Friedman Backs Land Value Tax as Least Damaging Levy to Fund State

Benjamin Ljung

Milton Friedman argues that unimproved land value taxation is the least economically harmful way to fund core government functions, asserting public hostility toward property levies stems entirely from lump-sum billing rather than sound economic objections.

AI-assisted summary of Milton Friedman talks about property taxes — original source. Check the original for full context.

Source published: 2014-01-26

Key ideas

Milton Friedman argues that while every tax infringes on free enterprise, abolishing all taxes is an unattainable utopia because essential state functions like defense, policing, and the courts require funding. (0:00)
Friedman ranks the property tax on the unimproved value of land—the classic Henry George argument—as the single 'least bad' tax, followed by a flat-rate income tax with strict deduction limits. (0:00)
Public backlash against property taxes is driven by payment psychology rather than economic harm, as it remains one of the few levies paid through a direct, visible lump-sum check. (2:00)
Reflecting on his wartime work designing the U.S. payroll withholding system, Friedman notes that automated deductions and hidden retail taxes lull citizens into tolerating far more destructive tax burdens. (2:00)

Detailed notes

## Background Published on YouTube by Benjamin Ljung on January 26, 2014, this clip highlights Milton Friedman's endorsement of Land Value Taxation. According to the page description and Hoover Institution records, the excerpt originates from Friedman's address titled 'Is Tax Reform Possible?', delivered at the Americanism Educational League's 51st Anniversary Dinner in Pasadena, California, on February 6, 1978.

## TL;DR Responding to an audience inquiry about operating without an income tax, Milton Friedman explains that while taxes inherently burden free enterprise, essential state functions like defense, policing, and the courts still require revenue. He designates the property tax on the unimproved value of land—championed by Henry George—as the single 'least bad' tax, followed by a basic flat-rate income tax with strictly limited deductions. Friedman then analyzes why property taxes face intense public backlash despite their economic merits, arguing that unlike indirect or payroll-withheld taxes that remain largely invisible, property taxes force individuals to write a large, conscious lump-sum check.

## Atmosphere & style The exchange has an engaging, articulate, and pragmatic tone, featuring Friedman in his element as a lucid orator addressing a free-market audience. His delivery balances rigorous economic realism with warm, self-deprecating humor, notably when jokingly admitting guilt over helping design the wartime tax withholding system that his wife never forgave him for. Watching the discussion feels like sitting in on a classic 1970s intellectual debate where provocative, counterintuitive economic principles are untangled with effortless clarity and charm.

## Bulletin - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) Milton Friedman argues that while every tax infringes on free enterprise, abolishing all taxes is an unattainable utopia because essential state functions like defense, policing, and the courts require funding. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) Friedman ranks the property tax on the unimproved value of land—the classic Henry George argument—as the single 'least bad' tax, followed by a flat-rate income tax with strict deduction limits. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Public backlash against property taxes is driven by payment psychology rather than economic harm, as it remains one of the few levies paid through a direct, visible lump-sum check. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Reflecting on his wartime work designing the U.S. payroll withholding system, Friedman notes that automated deductions and hidden retail taxes lull citizens into tolerating far more destructive tax burdens.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) A zero-tax society is an unattainable utopia because an economy cannot function without basic government institutions. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) Taxation must exist to fund non-negotiable public functions, specifically national defense, police, law enforcement, and the judiciary. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) Because every tax distorts free enterprise, fiscal policy should aim to identify the 'least bad' alternatives rather than seeking a flawless system. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) The property tax on the unimproved value of land, championed by Henry George, is the least economically harmful form of taxation. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) A flat-rate tax on all income above a standard personal exemption and strict job expenses is the second least bad tax option. - [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) Friedman opposes the contemporary progressive income tax system, viewing it as needlessly complicated and economically damaging. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Public hostility toward property taxes stems from administrative mechanisms rather than sound economic arguments. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Property taxes are intensely hated because they force taxpayers to directly confront their burden by writing a large lump-sum check. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Sales, excise, and corporate taxes evoke less public outrage because they are paid in pennies or concealed entirely within retail consumer prices. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Income taxes feel painless due to payroll withholding, which deducts revenue at the source before workers ever see their paychecks. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Friedman openly regrets helping design the federal payroll withholding mechanism during his World War II tenure at the U.S. Treasury. - [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Governments could easily neutralize public resistance to property taxes by converting them into small, automated installments withheld at the source.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) The Necessity of Taxes and the Least Bad Alternatives

