Americans for Tax Reform
Steve Forbes ' Tax Plan

As we head into the 21^st century, the American people want to know how to achieve real financial security and prosperity for themselves and their children. They deserve from the next President of the United States meaningful solutions and honest answers to the challenges they face every day. That is what leadership is all about.

I am running for President because I share with the American people a sense that we are on the verge of the greatest era of economic freedom and prosperity the world has ever seen.

From the emergence of personal computers, cell phones and fiber optic phone lines to the rise of the World Wide Web and the explosion of e-commerce, the New Economy of the Information Age is giving Americans more opportunities and more control over their lives than ever before.

Now it is time to remove the big government barriers that stand in our way so that every American is free to take full advantage of the New Economy – free to get a world-class education for their kids, get the IRS out of their face, choose their own doctors, own their own home, start their own business, and save and invest for a secure retirement.

In the pages that follow, I offer the American people a mission statement for the 21^st century and a clear plan of action the Forbes Administration will follow to achieve that mission. I also lay out the benefits my plan will bring to working families to achieve real financial security and prosperity in a dazzling New Economy and an Age of Opportunity.

The Forbes Administration will pursue four economic strategies to put money, power and control back into the hands of the American people:

1. RETURN THE SURPLUS TO THE AMERICAN PEOPLE. The Forbes Administration will save Social Security, cut and simplify taxes, and create a permanent ban on Internet taxation. We will also dramatically reduce interest rates and protect the value and soundness of the U.S. dollar by appointing Federal Reserve Board members who understand that prosperity does not cause inflation. The Forbes plan will help all Americans prosper in the New Economy – working families, farmers, seniors, Internet users, shareholders, homeowners, small business entrepreneurs, stay-at-home-moms and tech-savvy young people.
2. GIVE WORKING FAMILIES THE FREEDOM TO CHOOSE THEIR OWN SCHOOLS AND DOCTORS. Every American family deserves world-class education and health care if we are to compete and succeed in this new, Information Age economy.

No mother should be forced to send her child to a failing school. The Forbes Administration will dramatically expand parental control of education so that every parent is free to choose schools that work – schools that are safe, clean, academically challenging, and drug-free – schools that reinforce rather than undermine the moral and spiritual values being taught at home. Expanding educational freedom is the next great civil rights battleground of the 21^st century.

No family should be forced into top-down health care programs run by government bureaucrats or heavy-handed HMO managers. The Forbes Administration will work with Congress to pass a "Health Care Declaration of Independence" to help working families and seniors on Medicare. By removing the regulatory straightjacket and creating a truly dynamic and competitive health insurance market, the cost of health care can be reduced, and the number of uninsured Americans can be reduced by one-third to one-half.

3. STREAMLINE AND MODERNIZE THE FEDERAL GOVERNMENT AND DRAMATICALLY REDUCE THE FEDERAL DEBT. The Cold War is over. The Information Age has arrived. American business is adjusting to the New Economy. Now bureaucrats in Washington must do the same. To modernize government and shrink the federal debt, the Forbes Administration will scrap the federal income tax code, reign in the regulators, pursue meaningful tort reform, impose tough new spending caps, eliminate corporate welfare, privatize unneeded federal assets, tear down trade barriers, and establish free trade that will open markets to American products and spur U.S. job growth.

4. STOP SPECIAL INTERESTS THAT ARE CREATING A CULTURE OF CORRUPTION IN WASHINGTON. The American people deserve an honest government as we head into a new millennium. To put "we the people" back in charge, we must eliminate tax loopholes, corporate welfare and force the 67,000 lobbyists who work in Washington to find a new line of work.

America is entering a new century and a new, Information Age economy. Just as oil, coal and steel were the tools that built the Industrial Age, today knowledge and imagination are the tools of the New Economy. Freedom will be the raw material for economic prosperity in the 21^st century. We must pursue economic freedom with vigor.

