Milton Friedman – tax cuts for the sake of smaller government

Nobel laureate economist Milton Friedman applauds tax cuts primarily on the grounds that they help rein in growth of government spending. Government spends roughly 40 percent of Americans’ incomes, and U.S. residents and businesses spend an additional 10 percent of income in response to government mandates and regulations.

According to Friedman:

The only way to cut government down to size is through tax cuts.

Tax cuts may initially raise the deficit above politically tolerable levels – but the longer-term effect will be to reduce spending.

Tax cuts that increase incentives to produce and that eliminate distortions in the price system – supply-side tax cuts – both restrain government spending and increase future income and current wealth.

Friedman says that from this point of view, President Bush's proposals rank very high. He particularly favours ending the double taxation of dividends and moving up the effective date of cuts already on the books.

Source: Milton Friedman (Hoover Institution), What Every American Wants, Wall Street Journal, January 15, 2003.

For text (WSJ subscription required)
http://online.wsj.com/article/0,,SB1042593796704188064-search,00.html
For more on Effects Of Tax Cuts http://www.ncpa.org/iss/tax/

FMF Policy Bulletin\22 January 2003