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Posted: March 01, 2011

The world should be flat

Steve Forbes on a single-rate tax system, the climate for business and working with Bono

Mike Cote

Steve Forbes has a bolder idea than simply extending the Bush-era tax cuts for two years. Remember the flat tax? The editor-in-chief of Forbes magazine has long advocated one tax rate as less burdensome for individuals and businesses.

In an exclusive interview with ColoradoBiz, Forbes also talked about the climate for commerce and initial public stock offerings, doing business in China and India, and working with Elevation Partners - the private equity fund associated with U2's Bono that bought a 40 percent stake in Forbes Media in 2006.

The former presidential candidate will deliver the keynote address at the Rocky Mountain Corporate Growth Conference, capping the April 27 and 28 event at the Inverness Hotel and Conference Center.

(Listen to the interview. And coming in April: Forbes on the evolution of media.)

I think we will get very serious tax reform. It's going to be a major issue in 2012. And so a mandate will exist to fundamentally overhaul the tax code. ...The reason I like the flat tax is that it deals with the whole problem in one fell swoop. You always have resistance when you say, "Why don't we get rid of this deduction or that deduction?"
Put in a low single rate - my rate was 17 percent - and have generous exemptions for adults and for children. For example, a family of four would pay no federal income tax on the first $46,000 of income, then 17 cents on the dollar above $46,000. No tax on savings. No death taxes. I'd do the same thing on the business side.

The president realized he was going to lose that battle, that numerous members of his own party we're going to vote to extend all of those tax rates. I have no doubt that if he gets re-elected in 2012 - and these things come up for renewal in December of 2012 - he will gleefully allow them to expire, at least on upper-income people.

We'll have growth rates of 3 or 4 percent this year. But we're still like an automobile that was stalled two years ago and now is going about 35 or 40 miles an hour but is certainly capable of going 70 or 75 miles an hour. Washington, with this new Congress, is going to be much more receptive to the message of removing hurdles and barriers. Even the White House is at least talking the game.

In this high-tech age you'd think that you'd be able to offer many IPOs and be able to offer them to investors at a very affordable cost. The problem is not the opportunity; it's the massive regulations, most particularly the Sarbanes-Oxley Act of 2002, which has imposed huge costs on businesses for compliance of dubious worth in the sense that it certainly has not prevented fraud.
What it has done is pose a huge, major cost, particularly on small businesses. A large company can absorb the extra $3 million to $4 million of compliance you need to go public. But a small company, $3 million or $4 million - that's make or break.

Emerging growth companies, thanks to technology, literally have the world at their fingertips. It's much easier today to establish commercial ties around the world than it was 10 or 20 years ago. The key thing is in terms of expanding in other countries physically - that is still a very tricky proposition.
China is not an easy place in which to do business. They don't have the rule of law that we have in this country. And in a country like India you have another set of problems. They have regulatory approvals from state governments that can be notoriously inefficient.

The partnership has worked in a very, very turbulent time because Elevation (Partners) is not your typical equity fund. They have a keen interest in content so they saw this as much more than just a spreadsheet. And in terms of Bono, I've gotten to meet him, touch him, get his autograph, so that's been fun. But clearly given his work in Africa and elsewhere, he's a serious man who has done a lot outside of his own area of entertainment.
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Mike Cote is the former editor of ColoradoBiz. E-mail him at mcote@cobizmag.com.

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Readers Respond

I have long been a proponent of a national sales tax in place of our myriad of income tax laws. Everybody would pay the same tax, on the amount of money they spend for goods and services, regardless of their level of income. If you are poor, you won't pay much tax compared to the wealthy fellow buying $Million airplanes and so on. On top of that, we could save Millions by drastically reducing the size of the IRS, eliminating the cost of all those tax returns, audits, etc. The only problem will be finding something worthwhile for Congress to do, since they won't have the tax code to screw around with looking for ways to fix things they know little or nothing about. By Elliott A. Arthur, CFI on 2011 03 08

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