Forecast 2020 - Taxes: Income Inequality May Get Attention, While the Budget Deficit Needs More

Joel Slemrod is a professor of business economics and public policy at the Ross School of Business as well as the faculty director of the Office of Tax Policy Research at the University of Michigan. This post is part of a series highlighting Ross faculty members’ forecasts on important business topics in 2020.

Is income inequality in the U.S. a problem that needs a public policy solution?

Slemrod: Although how much it's grown is controversial, there is no question that income inequality has been growing substantially in the U.S. One natural policy response is to increase the progressivity of the tax system to more equitably share the growth in the economy.  

There are many ways to do this, including raising top income tax rates, reducing the tax preferences now accorded to capital gains, or introducing a new tax such as a wealth tax. If a Democrat takes the White House in 2020, these measures will be given serious consideration.

Should the rapid growth in federal government debt be getting more attention in the presidential campaign? Why or why not?

Slemrod: Yes. Ordinarily, the rapid growth and high levels of federal government debt would be getting considerable attention in the policy discussion. This has not happened in part because the supposed negative consequences — such as rising interest rates and crowded-out private investment — are not visible. 

But debt-financed spending is not costless, and these costs will eventually appear. Therefore, a serious debate about how the government should best live within its means is a policy imperative.

Joel Slemrod is the Paul W. McCracken Collegiate Professor of Business Economics and Public Policy and the faculty director of the Office of Tax Policy Research at the University of Michigan Ross School of Business.

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