Steve Forbes on the Flat Tax, Trump, and Election 2016
"Markets are always portrayed as cold," says former presidential candidate and Forbes Media Chairman Steve Forbes. "Where, as you know, free markets are quite the opposite. They bring about cooperation, they break down barriers, they succeed by meeting the needs and wants of others. You may not love your neighbor but you want to sell to your neighbor."
Forbes sat down with Reason TV Editor-in-Chief Nick Gillespie while at FreedomFest 2015 to discuss the presidential field, the candidates' proposed tax plans, Hillary Clinton's venerability, and the continued popularity of Donald Trump.
INTERVIEW TRANSCRIPT: This is a rush transcript. Check against video for accuracy.
reason: Hi, I'm Nick Gillespie with ReasonTV, and today we're sitting down with Steve Forbes. He's the journalist, writer, analyst, and recidivist presidential candidate. Steve Forbes, thanks for talking with ReasonTV.
Forbes: Good to be with you, Nick.
reason: Just to get it out of the way, are you going to run for 2016, for president?
Forbes: No, I'm an agitator. I'm the only one not running, and let others do the exercise this time.
reason: Now, one of the things that you really mainstreamed in American political discourse, particularly in presidential races was the idea of the flat tax, going back almost 20 years. We have at least two versions of the flat tax that have been put into play by candidates Rand Paul and Marco Rubio. What do you think of their flat tax plans, and where do they depart from where they should be going?
Forbes: Well, take Rubio: he's put a plan out there but it has two rates instead of one. And when you put two tax rates together, it's like putting two rabbits together—they will multiply. We should have learned that from 1986 when we got it down to two rates. Within a few years, the weeds were growing again. So you've gotta do one. Because if you have one and you want to make a change, you can't say, "Oh, that guy will pay. You won't." And if you're going to make a change, the simplicity is its best defense. If you're gonna make a change, everyone sees what you're doing. Whereas, with the current code today, you can put something in, it'll be two years before somebody discovers it.
reason: Staying on the Rubio plan, which was also co-sponsored by Mike Lee, the Utah senator, there's also a child-tax credit in that that's vastly expanded from $1000 to $2500, and that there's no income cap on that. That blows something like, according to various scores, $2 trillion in revenue problems. Does that muddy the problem, too?
Forbes: Yes, it's a form of social engineering. It's one thing to have basic exemptions. You should be allowed to keep a certain amount of income to meet the necessities of life. That goes back to the code in 1913. But the idea that you can try to get people to have more kids by having a generous credit, or this will appeal to the middle class, or some such thing, is wrong. It does not help the economy, and the experiences of other countries show if you're pro-population it's not going to do much there.
reason: And you were also pointing out, there's a moral dimension to this too. It's social engineering, and that shouldn't be done by the tax code. It shouldn't be done by the government at all.
Forbes: It's usually a bad idea. One, it creates political special interests. Who's against housing? Well now you've got one of the most powerful lobbies in the country. So in terms of *** the Rubio plan, the 35 percent rate under the current code, you reach, as an individual or a couple, reach the 35 percent rate around $400,000 a year. Under his plan, if you're single it's $75,000. If you're a couple filing, it's $150,000. So for a lot of taxpayers, this is going to be a tax increase.
reason: So talk about the Rand Paul plan. What do you think about that?
Forbes: Well I think it's a good step in the right direction, and to be applauded, putting a serious plan out there with a single rate.
reason: And what is his rate?
