Follow @ontheissuesorg

Milton Friedman on Tax Reform Libertarian Economist

1995: 15% across-the-board tax cut to stimulate economy

VAT is most efficient way to raise government revenue

When VAT rates are increased, it looks like another increment of inflation to the unaware consumer. Milton Friedman said it best: "That VAT is the most efficient way to raise revenue for the government. It is also the most effective way to increase the size of government."

It's central to the design of the FairTax that it is added only once: at the point of sale to the retail purchaser. It's an upfront charge, not a series of hidden costs. If you hear someone refer to the FairTax as a VAT, you can be sure you're listening to someone who hasn't done his homework. Or who, for whatever reason, it trying to torpedo the FairTax.

Lower taxes in recessions and raise taxes in booms

Suppose each recession had seen a cut in taxes & suppose the political unpopularity of raising taxes in the succeeding expansion had led to resistance to newly proposed governmental expenditure programs and to curtailment of existing ones. We might now be in a position where federal expenditures would be absorbing a good deal less of a national income.

Political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism. In the process of trying to do so, we almost surely make matters worse.

Progressive taxation intended to insure against risk

Insurance is a way of expressing a taste for certainty. Indeed, this is one way to interpret governmental measures to redistribute income through progressive taxes and the like. It can be argued that the market cannot produce the range of lotteries desired by the members of the community, and that progressive taxation is, as it were, a government enterprise to do so. I have no doubt that this view contains an element of truth. At the same time, it can hardly justify present taxations, if only because the taxes are imposed AFTER it is already largely known who have drawn the prizes and who the blanks in the lottery of life, and the taxes are voted mostly by those who think they have drawn the blanks.