By following the Forbes plan, we can empower American workers to succeed in the highly competitive global marketplace; meet our Social Security, Medicare and defense obligations; and pay down our national debt. We can also lift millions of families out of poverty and give every American child a genuine head start in life. This plan will help all Americans achieve prosperity and real financial security and offer a compelling model for the rest of the world. This should be our mission in the new millennium.

What are the specific benefits we can expect from creating a dazzling New Economy?

• If we remain on the high-tax, big-spending path that we are on, the U.S. economy will only grow at 2.5% a year in the 21^st century, according to the Clinton-Gore Administration’s Office of Management and Budget and the Congressional Budget Office. This is anemic compared to historic economic growth. Since 1929, for example, the average annual U.S. growth rate has been 3.32%. Since 1945, it has been 3.45%.

• Under the Forbes plan, U.S. economic growth will surge from between 2.1% and 2.4% in 2001 to at least 4.0% in 2002, and will average at least 4.5% a year for the next ten years.

• Under the Forbes plan, the U.S. economy will grow from $9.8 trillion in 2001 to $17.2 trillion in 2010 – a 75% increase.

• Why is this faster economic growth so important? Because we are facing a crisis in Social Security and Medicare in which government soon will not have enough money to honor its promises to America’s seniors.

• A wave of some 80 million Baby Boomers are headed for retirement. In 1950, the payroll taxes of 16 workers supported each Social Security recipient. Today, that ratio is down to just 3.3 to 1. By 2025, the ratio will fall to just 2 to 1. That is economically unsustainable and threatens people’s financial security.
• But there is a way to keep our promises to seniors without bankrupting younger workers. The key is creating an economy that grows fast enough to produce the necessary resources and gives individuals and families real control of those resources. That is what the Forbes plan does.

• Under the Forbes plan, a strong, innovative and rapidly growing American economy will create 24.5 million new jobs by 2010.

• There will be good, high-paying jobs for middle-income workers trying to get ahead. There will also be excellent entry-level jobs for young people just getting started in their careers.

• Under the Forbes plan, a strong and growing economy will bring dramatic new prosperity to working families. Wages for the average American worker earning $32,244 in 2001 will rise to $52,235 by 2010 – a 62% increase.

• As workers find their wages increasing, they will have more money in their pockets to pay for health care and education expenses, especially if they use dramatically-expanded tax-free Medical Savings Accounts and Educational Savings Accounts implemented by the Forbes Administration. This will dramatically enhance their financial security.

• Higher wages will allow young families to put together a nest egg to buy a first home and comfortably afford their monthly mortgage payments.

• Higher wages will also allow individuals and families to donate more money to their churches, synagogues, and favorite charitable organizations. "The more money people have at their disposal, the more they donate to charitable organizations," notes Elaine Chao, former President and CEO of the United Way of America, in The IRS v. The People, published by The Heritage Foundation. "In 1986, with President Reagan’s plan fully in effect, total charitable giving was 16% higher (after accounting for inflation) than it had been in 1980. The economic growth that resulted from reducing marginal tax rates actually boosted the amount donated to charitable organizations." After the 1986 tax reform act, charitable donations in 1987 increased 7.6% over 1986.

• Under the Forbes plan, the current Social Security benefits of every American 55 and older will be fully protected – no benefit cuts, no tax increases, no more raiding the Social Security Trust Fund. Promises made must be promises kept.

• Under the Forbes plan, younger workers will be free to choose to join a new Social Security system of Personal Retirement Accounts (PRAs).

• In 2002, younger workers can deposit 4 percentage points of their Social Security taxes into their own PRAs, safely invested in the rapidly growing New Economy.

In 2003 – 5 percentage points.

In 2004 – 6 percentage points.

In 2005 – 7 percentage points.

In 2006 – 8 percentage points.

 

• A single working mother who is 25 in the year 2000 and will retire in 2040 could retire with a nest egg of $1.2 million in her Personal Retirement Account.

