Bill Gates Calls for Higher Taxes on the Rich

Bill Gates Calls for Higher Taxes on the Rich

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Plus, drugmakers ring in 2020 with higher prices
Thursday, January 2, 2020
Welcome to 2020, a new year and a new decade. Here’s some of what we can look forward to this year:
  • 32 days until the Iowa caucuses
  • 40 days until the New Hampshire primary
  • 40 days until pitchers and catchers report for spring training
  • 61 days until Super Tuesday
  • 204 days until the 2020 Summer Olympics in Tokyo
  • 306 days until the 2020 presidential election.
While we wait, here's what's happening today on the fiscal front:

Bill Gates Calls for Higher Taxes on the Rich

Microsoft co-founder Bill Gates, the second richest person in the world, says people like him should be paying higher taxes.

In a year-end blog post, Gates applauds the ongoing debate over America’s tax system, calling it one of the most important happening in our country right now. “It isn’t always popular to stand up for higher taxes, so it’s great that many Americans are having this conversation,” he writes.

Gates says that he’s “been pushing for a fairer tax system for years.” He notes that there’s a persistent imbalance between the government’s spending and its revenue collection: “the U.S. government simply does not bring in enough money to meet its obligations. This isn’t a value judgment; it’s just a fact. The government collects about 20 percent of GDP in taxes while spending about 24 percent. And the cost of commitments is going up.”

To address that gap, Gates calls for raising the capital-gains tax “probably to the same level as taxes on labor,” saying he sees no reason to “favor wealth over work the way we do today.” He also supports raising the estate tax; eliminating the cap on income subject to Medicare taxes; closing the carried-interest loophole that benefits investment-fund managers; and instituting a form of wealth tax that would apply to fortunes held for extended periods, which he suggests might be 10 years or more. He adds that state and local taxes also need to be reformed to make them fairer.

Gates also addresses some common arguments made in response to calls for higher taxes, including the suggestion that he should voluntarily pay more instead of calling for systemic changes and the criticism that higher tax rates would hurt growth and innovation:

“When I say the government needs to raise more money, some people ask why Melinda and I don’t voluntarily pay more in taxes than the law requires. The answer is that simply leaving it up to people to give more than the government asks for is not a scalable solution. People pay taxes as an obligation of law and citizenship, not out of charity. Additional voluntary giving will never raise enough money for everything the government needs to do. If Melinda and I signed over our foundation’s entire endowment to the state of California, it wouldn’t be enough to fund their public schools for even one year. A vibrant economic system depends on setting expectations for who pays how much. …

“Americans in the top 1 percent can afford to pay a lot more before they stop going to work or creating jobs. In the 1970s, when Paul Allen and I were starting Microsoft, marginal tax rates were almost twice the top rate today. It didn’t hurt our incentive to build a great company.”

How Corporations Squeezed Billions More from Trump’s Tax Cuts

Big American corporations liked what they saw in the 2017 Tax Cuts and Jobs Act, but they wanted more — and the Trump administration was happy to give it to them as it wrote rules and regulations around the new tax law, The New York Times’ Jesse Drucker and Jim Tankersley reported earlier this week.

“[N]ot long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders,” they wrote. “The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.”

Some highlights from the Times piece:

  • Lobbyists swarmed the Treasury Department starting in early 2018, looking for favorable interpretations of the new rules. “The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process,” Drucker and Tankersley said.
     
  • The lobbying effort was led by representatives from some of the largest U.S. corporations, including Anheuser-Busch, General Electric, United Technologies, Coca-Cola, Bank of America, IBM, Kraft Heinz, News Corporation and ConocoPhillips.
     
  • Companies sought favorable interpretations of and exemptions from the new tax rules — and largely got what they wanted. As a result, the “Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.”
     
  • The winners from the process will surprise no one: “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world,” said Bret Wells, a tax law professor at the University of Houston.

And the rule-writing process isn’t over. “In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts,” Drucker and Tankersley wrote. “Big companies have spent this fall trying to win more.”

Read the full story here.

Drug Companies Raise Prices to Start 2020

Drugmakers rang in the new year with an old tradition, reportedly raising the U.S. list prices of hundreds of their products.

Some 85 pharmaceutical companies including industry giants Biogen, Bristol-Myers Squibb, Gilead Sciences, GlaxoSmithKline, Pfizer and Sanofi hiked prices on more than 300 drugs, according to an analysis by research firm 3 Axis Advisors.

Price hikes averaged 5.3%, lower than the 6.3% average in 2019, and most increases were less than 10%. Under pressure from Congress and the White House, some drugmakers have pledged to keep price increases in the single digits. “Double-digit increases largely appear to be a thing of the past,” Bloomberg analyst Brian Rye said.

Even so, the average increase was still well above the rate of inflation — and that won’t do much to persuade lawmakers to cease their efforts to reduce to cost of prescription drugs.

“Prices go up but demand remains the same,” said Michael Rea of Rx Savings Solutions, which found in a separate analysis that the 2020 prices increases have averaged 5.8% so far. “Without the appropriate checks and balances in place, this is a runaway train,” Rea told The Wall Street Journal. “Consumers, employers and health plans ultimately pay the very steep price.”

More price increases could follow in the coming weeks.

The bottom line: High drug prices are expected to be an important issue in the 2020 election, and President Trump and Congress may take steps to reduce prices before voters head to the polls. “In terms of potential legislation, nothing is imminent, but investors should circle May 22 on their calendars,” Bloomberg’s Rye said. “That’s the health-extender deadline Congress established a couple of weeks ago in the government-spending bill. Policy makers could use drug-pricing and/or surprise billing reforms to offset the cost of long-term extensions for those non-controversial programs.”

Quote of the Day: Price Hike History

"Price increases that consumers have suffered under the last 10 years have been at a greater rate compared to inflation than we've ever seen in this country."

– Jim Yocum, a senior vice president of health data company Connecture DRx, in an NPR story looking at how prices for some drugs, both old and new, became much harder to afford in recent years.

When Hospitals Merged, Patient Care Didn’t Improve: Study

A recent spate of hospital mergers hasn’t led to improved quality of care, according to a new study in the New England Journal of Medicine highlighted by The Wall Street Journal.

“Hospital merger-and-acquisition activity has surged in recent years, with executives involved in transactions making the case that greater size will boost quality with new investments and yield other improvements as deal makers benefit from each others’ strengths,” the Journal’s Melanie Evans writes.

The study, one of the first major efforts to examine the effects of hospital consolidation on patient care, found otherwise. It concludes that patient experiences got “modestly worse” while readmission and mortality rates were not significantly changed. Past studies have found that hospital mergers result in higher prices for patients with private insurance.

Chart of the Day: Driving the Deficit

New York Times opinion contributor Steven Rattner breaks down the deficit impact of recent laws as part of his latest roundup of charts.

Best wishes for 2020! Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here for their own copy of this newsletter.

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