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You argue that rising income inequality will dampen consumption growth, contributing to sustained below-potential growth in the United States. But in making this argument, you simply assume without any explanation that rising income inequality is a foregone conclusion. Rising income inequality has been an ongoing trend for many years now, and one could postulate that it likely will continue – but this is still just a claim that remains to be proven.



One reason why rising income inequality may seem a foregone conclusion is the degree to which it is entrenched in the U.S. tax system. However, the tax system, despite appearances to the contrary, is not immutable. Many prominent economists have suggested ways to recalculate tax rates (e.g., Diamond and Saez, 2011) or reform the system as a whole to more appropriately tax America’s wealthy, which would work to mitigate rising inequality.



Reforming the tax system is clearly not the silver bullet that will stop completely rising income inequality or eliminate the output gap. But, citing rising income inequality as a one of five reasons why United States’ economic growth is below potential and simply assuming that it will continue into the future is unproductive. Arguing that rising inequality dampens growth provides an opportunity for you to underscore the urgency of the active debate on tax reform and other ways to reduce income inequality. Rather than summarily dismissing rising income inequality as an irremediable part of the problem, you should reference the active debate and recommend that reversing the trend of rising income inequality be considered as part of the solution.