This is a partial transcript from "Your World with Neil Cavuto," April 15, 2005, that was edited for clarity.
STUART VARNEY, GUEST HOST: Is it time to get rid of the IRS? As Americans race to meet the tax deadline by midnight, lots of questions today, and two specific polls by a nonpartisan group with some astounding results. Take a look at this; 59 percent of Americans think they pay more in taxes as a percentage of income than billionaire Donald Trump, and, as a result, would like to see a completely new system, many supporting the idea of a flat tax, something Steve Forbes pushed hard for on the campaign trail for president and continues to do so now.
In fact, he is coming out with a book on this very subject later this year.
Mr. Forbes, welcome to "Your World."
STEVE FORBES, CEO, FORBES INC.: Good to be with you, Stuart.
VARNEY: Right off the top, got to tell you, you haven't got a prayer of getting a flat tax passed in this country, not a prayer, sir.
FORBES: I think if President Bush came out for a flat tax plan when his commission makes its report in July, I think the American public, if they sense he's serious, would rally around it and would overcome opposition on Capitol Hill.
VARNEY: It's a bit like Social Security reform, however. There is no constituency jumping up and down demanding it.
FORBES: Well, on Social Security, to be blunt, the president made a huge mistake in not putting out a specific plan up front. So, there's a lot of misinformation, a lot of fears.
People on Social Security think they're going to have their benefits cut. This is plan, a reform, for people in their 20s and 30s. If you are above the age of 50, you are not going to be affected. But by not putting out a real plan, a lot of these fears arose. And so the plan is in trouble. With taxes, you got to do the opposite. Put out a real plan, and I think you're going to see some exciting things happen.
VARNEY: All right, let me put it like this. In my opinion, it is bedrock of the American political culture that, the more you make, the higher proportion you pay in tax. A progressive tax system is built into the very political culture of this country. A flat tax is the exact opposite.
FORBES: Well, the flat tax guarantees that, the more you make, the more you pay. There's no place to hide the money.
VARNEY: Not as a proportion.
FORBES: And one of the things that has happened is that, as we've reduced tax rates, when we've done that over the years, the proportion of money paid by the very top income earners, the top 1 percent, goes up. If you want to collect more from the rich, lower the tax rates. That's been the history of the last 40 years.
VARNEY: In 2004 President Bush made a taxable income of $670,000. On that, he paid $207,000 in federal tax. Under your flat tax system, he would actually pay a lot less.
FORBES: Well, that's right. He would.
But a lot of people in those kind of brackets would end up paying more because they wouldn't be able to hide their income, as they do now. The tax code, Stuart, has now got more than nine million words. You can have tax preparers come to very different conclusions looking at the same set of numbers. It's a travesty.
So, if you have tax lawyers, accountants and the like, you can jigger the system. Most middle-class Americans get shafted by it. And I think they're going to be the big constituency in favor of reform. They're the ones who are losing under this system.
VARNEY: On the campaign trail, you put forward the idea of a flat tax of 17 percent, no deductions, just pay 17 percent of your basic income.
FORBES: After exemptions for adults and for children, a family of four would pay no federal income tax on their first $45,000 of income. That's a pretty good deduction for most people.
VARNEY: And then 17 percent thereafter?
VARNEY: Now, Senator Charles Grassley, Republican of Iowa, he puts the number at 22 percent. So, are you sticking to your 17 percent proposal?
FORBES: Absolutely. I think that would grow the economy. You would get more compliance.
One of the things that tax writers sometimes and a lot of economists overlook is that this is not a zero-sum game, that, when you make a tax cut by lowering tax rates, you get more revenue, more wealth creation, more innovation, more risk taking, and that means more revenue. It's not dollar-for-dollar. They've got to get over this static — what they call static revenue scoring. It's ridiculous in the real world.
VARNEY: But, you know, you personally, Steve Forbes, you would be vilified. You will be demagogued to death. You have a great personal wealth. And this will be regarded as just a giveaway to a billionaire.
FORBES: Well, if they're worried about Steve Forbes, as I said on the campaign trail, they can make a special exemption that I can't participate in the flat tax, but let the other American people do it.
In fact, give people a choice. If people fear they're going to lose this deduction or that deduction, let them have a choice. They can stay with the old system or go with the new. I think most Americans, when they see the thing in actuality, would say new is better and go with it.
VARNEY: Last quick question. Would you also abolish consumption taxes at the federal level, like the gas tax, that kind of thing? Would they go, too?
FORBES: They would not be affected by this reform, but anything that gets rid of a tax, I am for. And if you want to...
VARNEY: But that's the problem, though, is, in Europe, they lowered tax rates, but then raised the consumption tax. You can never quite get rid of both.
FORBES: Well, you can slash the income tax and put in the flat tax. And, as for other taxes, once you do the big one, I think the other small ones would be ripe for the plucking.
VARNEY: It's an uphill struggle, but, Steve Forbes, we wish you very well.
FORBES: Thank you.
VARNEY: Thanks, indeed, Steve Forbes.
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