Steve Forbes is Chairman and Editor-in-Chief of Forbes Media and the host of podcast What’s Ahead, where he talks to newsmakers, politicians, and pioneers in business and economics. He authored Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming The Fed will Restore Hope and Prosperity and Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It and writes editorials for each issue of Forbes called “Fact and Comment.” He twice ran for president, promoting a flat tax, school choice, and term limit policies. In this wide-ranging interview with CEO Jennifer Grossman on July 14, 2021, Forbes shared his views on inflation, modern monetary policy, Covid lockdowns, Cuba sanctions, cancel culture, and what he sees as the enormously destructive and divisive agenda of the Biden administration. Watch the entire interview HERE or check out the transcript below.
JAG: Steve, welcome again, thank you so much for joining us.
SF: Great to be with you. Thank you.
JAG: So, as I mentioned, you more than anyone put the flat tax on the map in your book, The Flat Tax Revolution: Using a Postcard to Abolish the IRS. You recount the experience of several countries that have adopted the flat tax. More recently here at home, some states have opted for the flat tax, yet it's almost absent from the national debate. What are the prospects now of fundamental tax reform of the kind represented by the flat tax?
SF: Well, what the flat tax does is just get rid of the current tax code in whatever country. As you know, in the US we have a horrific tax code, not to mention all the rules and regulations and rulings that come with it. So it probably comes to more than 10 million words. Nobody knows what’s in it, not even the IRS. And so, what it does is just throw the thing out, just put in generous exemptions for adults and for kids. And that's it. You can literally do your tax return with a few keystrokes or a postcard if you still want to write and know how to do cursive anymore.
I just want to emphasize this: This is not just an economic issue. It's a moral issue.
SF: But, the thing to keep in mind is this is not an abstract idea. Over 30 countries around the world have adopted variations of the flat tax. Hong Kong did it back in 1947 and that's one thing that kept that economy going even after the Chinese took over in 1997. Now, sadly, that economy is going to be suffocated. The freedoms are being suffocated, but the flat tax was key along with the British legal system in enabling that barren speck of a land that has to import even water, to become a global Colossus in terms of the economy, per-capita income among the highest in the world. So, the flat tax allows people to focus their energies on productive things, rather than on a stupid tax code. And I just want to emphasize this: This is not just an economic issue. It's a moral issue.
SF: If you go back 20 years, the IRS says we spend 6 billion hours a year filling out tax forms. Experts say we spend 200 to 300 billion a year filling out these crazy tax forms and trying to comply with this idiot code. So, go back 20 years, take over a hundred billion hours, literally trillions of dollars. Just imagine for a moment if all those resources, all that brain power, all that time had gone for new services, new products, new cures for diseases, new medical devices, how better off all of us would have been. What the economists call opportunity costs—huge. And, so far it surprises me that no presidential candidate has really vigorously advocated it since I ran. Some have taken it up, sort of. Rand Paul did, sort of; Ted Cruz did, sort of; and Donald Trump indicated he might've if there’d been a second term, which did not come in 2020. So, it hasn't happened, but I'm taking heart that some entrepreneurial politico will see the popularity of it, cuts across the board. And I noticed the other day, Governor Ducey of Arizona put in a two-and-a-half percent flat tax, and he wants to get rid of the income tax in the state of Arizona. So, some people are clued in. I hope we can get somebody in 2024 to really run on it. So we can finally free the American people to focus their energies on productive stuff instead of wasting all this immense brainpower, very brainy people on this crazy code, corrupt code—it brings out the worst in everybody.
JAG: Yes. And I'm not sure you know about the brainpower over at the IRS, but, you have a plan even to liberate some of that brainpower as well. And, reading your book I learned that there was at least one entitlement program that you would support, which would be a retraining program for the IRS bureaucrats, who unfortunately would be put out of work by the flat tax. Unfortunately, the Biden administration appears to be moving in the opposite direction, demanding 80 billion in new funding for the Internal Revenue Service. Others are calling for a bipartisan compromise of about half that amount. What are your thoughts about that proposal?
SF: Yes,. 85,000 new IRS agents, just what we need. And, as for the so-called compromise, a rotten apple, if we cut it in half it’s still rotten. So, whether it's 40 billion or 80 billion, it's gross intrusiveness, and they see this as setting the foundation for a wealth tax. They're just not content to collect your income. Now they want to collect the tax on everything you own. And, they say, as usual, “Oh, the rate will be low.” It'll only go after the rich, but just remember with the income tax, it started with a rate of a 7% highest rate on the equivalent of over $10 million today. And within a few years it reached a peak, then, of 77%. And, we've been battling that monster ever since. It's like an entitlement. When it comes in—very, very hard to slay that monster.
JAG: Yes. I remember I was a part of the National Commission on Economic Growth and Tax Reform. And, one of the things that I included in the final report was data that was correlating the top tax rate since the introduction of the personal income tax in the United States back in 1913 or so with the revenues as a percentage of GDP. And the most striking thing was that no matter how high or low the top tax rate went, that number, revenues as percentage of GDP, never really rose above 19%. So, my question is: if this data exists, and you're clearly going to get more revenue, even if that was your chief goal, from a larger thriving economy, why wouldn't even spend-oriented politicians want to opt for a higher-growth tax code?
