Milton Friedman on tax cuts

As you must already know, economist Milton Friedman died on November 16. All of us who have studied and written on free-market economics over the past half century owe him a great debt of gratitude.

When another of my economic mentors, Murray Rothbard, died in 1995, I wrote that I could not fully grasp the loss of a such a brilliant and developed mind. It seems so disconcerting that a vast store of knowledge and powerful engine of ideas can abruptly disappear. What grief the ancients must have felt to lose someone, before there were books and the written word to preserve memories.

Fortunately for us, we do have the books of the great minds that pass, and we can preserve at least some of their wisdom. While only students of economics are likely to have read Friedman’s Monetary History of the United States, or his later book, Price Theory, his book and TV series Free to Choose, written with his wife Rose, brought his libertarian wisdom to hundreds of thousands.

Author and economist Mark Skousen was a friend of Friedman, and lunched with him just two weeks before Friedman’s death. In his tribute on his website, he noted that Friedman was not only a great economist, but a most quotable wordsmith. And in reading through Mark’s examples, I was struck by three of Friedman’s most well-known quotes:

"I favor tax reductions under any circumstances, for any excuse, for any reason, at any time."

"Inflation is always and everywhere a monetary phenomenon"

And "Inflation is taxation without legislation."

Some might think I disagree with Dr. Friedman on tax reductions, since I recently published an essay titled “Tax Cuts, Tax Cuts—We Don’t Need No Stinkin’ Tax Cuts.” In my essay I advocated not cutting taxes, but raising them high enough to fully cover all federal spending. The point was to force politicians to steal directly and openly from citizens at gunpoint rather than fraudulently and secretly through deficit spending and inflation. This way, people know who is robbing them. Reducing taxes but at the same time increasing borrowing to cover the revenue loss is a deception, a pretense, a political trick to make voters and contributors happy.

Since total real taxes are the sum of government deficits plus government tax revenues, real tax reductions would require the sum of both to fall. (Such sum would have to include future promises, e.g. social security, pensions, and medicare, as well as current borrowing.) Taxes are pure theft, but, as Friedman points out, monetary inflation is just another form of taxation, and is therefore also theft. What’s not realized is that inflation is more insidious and destructive than taxation at gunpoint.

Based on his quoted words, I believe Dr. Friedman would agree.