Monday, June 4, 2012

A note for the historically challenged: Milton Friedman DID oppose tax withholding any time except during a major war

A lot of misinformation is circulating that Gary Johnson blew an interview question on Milton Friedman, because he stated that Friedman opposed tax withholding.

Critics jump on the fact that Friedman was part of the team that created tax withholding in World War Two.

They seem to miss what he said about this later in life:

Reason: You were involved in the development of the withholding tax when you were doing tax work for the government in 1941-43?
Friedman: I was an employee at the Treasury Department. We were in a wartime situation. How do you raise the enormous amount of taxes you need for wartime? We were all in favor of cutting inflation. I wasn't as sophisticated about how to do it then as I would be now, but there's no doubt that one of the ways to avoid inflation was to finance as large a fraction of current spending with tax money as possible.
In World War I, a very small fraction of the total war expenditure was financed by taxes, so we had a doubling of prices during the war and after the war. At the outbreak of World War II, the Treasury was determined not to make the same mistake again.
You could not do that during wartime or peacetime without withholding. And so people at the Treasury tax research department, where I was working, investigated various methods of withholding. I was one of the small technical group that worked on developing it.
One of the major opponents of the idea was the IRS. Because every organization knows that the only way you can do anything is the way they've always been doing it. This was something new, and they kept telling us how impossible it was. It was a very interesting and very challenging intellectual task. I played a significant role, no question about it, in introducing withholding. I think it's a great mistake for peacetime, but in 1941-43, all of us were concentrating on the war.
I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now.

Oh, ah, um, it seems that Dr. Friedman DID oppose tax withholding except under the specific circumstance of . . . funding a global war.

Oops.  All the critics can register their apologies below.

I'll be holding my breath.


Thomas L. Knapp said...

You have got to be shitting me, Steve. I've known you for years and there is no way I am going to believe that you're dumb enough to think you're entitled to an apology here.

Yes, Friedman opposed use of the system he invented, except for in particular circumstances.

That doesn't change the fact that when asked what impressed him about Friedman, Johnson thought that Friedman was the architect of the case against withholding, not the architect of withholding.

Your guy stomped on his own crank in public. Period. No amount of whining from you that if we hold our mouths just right it won't have happened will make it not have happened.

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