Forbes: Fourteen and a half percent. He has a 14 and a half percent rate. But he keeps in charity and mortgages. And because the lobbies are so strong, why pick a fight with them? I think the way you get around that, but nobody seems to have picked up on it, is you give people a choice: you can have a pure flat tax and say you want that, or if you want to put yourself through the tortures of the old code, you can keep the old code. Hong Kong has a variation of that, they have a progressive system. I love this progression, two to 20 percent, or a flat 16 percent, but you make the choice. So, if you're hung up on deductions, you can do it. It also takes a huge political argument away. They can't frighten you: "Oh, we're gonna destroy housing, we're gonna destroy charities," and everything else. What it does do is say, "Don't trust us, see for yourself which one is better."
reason: Clearly, everybody, and this is from Barack Obama to Mitch McConnell, and everybody in between, is saying, "It's clear that we need to re-do the tax code." You know, 1986 was the last comprehensive overhaul. Whether they get to a flat tax or not, what has to happen for that kind of political consensus? I mean, we have a consensus that it needs to change, but what has to happen for things to actually start moving?
Forbes: The way you get something moving on something as fundamental as taxes is to get it in the public arena for debate. That's why I'm delighted that Senator Rand Paul's put a proposal out, delighted that Senator Cruz is in favor of the flat tax, apparently Governor Walker is, Governor Kasich is. Because if you have it out there, and then you can have a debate, then you can refine it. Most importantly you get the mandate. When Ronald Reagan ran in 1980, he vigorously campaigned on a 30 percent across-the-board tax cut. Ended up getting 25 percent from Congress. The reason he got 25 is he had the mandate. So if he'd gone out with a mild ***milk-toast proposal, he'd have ended up with virtually nothing.
reason: What is the function of the tax code in America? In a sense, we never seem to talk about the idea that, well, taxes are the price we pay for government. Nobody is even pretending that they would be able to raise the revenue for the amount of outlays that government is making. How do we bring that into this conversation?
Forbes: The way you discuss something like a flat tax is, it will raise revenue. And then the debate should be what you do with the revenue. But with a vibrant economy, Hong Kong, with their very low rates, if you look over time, their growth of government revenue has been phenomenal. Not from crushing people, but by allowing people to flourish. The key thing on that is, revenue you can get. Question is, what should be the spending? Where should the resources go? What should the resources be applied to? And then those are two separate debates and that's the key thing to keep in mind, because they'll throw, "Oh, it might increase the deficit." Well, if you spend enough, yes it will.
reason: Speaking of deficits, John Kasich, governor of Ohio, who is also obviously running for president, he's going around talking a lot about a balanced budget amendment. He's got pretty good credentials on this. When he was in the house, in the late 90s, he helped broker a bunch of balanced-budget deals that came out of Washington. What do you think of the balanced-budget amendment as a concept, or is the devil always in the details?
Forbes: Well, a balanced budget amendment, in the Constitution, as a capital expenditure to be confused with regular, everyday expenditure, building a battleship versus buying a pencil. So in terms of balance, the danger there is it can become a tax increase vehicle. "We must balance it." "Well, I'm not gonna touch this program or that program," and suddenly you find that…
reason: Is that the worry, given the fact that we've…
Forbes: No, you don't need a balanced budget amendment to put Washington's finances in order. And the way you put Washington's finances in order is not what the Republicans did 20 years ago when they got control of Congress: they started to chip away at this program and that program. It's like World War I trench warfare, you take the redoubt and then get the counteroffensive, which happened in 1996, and… kablooey! The way you do it is go first after the big things. That's where having personal accounts and social security, you're turning a liability into an asset, and it's popular among young people.
reason: So what about Medicare?
Forbes: Medicare—we're beginning to lurch into it in a very messy way, but we don't have real free markets in healthcare. We have pieces of it, but not real free markets. Proof of it is, if you go to a clinic or hospital and you ask in advance what it costs, you get a strange look. It means either you're uninsured or you're a lunatic. Why would you want to know the price? Can you imagine coming to a hotel or a restaurant and not caring about the pricing, let Medicare worry about it?
reason: So do we need to get rid of Medicare?