An audience member named Ed Arton opens the exchange by declaring himself a believer in free enterprise and expressing his conviction that the income tax is completely antagonistic to a free market economy. He asks Dr. Milton Friedman directly whether the United States could operate without an income tax. Friedman concedes that from a principled perspective, every form of taxation is antagonistic to free enterprise, but cautions against pursuing an unattainable utopia. While he strongly favors drastically reducing the scope of government activity below its current levels, he rejects the notion that society can function with no government whatsoever. Revenue must be raised to fund core, non-negotiable functions, specifically national defense, the police, the maintenance of law and order, and the administration of the judiciary.

Because some level of taxation is unavoidable, Friedman frames the policy problem not as finding a good tax, but as identifying which options are the "least bad." To the potential surprise of his audience, Friedman identifies the property tax on the unimproved value of land—the classic economic argument championed by 19th-century political economist Henry George—as the single least harmful tax. The second least bad option is a flat-rate tax on income above a basic exemption threshold. While an ideal system designed by Friedman would still feature an income tax, it would bear no resemblance to the existing, convoluted code. It would apply a single flat rate across all income regardless of source, allowing only a standard personal deduction and strictly necessary occupational expenses, thereby offering minimal interference with a dynamic free enterprise system.

```mermaid flowchart TD accTitle: Friedman's Hierarchy of Least Bad Taxes accDescr: Diagram illustrating Milton Friedman's ranking of acceptable taxes needed to fund essential government functions.

subgraph CoreFunctions["Essential Government Functions"] F1["National Defense"] F2["Police & Law Enforcement"] F3["Judiciary & Rule of Law"] end

subgraph TaxRanking["Friedman's Tax Hierarchy"] T1["1. Land Value Tax (Unimproved Land / Henry George)"] T2["2. Flat-Rate Income Tax (Strict Deductions Only)"] T3["Avoid: Complex, Progressive Income Tax Monstrosity"] end

TaxRanking --> CoreFunctions ```

- Ed Arton asks: “Can we run the country without income tax?” - Milton Friedman responds on political realism: “We have to recognize that we mustn't hope for a utopia that is unattainable.” - On the essential responsibilities of the state, Friedman notes: “We do need to provide for certain essential government functions: the police function, the national defense function, function of preserving law and order, of maintaining a judiciary.” - On his primary tax preference, Friedman states: “And in my opinion, and this may come as a shock to some of you, the least bad tax is the property tax on the unimproved value of land—the Henry George argument from many, many years ago.” - On designing an acceptable income tax, Friedman explains: “It would be a flat rate tax on all income from whatever source derived less only a personal deduction and strict occupational expense.”

---

[02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) Why the Property Tax Is Unpopular: The Psychology of the Big Check

Friedman transitions to the public perception of taxation, noting the curious paradox of why property taxes provoke such fierce public hostility despite their sound economic footing. He argues that property tax resistance is not driven by sound economic objections, but by a straightforward administrative reality: it remains virtually the only levy left where an individual taxpayer must sit down and write a large, painful lump-sum check. In contrast, the income tax—which he considers economically far more destructive—encounters far less resistance because it has been mechanized to feel nearly painless.

