networks, a forum on conservation fund anything congress. participants include national leaders from environmental and historic preservation groups who will discuss why continued investment in federal programs is necessary. they'll also talk about the findings of a new report dealing with the economics associated with outdoor recreation and the conservation of natural resources. that's live at 2 p.m. eastern over on c-span3. >> the heat is on. this is the first time that i've seen in my long tenure in politics where the heat, the real heat. because if these guys can't come up with something and watch this great chop go on, i'm telling you, they won't want to go home. >> on tuesday, former senators alan simpson and pete domenici and erskine bowles and alice rivlin. all have participated in past deficit reduction talks, and you can watch a video of those

meetings online at the c-span video library. everything's archived and search bl. watch what you want, when you wantment. >> next, the libyan ambassador to the united states n. a recent forum, he said his country needs support from the international community in order to provide security, education and training for his people. he also thanked the united states and nato for their role in toppling the regime of moammar gadhafi. he spoke at the national council on u.s./arab relation. this is about half an hour. >> which may extend a little bit longer than we originally thought. that said, the next event on the schedule is one you certainly would not want to miss. this is harriet fulbright, of course, the widow of senator j. william fulbright, and i never

fail to meet a fulbright scholar throughout my travels, and we know the world is a better place for that program. but mrs. fulbright was introduced earlier. we know that she's in her own right every bit as much of a force for international understanding and, indeed, the peaceful resolution of disputes as was her wonderful husband before her. i'll not go into the details of her bio because it's been presented once, but once again, the national council is graced to have harriet fulbright on our stage. [applause] >> thank you. i'm here, standing here to actually introduce ambassadorally aujali who is a first rate diplomat, and we are very happy to have him with us.

born and raised in libya, he started his career in 1968 in london and went on to malaysia, argentina and brazil. he has also held a variety of positions in his country's ministry of foreign affairs. and then on september 9, 2011, he presented his credentials to president barack obama. so we are happy to have him here. he is the first ambassador to the u.s. from a free libya. he practices his profession according to one of senator fulbright's more memorable statements: the making of peace is a continuing process that must go on from day-to-day, from year to year so long as our civilization shall last. our participation in this project and process is not just

the signing of a charter with a big, red seal, it is daily task participating in all the details and decisions which together constitute a living and growing policy. it is, therefore, my great pleasure and honor to present to you ambassador ali aujali. [applause] >> [inaudible] [speaking in native tongue] first of all, let me say thank you very much for this invitation. thank you for the arab-american

policymaker conference, for organizing this event every year. this is a very important event in washington, d.c., and i'm very happy to be here for the second time to give some remarks. three years ago exactly in this month 2008 i came here, and i made very few remarks. that day when i came here that i was expecting a very important news from tripoli concerning the settlement of lockerbie issue. then the outstanding issue with libya and the united states which took more than the case, it was settled that day when i came to this conference. thank you very much. the second thing, also, i want to bring my companions for the

death of the crown prince. i want to thank, first of all, the united states for what you did for the libyan people when they asked for help against this brutal regime which took place after the libyan peacefully trying to raise their voice to ask one simple question; what happened to our beloved who have been detained in 1996. and the only came to know about them in 2008. gadhafi the face that demonstration with weapons and guns. libyan people were desperate, and they ask for help. i was here in united states, in the washington d.c. i was interviewed by wolf blitzer from the cnn, and he had

the camera to my face and asked me, what do you want to tell the president. i told him, mr. president, libyan people, they need your help. libyan people, they've been killed by their own ruler. who ruled them for the last 42 years. without the help, without the lead of the united states, libyan people, they're going to suffer. and maybe it will be a massacre. and if no international action will be take, then i am sure that the world will regret. we have experience of -- [inaudible] we have experience in african countries, and we are grateful to united states. we are grateful to the people, we are grateful to the media, we're grateful to the congress who came forward and support. even there are some voices telling the people here and there that libya is not interest of united states.

but the interest is human being. libyan people are facing this brutal regime, and they have no ways and means to defend themselves. then i'm really happy on behalf of the libyan people to tell you, thank you, america. thank you, president. thank you very much. second thing i want to thank the nato who also came to help the libyan people. the creteed nations -- united nations, also, the air rook -- arab league, qatar, egypt, jordan, all these countries who came forward to help the libyan people. when the revolution start if libya in 15th or 16th of february, i was asking myself what is going on, and i made a

call to the important people to find out why gadhafi killing the people just for simple demonstration. and response i get for that time that they're only young people on drugs, and that's very easy issue to handle. when i hear this, i say, well, that is no mean for calling anybody. then my family, the libyan community, we've been discussing what's going on in lib california -- libya. there is only one choice in front of me. there is only one decision i have to make, and that decision is not difficult because what i have seen on my eyes, what we've been watching on the tv, it is unbelievable. i want to thank the libyan community for the role the

libyan student, my staff andal my -- and also my family. i am sure if i delay my resignation by one day, my wife and my daughter, they would go to the cnn and make it on my behalf. [laughter] i am grateful to them. um, nobody in libya, and i think in the world and the as well as agencies, they expect that the libyan people raise one day against this regime. because the main purpose, the main issues, the main interests of this regime have to keep the power in the hands of gadhafi's -- [inaudible] i've been working for libya 42 years. i was appointed --

[inaudible] before the coup d'etat. if we can make some changes, we cannot leave the country in the hands of gadhafi and gadhafi's family to do what they want. there are many decent people, there are many honorable people in libya. they felt long time ago that what's going on in libya is completely wrong, wrong direction. libyan, they never enjoy with all the wealth they have their life. they never believe in -- they never even dream with a good future for themselves or their children. they are disciplined. they have no loyalty to their own country. but september -- but february 17th it made the changes. for the first time in 42 years, that we are proud of our country, we are proud of our people. the libyans chanting on the 23rd of this month when they

celebrate free libya that raise your head, you are free libyan. then libyans are free after this revolution. you do not know how much we suffer as a diplomat. to keep our principles and to keep our dignity and to work to make some kind of understanding between united states and libya. i always believe that maybe when gadhafi, he feel comfortable with united states, maybe he will turn to his people, he'll look at them, he realize they need attention, they need instruction, they need education, and they need part of their wealth. two messages from the victory happening in libya. message and a lesson. message to the dictatorships all over the world. don't ever underestimate your

people. nobody dream in libya that one day the libyan would raise up against gadhafi. this is a great lesson. a message to the leaders, also, they have to give up -- to give democracy to the people the choose their representative. without this i think the arab world has been under the very, under stress from their own government, theorizing now. and there is -- they are rising now. when the libyans are raised against this regime, i spoke with the chairman of ntc in rome. that was, i think, maybe march. there are and i ask him for one thing. mr. ya legal, my advice to you is one thing; no compromise, no discussions with gadhafi or gadhafi's government.

we have one destiny, we have one hope, we have one dream that libya is free from gadhafi and gadhafi's sons. we -- [inaudible] we lost hope in this government to do anything for the libyan people. the libyans find themselves from different society facing brutal regime, and they find themselves they need leadership. then they organize themselves in the national -- [inaudible] people, they know each other, but they never work together in such a situation from peaceful administration to become a real war. these young people who have been fighting, unbelievable.