Forbes: No, what you need to do is get the patient in charge of Medicare. Then the thing starts to take care of itself. Right now, in terms of healthcare in America, you, the patient, are not the customer. It's the third party, whether it's private or government. When you have a third party, which is why, when you go to the hospital, you have those crazy gowns that always look 80 years old, you can't tie them in the back, no hotel would give you a robe like that. And if they had to compete with you as a patient-customer, they wouldn't. It would be an entirely different experience.
reason: What needs to happen? I think a lot of people are totally on board with the idea of bringing markets to healthcare. It creates competition, it will innovate choice…
Forbes: And, it creates more healthcare. Markets, allowed to work—free markets—always turn scarcity into abundance.
reason: So what has to happen for that to happen? Or what has to change? Because both with Obamacare, where you have now people who are not even paying their own insurance premiums, so it's kind of like a fourth payer is added—the taxpayer—in the subsidy system. But then beyond that, how do we get to place where you're actually shelling out your own money, except for big-ticket items?
Forbes: There are various ways you can go about it. One is having nationwide competition for insurance policy. I live in New Jersey. I can get a perfectly good one at half the price in Pennsylvania because they don't have as many idiot regulations as New Jersey does. So you have that kind of competition. Clear out mandates—you should be able to choose what you want. And one of the things that Obama's doing is, by helping to destroy employer-provided healthcare, putting more and more, as employers are doing anyway, on the consumer. Consumers, by de facto, is going to be getting more and more power. And one of the things markets will respond to is, "You don't have to pay $25,000 a year for a family policy. We can give you one that covers accidents, diseases, and the like, for a third of that." And you may have to pay for the filling in your tooth, but you know you're covered. Right now, even if you have a catastrophe, your insurance won't cover all of it.
reason: So you're in favor—you're saying Obamacare is having a good effect, then, right?
Forbes: Unintended. So we're not going back to what we had before. We're not going to have Obamacare, which is imploding in and of itself. Adverse selection is beginning to kill the thing. So just don't get sick for three or four years while we sort this thing out.
reason: The other big annual item is the defense budget, which is coming in at $600 billion this year, or thereabouts, give or take a bit. How much should that be cut?
Forbes: Those who advocate a single-payer system, the response should be, "We have a single payer system. It's called the Pentagon." You like their procurement system, then we can have that in healthcare. But in terms of defense, I think that's the first function of government, is to defend the realm.
reason: But certainly you're not saying that every dollar that the Pentagon gets, it spends wisely.
Forbes: Quite the opposite. Even if we need more resources, you take the procurement system, it's a disaster. For example, I used to head the oversight board for Radio Free Europe and Radio Liberty, back under the Reagan and Bush administrations. For peculiar reasons, we were considered a private corporation, even though we were funded by Congress in Delaware. Therefore, we did not come under the rules of procurement of the federal government. So when we ordered a transmitter, we could do it at a fraction of the price of The Voice of America, not because our engineers are better, although we thought they were. They didn't have to fill a room with all these books and regulations, reinventing wheels, reinventing lightbulbs, and everything else, and so we could bring it in at a fraction of what they had to do. So if you modernize procurement… so the F-35, put aside whether it's a crappy plane…
reason: Which it seems to be.
Forbes: But the cost per copy is preposterous. One, procurement of weapons systems, when you look at the valley in high-technology, should be a matter of months or years. They do complicated, new, great products in a fraction of the time. And when they really need to get something done in defense, you have what they call "skunk works:" you pull it out of the current system, put it aside, and say, "Go to it." And they get it done. So radical reform of procurement.