Injecting personal humor and historical regret into the discussion, Friedman confesses his own complicity in making the income tax so deceptively tolerable. During World War II, while working at the United States Department of the Treasury, he helped design the payroll withholding system. Withholding deducts revenue incrementally before workers ever see their earnings, shielding the full magnitude of the burden. Sales taxes are similarly paid in negligible pennies per transaction, while corporate taxes and excise duties are concealed entirely within the final retail price of consumer goods. Property taxes, however, cannot hide. Friedman observes that if policymakers ever wished to neutralize public opposition to property taxes—though he hesitates to suggest it, calling it "giving hostages to fortune"—they could do so simply by implementing an automated withholding mechanism collected at the source in small, regular installments.

- Milton Friedman diagnoses the root of public resentment: “It's not unpopular for good economic reasons. It's unpopular in my opinion for one simple reason: it's the only tax left on the books for which people have to write a big check.” - Reflecting ruefully on his wartime work at the Treasury, Friedman admits: “The income tax is a far worse tax. But, and I have to admit that I have some part of the guilt in this process, because during World War II, I worked at the Treasury and helped to design the withholding system. My wife has never forgiven me for it.” - Describing the invisibility of indirect taxation, Friedman points out: “With respect to the corporate tax and excise taxes, they're hidden in the price of things we buy. We don't even know we're paying them.” - On how governments could pacify public outrage over property levies, Friedman concludes: “If you wanted to reduce the unpopularity of the property tax, the way to do it would simply be to provide for an effective method whereby it could be withheld at source in small payments, and that would eliminate a large part of the objection to it.”

## Notable quotes > [00:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=0s) And in my opinion, and this may come as a shock to some of you, the least bad tax is the property tax on the unimproved value of land—the Henry George argument from many, many years ago. — Milton Friedman

> [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) If you wanted to reduce the unpopularity of the property tax, the way to do it would simply be to provide for an effective method whereby it could be withheld at source in small payments, and that would eliminate a large part of the objection to it. — Milton Friedman

> [02:00](https://www.youtube.com/watch?v=yS7Jb58hcsc&t=120s) With respect to the corporate tax and excise taxes, they're hidden in the price of things we buy. We don't even know we're paying them. — Milton Friedman

## Mentioned Milton Friedman, Ed Arton, Henry George, United States Department of the Treasury, Americanism Educational League, Hoover Institution

## Video description Land Value Taxation is endorsed by Milton Friedman. Can someone help me find the year this is recorded? (November 1978 is my guess, http://www.cooperativeindividualism.org/friedman-milton_interview-1978.html) Source: https://www.youtube.com/watch?v=PhI4WQqrct8

Update 20200528: from the Hoover Institution: Friedman, Milton. "Is Tax Reform Possible?" Milton Friedman Speaks. Address given at the Americanism Educational League 51st Anniversary Dinner, Pasadena, CA, February 6, 1978.

[Source](https://www.youtube.com/watch?v=yS7Jb58hcsc)

中文简报

弗里德曼支持土地价值税，称其为资助政府运转危害最小的税种米尔顿·弗里德曼认为，对未改良土地价值征税是资助政府核心职能中经济危害最小的方式，并坚称公众对财产税的抵触完全源于一次性大额缴费的形式，而非合理的经济学反对意见。在回应听众关于在没有所得税的情况下如何运作的提问时，米尔顿·弗里德曼解释称，尽管税收本质上会给自由企业带来负担，但国防、治安和法院等基本国家职能仍需要财政收入支持。他将亨利·乔治所倡导的对未改良土地价值征收的财产税列为唯一次优的“最不坏”税种，其次是扣除项严格受限的单一税率基本所得税。弗里德曼随后分析了为何财产税尽管具备经济优势却面临强烈的公众反弹，他认为，与很大程度上隐蔽的间接税或代扣代缴税不同，财产税迫使个人开出一笔数额巨大、感知鲜明的一次性支票。米尔顿·弗里德曼认为，虽然每一种税收都会侵害自由企业，但废除所有税收是一种无法实现的乌托邦，因为国防、治安和法院等基本国家职能需要资金支持。 (0:00) 弗里德曼将对未改良土地价值征收的财产税（即经典的亨利·乔治观点）列为唯一次优的“最不坏”税种，其次是严格限制扣除项的单一税率所得税。 (0:00) 公众对财产税的强烈抵触是由支付心理而非经济危害驱动的，因为它是极少数需要通过直接、显眼的一次性大额支票支付的税种之一。 (2:00) 回顾其在二战期间参与设计美国工资代扣代缴系统的经历，弗里德曼指出，自动扣缴和隐性零售税让公民在不知不觉中容忍了破坏性大得多的税收负担。 (2:00)

Source quotes