i believe because of the -- of depress, of frustration, of unemployment and of the hatred of this regime. for eight months libyan people, they made their dreams, their dreams come true. but we must realize that there are so many challenges in front of us. but at the same time i have two things. one the libyan who have been able to be united for eight months to fight this regime who's been using everything; raping, killing, maas graves. mass graves. i have a great hope in this people to continue the dream of libyan to free, democratic government. the second thing, the

international community who came to help the libyans, the desperate libyans in the right time we not only need their support and their help during the war, but we need their help and support during the peace. libyans, they need better education and reflections. they need training. they need security, and they need stabilization. this is very important issues. the national security council yesterday, they end the mission of the nato. i was not very happy myself, if you ask me. i thought that maybe they would extend it until the end of the year until we manage to control everything, every piece in our country. but the forming of another option which is led by qatar and united states and other

countries, i think this make me feel more comfortable. there are no resistance, of course, in libya. gadhafi's dead, gadhafi's finished. but in the same time there are some people maybe here or there. we have 8,000 of borders with african countries. unfortunate, many -- [inaudible] came through african countries to kill our people. then the challenges also we have, we have to remove this arms from the street. libyan, we never seen that libya, libyan people that carry arms in their hands except the police or gadhafi's soldiers. but now, unfortunately, arms everywhere. and we need help. we need help to, for this kind of weapons which libyan will not be able to collect like

missiles, like the other weapons which is now at large. we need to secure our borders. libya has no army, no police except security brigades. under gadhafi's sons' leadership , their goal was not to protect the country, but to protect the regime, protect the family. then we need help from the international community. we need to reconcile among ourselves. there are so many wounds, so many hurts, so many suffering. the libyan not for the last eight months, but for the last 42 years. but what's happening in the last eight months is equal for the 42 years of suffering. then we have to be careful how we are going to observe, how we are going to get the libyans together to unite. it is possible. it is not impossible. i am sure that the libyans will

carry their guns to fight gadhafi, they will be able to carry in their heart the reconciliation for the people.. -- [inaudible] two people, the ones who were corrupt t, and the ones -- [inaudible] we need the reconciliation among ourselves. the media, of course, carry many stories about libya. carrying the -- [inaudible] what's going to happen to libya. there are some islamic group that are worried about their agenda. from the beginning gadhafi is using the guide, from the beginning. who brought them to libya then? he is the one responsible for that. but believe me, the one who have been claimed as a member of al-qaeda or a libya fighting group, they came back from libya for a long time, and they are living their normal life.

but when they see the libyan, their families, their houses being raped and being killed and being taken by the regime who are using only the live ammunition if to kill your open people, then you can't blame them. but there is no worry about libya to unite. there is no worry that one group will take over. all the libyans, they paid a very high price. for one thing they want to achieve in their lives, democracy. and they have to thank god that i am still alive to see this regime is ousted by the libyan people. they're also talking about sharia, mr.al jalil mentioned in his speech on the 23rd of october. don't worry, this is the

excitement of the celebration. after jalil, the chairman, he was the myster of justice, and to now the process to make -- [inaudible] it will go completely different during gadhafi's time. we have to elect the council involved in -- [inaudible] according to their, according to the interests of the people. then i want the international community and the media to take it easy with the libyans. libyan, they are not aggressive. libyan, they are conservative. this is true. libyans, they are dreaming to have a normal relation with the world. we want normal relation. fifty years ago libyans used to travel to europe without visa. many countries for the libyan is without visa. now during gadhafi's time to get a visa, this is a nightmare.

then we want to have a normal relation. we want libya to be an active member in the international community to help security, to help countries who are suffering under also dictatorship regime. our responsibility completely is different from what has to be under gadhafi. what we expect from the united states. what do we can't? we expect, of course, that to build a conference which was not exist for the last maybe 30, 35 years. i came to this country on 2004 trying to build, trying to help as much as i can to normalize the relation for the same reasons i messaged just a few -- mentioned just a few minutes ago. but my job never been difficult. this relation, it's never been stable.

any statement, any to do with gadhafi, and he is not happy with it. that means we go back to the first square. i hope this period of nonconfidence, that it is over. we want the participation of united states in reconstructions of our country. we want also the american think tanks and democratic institutions to help us create the atmosphere of how the libyan, they can practice their rights to vote the government. i must mention here that i'm really grateful to secretary clinton and to senator john mccain and senator -- [inaudible] they've been to libya a few days ago, and now there is a deal that the first libyan wounded, they will arrive to boston tomorrow about 6:00 for the treatment in united states hospital.

this is a very important and you are i can't issue for the ntc -- and urgent issue for the ntc to deal with. the weapons in the street, the security of the country and the, because the security of libya is very important, we have tunisia in the east in the west we have egypt with in the east, and we have to work together for the stability of the region. the illegal immigrants, gadhafi used to use the illegal immigrant as a weapons and blackmailing the european countries for the last -- [inaudible] if he is happy with them, then he will stop the legal. if he's not, then he open the doors. and not only the doors, but he help them with boats and things to go. we have to build, of course, our institution. we need your help. we need your support.

and, of course, there is a very important issue we have to handle in among ourselves as a libyan. as i mentioned, reconciliation. the people know they are ready for, to establish a new democratic country, believe in freedom, believe in human rights, believe in the freedom of the press. but they need your support. they need your support. they need the support of the united nations, of course. we need to know where our monies are. there are some in europe, some in united states. we are not worried about this, but we are worried about the other money which may be in african countries which we don't know where they are. we hope that we elect our government in eight months after the reform of the interim government. we hope that the libyan people, they make the right choice. if they don't, second time they

will learn. thank you very much. [applause] >> mr. ambassador, thank you for your come prehence i and thoughtful remarks -- comprehensive and thoughtful remarks. i'm certain i can speak for this audience that the best wishes of the national council and our friends with the people of libya at this time. sir, just one or two questions. you seem to have a wonderful appreciation that the apparatus of government that remains may have extraordinarily difficulties in dealing with the challenges of creating a new state. and, indeed, that seems to be the experience of the world when these things come. there are specific concerns about the weapons. the weapons that may have become misplaced during the, during the time of the uprising. and as you mentioned, there's

the question of will you be able to get, to get the money. as we know sometimes when tie rapts depart -- tyrants depart and even when their families depart, they manage to bring a lot of the resources and riches of the country with them. and one can only wonder how much money has transferred to niger in recent days with the family. sir, any thoughts on these summits would be appreciate -- subjects would be appreciated. >> of course the weapon is the main concern of libya, and if you watch the ceremony in benghazi on the 23rd of on octo, you see the military group, they brought -- they presented mr. jalil with pistol. this is symbolic asking the libyan fighting group that they have to do the same. and we start to see that many groups, they are giving up their weapons. and this is a very good sign. and it is important, of course, to encourage them and to do whatever we can to collect all these weapons.

