Here’s a question: do you think that Bill Gates would have started and built up his Microsoft empire had the top rate of US income tax been 99 per cent? I don’t know Gates but I think the answer is obvious. Why would he have put in all those hours and taken all those risks if the state was going to snatch away virtually all the rewards? Either he wouldn’t have bothered or – my guess – he would have jumped on a plane and founded his business somewhere else, even renouncing his US citizenship in the process in order to avoid the taxman coming after him.
I pose the question because 99 per cent is the proportion of his worldly wealth that Gates announced this week he intends to give away over the next 20 years. That is a pretty useful sum of money: £150 billion is nearly enough to fund the entire NHS for a year. This is on top of the £75 billion he has already donated to humanitarian projects through the Bill Gates Foundation.
Cynics might say that Gates is only making such a magnanimous gesture because he knows he is approaching the final phase of his life – in 20 years he will be 89 and may not be in much of a position to spend any money at all. And if the US federal government taxed his personal income more during his career it would have got its claws on his money at an earlier date, helping to fund schools and hospitals back in the 1980s. But that misses the point. Society has ended up getting far, far more out of Gates than it would have done through punitive tax rates. In fact, it has almost certainly been getting more directly out of Gates than it would have done had the US government been too greedy. With punitive taxation there might not even have been a Microsoft to pay corporate taxes, let alone a high-earning Bill Gates to pay personal taxes. Gates’s philanthropy should really be thought of as a bonus, which comes on top of his large contributions to the US Treasury over the decades.
It isn’t just Gates. Whole ranks of US institutions rely on the generosity of individuals. Why are US universities so rich, and so able to fund places for poor kids? Because they are swimming in donations from alumni rather than sourly begging the government for money.
Ask why the US has so much more of a developed culture of philanthropy than Britain and there is an obvious answer: with lower tax rates wealthy Americans feel more able, and more inclined, to distribute their wealth to social causes. When you are paying a top rate of tax of 37 per cent rather than 47 per cent (the effective upper rate of tax in Britain) you have significantly more to give away. But it isn’t just that: the more of your wealth you are forced to hand over to the state, the more you might be inclined to think: the government sees to social stuff, so I don’t need to bother.
Do you really think that Bill Gates would have started and built up his Microsoft empire had the top rate of US income tax been 99 per cent?
Just look at the World Giving Index, compiled by the Charities Aid Foundation. The countries at the top of the pile all have relatively low upper rates of income tax: Indonesia (35 per cent), Kenya (35 per cent), Singapore (24 per cent), Nigeria (24 per cent) and the US (37 per cent). The UK sits at position 22 when it comes to giving.
Now look at the countries which have an effective top rate of income tax of over 50 per cent: Finland (51.4 per cent top rate, 70th on the World Giving Index), Denmark (55.9 per cent and 39th) and Japan (55 per cent and 139th).
Not everyone will agree, of course, with all the causes which Gates has supported. But then it is his money; it is not coming out of your pocket. I challenge anyone to say that they think their own government – which very much is spending their money – spends it more wisely than the Bill Gates Foundation does. No one is saying that philanthropy is a complete substitute for public spending, but it is something which deserves to be encouraged – and punitive rates of taxation levied by many countries are doing the opposite.
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