[0:00] Milton Friedman: And in my opinion, and this may come as a shock to some of you, the least bad tax is the property tax on the unimproved value of land—the Henry George argument from many, many years ago. [2:00] Milton Friedman: If you wanted to reduce the unpopularity of the property tax, the way to do it would simply be to provide for an effective method whereby it could be withheld at source in small payments, and that would eliminate a large part of the objection to it. [2:00] Milton Friedman: With respect to the corporate tax and excise taxes, they're hidden in the price of things we buy. We don't even know we're paying them.

Original transcript

[0:00] Dr. Freriedman, my name is Ed Arton. I'm [0:02] in free enterprise I feel and uh I find [0:05] the income tax uh totally antagonistic [0:08] to uh true free enterprise. Can we run [0:12] the country without [0:13] income tax? [0:15] Well, there's a sense in which all taxes [0:17] are antagonistic to free enterprise. And [0:20] yet we need taxes. [0:23] We we have to recognize that uh that uh [0:26] that we mustn't [0:29] hope for a utopia that is unattainable. [0:32] I would like to see a great deal less [0:33] government than we have activity than we [0:35] have now. [0:38] But I do not believe that we can have a [0:42] situation in which we don't need [0:43] government at all. We do need to provide [0:46] for certain essential government [0:48] functions. the police function, the [0:51] national defense function, function of [0:54] preserving law and order, of maintaining [0:56] a judiciary. And so the question is [1:00] which are the least bad taxes? And in my [1:03] opinion, [1:05] the and this may come as a shock to some [1:08] of you, the least bad tax is the [1:12] property tax on the unimproved value of [1:15] land. The Henry George argument from [1:17] many, many years ago. [1:19] The next least bad tax is a flat rate [1:23] tax on income above an exemption. [1:26] So in answer to your question, if I [1:28] could design my ideal tax system, it [1:30] would contain an income tax, but it [1:32] would not be the kind of monstrosity we [1:34] have now. It would be a flat rate tax [1:39] on all income from whatever source [1:42] derived less only a personal deduction [1:46] and strict occupational expense. And [1:49] that kind of an income tax I think would [1:51] be the least inconsistent with a strong [1:54] free enterprise system. [2:00] You know why? It's an interesting thing [2:02] if you're talking about taxes about why [2:03] it is that the property tax is so [2:06] unpopular. [2:07] It's not unpopular for good economic [2:09] reasons. It's unpopular in my opinion [2:12] for one simple reason. It's the only tax [2:15] left on the books for which people have [2:16] to write a big check. [2:20] The income tax is a far worse tax. [2:25] But and I have to admit that I have some [2:27] part of the guilt in this process [2:29] because during World War II, I worked at [2:31] the Treasury and helped to design the [2:33] withholding system. [2:35] My wife has never forgiven me for it. [2:41] But with respect to the income tax, [2:43] we've arranged it so it's taken off bit [2:45] by bit and it's almost painless. [2:49] With respect to the sales tax, we pay a [2:51] little bit of it each time. With respect [2:54] to the corporate tax and excise taxes, [2:56] they're hidden in the price of things we [2:58] buy. We don't even know we're paying [2:59] them. [3:01] But with respect to the property tax, [3:03] that remains a tax that we as [3:04] individuals have to pay and that we have [3:06] to write a big check for. [3:08] Uh that's the fundamental reason in my [3:12] opinion why it's so unpopular. And in [3:14] fact, I think uh I hate to say this [3:16] because it's giving hostages to fortune, [3:19] but if you wanted to reduce the [3:20] unpopularity of the property tax, the [3:22] way to do it would simply be to provide [3:24] for an effective uh method whereby it [3:27] could be withheld at source in small [3:30] payments, and that would eliminate a [3:31] large part of the objection to it.