Addison Wiggin

The boxes were packed. The pictures of Mises, Hayek and Rothbard had come off the wall they’d adorned since 1997 in Suite 203 in the Cannon House Office Building. A maintenance crew stood outside, garbage cans at the ready, perhaps a little too eager to swoop in and finish the job of making way for the next occupant.

Rep. Ron Paul was moving out. We had the privilege of meeting with him on Wednesday, Nov. 14, moments after delivering his final speech on the floor of the House — the one in which he declared the Constitution had failed in the Founders’ stated objectives.

The speech is now a matter of public record… as are transcripts of the testimony from every hearing the good doctor presided over as chairman of the House Subcommittee on Domestic Monetary Policy and Technology during his final term.

Our friend Nathan Lewis, author of Gold: The Once and Future Money, testified at one of them last August. He suggests Dr. Paul carefully crafted those hearings with an eye toward leaving something behind for the next generation. “The ideas will be on the public record, even if they’re never implemented in our lifetimes.”

In addition, Lewis believes the ideas do have a contemporary audience — overseas. “People in emerging markets pay attention long before Americans do.”

Case in point: the flat-rate income tax pushed by Steve Forbes during his 1996 presidential campaign. It’s now the law of the land in dozens of countries.

We should preface what follows: We are not advocating a flat tax. We are saying that if politicians really wanted a way to pull back from the “fiscal cliff”… and put the government’s finances back on a semi-sound footing… they would stop arguing over trivia and implement a flat tax next week. You might want to keep that in mind as you witness the circus in Washington leading up to year-end.

The first comprehensive proposal for a US flat tax came in the 1985 book The Flat Tax, by economists Robert Ernest Hall and Alvin Rabushka.

“Today, the flat tax idea is perhaps even more politically remote, in the United States, than it was in 1985,” Mr. Lewis says. “However, the rest of the world caught on to the idea. Today there are at least 40 governments with flat tax-type systems, most of which made the switch in just the last decade.”

A sizeable number of these countries used to lie behind the Iron Curtain. Messrs. Hall and Rabushka served as consultants to many of those governments as they implemented a flat tax.

Countries that Utilize a Flat Tax

Is the flat tax a panacea? Hardly. Central bankers can still muck up the works; thus, many of these countries were swept up in the Panic of 2008.

But “we could take 2007 as a representative pre-crisis year,” Mr. Lewis suggests. “How did the flat tax countries do then?

“For 13 countries for which information was available from the IMF, the average GDP growth rate was 10.0%, ranging from 6.2% (Slovakia) to 23.1% (Ukraine).”

Lewis further studied 10 countries from which International Monetary Fund data are available, examining the flat tax’s impact on overall revenues. Revenues rose an average of 17.7%… and that’s after throwing out Estonia’s outlier increase of 81%. Only the Czech Republic saw revenue fall — by a minuscule 0.5%, as crisis encircled the globe in 2008.

How about revenue as a percentage of GDP — a favorite measure of policy wonks? That looks good too. On average, the ratio was virtually unchanged in those 10 countries — down 0.1%.

“Most of the seemingly impossible promises of the flat-taxers — higher growth, stable revenue/GDP ratio, rising government revenue — are, in fact, common and repeatable,” Mr. Lewis concludes.

Meanwhile, back in Washington, the politicians argue about how to prevent — prevent — automatic tax increases and spending cuts totaling $607 billion, which would barely cut the deficit in half.

As the holidays approach, we encourage you to spend it with your family and not stay glued to the TV for the minute-by-minute negotiating nonsense.

Regards,

Addison Wiggin
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • Wags

    “I lean toward a flat tax. But I want to make it real flat, like zero.” –Ron Paul

  • Boris

    How can you punish the rich with a flat tax?

Recent Articles

Can Money Printing Cause Deflation?

Marc Faber

"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...


Forget the Oil Crash – Crush the Market With Biotech Stocks

Greg Guenthner

The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.


How Low Will Oil Go – And What Can You Do?

Matt Insley

The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”


Cuba’s Berlin Wall Moment

Peter Coyne

Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...


The $4 LED Trend You Don’t Want to Miss

Chris Mayer

The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.


How to Make the Casinos Pay You for a Change

Greg Guenthner

It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.