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Milton Friedman and the Moral Argument for Tax Cuts



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Ramesh’s post, below, got me to thinking about an interview I once conducted with Milton Friedman. Discussing what to do with the surplus—this was in January 2001, just as George W. Bush was first taking office—Friedman argued that it ought to be returned to the people in the form of tax cuts. Why? To stimulate growth? No. Simply because it was the right thing to do. (For the full interview, click here.)

ROBINSON: Now…[here’s another] option for handling the surplus: tax cuts. You favor that above all?

FRIEDMAN: I favor it on economic grounds because it enables the ultimate consumer—the ultimate individual, you and me—to decide how the money should be used. You know, it makes no sense for me to send my money to Washington to have somebody in Washington decide how to use it. I’d rather decide how to use it myself—whether for charity or for welfare or for other purposes. So that’s the first and most important argument. But the political argument for it is that it’s the only way to keep Congress from spending it.

ROBINSON: Only if Congress doesn’t have the money can it be prevented from spending it?

FRIEDMAN: Right. That’s why for a long time now I have been in favor of any tax cut, under any circumstances, in any way, in any form whatsoever.

ROBINSON: On any pretext.

FRIEDMAN: On any pretext because that’s the only way to keep down government spending.

ROBINSON: Here’s the argument some economists make against a tax cut. Again, quoting Robert Solow: “Tax reduction, especially income tax reduction, fattens the disposable income of households. Most of it flows into consumption; only a small fraction is saved. The choice between debt reduction and tax reduction as ways of disposing of a budget surplus is mainly a choice between adding to investment and adding to consumption, between provision for the future and enjoyment today.” So, according to this argument, you cut taxes and all you’re going to do is enable the American people to go on a brief, giddy spree.

FRIEDMAN: It will enable the American people to do what the American people want to do, not what Bob Solow thinks they ought to do.

ROBINSON: But you’re making a moral argument, not an economic argument.

FRIEDMAN: Yes, that’s a moral argument, absolutely. Are there any other arguments? Fundamentally doesn’t it all come down to moral arguments? What’s an amoral argument?




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