These people who advocate all of these new government controls, higher and higher taxes, they're not interested in prosperity. They're interested in power. They'd rather have a smaller economy with them in charge, telling you what you can and cannot do.
SF: Well, that's a very, very fundamental point. It shows that when you get off people's backs, people become more creative and everyone benefits from it. Capitalism is not a zero-sum society. Everyone gets a chance to move ahead. And what we see here, though, in play is that these people who advocate all of these new government controls, higher and higher taxes, they're not interested in prosperity. They're interested in power. They'd rather have a smaller economy with them in charge, telling you what you can and cannot do. In an open society where the checks come in, they end up going back to the people. And, that's why I wouldn't mind giving Congress a tenfold raise, and the bureaucrats a tenfold raise, if they all went on a 10-year vacation.
JAG: Sounds good to me. Count me in for that. Well, one of the things that I find really concerning about this proposal to increase funding and manpower at the IRS is that there really doesn't seem to be any accountability. For example, the recent illegal release of tax data to ProPublica, releasing IRS data is a crime punishable by five years in prison. Why aren't we seeing more demands for accountability?
This is part of a political agenda to stir up envy so that they'll get more support for a wealth tax, more support for hanging the so-called rich.
SF: Well, that's right. And, we've seen in the past the IRS repeatedly being weaponized, politically being used for political purposes, we saw that. Remember the name Lois Lerner, 10 years ago in the Obama administration? The tea party movement rose up in this country, not centralized but spontaneous local groups, and the IRS just dragged its heels on giving them the approval, trying to neuter them for the 2012 election. And, we've seen that with the release of these tax returns, which is grossly illegal. Why are they doing it? You read their analysis and you would think they're economically illiterate, confusing wealth with income. But no, this is part of a political agenda to stir up envy so that they'll get more support for a wealth tax, more support for hanging the so-called rich. They're the source of all your woes, that kind of scapegoating.
SF: That's what's at play here. And, the fact that there hasn't been more of a genuine outcry! Because if they can do it to those high-income earners, they can do it to anybody and everybody who gets in their crosshairs. So, weaponizing the tax collector, that's a real bad road to tyranny. And that's why I wish the Republicans and others would be more vociferous because you mentioned compromise. They're trying to do a compromise infrastructure bill, fine—not, but take what you can. But, they include increasing, as you mentioned, the size of the IRS, thinking “Well, having more IRS agents, that will mean more revenue without having to increase taxes that are public.” So, that's great. They won't raise taxes in this bill. There'll be other bills coming along, which will do it. Republicans—wake up. But in this bill, they say, “Oh, no ostensible tax increase.” But what they do is weaponize the IRS, which means political power. Again, to them power is more important than revenue or prosperity.
JAG: So, is it true that Biden is now proposing that the IRS have the capability to monitor our personal bank accounts, to monitor inflows and outflows? Obviously, when you're audited, that is when you have a legal obligation to make all of your financial data available. But, to have the IRS being able to monitor what we earn, what we spend, that's really terrible, terrifying.
When you hear politicians talking about “we are here to help the people,” know they're here to help themselves at the expense of the people.
SF: Yes. And, you would think that especially younger people, who say they prize their privacy, would be up in arms about this and tweeting and using social media to denounce it, because this is just an open invitation, again, for a wealth tax, and for political control, tyranny, knowing everything you do. Why did you buy that piece of jewelry? Where did the money come from? That's why they want to monitor your inflows and outflows, not just in your bank accounts, but every other financial account, your brokerage account and everything else. And, the next thing they'll want to do as a permanent power is to come into your home without a warrant, any time, to make sure you're not hiding a Van Gogh painting or something like that, escaping the wealth tax and depriving the people. When you hear politicians talking about “we are here to help the people,” know they're here to help themselves at the expense of the people.
JAG: I want to encourage those watching to please go ahead and type in your questions. This is an amazing opportunity to have this hour with Steve Forbes. So, let me know your questions. We'll get to as many of them as we can. But just more broadly, Steve, what's your assessment of the Biden administration so far? Not just with regards to taxes, but you know, one of the things that I find most disturbing is the call for a global minimum tax. Used to be that forming cartels and fixing prices was a crime, but also monetary policy. What are your chief concerns?
SF: Well, it seems that this administration, if they got in a back room and plotted to say, how can we undermine the United States? How can we make it weaker? How can we throw away this great advantage we have in innovation and productivity, that people from seemingly obscure backgrounds rise up and do great things? How do we crush that? And you would come up with their program of doubling the capital gains tax. That's not designed to increase revenue. We know from experience, every time you increase that tax, you have less revenue. Again, it's about control. You can't do anything without Senator Warren's permission and stuff like that. So, they keep creating these agencies. They want political control. Now, the Biden administration, in terms of what they're doing, they know on the one hand, if they raise, say, business taxes a lot, guess what'll happen to the capital as Walter Wriston, the late, great banker once said, and others have echoed it, “Capital goes.” That's not just money, it's people too.