reason: These seem like, so basically you're talking about tax reform, entitlement reform, defense reform, or auditing of procurement. These seem to be natural things for a Republican Party presidential candidate to be talking about, to be foregrounding, to be leading with. The Republican Party says that it's the party of limited government, of effective government, and of small government. What has happened to the Republican Party where they don't seem to be talking about this? They want to save Medicare, they want to preserve Medicare, they want to preserve Social Security, they want to spend more…
Forbes: One of the things that's happened, since even before the New Deal, is the left learned how to occupy the high moral ground: "We may be inefficient, we may be wasteful, we may end up doing more harm than good, but our hearts are in the right place, and those who are against us are against people." You know, markets are always portrayed as cold: "Profits before people." Where, as you know, free markets are quite the opposite. They bring about cooperation, they break down barriers, they succeed by meeting the needs and wants of others. You may not love your neighbor but you want to sell to your neighbor. So it brings out the best in human nature. Now, human nature is a many-faceted thing…
reason: So what the Republicans are…
Forbes: So what the Republicans have to learn, and it's not just Republicans—politicians follow, they don't lead—where the intellectual moment has to be, and this is where breakthroughs in education, where you can get around the professoriate, in terms of education. Make these points about what free markets are really about. And so if you're going into business, which a lot of people do, you don't see it as something somehow tainted, even though it produces goods, it produces the stuff, it's somehow not quite a moral system. Now, it is a moral system, but that has to be taught, and that's why you have this phenomenon of great entrepreneurs going off to the left. They don't understand the wellspring of what made them possible.
reason: In 2016, who do you like? Obviously, you're going to vote for Hillary in the end, but before that, what Republican candidates do you think are particularly, not just likely to win, but are actually talking what you're talking?
Forbes: What's happened is, the 16 or 1600, whatever the final number is, what's going to eventually happen is, it's forcing… this is where we see with Senator Rand Paul putting out his proposal, others are going to be doing the same. It's forcing people to put something out there, to distinguish themselves from others. It's not enough to say, "I don't like my other 15 competitors." What are you offering? And one of the things I think the base has learned from 2012 with Mitt Romney is it's not enough to criticize what's going on. What are you going to do? One of the things Reagan did was always put out the positive thing: "Here's where we can move forward." So it brings people in.
reason: You've mentioned Rand Paul a few times, is he your favorite at this point?
Forbes: No, I'm looking at the whole field. He was the one who put out the first comprehensive tax proposal, and then Senator Rubio, who also is becoming a factor. So I want to see, one, what they're going to be putting out there, and then two, given the bias of the old mainstream media, who can show they can withstand the heat when you get boxed around? One of the things Reagan did was show he could withstand the pressure.
reason: One of the interesting things, in 2012 you mentioned Mitt Romney, after he lost in what was clearly a winnable election. The GOP various people did an autopsy on that. One of the things that they noted was that in 2004, George W. Bush, in his reelection campaign, got 44 percent of the Hispanic vote. Mitt Romney got 27 percent of the Hispanic vote, despite speaking Spanish, and actually being born or raised in Mexico for part of his childhood. In this section in the GOP autopsy about the 2012 election, they said, "Look, if Hispanics hear, 'You are not welcome in this country,' they're not going to listen to the rest of the sentence." Donald Trump, who has emerged as a kind of gadfly in the Republican nomination process has talked about Mexicans as mostly being rapists and criminals, and he said maybe some of them are decent people, we'll give them that. What is going on with the GOP, both in terms of inability, it seems, to acknowledge Hispanics or immigrants as adding to the American experiment? And what happens with that? The party of Reagan has gone from being very pro-immigration to being very hostile to the idea of immigration.
Forbes: I think what you're going to find with the 16 or 18 candidates is most of them are in favor of outreach. Rand Paul has made it a point. Jeb Bush, even though he knows he's going to be vulnerable on the issue, spoke Spanish, which he does extremely well, in his opening campaign speech, in his announcement. So it's not a monolith. Now, the Democrats are going to try to portray, this time, a "war against Mexicans…"
reason: So last time it was a war against women, this time it's going to be war against Mexicans?
Forbes: Yeah. But I think whoever emerges as a candidate is going to recognize you've got to go out and make your appeal. For example, in 2012, once Romney knew he got the nomination, he should have gone to Senator Rubio and said, "Design an immigration proposal and I'll be with you on it." And instead he left himself open to vulnerable attack. Not to mention two months where the Democrats could run trash ads of $200 million and the GOP doesn't respond, so they paint you. If you allow your opponents to paint you, you're done. You've got to do your own agenda.
reason: Hillary Clinton has an air of inevitability around her. Of course she did in 2008 and it didn't work out. But at this point, we don't see the Barack Obama on the horizon. What is Hillary most vulnerable on?
