Bill Gates’ letter about combating wealth inequality

According to Credit Suisse Global Wealth Report, 2017, only 8.6 per cent of the global population owns 85.6 per cent of global wealth.

On the other hand, more than 70 per cent of the world population owns only three per cent of global wealth.

Income inequality is a common phenomenon in almost all the countries of the world. The capitalistic mechanism, which has bestowed the world economy with improved efficiency and growth, is one of the core reasons behind income inequality.

Bill Gates, Co-founder of Microsoft and currently the second richest person in the world, shared his thoughts on income inequality on his blog, GATESNOTES. Much of his evaluation concentrated on the book, Capital in the Twenty-First Century, written by Thomas Piketty.

Gates strongly agreed with the book on the fact that high level of income inequality is not desirable for the economy as it tends to shift the position of the power to the significant interests, derails a country's economic objectives.

However, he was against the over-reliance on the concept of "r>g" to explain income inequality. The general idea states that as r -average rate of return on capital - continues to be higher than g-rate of growth of the economy- the wealth difference rises between capital-intensive and labour-intensive stakeholders of an economy.

However, Bill Gates, like many other economists, doubts the significance of this value of "r>g" in explaining the inequality. The equation fails at adequately describing the reason for the increasing or decreasing inequality gap and also does not take account of the critical aspects of wealth distribution from one generation to another.

Now, to counteract this situation, Bill Gates proposed a progressive tax on consumption than the general ideology followed by many including Piketty of a progressive tax on capital. He also said that the high level of tax on labour relative to capital in the USA and many other countries was unfair and illogical.

Bill Gates is a big believer in "estate tax" policy. He discussed that for the progressive consumption tax system to work, governments need to institute hefty estate tax. Or else, the rich cannot be prohibited from using interest income to increase their wealth over generations.