Massive government taxes and transfer payments have been used to try to correct for problems produced in part by government policy itself

See Gramm, Early Respond on Income Inequality.

"In his March 31 letter about our March 24 op-ed “Incredible Shrinking Income Inequality,” Prof. Dennis Appleyard makes the important point that in addition to ignoring two-thirds of transfer payments and all taxes, the Census estimates also omit capital gains. He observes that if our analysis left out capital gains, our results would share some of the bias in the Census figures. Alex Kogan’s letter in the same string makes the same point concerning employer-provided health benefits. The data in our article did, in fact, include both capital gains and employer-provided health benefits, avoiding those Census biases as well.

Prof. George Heitmann notes that government transfer payments and taxes produced the decline in income inequality over the last half-century. That is absolutely correct, but government policy was also a major contributor to the rise in earned-income inequality. Nearly half of the rise in earned-income inequality in the last 50 years can be explained by a collapse in work effort in the bottom quintile and a decline in work effort in the second quintile that accompanied the explosion of transfer payments with the War on Poverty. During that same period work effort in the middle- and upper-income quintiles grew significantly.

The wholesale failure of public education in America has been a major impediment, making it more difficult for the children of low-income families to use education as a ladder to climb into the American middle class and beyond. Massive government taxes and transfer payments have been used to try to correct for problems produced in part by government policy itself. The problem is that destructive government policies made the economic pie smaller than it would have been, leaving less for the makers of the pie to eat and for government to redistribute. 

Phil Gramm
Helotes, Texas

John Early
Ridgefield, Conn."