SF: As we see in the United States, it goes where it's welcome and stays where it's well-treated. They fear that the money will somehow seep out of the US. So, they figure if they get a global agreement, then everyone raises taxes; minimum tax. That way they'll collect a lot of taxes. The economy will not be affected. The economy will not be hurt, they tell us. But, they'll make sure they collect a lot of money to help “we, the people.” And so, the result would be stagnation. You couldn't design a program to better debilitate an economy than what they're designing. And, in terms of new businesses, one of the great advantages this country has had vis-a-vis other countries is the number of new startups, the number of new businesses we get each year. Carl Schramm, who studied these things for Kauffman and others, calculates that in the 1980s and ’90s, the US started 800,000 new businesses a year.
SF: Then, it went down and down and down to about 400,000. And, in the last few years started to move up again till COVID came along. But, one of the great advantages of the United States is that we create about 50 to 100 new, big companies every generation. Not just big companies getting bigger as you see in Europe, but, because of the breadth of our capital markets. . . . In Europe, and in many Asian countries, most of the capital comes from the banks, so you don't get this kind of diversity of sources of capital specializing in various aspects of the economy. As you know, you have various stages for VCs now, a very sophisticated system. And, you don't get that in Europe. So, you take the biggies of today, Google, what they now call Alphabet. Twenty, twenty-five years ago, if you said Google or Alphabet, you'd think: the alphabet, you learn that when you’re four.
SF: And, Google, some big, huge giant company that we now fear, we must bust up, or you take Facebook: that was something you had in college, a little book of the faces of the incoming class. Now, it’s a giant company. But, the key thing is if you have true free markets, you get like a flowing stream or river, you constantly get new and better things. And, I'm old enough to remember when General Motors was a big, bad company and “we got to get antitrust to bust it up because it's so big and powerful, the mightiest industrial company in the world.” Well, we saw what happened to GM. IBM, same thing. In the sixties, seventies, eighties, “Oh, I gotta go after this monster.” Well, by the early nineties, IBM had one foot in the corporate graveyard with the rise, first, of mini-computers.
SF: And then, personal computers, especially when they were networked in the mid-1980s. Now IBM's a formidable company today, but ain't nothing like the boogeyman it was, and had been, in the sixties, seventies, and eighties. And, you remember Walmart was once the big, bad company exploiting and doing all these evil things, then suddenly it became the David against the Goliath, Amazon. So, if you have these free markets, then in ways that people cannot anticipate (if we knew it was coming, then it would already be here, but we don't know the future), we don't know how these things are going to unfold. And so, that's what makes an economy dynamic and may strike central planners as very messy and all that sort of thing. But, creativity is not a straightforward, clean thing. It's trial and error. George Gilder and Tom Sowell have made the point.
SF: I asked the question, what is the difference between us today and people in the stone age? Same human body, same planet, same resources, same appetites; difference between them and us is we know more—more knowledge. And so you can have terrible physical events: wars or natural disasters. But, if knowledge is not lost, you can quickly rebuild and move forward. Classic example, World War II. Tens of millions of people killed. Young people, cream of a new generation, wounded or killed. A massive physical destruction, including two nuclear bombs set off and people thought, “God, it's going to be a generation or two before we recover.” Within a handful of years, thanks to US military security, which gave people the confidence they weren't going to get overrun again, within a handful of years, Western Europe and Japan exceeded pre-war levels of production: miraculous.
SF: Why? Because knowledge was not destroyed. And how do you get knowledge? Once you make sure you don't lose the knowledge you have, which we've done on money policy, which we can get to, but also by creating new knowledge, whether in the marketplace, intellectually, and that comes from experimentation with a lot of failure, but you learn, you learn by trying. And then, when something's invented, you keep improving it. The learning curve, which is why, when countries like China came up, “Oh, they invented this, they invented that,” but they did not have an economy. They didn't have a society that allowed for the development of these things, the refinement of these things, the expansion of the use of these things. So just to close out on that, if you'd said 20 years ago that grandma could operate a supercomputer, you'd have gotten some rather strange looks. Well, here we have grandma today. I'm of that age: grandpa.
SF: And, you have handhelds, smartphones, whatever you want to call them, with the power of a supercomputer. And, we take it for granted that we have the whole world at our fingertips. I'm old enough to remember card catalogs in libraries and physically looking things up. And, we get so spoiled by it. We think it's the most natural thing in the world to be able to call up everything at our fingertips. So, you place a call to outer Mongolia. It takes more than five seconds. And you say “What a piece of crap this is, give me something new.” It's amazing. And, there's more to come, especially on the healthcare side.
JAG: So, Steve, you said that we can't predict the future. We can't know the future. And yet as an economic prognosticator, you're the only writer to have won the prestigious Crystal Owl Award four times. So, a lot of people are wondering about the future in terms of inflation, given the huge amount of money that's been printed, and the unprecedented government spending, the Larry Summers’ warning about Biden's policies, and the effects on the dollar. So, how worried should we be? And what safeguards should individuals take to protect themselves against inflationary risk?
SF: Well, the thing to remember about money is: Money is not wealth. It simply makes it easier for us to buy and sell with each other. You know, you go to a restaurant, you check your coat. What do you get? You get a piece of plastic or a piece of paper, worthless in and of itself, but a claim on a real product. Same thing with a ticket to an event, maybe ellipses on your handheld or a piece of paper, but again, a call on a real product. Well, money is an all-purpose, an effective claim check on products and services you produce. And, that way you don't have to worry. I don't have to worry if Jennifer Grossman wants this, that or the other thing—we can still do transactions with each other. Strangers can do transactions with each other. So, it enables short-term investment, long-term investment, increases social trust between people, and it creates the kind of levels of cooperation, which allows for these massive supply chains, intricate supply chains that make these handhelds possible, hundreds of thousands of parts from all around the world, coming together without some czar in charge.