Forbes: She's vulnerable on a third term of Barack Obama. People sense, this is why there's this hoopla in the Democratic Party, Elizabeth Warren, apparently she's not going to run, but there's a populist strain out there, or not a populist strain so much as people recognize and they can't put their finger on it, something's not working. Something's not right. That's why you see this minimum-wage movement, even though you can show on paper it's going to destroy this and hurt the very people you're supposed to be helping. The people feel maybe we've got to force it to work. You saw the same thing in the 1930s, and even though government was the villain, the markets get the rap for it. The key thing here, whether it's in terms of appealing to people, is honing your message and going after and asking for support. It's like making a sale. You're not going to buy my product, most of the time, unless I've gone out and persuaded you this is something you've got to have.
reason: Do you think Donald Trump is a negative influence in American politics?
Forbes: What he's done is tap a strain, this strain of, "Things are not working," in the sense of, even take immigration: I'm pro immigration reform. But why—when you know somebody's a criminal, normally you deport—why do you have sanctuary? People feel, "The laws aren't being enforced and our voice is not being heard," so he's tapped into it. What he's forcing others to do is say, "Alright, how do we really move forward on this? And make your case in a way…" Take one of the great achievements in American politics, go back to the 1850s, Abraham Lincoln running in Illinois, southern Illinois, even though it was very pro-South, they greatly feared abolition and the idea of cheap black labor competing and the whole thing. So how do you make your case against Stephen Douglas, who says, "Oh, I'm for democracy. If you want to vote slavery, then go ahead." Isn't that the democratic way, to make the case, even without social media, without TV or radio? ***No, why is slavery wrong, and even if you may not like the black man, you better be concerned about slavery and the spread of slavery; how it affects you." Tough to do, but he figured out ways to do it. So you can take seemingly tough things, this is not a great example, because he ended up losing the election because he thought he had it won, but back in 1948, Tom Dewey got in a debate with his principle opponent over whether they should make ***illegal the communist party. Most Americans say, "This is a threat, why should we make it legal?" Dewey defended it and won the primary defending it, because they had a debate, and he marshaled the arguments.
reason: And he said, "Yeah, it's a bad thing, but in America, you're allowed to think bad thoughts."
Forbes: He made the tough case. And Lincoln learned it from appealing to juries, up in the middle of the night thinking about, "How do I make this case to the jury in a way in which they'll come around to my point of view?"
reason: And in that, if I'm remembering correctly, he talked about how, "Well, today we say that the black man is not the equal of the white, and shouldn't have the same rights, and then tomorrow it'll be the immigrant, or the Catholic, etc," and kind of showed how it's this slippery slope.
Forbes: Yes, and if you could make a black man a slave, why can't a white man make you a slave? But it took articulation because there was a real fear out there.
reason: Speaking of another hard case, thankfully one that's not in the United States, let's turn to Greece, which is melting down as we speak. A lot of people tend to look at the Troika or the mass of European countries, or the European central banks, saying, "They're right and Greece is wrong." Others say, "Greece deserves more time or more slack." You tend to talk about this as if there are not a hero and villain here. What's your take on Greece?
Forbes: Both parties, in that case, are wrong. The Troika, their version of austerity is falling on the private sector: raise the money, reduce the deficit, raise taxes. In Greece, the national sales tax equivalent, the VAT, [is] 23 percent. Payroll tax we have at 15 [percent] in this country; [in Greece, it's] 45 [percent]. No wonder people don't pay it. So they crush whatever's left of the private sector.
reason: And you're saying in austerity, it should be that government spending gets cut but not taxes get increased***.
