This is a rush transcript from "Hannity," December 27, 2011. This copy may not be in its final form and may be updated.

MARK STEYN, GUEST HOST: A march toward Iowa continues tonight. We've already discussed Newt Gingrich and Ron Paul. But it's the so-called second tier candidates who are hoping to surprise everyone with a stronger than expected result next Tuesday. And while an all out win does not seem likely for Rick Perry, Michele Bachmann or Rick Santorum, a second or third place finish would go a long way as the primary season continues two weeks from today in New Hampshire.

Joining me now to discuss the likelihood of a surprise result in Iowa is former presidential candidate and Rick Perry campaign supporter Steve Forbes.

Steve, what these guys are going through in Iowa and New Hampshire right now is very familiar to you. In a sense, the battle for those second tier guys is the battle to secure the conservative support -- Rick Perry, Michele Bachmann and Rick Santorum all kind of fighting over the same constituency.

STEVE FORBES, CHAIRMAN, FORBES MEDIA: Well, they are trying to be the non-Romney. These things do become two people raises very quickly. The press wants that. They hate a three or four person race. So, they are going to try to narrow as quickly as possible.

So, in Iowa where you have a very fluid situation, you have this polling that probably does not get all of the people who are going to attend the caucus, because you don't know who is going to show up. You could get a surprise. So, a third or good fourth place finish by Rick Perry would be far above expectations that would put him in the running for number two. Newt Gingrich has been severely wounded by those ads that came running against him in Iowa. So, if Ron Paul -- everyone knows that is a separate universe -- so it's Romney and who else? And if who else is Rick Perry, then I think we have a very exciting race especially when you come to South Carolina.

STEYN: Now, you have been involved in his tax proposals which are the most dramatic of the heavyweight candidates. He has come out for a flat tax which is basically something that post-Soviet Eastern Europe has adopted, I think Hungary is a 16 percent tax, Albania 10 percent.

FORBES: Some get down to 10 percent.


FORBES: And 25 countries have done it. It started with Hong Kong 60 years ago but in the last, as you mentioned, decade and a half, central and Eastern Europe, most of the countries have adopted variations of it.

STEYN: But outside that eastern bloc, I think you've got Mauritius in the British Commonwealth, in Ganza (ph) in one of two others, but it hasn't spread far.

FORBES: Mongolia, Jamaica. I mean, come on.

STEYN: Yes, well, but do you seriously think there is a market for that now, a clear, simple dramatic reformation of the tax system in America?

FORBES: Especially in the United States, where if you take the tax code and all of the regulations and rules that come from it, not just the code itself, nine million words. Nobody understands it. They all know it's an abomination. It's a cesspool of political corruption. So, a candidate, a serious candidate who gets the nomination and advocates it, I think you're going to see widespread support for it. People right now treat the tax code like the weather, something you talk about but you can't do much about something except maybe if you're Al Gore.

So, there's sort of this passivity resigned to the fact that we have to put up with this monstrosity. They think there is a real chance to do it. I think you'll see it catch, be a real wildfire. And you got a little indication of it just a year ago when the president's deficit reduction commission -- which he ignored -- even though they didn't come out with a flat tax, they came up with three rates that are much lower than today by uncluttering the tax code. So, there is ferment for it that there wasn't 10 or 15 years ago.

STEYN: One thing I noticed, if you go around small towns in New Hampshire, and seemingly it's probably the same in Iowa, is that you can come to it like a fairly decrepit little small town where the post office is closed and the general store and the gas station have closed, but they'll still be an H&R block, the guy with an H&R block shingle or another accountancy firm, tax preparation firm shingle coming out. In other words, people who have nothing now need professional help to prepare their taxes. And that is not true in most of the rest of the developed world. Do you worry that if Mitt Romney or Newt Gingrich were to get the nomination that they are too incremental, too cautious and that the great bloated behemoth of the IRS will just grow more and more?

FORBES: Gingrich to his credit has come out with a flat tax being an alternative. You could take the old code or the new code and Rick Perry does the same thing. The one I really worry about to be blunt is Mitt Romney. When I ran in 1996 on the flat tax proposal, he took ads at his own expense in Boston papers trashing the idea. And he's got a 59-point proposal out now. As people pointed out, God only has ten. He's got 59. You have Bain Capital going on steroids.

And so, I worry that he really understands the concept. I think the other candidates too understand the need for simplification, particularly Rick Perry. Another thing I think Rick Perry has going for him in addition to his energy proposals and the flat tax is deregulation. He really understands that $1.7 trillion monstrosity will weigh on the American people. And really, it takes the spirit out of the American people. One of the things that could get Perry back on track again, is it's not just numbers and economy. He understands what Coolidge referred to the intangibles. The spirit that makes innovation possible. People have optimism and take risks for the future.

STEYN: And just to put that in context, that's basically taking the equivalent of the G-7 economy and tossing it down the toilet each year just in compliance with federal paperwork at 1.7, 1.8 trillion. Isn't it? That's the --

FORBES: And when you get true tax reductions, we got a little bit in the 1980s with Ronald Reagan, the growth of the United States, just a growth alone exceeded the entire size than the third largest economy in the world, West Germany. It's amazing what can happen? And one of the things that Europeans don't like to hear is when we got real incentives in, the U.S. growth rate went 50 to 100 percent higher than it was in Europe in the 70s. We surpassed them. Big economy, big growth.

STEYN: The fiscal conservative vote is still there to be won. Great to have you with us, Steve Forbes.

FORBES: Thank you.

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