but maybe this is not the main issue, the main issue the weapons which we don't know where they are. and the weapon which are there, but we need some help, technical help to get them. i believe this is united states and great britain, i think they are giving the help and support. concerning the money, of course, now after the united nations, security council resolution 2016, libyan know they have more access to their money. there are, they are working with international and banking, banks and other financial institutions how to get this money. but the problem is not only how to get this money, the problem how we going -- what we are going to do with this money and how can we keep them away from any corruption. this is an issue. and i believe that the money which we get from any institute

or any banks, they have to go directly to the libyan central bank or to the libyan banks in the libya. i think the libyan now they're mature, they know what corruption means, they know also that new officials, they know very well that the libyan now there are three people gwen any corruption anytime. but not on the same way i hope that there is against gadhafi. >> sir, one more item, please. and a previous speaker mentioned the possibility of a defense relationship between the united states and libya. and, of course, the united states has just formed a new command called africa command that seeks to establish relationships not only throughout africa, but also specifically with the arab ma

again. and one knows that just when colonel gadhafi came to power, the u.s. air force departed the air force base just outside the capital of tripoli. and there are those who remember those days and wonder if new government of libya would seek a defense relationship or be hope hope -- or be open to negotiations concerning one with the unite. well, i think the relation between the united states and libya, it will be one of these issues. but we will never think, of course, that the united states one day, they will have base in libya. this kind of idea, they're not on the table at all. we need -- we want to have a very respected and equal relation with the west and with the united states. ..

>> we do understand very much what the west and what united states did for us. but then the same time, the opportunity and a leaking decisions have to be respected. with this we can keep better relations. with this we can keep the interest. with this will not be used by the country to support us. and countries support us, not also blame that they're coming

for the certain interests and they want to make libyan political decision. i'm very sure at least understanding between our leadership, that we have to do in better way, just as before we had to build the confidence between our countries, between our peoples, and, of course, our economic and trade relations will be taken into account, the countries who came to support us when we are desperate. i'll never forget on the 19th of march when the acting foreign minister called me and told me if there is no action tonight from nato then benghazi next day will be their biggest cemetery in the region. and the french, they tried just in the last time, they were late one hour. i think benghazi will be cemetery, that's true.

>> in the interest in moving along with our agenda this afternoon, we are going to, as we did in the pass, consider some of the 20 odd questions in a more thoughtful way, check with our friends from the libyan delegation and provide answers electronically on our website. we most passionate we are most appreciative of the ambassadors, not only remarks this afternoon, but also his willingness to adjust his schedule as we need to adjust hours to look after the events as they unfolded. so please join me in expressing our appreciation to not only the ambassador from libya to the libyan people for their freedom. inducer. [applause] and then thank you, sir. [applause] >> will the presenters on the

section of palestine please come forward. >> we are live at the american enterprise institute for remarks from republican presidential candidate herman cain. he will be discussing his 9-9-9 tax plan. his proposal calls for a 9% business tax, 9% personal income tax, and a 9% national sales tax. joining them will be his economic adviser, rich lowry. this is live coverage on c-span2. we expected to start momentarily.

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>> live pictures from the american enterprise institute. we are waiting the arrival of republican presidential candidate herman cain. he will discuss his 9-9-9 tax plan this morning. joining him will be a senior economic adviser, rich lowry. this will be the first of two appearances by mr. king in washington today. first of the american enterprise institute and you also be the luncheon speaker this afternoon at the national press club. he is expected to discuss why he is the best candidate for president, and possibly respond to questions that arose over the weekend regarding sexual harassment accusation but he was the head of the national restaurant association back in the '90s. that would be live from the national press club starting at 1 p.m. eastern. it will be on our companion network c-span.

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[inaudible conversations] [inaudible conversations] >> we are at the american enterprise institute this morning awaiting the republican presidential candidate herman cain, discussing his 9-9-9 tax plan. he will be joined by his senior economic adviser rich lowry when he arrives.

this is live on c-span2. as we await mr. cain, the house in the brief pros and -- pro forma said it -- right after that herman cain will be speaking at the national press club. you will be able to see that on c-span. that will start at 1 p.m. eastern. the senate is in session today. they start at 3 p.m. eastern beginning with general speeches. at 4:30 they will consider a nomination of u.s. circuit judge for the fifth circuit. then at 5 p.m. the senate will hold their first roll call of the week. senate also continued working on remaining amendments to h.r. 2112, the so-called minibus of federal spending. they will resume taking votes on those when consideration resumes of h.r. 2112 tomorrow. you can see the senate live here on c-span2. the house life on c-span.

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[inaudible conversations] [applause] >> thank you, good morning. >> i'd like to welcome mr. cain to the american enterprise institute. mr. cain -- he has taken a public policy and made it one of the main topics of conversation in the united states, something we've never been able to do. we are going to have a conversation for about 25 minutes, and then we'll open up to the floor for about half an

hour. afterwards, mr. cain will have to leave for another event and at that moment we would ask everyone to remain seated, for security purpose. then we will begin a roundtable conversation with lots of geeky, nerdy types who study taxes. will talk about the details of $9.99. it's very great to have your. >> happy to be here. pull it down just a smidge. [inaudible] >> pull it down just a smidge. i will blow this thing to smithereens. [laughter] >> it was actually -- >> don't talk about me, kevin. >> it's you. >> very good. i'm happy to be here. >> thank you very much. to get you rolling right away,

it's halloween, so if you're going to go as one of your political opponents and into early want to scare people tonight -- [laughter] who would you dress up as? >> it has to be one of my political opponents? >> let's say one of your republican opponents. >> that is a trick question. i believe i would go as ron paul. [applause] >> okay, so mr. cain, you've talked a lot in the debates about how this experience is different and may be preferable now. i wonder if you talk a little bit about how you think your business experience has influenced the design of 9-9-9 and might even help you take something that is a pretty ambitious plan and helped along? >> in business, you make sure that you identify the problem,

and you identify the right problem. and in business you figure out a solution to the problem. you don't develop a half solution. you don't develop a safe solution. you develop the solution to the problem. there in lies the difference between a businessman and politician. let me use an example of godfather's. when i was at godfather's pizza, its parent company, pillsbury, had already decided that godfather's was going to go bankrupt. but i didn't get the memo. i didn't know it was supposed to go bankrupt. so i did what i have always done, and what i will also do as president. i went and talked to the people closest to the problem. i talked to customers, people working in the restaurants, managers, franchisees, suppliers. and they all gave me the same

message, although it was in different words, which was, godfather's biggest problem was lack of focus here it was trying to do too much too fast with too little. i got it from the people closest to the problem. and so we put together our strategy based on eliminating three of the four cross that they're trying to sell. that helped us to improve operations day to day. it it easier for the people working in the restaurant to consistently provide the produ product. and we hammered on that strategy, so we simplified, maybe this implication helped lead to 9-9-9. so we simple by the operation for managers, which helped us. secondly, when we did introduce a new product because we had sagging sales, we needed to give customers and new customers a

reason to come back to godfather's. they had left us, so we developed a new product called big value your because in addition to being the quality alternative in the segment, we knew that we needed a value proposition to a track some of the people that we didn't want to damage our quality image or get everybody to convert over. it work. we developed a new product, simplified operation, that is how we solve the problem. and i have enough believe, in terms of how to go about things. that kind of thinking inspired 9-9-9. >> were there any moments when you were ceo where taxes had a big effect on what you're doing? right that the tax plan is the centerpiece of your presidential campaign which suggests that you've noticed after in the real world that taxes are an obstacle to growth. was there a moment where you went here instead of their because of tax is?