SF: There was once a great story in, I think, it was the fifties. Somebody from the Soviet Union came out to Iowa, and they showed how great Iowa was in terms of producing these products and then getting them to market and all that. And the guy from the Soviet Union asked, “Well, who's the commissar who's in charge?” “Nobody.” He said, “Nobody?” and he found that incomprehensible. “You mean nobody's in charge. How do you make it happen?” Ha, well, it does happen. It does happen. So, on the money side, they now think that if they manipulate money, which is a measure of wealth, a measure of value, that they can somehow create instant prosperity. It's like a new diet: put 32 ounces in a pound, you lose half your weight. Oh my goodness. What a miracle! No more obesity. Well, we know in that simplistic case, that's nonsense, but the same is true of money.
People underestimated the huge disruptions that came when you shut down, arbitrarily overnight, a significant amount of the economy. It's not like a light switch. You just don't turn it back on.
SF: You manipulate money not tied to something of stable value. Gold has been the most reliable one, not perfect, but the most reliable one over time. And miraculous things happen. So, to get you to where we are now, the Federal Reserve started to create too much money. Even before the pandemic, they created boatloads last year. And, then people underestimated the huge disruptions that came when you shut down, arbitrarily overnight, a significant amount of the economy. It's not like a light switch. You just don't turn it back on. Again, it takes time to sort it all out, something that complex. And so, what we see today, though, is very interesting. The Federal Reserve, even though they say they're still printing money, they've stopped. They're using a gimmick. I don't know how long they can do it, but, in effect, what they're doing, not to confuse your viewers, but in a few years, if your viewers want to impress people at a cocktail party, say “the Fed has been using reverse repos to try to reduce the inflation.”
SF: Current, current inflation. What's a reverse repo? It's a fancy word for when the Fed borrows money from banks. Short-term money, overnight money and using treasury securities as collateral. They call them repos, reverse reposts. Anyway, what the Fed has been doing, creating money on the one hand with their bond purchasing programs, you always hear about all 80 billion of treasuries and 40 billion of mortgage security, 120 billion a month. Ah, well, the Fed has gone around and neutralized it, sterilized it by borrowing it back from the banks, but only doing it short term. How long can play that game? I don't know. It’s like going to a pool, pouring a bucket of water in one end, then going to the other end of the pool and taking a bucket of water out. It's the same. So that's why I haven't seen gold go up, but how long they can continue these games, all of these spending bills coming down the pike—a very, very good question. That's what worries me; not just what's happening now. We're paying the price for the lockdowns that happened in the last year, year and a half, but, we've got some bad things, possibly bad things, coming. That's what you should be worrying about.
JAG: So, I have a lot of other questions for you and we have many, very interesting questions from our audience. Some from smarter minds, certainly smarter economic minds than mine, including our Senior Scholar, Richard Salsman. He asks, have you been surprised that so much money in public debt has been created since 2008, yet inflation rates and bond yields have stayed low? He says, fans of modern monetary theory are gloating about a free lunch.
There's no getting around it. You have to produce products and services to create wealth, create new things. So, what modern monetary theory is, it's the belief in magic that you can conjure up money.
SF: Yes. Well, they think they've found the magic way; it's like alchemy. They thought if you could create gold in a laboratory, you’d create all of this instant wealth, not realizing, if you create gold in a laboratory easily, the value of gold would go down. There's no getting around it. You have to produce products and services to create wealth, create new things. So, what modern monetary theory is, it's the belief in magic that you can conjure up money. You spend it, and voila, good things happen, but you don't need Stephanie Kelton who grew up on this theory of magic money, and makes the case. You could almost say you don't need taxes. You just conjure up the money out of thin air, it's there. Voila, I order it, therefore it's there. But, what has happened since 2008, one after another, banks realize their balance sheets have gone badly out of whack.
SF: They, instead of having a lot of reserves, they thought they could do a lot of borrowing, a lot of leveraging, which would mean bigger profits; but, also, it meant when times were bad, “Oh, you get squeezed.” So, long story short, what happened after 2008 was that when the Fed created all of this money, it sterilized it like they're doing today with repurchases: reverse repos. So, all of that money, most of it went to, and was frozen, at the Fed as bank reserves. They've paid banks a little bit of a rate of interest. So, they created the money out of thin air. Banks got the money, and they are, in effect, told “Don't lend it, lend it back to the Fed, put it, park it as reserves; you'll have instant free money, no risk at all.” “Okay. That sounds like a good deal.”