• With this money, she could buy an annuity that pays her $100,000 a year. In 1999 dollars, this annuity would be worth $37,000 a year – that’s almost twice as much as what she will receive from the current Social Security system, assuming the current system does not go bankrupt.

• A high school graduate who is 18 in 2000 and will retire in 2047 could retire with a nest egg of $2 million in his Personal Retirement Account.

• With this money, he could buy an annuity that pays him $165,000 a year. In 1999 dollars, this annuity would be worth about $52,000 a year – more than two times what he will receive from the current system, assuming the current system does not go bankrupt.

• Personal Retirement Accounts can help families create real personal wealth because the private American economy provides a far greater return on people’s money than the government can. The real rate of return on Social Security taxes for an average American family is a mere 0.64%. By contrast, over the 70-year period from 1926 to 1996, stocks on the New York Stock Exchange provided an average 7.5% real rate of return every year, while corporate bonds provided an average 3% real rate of return every year. The Forbes plan conservatively assumes a 6% real rate of return every year.

• These assets will be owned by individuals, not government. They will not be subject to federal income tax. They can be passed on to spouses and children.

• The Forbes Social Security plan is the greatest family wealth creation act in American history. It will help millions of Americans create "family capital" – the kind of real personal wealth that will dramatically improve the quality of life for middle-income Americans and lift low-income Americans out of poverty.

• Undergirding the entire system will be the secure guarantee of a minimum benefit. A minimum safety net is absolutely essential. If upon retirement an individual’s Personal Retirement Account does not contain enough funds to meet the minimum benefit, a guaranteed safety net will provide it.

• The Forbes plan will end the IRS as we know it and virtually eliminates the $235 billion a year that Americans spend complying with the federal tax code.

• The Forbes plan provides generous personal exemptions of $13,000 for each adult and $5,000 for each child so that a family of four earning $36,000 a year will pay no federal income tax – an annual savings of $1,670. The flat tax also eliminates the marriage tax penalty that harms stay-at-home moms and working parents.

• Under the Forbes plan, 20 million low-income workers will be taken off the federal income tax rolls. The Earned Income Tax Credit (EITC) program will not be abolished. Instead, it will become known as the Earned Income Supplementary Assistance (EISA) program.

• The Forbes plan eliminates unfair double taxation of personal savings, Social Security, pensions, capital gains, and dividend income. In effect, the Forbes plan turns all savings and investment accounts into Roth IRAs: You deposit after-tax income, let your money multiply in value with compound interest, and then withdraw your money tax-free.

• The Forbes plan eliminates the unfair alternative minimum tax and "death" taxes. These are regressive taxes that hurt working families, small business owners and

especially farmers who want to pass their farms on to their children.

• The Forbes plan eliminates loopholes and corporate tax shelters and, in return, reduces the business tax rate from 35% to 17%.

• The Forbes plan also eliminates complicated investment depreciation schedules on new capital investments such as high-tech equipment. Instead, there will be immediate expensing – capital investments can be written off in the first year – and unused expensing can be carried forward. This will allow American businesses to invest aggressively in new technology that will increase the productivity of their workers, increase their profitability, and increase real wages.

• The federal tax burden – currently at an all-time high – will drop from 21.9% of GDP in 2001 to 17.3% in 2010 – the lowest since 1976.

• Taxpayers will be free to choose to file under the current system or the new system. Most people will quickly see how much they benefit with the flat tax.

• The Forbes Administration will press for a Tax Limitation Amendment to the U.S. Constitution requiring a 2/3 super-majority vote of Congress in order to raise taxes. Had such an amendment already been in place, 4 of the last 5 federal tax increases – including those in 1990 and 1993 – would not have passed.

