First a Flat Tax; then a Gold Standard
November 7, 2013
(This item originally appeared at Forbes.com on November 7, 2013.)
Between 2000 and 2010, the number of countries which adopted some kind of “flat tax” income tax system expanded from nine to over forty.
Why did this happen?
How did this happen?
Of course, each country had its own visionaries and thinkers and policymakers that made it happen. But, on a global basis, it went something like this: First, the idea was expressed in concrete, specific and practical terms, not just vague airy-fairy principles. Then it spread and was widely embraced.
Then, those countries that were in a position, politically and in terms of their own history and aspirations, to put it into place, did so.
Who could have known that the governments of Mongolia (2007, 10%) or the Seychelles (2010, 15%) would embrace a Flat Tax?
The “flat tax” idea was adopted by Hong Kong in 1947, and was more recently revived in the early 1980s, by people like Alvin Rabushka and Jack Kemp. However, I attribute much of its later blooming to the efforts of Steve Forbes, who made it a centerpiece of two high-profile presidential campaigns in 1996 and 2000. It was also broadly adopted among the Republican party intelligentsia, such as conservative think tanks, during this time.
The Flat Tax made no political progress in the United States itself. It is more politically remote today than it was in 1988, when the Reagan Revolution was in full force.
But the idea – basically the Steve Forbes proposal verbatim – flowered in dozens of other countries worldwide.
I say that the Magic Formula is: Low Taxes and Stable Money. A “flat tax” is one proven approach to Low Taxes, although there are other methods that might work.
A gold standard system is a proven approach to Stable Money. As has been the case for the Flat Tax, I don’t think a gold standard approach has much political chance of being implemented in the U.S. at this time. The United States is just not in a situation — politically, historically and intellectually — for that to happen now.
But, there are over a hundred other governments in the world, and they might find that it is just the right idea at the right time – for them. It could be a government we would have never thought of as embracing a gold-based approach. It could be Nepal, Trinidad, Cameroon or Croatia.
Oddly enough, I have heard that nobody in, for example, Belarus (2009, 12%), contacted any of the U.S. Flat Tax thought leaders before they implemented the idea into policy. They just did it themselves, without that kind of direct interaction.
Thus, it is possible that the parliament of Gabon or Sri Lanka will just implement a gold standard system some day, to the surprise of everyone including people like me who pay a lot of attention to this stuff.
It might be a parallel currency-type framework, as espoused by Ron Paul (and myself), which would be very appropriate for today’s still very dollar-centric world.
However, just as dozens of countries looked for inspiration to the United States and its thought leaders like Steve Forbes, they may again turn to the United States for inspiration regarding new monetary systems.
Thus, I think of what we do here as a kind of theater. I am building a base of economic understanding, in English, in the United States, because that is the stage upon which these things are done.
But, I expect the results to be seen somewhere else. Probably a small and insignificant country.
Among the first countries to adopt a Flat Tax system were Latvia, Lithuania, and Estonia, in 1994.
Estonia has a population of 1.3 million. These are tiny countries, smaller than some U.S. counties, in both land area and population.
But, their fantastic success caught the attention of other former Soviet governments. Russia followed with its 13% Flat Tax in 2001, the first large country to adopt this policy.
Then, the horses left the gate and began running free.
It will probably be the same with the world’s next gold standard system. A half-dozen small countries will try it, find success, and then China or Brazil will follow.
Dozens of governments will be close behind. By then it will seem obvious and inevitable.