Forbes: The public sector takes a hit, and you reduce taxes, simplify them. Two of Greece's neighbors, Bulgaria and Macedonia, have 10 percent flat taxes. They have trouble because Europe's in trouble, but their economies are a whole lot better than the economy of Greece. So you want a pro-growth program. Now, Britain, they didn't boast about it, because I guess it doesn't appeal to voters, but in the four or five years of the conservative government, for whatever its flaws, they reduced the number of public sector workers from 6.3 million to 5.3 million. And they're planning on doing another 700,000 in the next five years. That is meaningful. That's what Greece has not done. Greece still has more bureaucrats per capita than any other country in Europe. So you go for pro-growth, and that's how you restructure things and make things happen. So all of Europe is getting crushed by taxation. Japan's getting crushed by taxation.
reason: Should Greeks' creditors be calling all their loans, or what do you do in that sense?
Forbes: What Greek creditors should be doing is, if you're a creditor to the banks, figure out out, "How do I get equity and reorganize the banks in an economy that's reorganized? We'll have growth again and we'll come out just fine." Greeks, when they leave Greece, do very well. They're successful here, or Australia, or elsewhere. They have that entrepreneurial spirit from dealing with the Mediterranean going thousands of years back.
reason: That is reminiscent of another hotspot in the global economy: China, where under communism, people in China were poor, everywhere else in the world, they were doing well. So we know it's the institutions, the economic frameworks; political frameworks. What's your take on what's happening in China? We've seen incredible volatility and drops in the Chinese stock market, and it looks like the economy may be imploding. What do you think?
Forbes: Well, in the stock market, it's gone up 150 percent. So going down 30 or 40 is not horribly "1929." But China is having to, on the one hand, realize they've got to make reforms, they've got to liberalize the capital markets. They have 44 million small businesses, which make up two-thirds of the economy, but they're in the twilight zone in terms of finance, so they've got to make changes there. On the other hand, they don't like the stock market drop, because they think it reflects badly on the government. So they've got this ongoing tension that they've got to work out.
reason: Milton Friedman used to say that economic freedom ended up leading towards political freedom, because if you liberalized economies, and dictators and tyrants were more willing to open up the economy before the political process, but then when people get rich, they start lobbying for political rights. Do you think that's happening in China, where, as a rising middle class comes on, they want to have more transparency; they want to have simpler, more open government?
Forbes: It's not so much even basically about government. If I'm allowed to make choices on what job I take, where I live, what I own, what I buy, what I sell, then why should I have to put up with this idiot commissar who is mucking things up? One thing leads to the other. One of the reasons why you've seen this crackdown in China in recent years is precisely [that] these forces are rising up. How do you contain them? That's what they haven't quite figured out yet. So yes, Friedman, ultimately, is right. And the key thing is, what you want to encourage China to do, without looking like an imperialist, is continue with reforms where you're going to get more of these tensions in the future. And the fact that capital is leaving China shows that people are not convinced that the government's going to work it out, so they want to hedge their bets. The fact that [the] Chinese have capital to export is a testament to what the country's done in the last 35 years. And so you want those reforms to continue, if you want to have Shanghai as a capital center. One of the reasons why Hong Kong has done so well, even after the turnover, is they still have a court system where people trust that in terms of commercial law, commercial disputes, rather than Shanghai. If you want to be a center, you've got to have all the … of what we have here, and more sophisticated capital markets, commercial laws so you can resolve these disputes without having it be a party matter. But life is never simple. It always looks messy.
reason: Well that's a good way to end it. I want to thank you, Steve Forbes, for talking to ReasonTV. For ReasonTV, I'm Nick Gillespie.
About 28 minutes.
Hosted by Nick Gillespie. Edited by Paul Detrick. Cameras by Meredith Bragg and Zach Weissmuller.
Watch the video above and scroll down for downloadable versions. Subscribe to Reason TV's YouTube Channel to get automatic updates when new stories go live.