$30,000 $770.00 $770.00 (100% tax cut) 0.0%

$36,000 $1,670.00 $1,670.00 (100% tax cut) 0.0%

$40,000 $2,270.00 $1,590.00 (70% tax cut) 1.7%

$50,000 $3,770.00 $1,390.00 (36.9% tax cut) 4.8%

$60,000 $5,270.00 $1,190.00 (22.6% tax cut) 6.8%

$70,000 $7,907.00 $2,127.50 (26.9% tax cut) 8.3%

$80,000 $10,707.50 $3,227.50 (30.1% tax cut) 9.4%

$90,000 $13,507.50 $4,327.50 (32.0% tax cut) 10.2%

$100,000 $16,307.50 $5,427.50 (33.3% tax cut) 10.9%

** Assumes a married couple with two children claiming the standard deduction and the new child tax credits versus the Forbes pro-family 17% flat tax plan with generous exemptions of $13,000 for each adult and $5,000 for each child.

• Under the Forbes economic plan, federal spending as a share of the economy will fall from 21.9% in 2001 to 17.3% in 2010. The overall U.S. economic pie will be bigger, and the federal government will take a smaller slice.

• This will be accomplished by:
  • Dramatically increasing economic growth from 2.5% to 4.5%.

• Saving Social Security by giving workers the freedom to choose Personal Retirement Accounts, safely invested in the fast-growing New Economy.

• Saving Medicare by giving seniors the same freedom as federal government employees to choose from a wide-range of private health insurance options and private health care providers. It is also essential to create real access to Medicare Medical Savings Accounts to give seniors control over their health care resources, and to permit the unquestioned right to go outside Medicare and privately contract with the doctor of their own choice and pay for health services with their own money.

• Imposing tough new spending caps on non-defense discretionary programs. These spending caps would allow spending to grow only at inflation plus population growth.

• Holding the line against wasteful new programs. The alternative is more than $1 trillion in new spending proposed by Vice President Gore and former Senator Bill Bradley. According to the Washington Post, the Democratic candidates "have already made campaign promises that would spend every penny of the available federal budget surplus for the next 10 years, and possibly more, calculations show."

• Eliminating corporate welfare and pork barrel spending and cutting foreign aid. For example, the Forbes Administration will eliminate all funding for the International Monetary Fund and seek its abolishment.

• Reducing big government bureaucracies and eliminating the unnecessary and bloated Department of Energy and the Department of Commerce (restructuring and transferring essential functions to other departments where appropriate).

• Transferring resources of various federal programs to states and local communities (such as block-granting federal education funds to state and local communities with the directive that the money be used to create true school choice programs, particularly for inner-city parents)

• Streamlining and improving the efficiency of federal programs. For example, in 1998 Congress began consolidating and reforming the federal government’s 160 different job training programs. But Washington continues to spend taxpayer money on these redundant and inefficient programs. Much more must be done.

• The Forbes plan will reduce the $5.5 trillion federal debt by 60% by 2020.

• By increasing annual economic growth from 2.5% to between 4% and 5%, Washington will create huge federal surpluses. By holding the line on spending and reducing government bureaucracies, we can use this additional revenue to pay down the federal debt, dramatically reduce our annual interest payments, as well as strengthen Medicare and defense.

• Just as a family or a business can pay off part of its debt by selling unneeded assets, the federal government should do the same. Among the list of assets the Forbes Administration will propose to sell are the federal loan portfolio (worth some $250 billion), the Strategic Petroleum Reserve and the Energy Information Administration.

• While the U.S. government has some experience selling federal assets, it is time to do much more in order to pay off the federal debt. During the savings and loan crisis, the Resolution Trust Corporation sold off assets valued at $455 billion. In the 1970-80s, over $40 billion in proceeds were generated from the sale of federal loan assets, according to the Office of Management and Budget. In 1997, the Naval Petroleum Reserve was sold for $3.65 billion.

As we head into a new century and a dazzling New Economy, every American must be free to participate in our unprecedented prosperity. Every American must have the opportunity to achieve real financial security. No one should be left behind.

But we dare not entrust our fate to the lawyers, lobbyists and lifetime politicians who control Washington today. For they have created the heaviest tax burden in American history; a Social Security system that provides people a dismal return on their money; a health care system that increasingly drives people into impersonal, government-run programs and heavy-handed HMOs; and an education system that is failing to prepare too many of our children to compete and succeed in the New Economy.