SF: That's how the Fed enabled banks to rebuild their balance sheets. They thought, “But that was a one-time event, one time event.” And then you had—Richard would know this—Basel III, Basel's a place in Switzerland, but the bank regulators got there years ago and came up with formulas to try to have international standards for bank solvency. And, so anyway, Basel III is over. So, the banks were loaded with reserves now. What happened after 2008 was a one-time event. The money was in deep-freeze. Just think of it, of putting it in the refrigerator, and then not letting it go out in the economy. Now this time they're trying gimmicks like, “Okay, we'll create the money, and then we'll borrow it back again overnight.” And so, that's why you haven't had the big inflation hit, even though it looks like the bank reserves—in what they call the monetary base, which is just currency in bank reserves—have exploded. Well, they've made sure they dammed it up, but at some point with all that they're doing, we're doing, other countries doing, that dam is going to start to seriously leak or break. And that's what we have to watch out for.
JAG: All right. Professor Salsman who in addition to being a Senior Scholar with The Atlas Society, is, as you know, a professor of Economics at Duke, asks a follow-up, which is: Supply-siders rightly focused on a fair or lower tax rate, but shouldn't they also focus on shrinking government spending, which is the real burden on the economy? He says they rarely do. So your thoughts.
SF: Well, we all want lower tax rates, but, I think Milton Friedman put it very well years ago. This shows how things have gone haywire since he made that statement. He said that he'd rather have a $2 trillion budget that had a $1 trillion deficit and that he'd rather have a $1 trillion budget with a big deficit, rather than $2 trillion budget that is balanced because the key thing is how much money is the government sucking out of the economy. And so whether they do it by taxation, borrowing or inflation, which is a form of taxation, they're sucking that money out of the economy one way or the other, despite what modern monetary magicians think, white, black, left, right. To the contrary. And so, in this case, they truly believe that there are no consequences to this.
SF: So again, it's not just the level of indebtedness or the deficits, it's how they're handling them. And, this is a very important point. Switzerland—if you look at the money supply of Switzerland, you think, “Oh my God, this is Argentina, run amuck, hyperinflation.” Now, why is there a large money supply vis-a-vis Switzerland's economy? Because people trust the Swiss Franc; it's been better managed than any other currency in the world in the last hundred years. So, people like to hold it, and so demand for it goes up. There's no such demand for the Russian ruble or Zimbabwe’s, whatever their currency is, they keep changing it. But, with the Swiss Franc, yes, small economy, but people love that Franc, they see it as a stable source of value. So, therefore, they don't mind holding it.
SF: So, again, the key thing is, is the Fed going to monetize now? Assuming these massive spending bills go through, are they going to, in effect, print the money, and if they do, how do they propose to neutralize it and not have the interest rates go up? So, to go back to these, what they're doing now in the pool, doing the bucket game, pouring in a bucket and then taking out a bucket of water, at some point that game is going to come to an end. And, we'll see what other gimmick they come up with to try to. What that is, in effect, is what you might call a backdoor. Tapering is one of those words. The press loves that the Fed reduced its bond buying and therefore raised interest rates. Well, the Fed has already tapered, but they're doing it by borrowing short term and how long those games can go on, I don't know. But, I know those games eventually end, and not well.
JAG: All right. We've got a question from Alan Dlugash, a very generous donor to The Atlas Society. Good to see you here, Alan. And he's asking: Given the exploding federal spending, does that impact or change the rate that you'd recommended in terms of the flat tax rate?
SF: Well, when you put in the flat tax, what you want to do is make it simple, obviously, but get the rate as low as you can. I thought we could do it at 17. Some may be jiggered to get 15 or 14 or 18, but the key thing is to get below 20. That seems to be a good rate to keep it under in terms of maximizing people's ability to move ahead. And, so, in terms of what has been done, again, the key thing on the spending—it's not just the level of the spending. The key thing is preventing a bunch of new entitlement programs that the Biden administration wants to put in. Because as we've mentioned, the two of us have mentioned, once that entitlement comes in, it always starts small, but it explodes and is impossible, very difficult to get rid of.
SF: And, that's what we have to do—no new entitlement programs. We can fix the abominations they do on taxes. We can fix what they do on regulations. We can fix even their spending binges. Those things can be fixed, but entitlement programs? Extremely difficult. So, if they wanted to do a one-time spend of sending people another thousand dollars or 5,000, but no new entitlements, I'd take that as a good trade because the check is a one-time event. It's not permanent. It's the permanent stuff we have to watch out for. So, in all of this palaver about compromise on this crazy stimulus bill so-called and other things, keep those new entitlements out, and we can fight another day.
JAG: David Hurwitz, another Atlas Society supporter asks: If the capital gains taxes are raised, will people be less likely to pull their money out of the stock market, particularly when capital gains tax is a major consideration in protecting your investment?
You remember the cartoon character, Scrooge McDuck, this big character with his money, piles of money, coins, and jewels, and gold, and stuff like that? That's what these people think wealth is. You just go and scoop up the money, scoop up the cash.
SF: Well, when they raise the rates, the reason that the revenue goes down is because selling—at least so far, we'll see what these tyrants try to do—is an optional event. That's why they want the wealth tax, because they know people may not sell their assets so they can't get their hands on it. And they're trying to find more ways to get their hands on what you've created. And, by the way, on that, on wealth, just one aside on that: you remember the cartoon character, Scrooge McDuck, this big character with his money, piles of money, coins, and jewels, and gold, and stuff like that? That's what these people think wealth is. You just go and scoop up the money, scoop up the cash. Whereas for most of the wealth, a very small part of people's wealth that we write about and others write about is made up of cash. Most of it is an asset, a business or something like that.
