Whatever tax and transfer policies did do to the distribution of income over the 1980s, perhaps they should do more. One policy change would involve taxes and transfers. Taxes could be made more progressive, and transfer payments more generous. It will not escape notice that both suggestions run counter to movements now sweeping Washington. Versions of the flat tax vary, but most are combinations of a consumption tax and flat or non-increasing marginal tax rates that effectively reduce progressivity in the marginal rate schedule.
Many economists favor moving to some type of consumption tax.
Eliminating progressivity in marginal rates, however, is a different matter. Since there is simply no way to replicate the present distribution of income tax payments without some progressivity in the rate structure, all conceivable flat tax programs at least if they merely replace current income taxes would involve a significant further shift to inequality in post-tax incomes. On the transfer side, attempts to balance the federal budget and limit entitlement spending have been directed at trimming, not increasing, transfer payments. The issues here are broad, ranging from the degree to which states versus the federal government should be expected to design and pay for welfare benefits, to appropriate incentives for Medicare and Medicaid health providers to control service costs. However these complex and politically sensitive issues shake out, it is clear that cutting entitlement spending will raise inequality.