Fiscal Policy Responses to Economic Inequality

Outside of direct fiscal policy effects, the rise in inequality may be attributed to the demand for highly skilled labor rising more rapidly than its supply, as well as to reduced bargaining power by labor in the workplace. On fiscal policy, the US tax and benefit system is still progressive. The tradeoff between using tax hikes and higher benefits to reduce inequality vs. their negative effects on growth remains disputed. Very broad proposals such as Medicare for All and a Universal Basic Income are inefficient ways to address inequality, and the objectives of a wealth tax may be achieved through the existing income and estate tax systems. Broadening the tax base to move to more of a consumption-based system, and improving pre-K and K-12 education, are desirable policies.