SF: And if you have a hostile environment for people trading with each other, those values go down, they disappear. Poof. So, if you destroy Amazon overnight, 140 billion of Jeff Bezos’ money goes away. It just goes into the air, the ether—poof, gone. What's happening on the market goes down. So, when they raise the capital gains tax, yes, people won't sell as much, but it also freezes capital in current or old investments. So you may want at some point to sell an old asset, somebody wants something more cautious because the risky startup is now a stodgy old blue chip. You want to put the money elsewhere. It freezes it. So it, in fact, ossified in the economy and they don't mind ossification because they will be in control. And, we see in countries like Cuba, now, the ossification, the rot can go very, very deep, and the regime doesn't care.
JAG: Yes. So, all of those people protesting lack of vaccines, just like the protests against the German measles brought down the Berlin Wall. Okay. I was hoping we'd get a question like this. Jeff Ganesan has done the favor of introducing it into the debate here. He is bringing up the sales tax. He's saying, the argument that you've heard many times, that the flat income tax is still an income tax. And, he says it won't eliminate the IRS. Only the fair tax, the national sales tax can. So thoughts on that?
SF: Just as a general rule, if you have a national tax, you're going to have to have agents to run it and to monitor it and to collect it. Now, the size changes, obviously. Now, if you want some sort of national sales tax, whether like we have on the state level or a VAT, or what Canada and others called general services tax, whatever name you want to give to it, you first better get rid of the 16th Amendment to the Constitution, which allows the income tax, because I guarantee you, they will say, “Well, go away.” But if you don't have that constitutional change, in fact, in a new amendment saying you can't impose an income tax, unless you get a new, new amendment, I guarantee you’ll get what most states have, and most countries, almost all countries have: both an income tax and a super-sales tax, which leads to all the stuff that the socialists promise us is free, all the free stuff.
SF: How do they pay for that free stuff? Well, the income tax is one. One of the keys, especially in Europe and other countries, is the VAT, what they call the “value-added tax,” which is a super-sales tax because it hits every stage of production. And in most countries, the rate is 20 to 25%. So if you want to, the next time you buy something, just add 20 or 25% to it to see how you like it. And, the other way they raise the revenue is through payroll taxes. Now we have a payroll tax here, they call it FICA to ostensibly pay for Social Security and Medicare in this country; Combined, employee and employer tax is 15.3%. It tops out, I think, at, for the Social Security part, which is 12.4%, tops out at $138,000 or something; the Medicare tax (2.9%) is forever—it's on all your income.
SF: So, just keep that 15.3% in mind. In Europe, typically payroll taxes run from 25 to 50%, 40 to 50% is not unusual in these countries. And so, that's a job killer. If you want to pay three times the FICA tax, more income tax, and have a nice 20 or 25% sales tax, politicians will give you a lot of free stuff—not. And, by the way, on free healthcare: our healthcare system is not a free market. Another subject for another time. But, the way they control the healthcare budgets, how do they do it? Rationing—either through waiting or you don't get the care. If you need kidney dialysis in Britain and you're above a certain age, you’ll never get to the head of a line. They just let you die. It's rationing. And we don't have to put up with that here.
JAG: All right. We've got questions coming in from across our various platforms. We have one from YouTube. Scott asks a provocative question. I think it's a fair one. He asks, has libertarianism been too weak in standing up to critical race dogma so far?
SF: Well, you'd have to ask formal libertarians that. I think everyone recognizes that what is happening here is taking Marxism, which was once about class conflict, and seeing that as the whole thing of the world now, dividing us by class, even though you have, in the real world, you have considerable mobility in a free market. In this case it's by race. And, the idea that after all the civil rights movements that everyone's now going to be judged by race, that you must either have certain advantages or stigmas because of the color of your skin. Not anything you've done, but just because of the way you're born, that sounds like medieval Europe and some of these totalitarian societies, or what's happening in Cuba. If you're not part of the military or Communist Party elite, you just suffer.
And we want that kind of system here where it's not you, but, how you look that determines where you stand in society and get in society? It's repulsive. And so, it should offend. And, I think it does offend almost everybody across whatever spectrum you want.
SF: And we want that kind of system here where it's not you, but, how you look that determines where you stand in society and get in society? It's repulsive. And so, it should offend. And, I think it does offend almost everybody across whatever spectrum you want. And, I think that's going to be one reason why this whole cancel culture stuff. . . Give me one reason why, if the Republicans don't blow it— and the Republicans do try to blow elections, they really have made a fine art of it; it's why they’re called the stupid party. But anyway, the Republicans, if they find ways to keep the stupidity in check, they're going to do extremely well. And that's one reason why they almost took control of the house this past November, precisely because people did not like what they saw unfolding. And, they were really not just offended, but fearful of what this would mean.
SF: And, by the way, I just love this rise again in the school choice movement, which has sort of just been making glacial progress over the years. Suddenly it's not just school choice, it's education savings accounts, where the government money goes into the parent's account. The money follows the parent and the student, not the school. And the Republicans should hammer that home. Your prospects for a decent education should not be limited by your zip code. Throw that at the unions. They have no answer for it. Give us more money, but don't teach. Don't expect us to teach you.
