The article explores how to design the best tax policies in an economy where people have different abilities and make risky investments in their skills. The researchers find that high-ability individuals face uncertain incomes, while low-ability individuals receive insurance. They also show that providing subsidies for education is important but shouldn't cover all costs. Depending on how people value work and learning, taxes on labor can change unpredictably or not affect top earners. Overall, switching to the optimal tax system could increase welfare by about 1 percent each year.