Milton Friedman on Government spending and deficits
The only effect would be to employ people here instead of on more productive activities, since the addition to employment from the SST subsidy would be offset by the subtraction from employment as a result of the extra taxes that would have to be paid to finance the subsidy or the loan funds that would not be available for other uses if they were absorbed to pay the subsidy.
Context. From a statement he sent to Senator William Proxmire’s Joint Economic Committee in December 1972 for its hearings on the supersonic transport (SST). The Senate had voted in March 1971 to halt federal funding of an American SST, and the hearings considered whether to revive it. He is answering the claim that subsidizing the SST would add to employment, an assertion he calls logically fallacious.
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Milton Friedman, “Statement on the SST” (Letter to Senator William Proxmire, chairman of the Joint Economic Committee, dated December 11, 1972, submitting a statement for the record of the committee’s hearings on the supersonic transport; printed in full in the Congressional Record, Senate, January 11, 1973, p. 796, inserted by Senator Proxmire., 1972), Congressional Record, January 11, 1973, p. 796. https://miltonfriedman.org/quotes/sst-subsidy-employment-offset-by-taxes-1972
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He also said
The link between the payroll tax and benefit payments is part of a confidence game to convince the public that what the Social Security Administration calls a social insurance program is equivalent to private insurance, in that, in the Administration’s words, “the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.” Balderdash. Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of the government. When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses—what supporters call “a compact between the generations” and opponents call a Ponzi scheme.
Context. From an article on proposals to replace part of Social Security with individual investment accounts, written while the federal budget was in surplus. The quotation inside the passage is from the Social Security Administration.
The Biggest Ponzi Scheme on EarthColumn, 1999, The New York Times, January 11, 1999, as “Social Security Chimeras”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2Checked against the sourceRead the sourceThe payroll tax is a bad tax: a regressive tax on productive activity. It should long since have been repealed. Privatizing Social Security would be a good occasion to do so.
Context. From an article on proposals to replace part of Social Security with individual investment accounts, written while the federal budget was in surplus. Just before, he argues that the debt created by funding Social Security’s promises to every participant could be paid, like any other government debt, by taxing, borrowing, creating money or cutting other spending, so there is no more reason to pay it with a payroll tax than any other part of the debt.
The Biggest Ponzi Scheme on EarthColumn, 1999, The New York Times, January 11, 1999, as “Social Security Chimeras”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2Checked against the sourceRead the sourceThe true cost of government to the public is not measured by explicit taxes but by government spending. … Essentially every current piece of wealth in the United States has a hidden tax imposed on it because of the future obligation to pay those extra taxes. In effect, what you have are two kinds of taxes: the open, explicit taxes and the hidden taxes. And what's called a deficit is a hidden tax.
Context. From a 1978 Policy Review article on the tax-limitation movement, written the day after California voters approved Proposition 13 (the Jarvis-Gann amendment). Its opening reworks his April 1978 Newsweek column “A Progress Report”; the passages quoted from it here are from the later, new part of the argument. “Those extra taxes” are the higher future taxes needed to pay the interest on, or repay, the debt that finances a deficit, which he explains in the sentences the ellipsis omits.
The Limitations of Tax LimitationJournal article, 1978, Policy Review (The Heritage Foundation); reprinted in the Congressional Record, Extensions of Remarks, June 7, 1979, pp. 14069 to 14071, introduced by Representative Hamilton Fish, Jr. of New York as “an article by Dr. Friedman published in Policy Review, the quarterly journal of The Heritage Foundation”, Congressional Record, June 7, 1979, p. 14070Checked against the sourceRead the original
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