>> absolutely. i went to godfather's in 1986, and in 1988 is when i first realized just how government regulations, government impose taxes could negatively affect godfather's. here we put together a strategy in 1986 that we are implementing and it was working. and then all of a sudden we had to fight increase in minimum wage in 1988. which was going to dramatically impact our sales. i became very vocal on that issue. we have to confront labor laws. way to confront was going on in d.c. in terms of paid leave and that whole debate. and so in 88 is when i became aware of the impact of government on my business and the restaurant business, what a lot of people may not be aware of, our margins are not great. we're not talking of the

automobile company. you're not talking of an oil company where they have much bigger margins. restaurant business, food service business, grocery business, we don't have, we have a very small margin to work with in terms of costs that we can absorb. so it was early in my days at godfather's when we did everything we could do internally to fix the problem, then we had to contend with all of these external forces. that was a time in which i became much more aware of the potential negative impact spent and it was the famous episode we discuss the clinton, and there's a story in wikipedia which may or may not be true that jack kemp chartered a plane to come talk to you because he was so impressed with that exchange. did jacqueline come talk to and did you talk about taxes at that point? i see some of his fingerprints in 9-9-9. >> his fingerprint are all over 9-9-9 come you're actually right. unit, just the people know i was

an adviser to jack kemp when he is running for vice president. he was a great friend, i admired him, and that's what i was going to work with him on his campaign. after the exchange with clinton in 1998 -- 1994, many of you probably have seen it by now, it's received a few hits on the internet, let's say that. where i basically said to president clinton, with all due respect, your calculations are incorrect. he was basically promoting phony numbers. and i called him on it. and then when i called him on it, his administration could not prove that i was wrong. and that for the business community woke up, and they, too, started to look at the numbers and read the fine print. and so the momentum built in order for people they were calling on congressman, calling the representatives. they couldn't prove that the numbers were right. because the numbers were wrong.

and there again they were trying to minimize the impact of my p&l, and when clinton started to argue with me about the minimal impact i said well, with all due respect, i think i know my p&l a little better than you do. after that exchange, my office got a call from jack kemp. he said i'd like to meet with you. and i said okay. he did flight to omaha, nebraska. i met him at the airport. it was at an spl. he was on a charter plane. we sat in the airport. i say would likely to take you to lunch? no. we sat talking in airport for three hours getting to know each other. he flew to omaha, nebraska, to talk to me with no agenda other than to get to know me, to learn about godfather's pizza, to get my thoughts on taxes, taxation, business. and we got to know each other and we bonded on that day. so that is a true story.

>> interesting. turning now to 9-9-9. what are the features that are most similar to the obstacle we talk of it a passionate aei, with a much smaller crowd i would say -- i don't think there are a lot of people clamoring for me to run for president. but maybe. the consumption tax angle is the part that i think there's a big academic literature that talks about the economic benefit of consumption tax. so is not part of the original motivation for you is to move for attacks in consumption? what you think we accomplish? >> the answer is yes. we have several objectives in mind. first we wanted to be simple because if american people understand it, they will demand it. this isn't going to pass based upon my ability to persuade congress alone. this is going to pass because of

the strength and the voice of the american people, so we wanted to be simple. secondly, i've been working on tax reform and tax replacement for decades. i was a supporter of the flat tax on income when i thought it would have a chance of passage when dick armey was talking about it, steve forbes ran for president on it. anything to replace the current tax code i was more. i worked on economic growth and tax reform commission that jack kemp headed up. and out of that commission came six principles that a replacement should satisfy. guess what? the fair tax, national consumption tax, and the flat tax on income, they both satisfied the six principles we came up with. at the 13 person commission was deadlocked on which to go

because they both have agitated and they both had negatives, et cetera, and as a result the commission decided to state the principles. and we basically said in a report that got caught in a drawer by the way, basically said that either one of those will satisfy those principles. so for decades i've looked at both of them. and knew that they both offered some very positive benefits. the people who have supported flat tax for a long, long time feel very strongly about it. the people who supported the fair tax for a long time feel very strongly about it. so one of the objectives was, let's get both of these groups to the table. so the first, so, therefore, the 9% flat tax on personal income brought the flax tax people to the table. the 9% retail sales brought the fair tax people to the table.

and so we have now a built-in support for the concept now, the fair tax people were a little upset at me for us because they want all their tax, the the decision we made strategically was let's get america used to the fact that a national retail sales tax is a good thing. and it's a lot easier to sell in 9% rate instead of 23%. so yes, having worked and studied both of those, both of those alternatives for years, did contribute how we put together. we wanted it could be simple, which is. we wanted it to be transparent, which it is. 9-9-9. there are no other ninth. we don't have any hidden ninth. we wanted it to be efficient. we spend collective on $430 billion a year, filing and complying. that money doesn't have to be spent. and we wanted it to be fair.

fire according to webster's dictionary, not washington's. which is everybody gets treated the same. what a novel idea. so those were the guiding principles that went into it. >> it's interesting you mention that because one of the things, and maybe this is your undergraduate showing through, but if you play with the math and there's not a lot of difference between a value-added tax and flat tax and a fair tax, that they are all very, very close to the same thing. and i wonder if it isn't sometimes frustrated with people, like at some of those i'm all for the flat tax but hate the value-added tax, it's something of an illiterate thinking because ron pollack that he designed the flat tax, but he went to come up with ways and work in the u.s. so why do you think the 9-9-9 is the best form, works better than the others that have been proposed? >> because we expanded the base. the only way we're going to get

the lowest possible rate is to expand the base. so rather than just like a income, if the base was just income, the only way we're going to generate more revenue is raise tax rates, which i didn't believe that we need to do. expand the base by bringing in the sales tax component, that's how we were able to arrive at the 9-9-9 rather than a 20-20 or some other big number. but you make a big point. when people want to call and my uppers are calling it a flat tax but it doesn't matter what you call it. it doesn't matter what you call it. the reason that some of my opponents were trying to call it a vat, what happened in europe, that have both. they have a vat tax but they have multiple v.a.t. taxes, value added. technically that last retail tags of 9%, you could call it a

v.a.t. but it only happened one time. the difference is in europe it happens multiple times. today in our current system, we have invisible v.a.t. built-in. take a loaf of bread. the farmer has got to pay taxes, the flour mills have to pay taxes on his property. the patrons got to pay taxes on his property. that is a v.a.t. but it's difficult. the truck driver that delivers the bread has got to pay taxes on his property. the grocery store owner with little margin, they've got to be tax on their property. who pays those taxes? we do, as a consumer. and so what 9-9-9 does is we replace that 30-40% invisible tax which has been estimated by some of the best economies in the world, some people think 50% of all the cost of an item, it couldn't go as high as 50%.

