Bill Gross' latest monthly PIMCO Investment Outlook is out, and it spends some time discussing the massive wealth disparity in America.
"Having gotten rich at the expense of labor, the guilt sets in and I begin to feel sorry for the less well-off," he writes.
Gross calls for the wealthiest Americans to support higher taxes rather than be "Scrooge McDucks."
From his note:
Having benefited enormously via the leveraging of capital since the beginning of my career and having shared a decreasing percentage of my income thanks to Presidents Reagan and Bush 43 via lower government taxes, I now find my intellectual leanings shifting to the plight of labor. I often tell my wife Sue it’s probably a Kennedy-esque type of phenomenon. Having gotten rich at the expense of labor, the guilt sets in and I begin to feel sorry for the less well-off, writing very public Investment Outlooks that “dis” the success that provided me the soapbox in the first place.
If your immediate reaction is to nod up and down, then give yourself some points in this intellectual tête-à-tête. Still, I would ask the Scrooge McDucks of the world who so vehemently criticize what they consider to be counterproductive, even crippling taxation of the wealthy in the midst of historically high corporate profits and personal income, to consider this: Instead of approaching the tax reform argument from the standpoint of what an enormous percentage of the overall income taxes the top 1% pay, consider how much of the national income you’ve been privileged to make.
In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled from 10% in the 1970s to 20% today. Admit that you, and I and others in the magnificent “1%” grew up in a gilded age of credit, where those who borrowed money or charged fees on expanding financial assets had a much better chance of making it to the big tent than those who used their hands for a living.
Yes I know many of you money people worked hard as did I, and you survived and prospered where others did not. A fair economic system should always allow for an opportunity to succeed. Congratulations. Smoke that cigar, enjoy that Chateau Lafite 1989. But (mostly you guys) acknowledge your good fortune at having been born in the ‘40s, ‘50s or ‘60s, entering the male-dominated workforce 25 years later, and having had the privilege of riding a credit wave and a credit boom for the past three decades. You did not, as President Obama averred, “build that,” you did not create that wave. You rode it. And now it’s time to kick out and share some of your good fortune by paying higher taxes or reforming them to favor economic growth and labor, as opposed to corporate profits and individual gazillions. You’ll still be able to attend those charity galas and demonstrate your benevolence and philanthropic character to your admiring public. You’ll just have to write a little bit smaller check. Scrooge McDuck would complain but then he’s swimming in it, and can afford to duck paddle to a shallower end for a while.
If you’re in the privileged 1%, you should be paddling right alongside and willing to support higher taxes on carried interest, and certainly capital gains readjusted to existing marginal income tax rates. Stanley Druckenmiller and Warren Buffett have recently advocated similar proposals …
"The era of taxing 'capital' at lower rates than 'labor' should end," he said.
Last week, Gross made headlines for calling out corporate raider Carl Icahn on a similar matter. Icahn has called for Apple to initiate a massive share repurchase plane.
"Icahn should leave Apple alone & spend more time like Bill Gates," tweeted Gross. "If Icahn’s so smart, use it to help people not yourself."
Interestingly, Gross attacks the wealth creation that has come from share repurchases of late. And he believes there are lessons to be learned by both corporate America and America as a whole.
"Profits … increased because the company cut expenses along the way," wrote Gross. "Earnings per share (EPS) did even better, because X used some of its cash flow to buy back stock instead of reinvesting much of it in new plant and equipment.
"The simple answer is that long-term growth for each company, and for all countries, depends not on balance sheet alchemy and financial wizardry, but investment and the ultimate demand for a company or a country’s 'products,'" he said.
Read Gross's whole note at PIMCO.com.
(Photo: PIMCO / YouTube, Bill Gross)