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Book Talk: Interview with Steve Forbes about "Reviving America"

Editor John Tamny sits down with Forbes Chairman and Editor-in-Chief Steve Forbes about his new book "Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming The Fed will Restore Hope and Prosperity."

By John Tamny

It's perhaps hard to fathom at this point, but back in the 1970s the top U.S. income tax rate was 70 percent. Even more amazing is that both political parties thought the rate was correct. Then President Jimmy Carter agreed with Republican George H.W. Bush that a reduction in the tax rate would lead to an economy-sapping inflationary breakout.

Around this time, economist Arthur Laffer was advising presidential hopeful Ronald Reagan, and he told him tax rates should come down across the board. Laffer's support of a reduced tax burden was ridiculed by most economists. As Alan Greenspan said about Laffer, "I don't know anyone who seriously believes his argument."

Reagan ultimately won the 1980 presidential election, and proceeded to sign tax cuts into law on the way to an impressive economic boom. Despite this, Reagan's successor in George H.W. Bush ultimately reversed course on taxes with an increase during his first, and only term. Bill Clinton followed Bush into the White House, only to bring the tax rate up to an even higher level. More on Clinton in a bit.

But then Steve Forbes ran for president in 1996 with a flat-tax platform as his signature issue. And while he didn't secure the nomination, Forbes forever changed the terms of the tax discussion among Republicans and Democrats by virtue of talking about a flat, and lower tax rate for everyone. Nowadays, a big tax cut plan is the price of admission for Republicans seeking their Party's presidential nomination, and while Democrats are still more sanguine about higher penalties placed on work, none talk of returning rates to what they were in the dreary 1970s.

That's why this interview with Steve Forbes was so exciting for yours truly. The man who truly changed the tax discussion has come out with a new book with his co-author Elizabeth Ames, Reviving America. Up front, readers will be disappointed if they're expecting a gloomy story of weak economic growth that can't be fixed. Forbes and Ames are quite optimistic, while rejecting emphatically this notion of a "new normal" of limp economic activity. To them, abundant prosperity is as simple as reducing the tax, healthcare and monetary burdens that are lightly suffocating a spirited country just dying to return to - and exceed - the rates of growth that prevailed in the 1980s and 1990s.

As Forbes explains it in our interview, taxes are nothing more than a price. They're just a penalty levied on all of us when we get up to go to work each day. In that case, the clear answer is to reduce the price. Forbes and Ames propose a flat rate of 17 percent, minus all the deductions that have turned the tax code into into something that is wholly incomprehensible. Actually, there's one deduction. This flat tax would come with standard deductions per family member of $13,200 such "Roughly half of all Americans would owe no tax at all [authors' emphasis]."

The growth implications of reduced penalties placed on work are rather impressive, not to mention the "unseen" potential for renewed economic activity. As previously stated, the tax code is very complex such that it requires billions in annual spending and billions more in work hours wasted staying in compliance. Taxes that could be calculated by hand, and filled out on a proverbial post card would free up the people who are the source of prosperity to pursue much more productive work, as opposed to wasting precious time complying with taxes.

On the healthcare front, Forbes regularly tells his many listeners that capitalism is the process whereby scarcity is turned into abundance. Even better, scarcity is regularly turned into low price abundance. Forbes and Ames make the essential point that it's not a problem when people express frenzied demand for iPhones, Big Macs and computers, so why is it a problem that people demand healthcare and its related services?

To the authors, the answer is easy. Market signals and prices don't inform the provision of healthcare. Worse, the misnamed Affordable Care Act (aka Obamacare) has placed an even bigger wedge between the consumer of healthcare and the provider. If prices can't work their magic such that markets know what patients want and don't want, is it any wonder that healthcare is frequently expensive, and worse, hard to attain? Not at all. Central planning has an impressive track record of failure that's defined by scarcity of the desired good.

Forbes and Ames' solution is to repeal Obamacare, while allowing individuals easier access to Medical Savings Accounts (MSAs). Individuals could buy them, and companies could provide them. Such a move would render the purchaser of healthcare cost conscious, and as such, healthcare providers would more eagerly list prices for different forms of care. MSAs would turn us all into venture buyers; our healthcare spending informing healthcare providers what we desire. High prices would naturally beget lower prices under such a scenario (as they've done with cellphones, computers and cars) simply because consumer demand would beget entrepreneurial competition for our healthcare dollars. Imagine what entrepreneurs like Jeff Bezos and the late Steve Jobs would bring to the healthcare space!

At present healthcare costs are enormous, and because they are they represent a huge burden on economic activity. Too much precious wealth is wasted on a good (healthcare) that is deprived of the market signals that lead to better service at lower prices.

Back to Bill Clinton, though he signed a tax increase into law in 1993, the economy ultimately performed well during his presidency. The unsung factor there was a strong and stable dollar that greatly reduced investment risk. There are quite simply no companies and no jobs without investment first, but when money is declining in value (think the 1970s and the 2000s) investors logically become careful about investing in the first place. Why commit money to new ideas if any returns will come back in devalued dollars?

Forbes and Ames' solution is providing the dollar with a gold definition. Gold has historically defined money precisely because it's so stable. A credible dollar made that way by gold would foster an investment surge that would make the ‘80s and ‘90s booms seem tame by comparison. As expressed in the interview, Forbes is also interested in private currencies that would compete with the dollar as stores of wealth defined by stability.

I asked Forbes in our interview which of the three solution is most pressing. He confirmed that if the floating dollar is revived through a gold definition, the other fixes would be much easier to pull off. If all roads lead to Rome, all economic paths begin with a dollar that is the most important price in the world.

As Forbes makes plain in a wide-ranging interview, the path to surging economic growth need not be painful, nor must it involve sacrifice. It's as simple as getting taxes, healthcare and money right. Read the book, watch the interview. The answers are all there right before us. We can't return to the policies of prosperity soon enough. Prosperity is simple, as are the policies necessary to get us there.

Posted on May 18, 2016

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