How business, doctors and journalists prey on your food anxieties I

trounced three times in presidential elections, his thesisthat
gold was an oppressor of hardworking peoplestuck
. But the events of the 1920s <strong>and</strong> 1930s drove the
intellectual stake through the heart of the yellow metal .
After World War 1, Britain made the same mistake that
we had made after the Civil R-ar . London had gone off
gold in 1914 at the start of WWI <strong>and</strong> had experienced
serious inflation . In the 1920s Britain deflated credit in
order to establish the prewar parity between sterling <strong>and</strong>
gold . The return to gold in 1925 was blamed for the
subsequent distress of Britain's large coal industry <strong>and</strong>
the national general strike that followed a year later .
Gold received its ultimate discrediting with the advent of
the Great Depression in 1929 . In the wake of the collapse of
world commerce <strong>and</strong> flrtance, brought on by the horrific
Smoot-Hawley tariff, the U .S . <strong>and</strong> Britain adopted mistaken
policies in the name of staying on the gold st<strong>and</strong>ard . Britain
tightened credit instead of easing it. The U .S . enacted a subsrantial
tax increase, deepening
the contraction . Instead of utilizing
tax <strong>and</strong> monetan, policies to
help alleviate distress, Britain
ab<strong>and</strong>oned the gold st<strong>and</strong>ard in
1931, <strong>and</strong> the U .S . sharpiy devalued
the dollar in 1934 . Ever
since, the gold st<strong>and</strong>ard has been
portrayed as a principal cause of
the Depression instead of as a
victim of misguided policy.
In 1944 the U .S . <strong>and</strong> Britain
created what became known as
the Bretton Woods international
monetary system . The dollar remained fieed to gold at
$35 per ounce . Other currencies were tied to the dollar,
with onle a small b<strong>and</strong> for fluctuadons . Institutions were
created to help countries cope with fitture blance-of-pa y-
ments problems <strong>and</strong> to stimulate recovery from the war .
Bretton It%oods, GATT, NATO <strong>and</strong> other measures
helped bring on the great boom of the 1950s <strong>and</strong> 1960s .
There were exchange-rate crises, but, bv today's st<strong>and</strong>ards,
devaluations were infrequent . When a cotmtry's
currency came under attack, authorities took immediate
remedial measures . Inflation, w-hen it flared, was quickly
brought under control . Nonetheless, sentiment against
gold grew, Most antigoldsters advocared letting all exchange
rates float against one another, making money
simplv another commodirv. Simultaneouslv, American
policymakers got the notion that the dollar's role as a
reserve currency posed intolerable financial burdens . As
our trade surplus shrank, cries for devaluation grew .
The U .S . began moving off gold in the late 1960s,
formally severing the link when President Nixon
imposed price <strong>and</strong> wage controls in 1971 . But the new
regime of floats failed miserably. Instead of increased
prosperitv, we got a debilitating decade of rising inflation,
collapsing equity markets <strong>and</strong> declining st<strong>and</strong>ards
of living . Even the economic recovery of the 1980s saw
abnormally high interest rates by historic st<strong>and</strong>ards .
The second major hurdle to a new era of prosperity~
our tax code . No human being underst<strong>and</strong>s it . The current
code, which runs over 8,000 pages, with cotmtless
Depression prime ministers <strong>and</strong> Treasury pooh-bahs meet on
eve of Engl<strong>and</strong>'s ab<strong>and</strong>onment of gold st<strong>and</strong>ard .
thous<strong>and</strong>s more IRS rulings <strong>and</strong> interpretations, is
beyond redemption . The ans« er is to start all over again,
which is what the flat-tax movement is all about . Fi'ith a
flat tax, rates would be slashed <strong>and</strong> all deductions done
awav with, except for generous personal allowances .
T vo Hoover Institution economists, Robert Hall <strong>and</strong>
Al in Rabushka, have done extensive, definitive work on
the flat tax . Their new edition of ZSie Flat Tax brilliantly
updates their 1985 original . Under their revenue-neutral
plan, a family of four would pay no federal income tax on
its first S25 .500 of income . Any income above that level
would be taxed at the flat rate of 19% . For individuals,
there would be no levies on interest, dividends, capital
gains or estates . Businesses would also have a flat 19% rate
<strong>and</strong> could write off all capital investments, including l<strong>and</strong>,
in the year in which they were made . Any tax losses could
be carried forward <strong>and</strong> applied against future profits .
All variants being discussed take otTfrom the work of
Hall <strong>and</strong> Rabushka . The most
ambitious version is that of
House biajoriry Leader Dick
Armey (R-Tex .) . He proposes
a three-year phase-in from
20% to 17%, coupled with
ambitious budget cuts . The
exemption for a family of four
would be 536,800 . Presidential
aspirant Senator Arlen
Specter (R-Pa .) advocates a
20% level with modified
deductions for interest on
home mortgages <strong>and</strong> for charitable
contribuaons . His plan, too, would exempt inteoest,
dividends, capital gains <strong>and</strong> estates .
The virtues of a flat tax are overwhelming :
Produetivity. Enormous resources would be released
for productive pursuits . Incalculable amounts of inrellectual
brainpower arc devoted to the dead-end task of coping
with the current tax code . Over 500,000 people in
the U .S . make their living off it, whether in lobbying,
law-yering, tax preparing or accounting . Americans spend
5 .5 billion hours a year filling out tax forms .
Faimess . Under a flat tax, the higher your salary, the
more you pav in tax, in contrast to our current exemptionriddled
system . The rich would pay a higher proportion of
revenues collected . This has happened even time high rates
have been low'ered . The generous personal allowances
would lop millions ofArnericans offtederal income tax rolls .
And the tax code n ould be transparent <strong>and</strong> underst<strong>and</strong>able .
EfPiciency. The flat tax would be infinitely easier to
collect . Experts estimate Americans spend between $100
billion <strong>and</strong> 5300 billion to comply with the current code .
Anticorruption . The flat tax would eliminate a large
source of political manipulation at state <strong>and</strong> federal levels
. The current monstrosity remains ripe for abuse <strong>and</strong>
behind-the-scenes deals for powerful special interests . It
is no coincidence that members of congressional taxwriting
committees receive on average twice the political
contributions of their non-tax-writing colleagues .
The flat tax, combined with a new gold st<strong>and</strong>ard, would
unleash a boom of unprecedented proportions. M
154
2046673413 i'orbes K August 14, 1995
http://legacy.library.ucsf.edu/tid/agf97d00/pdf