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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.
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