That is why I am running for President of the United States.

I have a clear plan of action to lead America into the 21^st century.

From Day One, the Forbes Administration will work with the American people to advance our "New Economy Plan" through Congress.

Now is the time to unleash the creative genius of the American people and help every working family to secure freedom and prosperity for themselves and their children.

Steve Forbes
Alexandria, Virginia
October 21, 1999

1. The Clinton-Gore Administration projects growth rates ranging from 2.1% to 2.5% between 2001 through 2004. See the Office of Management and Budget Mid-Session Review: Fiscal Year 2000, Table 2, "Economic Assumptions," p.8. The Congressional Budget Office projects growth rates ranging from 2.3% to 2.5% between 2001 and 2009. See CBO Paper, The Economic and Budget Outlook: An Update, July 1, 1999, Table 2, "Economic Projections," p.11.
2. Analysis of U.S. historic economic trends by Fiscal Associates.
3. Analysis of the Forbes plan by Fiscal Associates.
4. Ibid.
5. See Peter J. Ferrara and Michael Tanner, A New Deal For Social Security, Cato Institute, 1998, p.40.
6. Analysis of the Forbes plan by Fiscal Associates.
7. Ibid.
8. For more on the case for education and health care reform, see Steve Forbes, "Education in the Information Age" and "Patient Power," A New Birth of Freedom, Regnery Publishing, 1999.
9. See Elaine Chao, "Why the Flat Tax Will Boost Charitable Giving," The IRS v. The People, 1999, p. 153-167. Ms. Chao also writes: "Data from the government and the nonprofit sector indicate that giving to charities will increase with the passage of a pure flat tax. The reason: the flat tax will increase economic growth, personal income, savings, and net wealth, all of which lead to higher levels of giving." (p.153)
10. For a more detailed explanation of the case for Social Security reform, see Steve Forbes "Saving Social Security," A New Birth of Freedom, Regnery Publishing, 1999.
    See Peter J. Ferrara and Michael Tanner, A New Deal for Social Security, Cato Institute, 1998
    Also see William W. Beach, Daniel J. Mitchell, Gareth G. Davis and Stuart M. Butler, "Social Security: Improving Retirement Income for all Americans," Issues ’98, The Heritage Foundation, p.99-128.
11. Analysis of the Forbes plan by Fiscal Associates.
12. Ibid. Also see Darcy Ann Olsen, "Greater Financial Security For Women With Personal Retirement Accounts," Cato Institute Briefing Paper No. 38, July 20, 1998.
13. Analysis of the Forbes plan by Fiscal Associates.
14. Ibid.
15. Analysis of the Forbes plan by Fiscal Associates.
16. See Peter J. Ferrara and Michael Tanner, A New Deal For Social Security, Cato Institute, 1998, p. 69. See also, William W. Beach and Gareth G. Davis, "Social Security’s Rate of Return for Hispanic Americans," Heritage Backgrounder No.98-02, March 27, 1998, and "Social Security’s Rates of Return for Union Households," Heritage Backgrounder 98-06.
17. Ferrara and Tanner, p.72-73. Note: "The returns cover an incredibly eventful period including the Great Depression, one world war, two comparatively minor wars, and the turbulent inflation/recession years of the 1970s," write Ferrara and Tanner. Furthermore, the average annual private returns do not even take into account the remarkable bull market of the past several years.
18. Analysis of the Forbes plan by Fiscal Associates.
19. For more information, see William W. Beach and Gareth G. Davis, et al, "How Public Policy Reforms Would Unleash Hispanic America’s Economic Potential," Heritage Backgrounder No. 1227, October 16, 1998.
20. For a more detailed explanation of the case for the flat tax, see Steve Forbes, "Tear Down This Tax Code," A New Birth of Freedom, Regnery Publishing, 1999.