we take out the 30-40% invisible tax and replace it with a 9% invisible tax. >> so i wonder if you look at you website, it says that after we passed 9-9-9, then there is a second stage will you begin the conversation to transform the tax system into a fair tax, which suggests you think the fair tax is better than 9-9-9 in the long run. and i wonder if you could explain why you think that is? >> idea believe that in the long run, the pure consumption tax which is called the fair tax would be better for the following reasons. then you put the consumer totally in charge of what they pay in taxes, based upon their purchases. with 9-9-9 the consumer is charged on the third nine. you don't spend any money, you

don't pay any taxes. the second nine, you earn money, you've got to pay taxes. so you're not totally in charge of it. you go to the consumption tax, the consumer is told in charge. i happen to believe in 100% in consumption tax. you are going to see a dramatic difference in people's behavior, and that's what is going to supercharge this economy. we believe that 9-9-9 is going to significantly boost the economy, are we had scored dynamically. it will boost this economy right now this economy is on life support. this is why we put a bold solution on the table rather than another generation of the current tax code. >> so in the fair tax, they have a pre-paid with a forgive the tax for a basic poverty level of consumption. but you prefer an enterprise, and empowerment approach to

pursuing fairness to i wonder if you talk a little bit about i guess first the technical details which would be if you go to a fair tax any end, are you going to have the same fairness approach that you now with 9-9-9? but also more general about the government's role. >> right. you're right, we will start the dialogue, not going to start that dialogue early. i want people to stay focused on 9-9-9. in 9-9-9 here's how we approach assisting the goals, assisting those that are making a significant amount of money. 9-9-9 collects the same amount of revenue that we now collect from corporate income tax, personal income tax, capital gains tax, death tax and payroll tax. which is the biggest tax that a lot of people pay. so we are converting five into three.

now, if someone were to read the entire analysis, and let me underscore that, they would have discovered that the revenue we collect is actually more than those five. why? because of the poverty exemption. the poverty exemption for everybody. those at or below poverty, the medal nine is zero. if you are filling out your taxes and you make a lot of money, you still get the poverty exemption because you could be rich one day and for the next. that's similar to the transport in the fair tax. remember i said everybody gets treated the same? secondly we identified opportunity zones. we are working through how you

qualify as an opportunity zones, but in an opportunity zone, like detroit, businesses there will be able to take additional deductions. we have allocated money in the collection of the tax revenues for the poverty peace, and opportunity zone. and so we treated it slightly differently than going the route of the prebate pics i guess that's how we deal with it. >> but more generally be on tax policy what role does government have in terms of enacting legislation to create fairness, or to spread the wealth around? >> i believe that the governments role to create fairness should be zero. level the playing field is the governments role, in my opinion. level the playing field. let the free market system, let people's decisions determine what's there. not the government. because when the government gets

into picking winners and losers, can we say solyndra? when they get into that business, where does it stop? you add an unnecessary influence when the government gets in the business of trying to define what's there. and that's why we have the mess that we have today. >> so, are you surprised a little bit about your republican opponent have responded to 9-9-9? >> no. [laughter] when you have the best plan on the table, expect to be attacked. in the last debate i didn't expect the bull's-eye to be that big on my back but it was pretty big. i really wasn't surprised, and here's why. we put this plan out early in this whole process. i really expected them to put their own plan on the table a lot earlier. but what this shows is they were

scrambling. how do you come back and counter 9-9-9? because it starts with throwing out and put in this current structure. and so all of the ones who have said they have a plan, what does it do? it pivots off of the current tax code. now yes, we still keep that, you know, flat tax and yes, we've got to a much, much, lets you say we're going to eliminate irs and put in a new agency that would be a whole lot smaller. at the pivot off of the current tax code which means that they still are going to have a battle, people's favorite deductions and exclusions and things of this nature. liars are going to be all over them trying to get their industry or the segment or that businesses favorite, we don't have any. but yes, it just indicated that

they were scrambling to come up with something better than 9-9-9. and so far they haven't. >> one of the interesting features of 9-9-9 is that you eliminate the payroll tax. and so, therefore, you sort of eliminate also the connection between payroll taxes and what your benefit might be, which means social security would be on buddy instead of off budget. is that an intended consequence of 9-9-9 and if you thought about what that might do to social security, whether that would help you accomplish some of your goals? >> it is an intended consequence, and let me make it very clear. we collect social security revenue using the 9-9-9 structure but we are not eliminate social security. seniors will not be negatively effected. what the next step is, to figure out how we want to restructure the system. seniors are not going to be affected. we are working on the concept of

younger workers having an option as we face off with this current system that we cannot sustain. so yes, social security is not going to go away. another solution we're going to put on the table will be here's how we address and better utilize those dollars. one of the principles that you alluded to with that question, you will see coming from herman cain candidacy, individual solutions to problems. not a 59-point plan with a hundred and 60 pages. yes, i took a shot at somebody, okay? [laughter] not a 59-point plan that covers a whole lot of stuff that is not even related. one of the things that we want to achieve is put ideas on the table that the american people can understand and can get

behind. so when we present a social security restructuring, it will be about how we restructure social security. within the next couple of weeks we are going to be presenting our energy independence strategy. we are working on that so people can get their heads around energy independence and how we want to do it. and so keeping the solutions of individual problems is how we are going to do it, rather than massive documents that nobody wants to read, and nobody is going to understand. >> let's probe a little bit more, so 9-9-9 becomes law in, say, figure of your first term. so what's up in march? [laughter] >> i'm going to ask congress to make it retroactive to january 1, and guess why? it is estimated that the gdp for this year might, on an

annualized basis, hit 1.6%. that's one of the latest projections. that's pathetic. and what the president is proposing, it's not going to be any better next year. so i'm going to ask congress to make it effective january 1, 2013, retroactive. after i'm elected we will begin to work with members of congress to tee up that legislation. the mere fact that we would tee up the legislation and say that we're going to make it retroactive, the business community is going to get excited, which is what we need because the business community is the engine of economic growth in this country. it will be fuel for the engines. luck, i served on corporate boards for nearly 20 years

throughout my business career. the discussion in the boardroo boardrooms, prior to the last three years, was how do we grow the business. we never had a discussion about how do we stay the same. how do we get small. how do we grow. then within the last three years, a lot of boardroom discussions became how do we survive. because they have done their own assessment that this economy is stuck. it's not going anywhere, and it's going to stay stuck because of ineffective failed economic policies. and so when the business community sees that the unconventional candidates has gotten elected president, with a bold idea, they are going to get excited that he just might get this thing passed. and if the business community

gets excited they're going to do together growth plans, or at least they will have them on the table ready to pull the trigger once members of congress say that we are going to move this through. and so this is what we badly need to is why i want to make it retroactive, because this economy can't wait. 14 million people without jobs and they can't find jobs. folks can't wait. this is our biggest domestic priority, in my opinion. >> thank you, mr. cain. we have been managing a conversation online about 9-9-9 and has volunteered to bring some of the internet questions about 9-9-9 to you before we open it to the floor for general questions. >> many twitter and internet questions. on the v.a.t., i think this is a fairly representative question. i think the tone of the by linda, it looks like the v.a.t., smells like a v.a.t., talks like

a v.a.t., is it really a dark? i think they're wondering about, it seems very v.a.t. like. >> it doesn't matter what you call it. it is a single rate at the end of the cycle for a product. people who want to call v.a.t., be my guest. it is a single rate, 9%. they already trying to scare people away from 9-9-9. secondly, would you rather keep the 82000 page mess that we have today, or argue over what you call it? i will argue over what he called every day. >> ryan has a question. why does 9-9-9 double tax wages, but only single tax capital? should all income only be taxed once? >> rich will answer that question later.

