Steve Forbes Kinda Makes Sense

Just briefly can you give us an overview of your proposal as outlined in your recent book “The Flat Tax Revolution?” A link to the link of the audio interview 39:15 minutes.


Steve Forbes: Yes. What we would do is take the federal income tax code and all of its intendant rules and regulations, as you know the whole thing comes to 9,000,000 words compared to 5,000 words say, in our constitution and the 773,000 words in the Bible which took centuries to put together and just start over again.

Steve Forbes: They tried to simplify it 20 years ago and since then we’ve added thousands of amendments and 3,000,000 new words.

Steve Forbes: So, what we’d do is replace it with a single-rate tax system, flat tax system, that would have high thresholds. For example, a family of four: mom, dad, say, two kids, would owe no federal income tax on their first $46,000 of income and then anything above that level would be taxed at only a simple rate of 17 percent, 17 cents on the dollar.

Steve Forbes: It’d be no tax on savings and no death taxes.

And on the business side, the profits tax would be cut from 35 to 17 percent and there’d be no more depreciation schedules.

Steve Forbes: So, if you make a capital investment, whether it’s buying a PC or a factory or a piece of machinery or a truck or anything else, you’d be able to treat it as an expense for tax purposes. That way you wouldn’t have to try to figure out are you eligible for a credit or accelerated depreciation, what’s the useful life of the asset and all that stuff.

Last year, for example, we spent six and a half billion hours filling out tax forms. So, we’d have billions of hours of brainpower applied to more productive purposes, including leisure and it would also remove a huge source of civic corruption in our society.

Steve Forbes: I mean everything we do now revolves around the tax code. Want to go on vacation? Hey, tie it into a business conference, get a tax deduction. It’s corrosive.

Steve Forbes: And just to insure that people don’t feel that they might be euchred or suckered in some way, you have a choice. In other words, when we have the new system, you can file under the new system or, if you wish, you can stay with the old system. In other words, let people see for themselves which one is better.

John Kennedy, for example, a Democrat back in the 1960s, proposed a 23 percent cut in the federal income tax and in those days, Republicans were against tax cuts and the criticism was this would cost the government a lot of money at a time of budget deficits. Instead, when the budget tax cuts were finally enacted, the economy got stronger and tax receipts went up.

Steve Forbes: Same thing happened in the 1980s. Top rate, for example, was cut from 70 percent down to 28 percent, rates were cut across the board by 25 percent and federal revenues doubled.

Yeah and to give our listeners an idea, one of the charts that you had showed that, I think it was a family of four, as you mentioned, those with incomes under $40,000 would not pay taxes, and in fact some of them would be getting money back from the government, and at $90,000 the effective tax rate would be about 8.1%.

What about dividends and capital gains? Are they considered income for the flat tax?

Steve Forbes: They are considered an investment, a savings, and so they would be exempt.

And those people who are in retirement and need income, when they are investing in dividend-paying securities, they are not paying taxes on those dividends.

Steve Forbes: And they are the ones who are hurt most by this kind of double or triple taxation. And another good thing of course is, your retirement benefits, i.e. social security, would not be taxed.

What I found fascinating is that as we become more of a global economy, there really is a competition for jobs, there is a competition for industry, and a lot of the countries that are turning to flat tax and to taxation systems that appeal to the worker and taxation systems that appeal to companies and corporations are countries in the former USSR, and it seems that they are getting quite a bit of industry from Western Europe which has not had a lot of competition in a long time.

Steve Forbes: Well, I think it was Walter Riston, great banker, now deceased, who once said “Capital”, and he meant by that both money and people, “goes where it is welcome and stays where it is well treated.”

When I ran for president 10 years ago in the state of New Hampshire, H&R Block sent a mailing warning of the impending end of civilization if we got something like a flat tax.

That is one of the things that is frustrating for a lot of us, is that we see ideas like the flat tax and it is so often presented that it is going to hurt the people with the least when in fact those are the people who absolutely have the most to gain.

Steve Forbes: Exactly.