21. The annual cost of tax compliance comes from Patrick Fleenor, Scott Moody and Stephen Shelby, Special Report: Tax Freedom Day 1998, The Tax Foundation, April 1998, p.6.
22. Analysis of the Forbes plan by Fiscal Associates.
23. For a more detailed analysis of how the flat tax helps women, see Linda Chavez (President of the Center for Equal Opportunity), "Why Tax Reform Is Good For Women," The IRS v. The People, Heritage Foundation, 1999, p.127-140. For a more detailed analysis of how the flat tax helps middle class families, see Michael Farris (President of the Home School Legal Defense Association), "Fixing the Tax Code’s Anti-Family Bias," The IRS v. The People, Heritage Foundation, 1999, p.113-126.
24. Ibid.
25. For a more detailed analysis, see Jack Faris (President and CEO of the National Federation of Independent Business), "Time To Scrap The Tax Code," The IRS v. The People, Heritage Foundation, 1999, p.49-61. See Jack Kemp, Unleashing America’s Potential, Report by The National Commission on Economic Growth & Tax Reform, St. Martin’s Griffen, 1996. See Daniel J. Mitchell, "737,734,941,858 Reasons…And Counting: Why A Flat Tax Is Needed To Reform The IRS," Heritage BG No.1170, 4/15/98.
26. For a more detailed analysis of how the flat tax will help farmers and ranchers, see Dean Kleckner (President of the American Farm Bureau), "Why Farmers and Ranchers Need Tax Reform," The IRS v. The People, Heritage Foundation, 1999, p.141-151.
27. Analysis of the Forbes plan by Fiscal Associates.
28. For a full analysis, see Grover Norquist, "How A Supermajority Protects Future Generations," The IRS v. The People, The Heritage Foundation, 1999, p. 197-209. Mr. Norquist writes: "President Bush and then President Clinton enacted tax hikes on top of President Reagan’s [tax] reform [of 1986]. A two-thirds supermajority would have stopped both tax hikes." (p.198)
29. Analysis of the Forbes plan by Fiscal Associates.
30. Analysis of the Forbes plan by Fiscal Associates.
31. See George Hager and Ceci Connolly, "Democratic Duel’s Costly Promises: Gore, Bradley Plans Projected To Erase $1 Trillion Surplus," Washington Post, October 9, 1999, p. A1.
32. A 57-page presidential advisory board report by former Senator Warren Rudman on allegations of espionage in the Department of Energy’s nuclear research laboratories concluded that "organizational disarray, managerial neglect and a culture of arrogance – both at DOE headquarters and the labs themselves – conspired to create an espionage scandal waiting to happen," reported the Washington Times (6/20/99). Abolishing the Department of Energy has been endorsed by former Energy Secretaries John Herrington and Donald Hodel and former Defense Secretary Caspar Weinberger. See also Angela Antonelli, "Five Reasons To Pull the Plug on the Department of Energy," Heritage Backgrounder No. 1191, June 16, 1998.
33. Abolishing the Department of Commerce has been endorsed by former Commerce Secretary Robert Mosbacher, the Small Business Survival Committee and Americans for Tax Reform. See also Angela Antonelli, "Five Good Reasons To Close Down The Department of Commerce," Heritage Backgrounder No. 1181, May 20, 1998.
34. For a more detailed analysis, see Donald J. Devine (former Director of the Office of Presidential Personnel) and Robert E. Moffit, "Downsizing and Improving the Federal Civil Service," Mandate for Leadership, The Heritage Foundation, 1997, p.199-243.
35. Analysis of the Forbes plan by Fiscal Associates.
36. Thomas H. Stanton, "Using Loan Asset Sales To Improve The Management of Federal Credit Portfolios," Financier, Spring 1998.
37. See Scott Hodge (ed.), Balancing America’s Budget, The Heritage Foundation, 1997 appendix.
38. See Steve Moore, Cato Handbook for Congress, 1999, p.299.