Bill Gates talking in office

Bill Gates, one of the richest men in the world with an estimated net worth of $97 billion, has said in the past that since he falls into the very top of America’s tax bracket, he should pay “significantly higher” taxes.

This week, the Microsoft founder went a step further weighing in on the “misfocus” of raising taxes on the wealthy, claiming many lawmakers are missing the big picture.

“In terms of revenue collection, you wouldn’t want to just focus on the ordinary income rate, because people who are wealthy have a rounding error of ordinary income,” said Gates in an interview with Vergecast.

“They have income that just is the value of their stock, which if they don’t sell it, it doesn’t show up as income at all, or if it shows up, it shows over in the capital gains side,” he said. So the ability of hedge fund people, various people — they aren’t paying that ordinary income rate.”

How the tax system works

The amount of income tax you owe the government is dependent on your income level and filing status. Based on this information taxpayers fall into one of seven tax brackets.

The 37 percent bracket kicks in at $600,001 for married filing joint and $300,001 for married filing separate, but $500,001 for head of household and singles.

According to the most recent data available from the IRS, however, the average tax rate for America’s wealthiest was just 23.13 percent.

“The one thing that never gets much press — the IRS shows the statistics for the top 400 people of the highest income and the rate they pay,” Gates said. “Anyway, you should look at that. It’s about a 20 percent rate, so it has nothing to do with the 39.6 marginal ordinary income rate. So it’s a misfocus. If you focus on that, you’re missing the picture.”

Are the rich avoiding taxes?

Some billionaires may be taxed at a lower tax rate than millions of other lower-paid Americans due to how they are taxed.

While many Americans are taxed solely on earned income from their jobs, investment income is taxed at a much lower rate. The highest statutory tax rate on income from investments is taxed at 23.8 percent while earned income is taxed at 43.4 percent. This applies to qualified dividends and long-term capital gains but not short-term capital gains, nonqualified dividends, interest income or bond coupons.

“But we can be more progressive, the estate tax and the tax on capital, the way the FICA and Social Security taxes work,” Gates says. “We can be more progressive without really threatening income generation — what you have left to decide how to spread around.”

Data suggests Americans are in favor of higher taxes for the one percent

If Gates and regular Americans have one thing in common, it’s changing the tax laws.

A recent poll from POLITICO and Morning Consult found that 76 percent of registered voters believe the wealthiest Americans should pay higher taxes. The same poll found that 87 percent of registered voters believe the U.S. tax system favors the wealthy.

The 400 richest Americans now own more than the bottom 150 million Americans, according to the Washington Post. And an analysis found that polls from major media outlets were extremely similar: Most Americans want tax hikes for those who earn more, at least over $1 million.

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