Gus Ruelas/Reuters

Bill Gates, the world's second-richest person behind Amazon's Jeff Bezos, wants rich people to pay higher taxes.

"We've updated our tax system before to keep up with changing times, and we need to do it again, starting with raising taxes on people like me," Gates said.

The Microsoft cofounder and philanthropist made the comments in a blog post titled "What I'm thinking about this New Year's Eve."

Gates argued that taxes should be shifted toward investments instead of wages, called for loopholes to be closed and large fortunes to be taxed, and tackled topics such as voluntary taxes, philanthropy, and the impact on enterprise.

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Bill Gates wants rich people to pay higher taxes.

"I've been disproportionately rewarded for the work I've done," the billionaire Microsoft cofounder and philanthropist said in a blog post titled "What I'm thinking about this New Year's Eve."

"The rich should pay more than they currently do, and that includes Melinda and me," Gates added, referring to his wife, who with him founded the Bill & Melinda Gates Foundation.

"We've updated our tax system before to keep up with changing times, and we need to do it again, starting with raising taxes on people like me," he said. The taxes should be spent smartly to "build a healthier, more equitable world for all," he added.

Gates is worth about $113 billion, making him the world's second-richest person behind Amazon's Jeff Bezos, according to the Bloomberg Billionaires Index.

Gates' arguments for higher taxes on the rich:

The US government needs to levy higher taxes to fulfill its obligations, as it collects about 20% of gross domestic product in taxes but spends about 24%.

Taxing and redistributing the proceeds could help narrow the wealth gap between the richest and poorest Americans, which has widened over the past half-century.

The government primarily taxes labor, but it should tax capital more. It earns about 75% of its revenue by taxing wages and salaries at up to 37%, while taxing investments — which generate the bulk of rich people's incomes — at 20% if they're held for more than a year.

"That's the clearest evidence I've seen that the system isn't fair," Gates wrote. "I don't see any reason to favor wealth over work the way we do today."

His proposals for overhauling the US tax system:

Estate taxes should be higher and inheritance loopholes should be closed. "A dynastic system where you can pass vast wealth along to your children is not good for anyone; the next generation doesn't end up with the same incentive to work hard and contribute to the economy," Gates said.

The cap on the amount of income subject to Medicare taxes should be removed.

The carried-interest loophole, which allows fund managers to pay lower capital gains rates on their incomes, should be closed.

Large fortunes should be taxed after about a decade as investments can escape taxes if they're not sold or traded.

State and local taxes should be fairer.

Gates tackled several common criticisms of higher taxes in his blog post too.

Voluntary taxes

The Microsoft and Berkshire Hathaway director addressed the frequent response to billionaires such as himself and Warren Buffett calling for higher taxes: They can pay more than required by law if they so wish.

"Simply leaving it up to people to give more than the government asks for is not a scalable solution," Gates said. "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."

Philanthropy

Unsurprisingly, the world's best-known philanthropist defended private-sector giving.

"There's value to society in allowing the wealthy to put some money into private foundations, because foundations play an irreplaceable role that's distinct from what governments do well," Gates said.

He gave the example of high-risk initiatives, such as his foundation's experimentation with new ways to eradicate malaria.

"If a government tries an idea for improving global health that fails, someone wasn't doing their job," he said. "Whereas if we don't try some ideas that fail, we're not doing our jobs."

Enterprise

Finally, Gates addressed concerns that raising taxes would discourage entrepreneurship and innovation by cutting their rewards. He argued those weren't real worries at current tax rates.

"We shouldn't destroy those incentives, but we're a long way from that point now," he said. "Americans in the top 1% can afford to pay a lot more before they stop going to work or creating jobs."

Gates pointed out that higher taxes didn't dissuade him from founding and building a business.

"In the 1970s, when Paul Allen and I were starting Microsoft, marginal tax rates were almost twice the top rate today," he wrote. "It didn't hurt our incentive to build a great company."

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