rich, do you mind standing? rich lowry is the co-architects of 9-9-9. >> and one of our ground was, if there's a technical question like what happens to escorts under 9-9-9, and our second panel conversation. >> that was like the easiest question i had. >> one more before we throw to the audience. >> let me ask this way, neil said how do you plan on changing or reversing dodd-frank? one thing some people would like to see is maybe another nine on that plane which is a tax on banks. the fact we're going to bail out these banks, maybe they should pale out -- pay another tax. what would you do if we had another financial crisis where multiple banks were in trouble need to be bailed out the? >> i would not add another nine.

they get convoluted. i think we need to repeal dodd-frank to start over and put the right controls and. trying to take 9-9-9 and solve another problem isn't philosophically how we should solve problems. we're trying to solve one problem, boost this economy. now, the attitude that you want to punish banks for past sins or for potentially future sins, that's not our approach in our to me. i believe you have a free market committee is what it does best year and 10 -- what he does best. spink i would like to remind everybody that the aei, when we have questions from the floor in an event like this, the questions need to be about the topic at hand. and mr. cain will be at the national press club later in the what if you have some topic that is unrelated to fiscal policy that you like asking about, you

can probably do that. we opened up for general questions, and please wait for the microphone and please identify yourself. we will start in the back. >> hi. first of all, let me say that i know how tough a business. goes the first job i had in washington was manager at a pizza place. i'm now owner of a company, and i have a question. right now the largest corporations in america are sitting on about one and half trillion dollars in cash. the reason they are not building up their capacity is because there's no demand demand for their products. now, another word for demand is consumption and that's what you're taxing. so essentially you're taxing what is going to get the economy growing again. and i don't understand how that's going to translate into growth. >> go to the first nine.

it is a package deal. in the first nine, flat tax on business income, you are able to deduct purchases that you had to make to produce your product. you are able to deduct capital expenditures, in other words, full expensing right away, and net exports. allowing businesses to deduct net exports helps to level the playing field, which is u.s. produced products in other parts of the world. and so, the other part in terms of cash that they are sitting on, 9% gives businesses a compelling reason to go ahead and deploy that cash versus 35% top marginal rate. all the way from a top marginal rate of 35% and 9%, i believe that smart business people are

not going to see that 9% as a barrier. >> next question. i will come back and forth. >> i just want to know, you talk about yourself as a problem solver. there are a lot of people, not just people camped out on wall street, look at the growing income inequality in the country as a real problem for sustaining democratic confidence participation. how big of a problem is that middle-class wages in the increasing gap in income in this country? and what is 9-9-9 do, a lot of people say would exacerbate that, how would you answer that? >> well, that last statement is simply not true. if people do the numbers they will see that it does not exacerbate the problem. it helps the problem. most people, with 9-9-9 will be better off. the only thing i can say is people have to do the numbers to

see the. i think people come up to me and say i ran the numbers. in fact, one of our supporters has developed a calculator that you can go to, putting in your actual situation and see how they come out a lot better. we are trying to confirm that so we can put it on the website and recommend it. at my answer is to the numbers. we know generally speaking based upon the analysis that we have done, the middle-class will not be exacerbated. let's go to your bigger question. it is a problem if the middle-class is not growing. if those on the lowest economic ladder are not able to move up, the biggest impediment and the biggest driver of that disparity is a stagnant economy. 14 million people who can't find jobs. we have hurt the middle class with millions of people being underemployed. these are people in the middle class who can't find a job

commiserate with their education and their experience. that's the problem we must solve, and that's why i believe, we believe, that 9-9-9 addresses that. when businesses get excited because of a 9% tax, after they're able to make those adjustments, this economy is going to take off. that's the problem, not government trying to mandate closing that gap. no. [inaudible] >> i would like to see that gap closed, and i believe with a vibrant economy that that gap would close. very quickly, there have been studies that i have seen in the past that show that the people who are at the bottom, economically, most of them don't stay there. if they've got an opportunity to move a. they don't stay there. it's not static. it's dynamic. but when do they move up? when we have had vibrant, robust

and economic growth. >> next question. >> i want to go back speech could you identify yourself? >> david. i would like to go back to the webster definition of fairness, and talk about your empowerment zone. >> opportunity zone. >> opportunity zone. why is this -- we had empowerment zones in the past year i would not say they have been quite successful at all. i want to know first why you think yours would be. and secondly, why is this not just a loophole in your basic 9-9-9 program? why is that any different from someone else's loophole that they will try to get in? >> the reason we call it opportunity zone is because the

term empowerment zone has too much baggage. secondly, the concept of empowerment zones have failed in the past, because you are trying define it and connected to a complicated tax code. we have dramatically simplified it. and so with 9-9-9 being the structure, it's easier to create opportunity zones by modifying some of the parameters of some of the deductions in the 9-9-9 structure. the other thing that makes this more advantageous in terms of opportunity zones, cities or communities will have to compete with other cities to classify as an empowerment zone. so it's not going to be, here's

a set of parameters, and if you satisfy these parameters you automatically become an opportunity zone. know, because the opportunity zones are also going to require the economically depressed areas to do some things that help themselves as well. if they have built in impediments and barriers to the economic growth we are not going to fund those barriers. and so that's what makes it different. >> hello, mr. cain. >> hello. >> two questions here. one, one of your opponents has put out a flat tax. one has called it an optional flat tax so you can still stay in the current system. wonder what your thinking is on something like that. and secondly, as you are well aware there's a big cloud right now that is affecting your ability to get this out which is a star in political. and i was just wondering if you could clear it up for us right

now. that just because i that question has been consistent with the ground rules we have. [inaudible] [inaudible] >> is going to be at -- >> the ground rules. >> we have got -- >> what was the other question? >> flat tax. >> first, making it optional i believe makes it more complicated. i don't believe anybody wants to stay with the current code, so basically i called governor perry's plan tax flat like. and the reason is it's not the pure flat tax that steve forbes proposed. why? because he keeps in some of the favorite deductions to basically

try to reduce criticism. i'm not interested in a plan that's going to reduce criticism. i'm interested in a plan that's going to solve the problem. and we will see ways government parries flat tax like proposal is structured, the battle amongst lobbyists is going to be fierce. they will want to add some more, add some more entries in you be right back to where we are. so it doesn't get far enough away from the current tax code, and that's what. >> we will come back over here. >> good morning. ken green, aei. thanks for being here and taking questions in a formal setting like this. i work on energy policy at aei. my first job was delivering pizza, however.

so i do have association. i'm glad. you're going going to be releasing energy plan coming up. even though you been a 10 -- even though you have pushed back. can you give us a preview? >> it will begin with recognizing that we do in fact have enough natural resources to become energy independent. we want to maximize our oil, our goal, our natural gas, our shale oil. we maximize those resources, and as you know, new resources have been discovered, we can become energy independent. so we will structure it where all of those alternatives will be encouraged to be developed by removing the barriers that are

stopping that development right now. the biggest barrier is the regulatory environment. and we are going to attack the head on. the specific regular challenges that we're going to have to make in order to be able to explore these responsibly, we don't have all of those identified yet your but we know that it starts with the epa. and in a king administration the epa will get an attitude adjustment. so we're going to maximize and encourage all of our natural resources. and secondly, energy independence is not only an economic barrier, it is a national security barrier which is why we have energy right up

there and the cold, critical number one issue that i'm going to work on, day two after i'm sworn in, day one i'm going to take a nap, national security. i'm glad you all got that. that means you all are a wake. national security, the economy and energy are the three top critical. what's going to be another one critical priority? those three. that is me we're not going to work on other stuff but that's going to be the initial focus on those, so it is to maximize the current resources we have. there's even some new technology that's not being taken advantage of that we will also include in our energy independence strategy. >> another question. i think i have to take from the middle. could you wait for the

microphone, please. i guess you have to fight your way through. >> max hoffman. do you have any fiscal recommendations for your of? [laughter] spent do i have any fiscal recommendations for europe? man, we have enough of our own problems rather than try to tell europe how to deal with theirs. no, i do not in all honesty. i happen to believe that if europe, generally speaking, moves more towards free market principles, i think it would strengthen, the european economy. ..

