Government transfers have to be counted in the inequality debate

By Phil Gramm & John Early.

"Michael J. Petrilli (“The Unequal American City,” op-ed, June 9) summarizes a geographic view of income inequality in America. Unfortunately, the analysis continues to rely on seriously flawed and misleading data. The primary source he cites uses Census money income that ignores $1.9 trillion of annual federal, state and local transfer payments to households. Excluded are programs like the earned-income tax credit, where beneficiaries get a check from the Treasury, food stamps, where beneficiaries buy food with government-issued debit cards and numerous other programs such as Medicare and Medicaid where government simply pays for the benefits directly. The data also exclude all the effects of $4.4 trillion in federal, state and local taxes, 61% of which are paid by the top income quintile. In short, the analysis ignores 49% of all household income.

Adding these missing pieces completely changes the picture of America in the last 50 years because transfer payments have risen 225% faster than earned income, and taxes as a percent of all income have fallen by 60% for the bottom quintile of households and risen by 23% for the top quintile.

We continue to have a national debate based on income estimates that leave out almost half of household income. As a nation we desperately need to get our facts straight."