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Milton Friedman on Taxes

Because if the government spends more or less, somebody else has less or more to spend. There’s an offsetting element unless the government spending is financed by printing money. What really matters is what happens to monetary policy. Monetary policy goes one way and fiscal policy goes the other way. If you look at all such examples, monetary policy has always dominated—not fiscal policy. If you reduce taxes then people have more to spend, but on the other hand, government has less to spend. Why is there any net increase in total spending?

Context. Asked whether cutting taxes would stimulate a slowing economy, he said it would not, pointing to Japan, which in ten years of rolling recession had had four or five major fiscal stimulus programs, increases in government spending and reductions in taxes, all of them, he said, an utter failure. Asked why, he answered.

Friedman on the Surplus
Interview, 2001, Interview by Peter Robinson for Uncommon Knowledge, January 17, 2001; adapted in Hoover Digest 2001 No. 2
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Milton Friedman, “Friedman on the Surplus” (Interview by Peter Robinson for Uncommon Knowledge, January 17, 2001; adapted in Hoover Digest 2001 No. 2, 2001). https://miltonfriedman.org/quotes/tax-cut-does-not-stimulate-somebody-else-less-2001

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He also said

  1. There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. … Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.

    Context. From David Asman’s May 15, 2004 interview with him, published by Fox News. Earlier in the conversation he had argued that education and medicine share one problem, third-party payment: someone gets a service from someone else who is paid by a third party; he then blamed that for medicine’s complications.

    Interview with David Asman
    Interview, 2004, Fox News, May 15, 2004; transcript published by Fox News as “‘Your World’ Interview With Economist Milton Friedman”
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  2. That is a widespread myth, that it is possible to spend money with nobody paying for it. You have everybody screaming that we ought to have new, bigger, more generous government programs. Where are we going to raise the money? Tax business. But business corporations can’t pay any taxes. A corporate executive may sign the check, but where does he get the money? From his stockholders or from his customers or from his employees. Unlike the federal government, he doesn’t have a printing press in his basement. So the only way he can pay money to the government is by imposing a burden on somebody. Government cannot spend money at nobody’s expense …
    Economic Myths and Public Opinion
    Column, 1976, The Alternative: An American Spectator, January 1976; reprinted in Bright Promises, Dismal Performance (Harcourt Brace Jovanovich, 1983), p. 72
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  3. My own prescription is still that the monetary authority go all the way in avoiding such swings by adopting publicly the policy of achieving a steady rate of growth in a specified monetary total. The precise rate of growth, like the precise monetary total, is less important than the adoption of some stated and known rate.

    Context. From his presidential address to the American Economic Association, delivered in Washington on December 29, 1967, and printed in the March 1968 American Economic Review. He enclosed it with his 1968 statement to a House subcommittee, which reprinted it.

    The Role of Monetary Policy
    Journal article, 1968, American Economic Review, March 1968 (the reprint’s heading gives the month and year only; the volume, issue and page range are NOT established by this source and remain unverified); reprinted in the Compendium on Monetary Policy Guidelines and Federal Reserve Structure, Subcommittee on Domestic Finance, House Committee on Banking and Currency, December 1968, pp. 214 to 224. The reprint carries his footnote: presidential address delivered at the 80th annual meeting of the American Economic Association, Washington, D.C., December 29, 1967., p. 223 of the 1968 House reprint
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