>> we must grow the economy which is why i'm not going to back off on 9-9-9. i'll just send it to the hill. and the american people get it. this is up with of the most powerful things -- one of the most powerful things about the plan, the american people get it. we've got the economy growing at at least the 4 or 5%, we don't know i how much it's going to be, but based on the assumptions of the model, it's going to be around 5%. and then at the same time cutting spending. and i've already said the way i'm going to approach putting a cap on the spending is i'm going to do a 10% across-the-board cut

of every federal agency. and then a deep dive in federal agencies to eliminate duplication, wasted programs, etc. now, some people say, well, you can't do that. yes, you can. [laughter] some people said that we couldn't save godfather's. we did. it takes making some tough digs, but going about -- decisions, but going about it in a systematic way. my only advice to you is get spending under control, follow free market principle, and you might be able to -- you're not going to catch us, but you might at least be able to get on the same track. >> just to follow up, some republicans say that you should have a spending cap, and others say we should have a balanced budget amendment. are you a spending cap or a balanced budget amendment guy? >> i'm a balanced budget amendment guy, yes. a balanced budget amendment guy. and one of the things that, one of the things that i want to do very quickly is have an annual

budget where revenues equals expenses. what a novel idea. what a novel idea. guess what happens? then you don't add to the national debt. i happen to believe it is possible, folks. i really believe it is possible. now, remember, when i'm sworn in, i will inherit that fiscal year's budget. the first one that i will help to create and have to sign off on coming from congress will be the fiscal year budget of 2014, is that right, rich? something like that. 2014. we are going to -- we have, we have set an objective. now, since we haven't done all of the analysis yet, the objective is -- the objective -- is for that budget, the first full fiscal year is for it to be balanced. you can't do it with just

cutting. you've got to have the economy growing. and by having 9-9-9 passed retroactive to january 1st, the economists are going to make higher projections of what the economy's going to do. we're going to anticipate more revenue coming in, we've got a good shot at having a balanced budget that first full fiscal year. >> interesting. we'll go over here, way in the back. oh, please wait -- you have a microphone? >> it's just, it's just not on. >> that's -- could you bring him a mic? that doesn't look like one of our mic. i guess he travels with his own. [laughter] >> thank you. ah, okay. here we go. i'm from itm in britain. mr. cain, you're doing very well in the opinion polls at the moment partly because of the attractive simplicity of your

9-9-9 plan. and i love your accept, by the way -- accent, by the way, 9-9-9. [laughter] >> i like yours also. 9-9-9. it's mutual. [laughter] >> fantastic. we can take it from here. here's my question. what makes you think in a party that has shown itself to be very promiscuous on the campaign trail, that your candidacy went go the same way the others, that the party won't fall out of love with you anytime soon? >> one simple reason: the people. not the party. the people have propelled my candidaciment -- or candidacy. the party may resist, and i'm not saying that they are. i'm not the party favorite by some members of the party. i understand that.

but the momentum is coming from the grassroots and the people. that's why this flavor of the week is now the flavor of the month, and it still tastes good. [laughter] [applause] it's the people. >> we've got time for one more question. i've received the sign from -- let's see, i guess right here in the front. i had it over here. i'm sorry. i pointed right to the front. i apologize. >> hi, i'm sarah murray from "the wall street journal." i was just wondering if you could speak a little bit about what you feel like you accomplished in your time at the kansas city fed, and why you think that qualifies you to be -- [inaudible] >> my time at the kansas city fed alone department qualify me -- didn't qualify me to be president. if i had never served on the kansas city fed, i'd still believe i would have been qualified to be president because, number one, i'm a

businessman that knows how to solve problems. number two, i have been accused of having strong leadership skills. look at my record, and you kind of get that idea. but the experience of the kansas city fed did allow me to get a better understanding of macroeconomics and to appreciate the value of sound money. the kansas city fed in the '90s is totally different than the federal reserve of today. i don't, i do not claim any approval of some of the actions of this current fed because conditions are very different. in the 't -- 90s we department have a $14 trillion debt with a stagnant economy. we had an economy that was growing and a national debt in the single digits. and a as a result we focused like a laser on controlling inflation.

controlling inflation. sound money is critical to our future. and so it gave me an opportunity to better appreciate the value of sound money. just like, you know, 60 minutes is in an hour. when you wake up in the morning, a dollar ought to be a dollar ought to be a dollar. in 1988 when i was at godfather's, it took $1.20 in exchange for one u.s. dollar. today t just the reverse -- it's just the reverse. that's just how damaged our currency has become. and so one of the things that i want to do is to through whatever means, legal means necessary get congress, because congress has oversight of the fed is to get them to refocus on just that one thing; controlling inflation. >> well, thank you very much, mr. cain. it's been a pleasure talking with you. i would ask everyone to remain

seated for security purposes while mr. cain leaves. >> thank you. thanks a lot. [applause] thank you. thank you very much. [applause] by the way, folks, yes, i i am an unconventional candidate and, yes, i do have a sense of humor. and some people have a problem with that. but to quote my chief of staff and all of the people that i've talked to around this country, herman beat -- herman be herman. and herman is going to stay herman. thank you very much. [applause] >> if i could ask the panelists -- thank you very much. if i could ask the panelists to come forward now, we're about to begin a panel where we will discuss 9-9-9 in more detail. [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> wrapping up remarks from republican presidential candidate herman cain this morning at the american

enterprise institute discussing his 9-9-9 economic plan. we are staying in the room here at the american enterprise institute because up next is a panel discussion on the 9-9-9 plan. we'll hear from representatives from "the wall street journal," the brookings institution and herman cain's senior economic adviser, rich lowry, will be there. and this is expected to get under way in just a couple of minutes here on c-span2. also very quickly, herman cain will be the luncheon speaker at the national press club this afternoon. he is expected to talk about his candidacy for president. we may also hear questions regarding sexual harassment accusations. he is at the head of the national restaurant association in the 1990s. again, that will be live from the national press club, part of our road to the white house coverage. gets under way at 1 p.m. eastern right after a brief pro forma session in the house, actually, so it should get under way at about 1:05 eastern. again, you can see it on c-span.

