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MILTON FRIEDMAN DIES, BUT HIS TAX LEGACY LIVES
November 17, 2006
Legendary economist Milton Friedman died Thursday at 94. He left behind his wife, two children, four grandchildren, three great-grandchildren, and the mondern income tax.
In World War II Mr. Friedman devised income tax withholding as a temporary measure to pay the government's enormous wartime expenses. The most famous advocate of free markets and small government was, in a quirk of fate, also the author of an essential tool of government expansion.
Though not a tax specialist, Mr. Friedman had a large role in the development of tax policy in the past 50 years. From a Tax Policy Blog post on his 94th birthday:
Friedman was also instrumental in developing policy proposals using the theory of the negative income tax. The Earned Income Tax Credit, which Friedman actually opposed in its implementation, is viewed as somewhat resembling the negative income tax model.
He also was an early exponent of a "flat tax." From the Tax Analysts piece on his death ($link)
Friedman is widely considered the father of the modern flat tax. The consumption-based flat tax popularized and championed by economists Robert Hall and Alvin Rabushka commands center stage in current policy debate. But the Hall-Rabushka tax plan drew its inspiration from the flat rate tax on income that Friedman proposed in 1962.
In his classic brief for libertarian ideology, Capitalism and Freedom, Friedman devoted relatively few pages to taxation. But those pages loom large in the political history of contemporary tax reform. The book challenged the legitimacy of progressive taxation when it enjoyed nearly universal support (a few legal skeptics like Walter Blum and Harry Kalven notwithstanding).
Mr. Friedman anticipated the looming problem the shrinking income tax base that we have discussed. From the Tax Analysts piece:
More important, a flat rate tax would leave no room for punitive taxation of the rich; people would be unable to impose higher taxes on the rich without imposing the same heavy burden on themselves. In other words, a flat rate tax would constrain the freedom of a vindictive political majority to work its will on a well-heeled economic minority.
His view of tax preferences, as laid out in the Tax Analysts piece, is dead-on:
Friedman loathed tax preferences, insisting that they violated canons of fairness. Using the tax law to advance social goals was unjust, vitiating the principle that all people should be treated equally under the law
His thoughts on tax policy debates are as fresh as ever even as the new majorities in Congress and the Iowa legislature prepare to go the other way.
Additional Links on Friedman and Tax Policy:
Dallas Federal Reserve District Bio
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