In our latest Power and Consequences podcast episode, we (Gary Gensler and Simon Johnson) discuss the US tax system, with a focus on how it developed over 250 years – and where it may go next. Discussions about taxes can sometimes seem a little dry or even boring, but our take is that nothing is more important if you want to understand who has power and what this means in modern America.
America has long been seen as the land of opportunity in which rising up the income, social, and wealth ladders has been an important aspiration for many people. But why do wealthy folks pay less tax than in some other countries … particularly when they paid significantly more tax relative to their income/wealth in the 1950s and 1960s? When did attitudes and politics change to allow repeated tax cuts for the very rich? Is it sustainable for the wealthiest in American society to have lower average tax rates than people who live on substantially less money?
Could the next turn in American politics be towards reducing taxes for middle income people? There is plenty of rhetoric about this from the Second Trump Administration. Their tariffs, though, are a regressive consumption tax (falling more on the less well-off) and their overall package of changes so far disproportionately favors the very rich. There are signs that Democrats are becoming interested in new tax cuts, focused on middle income people and families.
If taxes are cut further, what will happen to our budget deficit? What might that imply for the path for our national debt that may already be unsustainable? We’ll explore these questions and more in upcoming podcasts on U.S. debt, deficits, and the dollar.
For a class session recently at MIT Sloan, we assigned the following three items.
“Tax Reform After the One Big Beautiful Bill Act”. David Kamin, Tax Notes Federal, November 10, 2025. David is one of the country’s leading tax law experts; he and Gary have worked closely together in the past.
“Fiscal Policy and Debt Sustainability,” Antonio Fatás and Ugo Panizza, Chapter 9 in The Economic Consequences of The Second Trump Administration: A Preliminary Assessment, CEPR Press, December 1, 2025. Please go to the book’s website and download entire the book (it’s free!) and then locate the chapter: Two Europeans take a hard look at American public finances.
“Tax Refunds and the One Big Beautiful Bill Act” Erica York and Garrett Watson, Tax Foundation, January 15, 2026. An excellent primer on the 2025 tax legislation.
For a broader read on taxation, try “The Price of Democracy: The Revolutionary Power of Taxation in American History” by Vanessa Williamson of the Brookings Institution.
And for another deep dive into the history, including how exactly the evolution of the international financial system allowed American debt to become so large, take a look at “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You”, by Simon Johnson and James Kwak.
Here’s the paper we discuss, “How Much Tax Do US Billionaires Pay? Evidence from Administrative Data”, by Akcan S. Balkir, Emmanuel Saez, Danny Yagan, and Gabriel Zucman. In a long set of papers by themselves and with colleagues, Saez and Zucman have changed how many people think about these issues – and about potential policies.
And here’s a paper by Kim Clausing and Mary Lovely explaining why tariffs are regressive and attempting to anticipate what will be the effects of the Trump tariffs, when these finally settle down. See Figure 6 on p.15 for the bottom line. See also Kim Clausing’s chapter “The Aftermath of Tariffs” in The Economic Consequences of the Second Trump Administration.
There are two proposals for a different approach to tax cuts now circulating. For both the Yale Budget Lab offers detailed assessments.
-On “Senator Booker’s Keep Your Pay Act”, by Yale Budget Lab, March 12, 2026. Estimated to cost $5.4 trillion over 10 years.
-On “Senator Van Hollen’s Working Americans’ Tax Cut Act”, Yale Budget Lab, March 12, 2026. Full proposal “would be budget-neutral over the next decade.”
You also may wish to read this New York Times article published just after we recorded this podcast: ‘Are Democrats Becoming a Party of Tax Cuts?’
And here’s Simon’s Science Fiction recommendation: A Memory Called Empire by Arkady Martine. A compelling vision of what happens when technology makes a society productive but power remains concentrated (and the rich don’t pay much tax)… in Arkady Martine’s compelling version, it’s a return to imperial pomp and power, with unbelievable wealth alongside tragic poverty.
