CAMPAIGN '96

By Richard Stengel

STEVE FORBES MAY BE THE ONLY man ever to run for President who behaves as if it's bad manners to introduce himself to strangers. On the campaign trail, he approaches voters with disarming politeness. "Hi, I'm Steve Forbes," he says softly, and then extends a delicate, manicured hand as though he's reaching for a wine glass. He doesn't plunge into crowds; he tiptoes through them, smiling apologetically, as if he doesn't want to be a nuisance.

But Steve Forbes has not been shy about bankrolling a campaign that is anything but polite. In the two months since he announced his candidacy, Forbes has inched up to second place in New Hampshire, where most polls show him with about 10% of the g.o.p. vote vs. front runner Bob Dole with 37%. And in Iowa, Forbes is tied for second with Pat Buchanan and Phil Gramm at 7%, according to a poll of likely caucus participants by PSI, a research firm. That's largely because of message and money. Forbes, who heads the magazine-publishing company founded by his grandfather, has been writing generous checks for compelling commercials in those states. Having spurned federal matching funds, he has spent several million dollars of his own money. In New Hampshire alone, he has dropped far more than $600,000, the limit imposed on candidates who accept matching funds.

More telling is the tilt to his commercials, which have gone negative long before the first sign of snow. Among his ads blanketing New Hampshire and Iowa, one is the sharpest attack so far against Dole; it accuses the Senator of voting for 16 tax increases in the past 13 years, a charge that nettled Dole when Forbes himself made it in a cnn debate two weeks ago in Florida.

Above all, Forbes is the smiling face in a dour Republican race, an economic optimist using sunny, supply-side theory to brighten up what he describes as the "sourpuss views" of his Republican rivals. Yet for all his patrician good humor, Forbes' message and his campaign have begun to show a hard edge:

Despite his frequent protestations that he understands the needs of the average Joe, his flat-tax proposal would reward wealthy investors while leaving the burden on middle-class families.

Just last week Forbes told WMVU radio in New Hampshire that he advocates a federal version of California's Proposition 187, a measure championed by Governor Pete Wilson forbidding illegal immigrants to receive government benefits. This is a turnabout from his views in 1993, when in his Forbes magazine column he equated Wilson's scapegoating of illegal immigrants with the interning of Japanese Americans during World War II and castigated Wilson's stance as "morally wrong."

While Forbes generally shuns the politics of exclusion, he has nonetheless attracted to his organization two veterans of Jesse Helms' race-baiting campaigns. When asked whether he was disturbed by the resumes of these two men, Forbes replied that one must hope for redemption, citing the aphorism "Every saint has a past and every sinner a future."

Forbes' vision of America is a more radical one than his charmingly goofy smile might suggest. To Forbes, Newt Gingrich is not a revolutionary but an incrementalist, and the Republican budget is just Tax-and-Spend Lite. His flat tax is also an enormous tax cut that he concedes will raise $40 billion less in revenue than the tax system does now; the group Citizens for Tax Justice, a generally liberal think tank, estimates a 17% flat tax would produce a shortfall of $200 billion. And never mind turning matters back to the states: Forbes is one of the few Republicans nervy enough to question the idea of devolution. Instead, he wants everything turned over to a still more sovereign entity, the individual. His vision of the future is replacing Medicare and Social Security with individual health and retirement accounts.

The centerpiece of Forbes' campaign is the crowd-pleasing 17% flat tax for individuals and businesses. To voters in Iowa and New Hampshire, this idea has become his identity. Forbes is no longer the mild-mannered son of that balloon-flying, motorcycle-riding, Elizabeth Taylor-escorting millionaire; he's the Flat Tax Man. At the Budweiser booth at a trade show in Manchester, New Hampshire, a fellow gripping a cold one shouted at Forbes, "Hey, I saw you on TV this morning with the flat tax!" Notes Joel Slemrod, a tax expert who teaches at the University of Michigan Business School: "One of the attractions of the flat tax to ordinary people is not that their own tax returns are so complicated, but that they suspect that other people are taking advantage of the complexities."

Under Forbes' proposal, the first $13,000 of personal income would be tax-free, and there would be a $5,000 exemption for each child. A married couple with two children would pay no tax on the first $36,000 of income. After that, wages and salaries would be taxed at 17%. Mortgage interest and charitable donations would not be deductible, nor would state and local taxes. Most unearned income would be tax-free: dividends, interest on savings, capital gains, inheritances and Social Security benefits.

But Forbes' plan would do little to disabuse taxpayers of the notion that the rich get a better deal from the tax system. Under his proposal, an investor in Boca Raton, Florida, who racks up $500,000 in income from bonds, stock dividends and capital gains would pay no income tax at all, while a teacher in Detroit earning $50,000 would pay $6,290. Because Forbes has yet to release all the details of his proposal, it is impossible to evaluate how it would affect middle-class Americans. However, an analysis of Representative Dick Armey's 17% flat tax done by Citizens for Tax Justice claims that such a system would raise taxes $1,740 to $4,600 on families earning between $45,000 and $85,000.

The principal reason, according to the University of Michigan's Slemrod, that Forbes' plan could ultimately weigh down the middle class is his intent not to permit companies to deduct interest or the cost of employee fringe benefits. "Somebody will bear the burden of these increased business taxes, probably in higher prices, maybe also in lower wages," says Slemrod. Without the ability to write off the cost of employee health insurance, companies might pay such benefits in the form of salary, which could conceivably increase a worker's tax bill.

