Capitalist Tool Time

Steve Forbe is running for president and may well win the GOP nomination. But whaind of road is he traveling?

John J. Pitney, Jr. from the July 1998 issue

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Forbes's comments illustrate the risks of finessing the issue. Former Republican national chairman Richard Bond wrote: "Forbes has alienated activists on both sides of the abortion issue; encouraged Republicans to engage in an internal fight at a time when President Clinton and the Democrats are on uncertain footing; further driven away women and other potential supporters from the party; and encouraged further attempts for litmus tests to be foisted on Republicans by those who believe in single-issue candidacies."

On another social issue, Forbes has campaigned hard against medical marijuana. "What's going on?" asks Clifford Thies, chairman of the Republican Liberty Caucus. In an open letter to Forbes, available on the group's Web site (www.rlc.org), he continues: "Has he become so fixated on becoming president that he has adopted Bob Dole's failed strategy of trying to beat Clinton on the drug issue?" Libertarian writer Doug Bandow is even harsher: "Treating the sick and dying as the enemy is a particularly cheap way to win votes."

Forbes's supporters argue that his support for tough drug laws, like his abortion stand, is less a new position than a new emphasis on a longstanding and sincere belief. On July 1, 1996, he wrote in his magazine that "the beguiling notion that decriminalization of the use of `mild' narcotics such as marijuana would allow authorities to crack down more effectively on hard drugs still persists (even in a recent Forbes story about the Netherlands). Alas, the idea is destructive nonsense."

Thies, however, argues that it's possible, indeed necessary, to have a separate discussion of medical marijuana: "As Republicans, we understand the importance of what we communicate to others, especially to youth. But it is immoral to hold sick people hostage so we don't miscommunicate our concern for drug abuse."

Some libertarians share Forbes's opposition to abortion. (Murray Sabrin, the Libertarian Party candidate for governor of New Jersey last year, attacked Republican incumbent Christine Whitman for her support of partial-birth abortion.) Some may even favor curbs on certain drugs. Inevitably, though, his high-profile stands on these issues will create friction between Forbes and the libertarian movement. If he is to hold onto at least a share of libertarian support, he has to take bold, pro-liberty stands on other issues. And he does.

Steve, the Vampire Slayer

Forbes has imported his favorite applause line from Transylvania: "Rather than further complicating a failed federal tax code, we should abolish it--kill it, drive a stake through its heart, bury it, and hope it never rises again to terrorize the American people." He urges Congress to take a "bold and radical step" by passing legislation to scrap the tax code by a date certain, a move that he hopes will trigger debate about "a new tax code for a new century."

Forbes thinks that the best alternative is a straightforward flat tax. His proposal features a 17 percent rate on wages and salary, with simple exemptions: $13,000 for singles, $26,000 for married couples filing jointly, and $17,000 for single heads of household. Taxpayers could also deduct $5,000 per child. He would not tax personal savings, pensions, Social Security benefits, capital gains, or inheritances. (Businesses would pay the 17 percent rate on net profits, and could write off investments in the first year.)

The flat-tax idea is compelling. For decades, Washington has used the tax code as an instrument of social and economic engineering. By getting rid of tax preferences, a flat tax would free individuals and businesses from a pervasive form of government power. With the elimination of most deductions and credits, taxpayers would no longer have to supply Uncle Sam with excruciatingly private information. Compliance costs would plunge, since people would no longer have to spend disproportionate sums on record-keeping and accountancy. And what's more, many people would see their taxes go down. Currently, an average family of four owes about $3,000 in taxes for the first $36,000 in income. Under the Forbes plan, they would owe nothing up to the $36,000 level; after that, they would pay 17 cents on the dollar.

The proposal might seem an automatic winner, especially since abusive IRS activity has received massive publicity, and the total tax burden has reached unprecedented levels. There's a catch, however: To slay the vampire, you also have to kill a sacred cow. On NBC's Meet the Press, Tim Russert asked Forbes if he would allow a deduction for mortgage payments. Forbes answered: "I think in order to make change...you have to go with a strong and pure proposal, or else the essence of it will not survive the political process."

Nearly 30 million households take the home-mortgage deduction. Even though many of them would do better under the Forbes plan, they balk at giving up an existing benefit. When the 1986 tax bill ended a number of tax breaks, Americans suspected that Washington would eventually renege on the promised payoff: reduction of the top rate to 28 percent. Guess what: They were right. People don't like Democratic tax increases, which is partially why Republicans took Congress in 1994. But courtesy of the Bush-Darman tax betrayal of 1990, they don't trust Republican pledges about tax cuts.

Even Republican primary voters are skeptical, especially when it comes to proposals that would touch the mortgage deduction. Dole effectively used the issue against Forbes in New Hampshire. In the general election campaign, Dole got his comeuppance when nobody believed his proposal for a 15 percent reduction in income tax rates.

Dan Quayle, among others, has hedged by calling for a "modified" flat tax that would retain the mortgage deduction. That one key word, of course, represents the difference between radical reform and another round of incremental change. The contrast shows that Forbes's stand is gutsier than it may first appear. He's betting that he can lead public opinion and overcome the attacks that will surely come both from Democrats and his GOP rivals.

A Nerd's Cojones

Forbes's risk-taking doesn't end with the flat tax. He has broken with congressional Republicans whose answer to the impending crisis of Social Security is the time-tested dodge of appointing a blue-ribbon panel. In January, he told the National Press Club that we do not need another commission: "We need action. We need real proposals on the table." Forbes's proposal is to phase in a new Social Security system for younger people, in which most of their payroll taxes would go to their own retirement accounts. In his magazine, he explained: "As things now stand, without major payroll tax boosts the actual return for our under-age-30 citizens will be decidedly negative. A new system would both avoid new levies and give participants vastly more than we are getting now."