JAG: Exactly. All right. We have the chairman of The Atlas Society, Jay Lapeyre, joining us, and he is circling back to one of your previous comments. He asks, what will be the indicators that those policies of creating money, borrowing it back, and the repo, are approaching the end of their elastic limits, and reality reveals the economic truth: What should we be looking for when you say that that game is going to be playing out, but, it won't eventually end well?
SF: Well, first, don't underestimate their ability to come up with new games and new gimmicks to keep this thing going. Because they all know what will happen. I mean, imagine 17 trillion, I think, in bonds with negative interest rates floating around the world. It's insane. So, the thing to look at is gold. You don't even have to look at what the Fed is doing with reverse repos or the amount of money the treasury department has on deposit at the Federal Reserve. Just look at the price of gold. Now, in recent years, it went up about 50%. But when the Fed started to play these new games, it sort of stalled it around $1800, $1750, $1950. So, just look at the price of gold, and if that starts to move up, that's a sign that their ability to do gamesmanship is perhaps coming to an end or people are just losing confidence.
SF: So, it's not just a number per se, looking at a specific metric. It's people that might say, “I don't want to be part of this game,” which is what happened, by the way, in 2008. That was when people began to suspect the value of all these mortgages, which came because of the weak dollar. Yes. The government was encouraging this bad stuff, but the weak dollar, you saw gold zoom up, you saw silver move up, all commodities move up and hard assets of houses moved up. This gets to something very important. When you do that, when you distort the money, that's like a virus in a computer corrupts, the information economy cannot operate without prices that tell us what's valuable, what isn't valuable that enables us to do billions of transactions each day. And so, the housing prices started to go up in the early two thousands and people thought, well, that must mean there's a shortage of housing.
SF: No, it was artificial. It wasn't so much the houses were becoming worth more. It was the dollar becoming less valuable. We saw the same thing in the seventies and oil went from $3 to $40 a barrel. It wasn't that we were running out of oil, it was that the dollar was getting weak. So, when people lost confidence in 2008—and things were starting to get edgy starting in the fall of 2007—but, in the fall of 2008, suddenly people for a variety of reasons said something's wrong here. And as you know, banks borrow each day hundreds of billions of dollars, overnight money, which we talked about, and suddenly the dealer would say, “Hmm, I want 1.3 billion of securities for those mortgages instead of the usual billion to lend you 999 billion. Now I want 2 billion, or I'm only going to lend you 500 billion instead of 999 billion.” The market froze up. Then, you had a full-blown financial panic. People just said, get me out of here.
JAG: All right. Professor Salsman asks, essentially, if I can paraphrase, how would a president Steve Forbes respond to the recent anti-government protests in Cuba, and any perspective on the current administration's response?
Another thing you can do, sadly, is put on the sanctions again. I hate sanctions, but, unfortunately in Cuba, all that money goes to the government and the elites who steal the money.
SF: Well, first of all, I would say these are potentially real refugees. And we have the means, unlike poor Jimmy Carter, who was clueless. When you had a big wave in 1980, they couldn't determine who were the good guys and the bad guys. Well, we have the capacity to do that. But say, we know there's a human crisis building up here; you are welcome; you are a definition of a refugee: you're the definition of somebody fleeing potential torture and death. So let's get our immigration things straightened out for starters. And, it takes more than words. It was nice that Biden said a few words supporting them, saying, “We love the protesters,” even though part of his party loved communist governments, like the heirs of Fidel Castro. That's one thing you can do. Another thing you can do, sadly, is put on the sanctions again. I hate sanctions, but, unfortunately in Cuba, all that money goes to the government and the elites who steal the money.
SF: When you have tourism, that money does not go to the hotel workers or the guides or anything. It goes all to the government. Cuba sends, as you know, personnel: medical doctors and nurses and medicines to other countries for a fee. Of course, who collects that fee, not the doctors and nurses. It's the government pocketing the money. So, sadly, we’ve got to make it clear that this is a moral issue. And, at the same time, let's start to do two other things. One is go after the bank accounts, freeze the illegally gotten gains. We can track a lot of that money. So these characters know we identify them and we sanction them, and we say, “We're gonna do everything we can. You're going to get your ill-gotten gains.” The other thing we should do is ramp up the technology to get through the broadcast of Radio Martí and TV Martí.
SF: I headed up the oversight agency of Radio for Europe and Radio Liberty. During the 1980s, I saw firsthand the power of ideas breaking the monopoly on information. That's why China has hundreds of thousands of people working, trying to control the internet equivalent in Russia. They know the free flow of information breaking that monopoly is deadly. So let's overcome the jamming that the Cuban government does and get the truth in there. And, that not only gives a dissident hope because they know they're not alone, but also undermines the legitimacy of the regime. And, one regime is seen as illegitimate again. That's why a country like North Korea tries to seal off any kind of outside influences because they don't want people to know If it is not seen as legitimate, it eventually crumbles. So, no, we don't send in the Marines, but there's a lot we can do to help the Cubans and undermine the legitimacy of this odious regime.