Forbes is not the ideal messenger of his own flat-tax message, since he would personally benefit from it. According to Forbes' Federal Election Commission financial disclosure form, which covers 1994 and the first nine months of 1995, Forbes paid himself $1,355,622 in compensation as head of Forbes Inc. During that period, he also made $161,140 in honorariums (giving speeches at $15,000 a pop at places like Kutztown University, in Kutztown, Pennsylvania) and $400,000 to $1.8 million from dividends, interest and capital gains. On that investment income, Forbes would pay no income tax whatsoever.

While Forbes' winsome awkwardness marks him as the authentic outsider in the race, he is not unfamiliar with Washington insiders. Appointed in 1985 by Ronald Reagan to be chairman of the Board for International Broadcasting, which oversaw Radio Liberty and Radio Free Europe, Forbes had extensive dealings with Capitol Hill in his eight successful years in that role. In 1993 he stepped in and resuscitated Empower America, the pro-growth think tank that is the intellectual home of former Education Secretary Bill Bennett and former Housing Secretary Jack Kemp, who Forbes had hoped would jump into the race this time.

"Politics makes for some strange bedfellows," Forbes says, and the Forbes campaign does keep some curious company. In June, Forbes was the main speaker at a Jesse Helms fund raiser at which the Senator repeatedly addressed Forbes as Mr. President. "When you run, I'll be with you," Helms said. Later, in a burst of exuberance, Helms exclaimed, "Let it be recorded that your campaign got started here tonight in Raleigh, North Carolina."

That was three months before Forbes' announcement speech (Helms has yet to endorse any candidate), but it is not the only link between Helms and Forbes. While Forbes' campaign manager is the able Bill Dal Col, Kemp's former chief of staff, the campaign also includes two of Helms' former lieutenants, Carter Wrenn and Tom Ellis. Over the 20 years they worked with Helms, the gritty campaigns they guided became notorious for their exploitation of racial issues. As head of the Helms-aligned Conservative Club, a political-action committee, Wrenn raised more than $50 million for Helms' campaigns.

Jefferson Marketing, an offshoot of the Conservative Club, is handling some of Forbes' direct mailing and marketing, while Wrenn himself is working full time for the Forbes campaign at its headquarters in New Jersey. When Wrenn managed Helms' 1990 Senate campaign against a black candidate, former Charlotte Mayor Harvey Gantt, he told reporters, "What you have opposing Helms is another coalition of homosexuals and artists and pacifists and every other left-wing group." In that campaign Wrenn deployed the infamous ad showing white hands crumpling a job-rejection letter while a voice explained that a minority applicant got the job even though the white applicant was more qualified. Last year, in a feud that divided North Carolina politics, Helms broke off relations with Wrenn, accusing him of improperly using his name for fund raising, a charge Wrenn has denied.

ELLIS, A PROMINENT RALEIGH LAWYER who has described himself as an "unofficial kibitzer" with the Forbes campaign, was unsuccessfully nominated to the Board for International Broadcasting in the same year as Forbes. At the confirmation hearings before the Senate Foreign Relations Committee in 1983, Senator Joseph Biden suggested that Ellis had promoted segregation while he was counsel to the North Carolina Advisory Commission on Education in the 1950s. Ellis wrote at the time that the goal of school integration was "racial intermarriage and disappearance of the Negro race by fusing it into the white." Ellis later withdrew his name from consideration.

In North Carolina newspapers, Ellis has boasted of the role he and Wrenn are playing in the Forbes campaign, telling the Triangle Business Journal in Raleigh that "as far as the nuts and bolts of the campaign, Carter is doing it all." Forbes, for his part, genially downplays the roles of Wrenn and Ellis, remarking that Ellis "occasionally sends a note, maybe once a month," while Wrenn is nothing more than the office administrator. "I even had his head off this morning because the faxes weren't working properly," Forbes says. When asked why a man who has managed major state campaigns and raised millions of dollars is now ministering to fax machines, Forbes says wryly, "How the mighty have fallen." Neither Wrenn nor Ellis responded to multiple telephone calls from TIME.

Until Forbes' recent shift on immigration, there was nothing about his message or campaign that suggested the politics of division. He avoids the hot-button social issues harped on by his rivals: he would not ban abortion, gun control or affirmative action. He is a sincere seeker of answers, a man genuinely concerned about social pathologies. He cites Kemp's policies of enterprise zones and tenant control of public housing as partial solutions to inner-city devastation.

Still, the question is, as a snippy headline in Forbes magazine might ask, "Just What Kind of Return Is This First-Time Political Entrepreneur Seeking for His Money?" Forbes is not a half-in, half-out candidate, like another rich man who ran for President. This week he will announce that he is hiring 500 canvassers to get himself on the New York ballot, making him the only Republican to challenge actively Dole's hegemony in that state. Experts say this effort could cost Forbes as much as $1.5 million. He is also ready to announce an agreement with the leaders of the preeminent draft-Powell organization, which is active in all 50 states, to come aboard the Forbes campaign. Because Forbes is not dependent on fund raising or federal matching grants, he can stay in the race as long as he wants.

So what does he want? One of Forbes' cheerleaders, the supply-side economist Jude Wanniski, admits that in the end, "sometimes the best thing that could happen might just be that someone else steals your message." In the meantime, "he's having the time of his life," says writer Peggy Noonan, a friend who also helped polish Forbes' announcement speech. But his 18-hour days on the campaign trail are anything but a holiday. At a Burger King in Iowa City recently (Forbes is keen on the French fries), he was approached by a woman holding a baby in one arm and a Whopper in the other, who asked Forbes whether running for President was his hobby, like ballooning was his father's. Forbes grimaced, then recovered and replied graciously, "I assure you, there are better hobbies than this one." --With reporting by Tom Curry/New York

With reporting by Tom Curry/New York