Notable Bureaucrats--Milton Friedman

Another in my occasional series of salutes to those bureaucrats, alive or dead, who have contributed to making this world what it is. Today we recognize Milton Friedman, the economist (and right winger) who's popularly believed to have invented income tax withholding when he served as a Treasury Department adviser during WWII. As Brad DeLong says:

"In the late 1930s he hooked up with the National Bureau of Economic Research’s Simon Kuznets and Arthur Burns, worked for the U.S. Treasury during World War II (where he was one of the designers of our current system of income-tax withholding), earned his Ph. D. from Columbia University in 1946, and finally landed on his feet at the University of Chicago.

And Ilya Somin:

Somewhat unfortunately, Friedman (at that time still a left-winger) also invented the idea of income tax withholding while working as an economist for the the Treasury Department during World War II. Although Friedman intended it to be a temporary wartime measure, it soon turned into a permanent expansion of government power - a result that the later, libertarian Friedman would surely have predicted:)

It seems Somin may give him too much credit, perhaps because the irony is so great--the great believer in free markets helping to finance government. This detailed (and very hostile) discussion of the advent of withholding only mentions Milton Friedman once, while an Elisha Friedman and Beardsley Ruml get more ink. It also turns out that withholding had been authorized for government employees in the Civil War statute, so it was not a new concept.

I'm now reading the memoirs of Milton and Rose Friedman. He says he was involved in the development of withholding for the U.S., but both the British and Germans were already doing it (i.e., collecting taxes at the source). However, they differed in whether the taxes were on current income or past, but shared the characteristic that the withholding was final. This differs from the U.S. system, which makes the final tax subject to adjustment by April 15.

Bottomline: Milton was one of the designers of the system, and as such qualifies for the notable bureaucrat honor.