for The New York Times)
The man can count. Michael Cohen/Getty Images

Bill Gates became the latest billionaire to get into a dust-up with Elizabeth Warren this week, after making some jokey comments onstage about his concerns over her wealth tax proposal, and what it might cost him personally. “I’ve paid more than $10 billion in taxes. I’ve paid more than anyone in taxes,” he told financial journalist Andrew Ross Sorkin, earning some laughs from the crowd. “But I’m glad to have. If I’d had to have paid $20 billion, it’s fine. But when you say I should pay $100 billion, OK, then I’m starting to do a little math about what I have left over. Sorry. I’m just kidding.”

Gates’ disagreement with Warren was fairly mild and respectful, especially compared with hedge fund manager Leon Cooperman’s tear-choked recent performance, or JPMorgan Chase CEO Jamie Dimon’s bitter carping about being “vilified.” The Microsoft founder said he was worried that taxing wealth and investment returns too aggressively might hurt America’s startup economy. “I do think that if you tax too much, you do risk the capital formation, innovation, the U.S. as the desirable place to do innovative companies,“ he told Sorkin. But he also implied that he’d probably vote for Warren over Trump, saying that he’d cast a ballot for whichever candidate was “more professional,” even if he disagreed with that person’s views.

Still, the sound bite played perfectly into Warren’s personal brand as the woman who strikes terror into billionaires’ hearts, so she ran with it. Oddly, though, she chose to go after Gates on the math rather than his concerns about innovation.

“I’m always happy to meet with people, even if we have different views,” Warren tweeted. (During his interview, Gates said he wasn’t sure if she’d want to have a conversation with him.) “@BillGates, if we get the chance, I’d love to explain exactly how much you’d pay under my wealth tax. (I promise it’s not $100 billion.)”

Warren’s campaign later followed up by releasing a “Calculator for the Billionaires” who “seemed confused about what they’d pay” under Warren’s wealth tax, which would rise to 6 percent on fortunes large than $1 billion. There was even a special button for Gates, who would apparently owe $6.3 billion.

It was a funny, light troll of Warren’s critics, the implication being that they’re vastly overreacting to her proposals, out of fear for their wealth. But here’s the thing: Gates was pretty clearly right when he said he would pay $100 billion under Warren’s tax. Not in a single year, but over time—which is what he was talking about. Gates is currently worth around $101 billion. If you assume his net worth would naturally grow by 5 to 8 percent annually pre-tax, then it would only take him about 15 years, give or take a couple, to pay $100 billion under Warren’s plan.

Gates’ fortune would also be far smaller today if there had been a wealth tax in place around the time he founded Microsoft. Under a 3 percent tax, like Warren originally proposed before upping the ante recently, the man would only have been worth $36.4 billion in 2018, according to Berkeley economists Emmanuel Saez and Gabriel Zucman, aka the wealth tax guys. Under the more aggressive regime favored by Bernie Sanders, who has proposed rates as high as 8 percent, Gates would only have had $9.9 billion to his name, a reduction of around $87 billion.

Wealth tax and billionaires
Zucman and Saez 2019

Of course, one way to look at all of this is that Elizabeth Warren could impose a very large wealth tax, and Bill Gates would still have more money than God. My quick and rough spreadsheet math says that even if he paid $100 billion in wealth taxes over the next decade and a half, his fortune could still grow by around $25 billion, or 6½ Jack Dorseys. Now, if you combine Warren’s wealth taxes with some of the changes she’s recently proposed to capital gains taxation, Gates’ fortune could actually start to shrink from where it is today. But even then, it would decline only gradually, and he would still be left with tens of billions to play with, as would other successful entrepreneurs.

So, even if Gates is right on the math, are his broader concerns that a steep wealth tax would sap America’s innovative spirit valid?

I mean, they aren’t totally crazy. Silicon Valley’s entire model of innovation relies on huge returns from a relatively small fraction of successful bets. And if you raise taxes on capital gains and wealth high enough, you might push some of that activity to other countries. There’s a lot of tech talent in Vancouver, after all—and hey, the hiking there is lovely.

At the same time, wealth taxes by design take the biggest bite out of old fortunes, like Gates’. They work like compound interest, but in reverse, either limiting how fast fortunes stack up, or chipping away at them over time. Younger money is less affected. In a world with wealth taxation, tech success could still easily make you a billionaire. Under Sanders’ wealth tax—which, again, is more ambitious than Warren’s—Mark Zuckerberg would have been worth $44 billion by the end of last year. That’s still the kind of money that lets you buy all your neighbors’ houses just so you can tear them down for privacy, which as far as I can tell would be enough of a reward to keep people starting companies.