JAG: Yes. I thought what you just said about sanctions is really, really interesting. As you know, libertarians would tend to want to encourage free trade, but when the money is going directly to prop up and legitimate a dictatorial regime, that's, I think, where we draw the line and that's one of the reasons I was very disturbed to see the Biden administration relaxing sanctions on Venezuela because Cuba has relied on aid from Venezuela, from the Venezuelan regime, and any increased revenues that are going to be flowing to Venezuela because of these loosening sanctions are unfortunately going to find their way to the Cuban regime at the time when they need them the most.
SF: Unfortunately, one of the things Cuba has done is rent out its forces, armed forces, and it's a secret security apparatus to other thugs around the world. And the security in Venezuela is now controlled by the Cubans. They run the interior ministry in Venezuela. So, in effect, Venezuela is now a colony of Havana. They run that place.
JAG: Well, we are going to be drawing to the close. We’ve got about six more minutes. And I did have a couple of questions that I wanted to ask you of my own, but we have a really, I think, thoughtful question from YouTube left. Phil asks, what sort of voluntary mutual aid do you think is possible under laissez-faire capitalism?
SF: Well, one of the things you never know from the way economics and Marxism is taught is that capitalism, free markets, free enterprise, whatever name you want to give to it, encourages humanity. Why? Because how do you do well? By meeting the needs and wants of other people. Oftentimes, Steve Jobs said he doesn't do marketing surveys because people don't know what they want until he shows them. He liked to say, “But you put something out there and people like it? You do well. They do well because they're getting something they didn't have before.” And, so it encourages people to work together without you even realizing it, you may not love your neighbor, but you sure want to sell to your neighbor. So, you try to figure out how do I persuade you to buy what I'm offering? How do I persuade you? Which means you interact with people.
How was it that the United States, which is the most commercial nation ever invented, could also be the most philanthropic nation? People say, well, those are two opposite poles. No, they're two sides of the same coin meeting the needs and wants of others.
SF: And so, in terms of charity and philanthropy, how was it that the United States, which is the most commercial nation ever invented, could also be the most philanthropic nation? People say, well, those are two opposite poles. No, they're two sides of the same coin meeting the needs and wants of others. Now, maybe the skill sets are different and things like that, but meeting the needs and wants of others. And one of the things that was undermined to an extent by the Great Depression was that previously what they called mutual-aid societies, friendly societies, whatever name you want to give to it, on the local level, people came up with ways of helping people. And, it was expected that if you were helped, if you could, if you weren't injured or disabled, you would reciprocate by helping yourself, and then contributing to the community. Mutual obligation, a sense of mutual obligation in a free society. Those kinds of relationships are very rich. And, when Tocqueville visited this country, you know, he marveled at what you call voluntary associations.
SF: People voluntarily coming together for all sorts of things. Well, there's fixing something: professional sporting associations raising some funds to get a schoolteacher in, and by golly, even without a public school system, we had the highest literacy rate, one of the highest literacy rates in the world, communities on the frontier, figuring they’ve got to do it. And by golly, they found a way to do it. Not perfect, but humanity's not perfect. So, if you want the best of humanity, crooked though that humanity may be, in terms of we're not perfect—we have a human nature that does not change—you want free markets where those mutual obligations grow and nurture.
JAG: Yes. And, Phil, I'd also say, think about the displacement effects that happen when you don't have laissez-faire capitalism. When you have social engineering, when you have welfare programs, when you have these kinds of entitlements, people say, “Oh, well, somebody else is taking care of grandma. Somebody else has taken care of the neighbor's kids. It's not my problem.” And so those kinds of civic society muscles get vitiated, and having a situation in which we'd be taking care of ourselves, taking care of each other, I think, would do a lot to encourage the kind of voluntary association that we all want. So, we’ve got two more minutes, Steve. I wanted to ask you maybe one question from my list, which is: you've run a media empire, you've run for president. You've raised five spectacular young ladies. You've written seven books, produced a documentary. As someone who's accomplished so much, what is left on your bucket list?
SF: Well, coming to your event on November 4th, I'm so excited. Okay, it never ends: I do a webcast; I do at least three short ones a week, mentioned earlier. I'm working on a documentary on Calvin Coolidge, a great president because he realized the presidency is not having a strong man in there, but creating conditions for the American people to achieve greatness; and, doing a book, sadly, on inflation, a much misunderstood topic. But one, sadly, we're going to hear more about, and I'm an optimist, an anxious one, but if people want some slogans, how about the four Nos? No new taxes, no new spending, no new entitlements, no expansion of the IRS, and a fifth one for the Federal Reserve to behave itself.
JAG: To quote Austin, “Behave.” So, wonderful. Okay, Steve. Well, you made my day. I think we've got it in under an hour. This has been spectacular. Everybody—you heard it: Steve Forbes is coming to our gala on November 4th, and to Malibu. So, we'll put the link in the platform there. Check out The Atlas Society. If you like this kind of interview, if you like the work that we do, please consider taking advantage of that tax deduction while it still lasts before Steve gets his way and it's gone. Although we know that you would be supporting us anyway; support The Atlas Society, and definitely go check out the documentary on money, and pick up Steve's latest book on money. Thank you so much, Steve, looking forward to seeing you before long.
SF: Thank you. By the way, with a flat tax, you'll have more money to give, and then, you deal with the current system.
JAG: All right, and we know where you guys are going to give it. Thank you.
SF: Have a good one.