>> okay. we are now about to get a panel discussion on 9-9-9. we're very pleased to have an expert panel. we've got batting cleanup, rich lowry, who's the accountant from ohio, i guess is what we're supposed to think of him as -- >> not an accountant. >> not an accountant. but rich is a representative from the cain campaign who's here to answer some of the detailed questions that might come up during the panel conversation. but we're going to begin with about a 5-7 minute presentation by bill gayle from brookings followed by grover norquist who's, i think, then going to be followed by steve moore. these gentlemen all need no introduction, and we'll proceed immediately to bill gayle. bill. >> kevin, thank you for inviting me here. i want to thank aei for hosting

the event and having mr. cain come in and talk. it was a very entertaining discussion. and i want to thank all of you for staying. much appreciated, as kevin described as tax geeks sitting down talking about 9-9-9. i think it's appropriate that we talk about 9-9-9 on halloween. [laughter] i don't mean that it is haunted, i mean that the premise of the plan is based on a trick and a treat. the trick, and i really wish this trick were true, is that tax reform will unleash massive economic expansion. the treat is what many high-income households will get under 9-9-9. and i say this as someone who has long talked about tax reform and would very much like to see tax reform. i think herman cain and i actually degree on a number of issues. like herman cain, i believe we should change the income tax to

reduce, curtail or eliminate many of the current deductions, excludes, special -- exclusions, special subsidies, etc. i've been writing about this for about 15 years, some people say ad nauseam. like herman cain, i believe the u.s. should finally set up a value-added tax joining the other 150 countries around the world who use that tax. i want to be clear, the part of cain's plan that is a value-added tax is what i believe is the second part, the business tax, it's a subtraction method that or close to a subtraction method that know that anywhere in the world is exactly as it exists on paper. but as far as i understand it, the second component is a vat. i certainly agree that all three components are consumption taxes, and i certainly agree with the notion that what's interesting about it is the creation of the consumption tax, not so much what you call them. but i do agree with mr. cain that the u.s. should set up a

vat. i'd very much like to see tax reform happen. unlike herman cain, however, i don't believe that tax reform needs to be either regressive or money-losing to make sense. and, in fact, i agree the -- i believe the opposite, it should be raising revenue to help solve the fiscal problem, and it should not be regressive. it should be progressive for a variety of reasons. so you could describe my statement as i agree with mr. cain that we need a broader tax base, and we could use some of that revenue for lower rates. we only have two minor disagreements; how high should taxes be and who should pay those taxes. and let me explain this in the context of what i see as three issues. one is the long-term fiscal situation. the second is the short-term, medium-term performance of the economy. and the third is the increasingly concentrated distribution of income over the last 30 years away from low

income households and toward high income households. i don't think the 9-9-9 plan resolves any of these issues, and it makes at least two of them worst. in the long-term deficit, tax reform is a great thing to discuss, but right now we need to discuss fiscal reform as well. tax and spending are, obviously, two sides of the same coin. the plan loses money relative to current law and relative to the current policy baseline, it loses a lot of revenue, trillions of dollars over the next decade. cutting revenues is not going to solve the fiscal situation that we're in. it's going to make it worse. we have tried to starve the beast several times over the last 30 years. it department work in the '90s, it didn't work in the '80s, it didn't work in the last decade, we cut taxes and we raised spending, the opposite of starve the beast. and then in the '90s we raised taxes and cut spending which is the opposite of the starve the beast theory. we are not going to, again, solve the long-term fiscal issue

by cutting taxes. we're going to solve it with some sort of balanced package of tax increases and spending cuts. on the income distribution side, we've witnessed enormous changes in the distribution of resources over the last 30 years. there are all sorts of reasons why, and i'm not suggesting that it's the job of tax policy to undo this shift. but i do think tax policy does not need to exacerbate or extend the shift either which the cain plan would do this two ways. one, is the plan itself. the second is the implied reduction in spending. if you reduce revenue, you're going to have to cut spending dramatically to balance the budget, and those spending cuts are going to come out of social security, medicare and medicaid which help low and moderate income households much more than others. the third issue is getting back, getting the economy going again. and mr. cain talked about this a fair amount. i would love it if tax reform were the magic button we could

push that would get the economy going again. but just like when tim pawlenty said we're going to raise the growth rate to 5% and, you know, we all sat around and thought, uh-oh, wow, why didn't we think of that, i kind of had the same reaction here. i wish the tax reform would solve the growth issue both in the short run and in the long run, but let me just talk you through a couple of episodes in history where that's not happened. firstly, in 2001 economic expansion was a big part of the reason for the 2001 tax cuts. i don't think anyone is pushing that argument anymore. i think it's understood that monetary policy generated very low interest rates which boosted housing values, which boosted the extraction of equity can and that that in the financial sector drove economic growth over the last decade, not anything to do with tax cuts. in the early '90s in the clinton administration, we raised taxes. i want to remind you we raised the top rate by 8.6 percentage points from 31 to 3d.6.

that did not destroy the economy. in fact, the economy went on to enjoy a very strong growth decade as mr. cain mentioned. in 1986 we cut rates a lot at the top rate, it came down to 28% from 50. there was no discernible impact on the rate of economic expansion after that. in 1981 which is sort of the poster child that's used for the notion that tax cuts are generating economic expansion, we had a very steep recession and a very steep recovery. when you look at it in retrospect, when you do analysis like martin feldstein did who was chair of the cea under reagan and doug elmendorf who's the current head of the cbo, they attribute almost all the economic experhaps to monetary policy which, of course, also changed sharply before the recession to after the recession, and there's very little left to explain by tax policy.

lastly, i want to highlight on this issue you hear both huge, wonderful story about how great the economy will do with tax reform, and you hear horror stories about how badly the economy will do if taxes are raised. i want to remind you that from before world war ii until after world war ii, we raised taxes by ten percentage points of output. not by 10%, but by ten percentage points. taxes more than doubled as a share of gdp. they went from the vicinity of five to seven to the vicinity of 15 to 18. they stayed there after that. rates went up in the income tax, rates went up in the payroll tax. if you plug in that kind of performance, that kind of policy change into these models that predict dramatic economic expansion from tax reform, you'll find that those models would say that that tax increase drove the economy into the ground. in fact, nothing like that

happens historically. we've then proceeded to have a 25-year period of very strong economic expansion. now, i'm not saying that taxes have no effect, we can raise taxes with impunity. i'm coming back to my original point, that i wish tax reform were the magic elixir for economic expansion, but i don't want see that to be the case. so let me just summarize. if you think that cutting taxes is going to solve the fiscal situation, if you think that a regressive tax cut is the right response to the widening income distribution, and if you think that tax reform is going to magically expand the economy inconsistent with all historical experience, then the 9-9-9 plan is the plan that you want. if you don't think those things, like i don't think, then 9-9-9 is not the option that you favor. thank you. >> thanks, bill. and, again, our format will be that we'll let each person have their say, and then we'll open up for a general conversation, and we'll now hand it off to

grover norquist who's president -- >> excuse me, kevin, you're going to make me wait before i respond? >> i'm going to make you wait. the reason is, that's not the first blow you're going to take, and we might as well let them all pile up, and then you get the final before we open up for questions from the floor which i think is the position. >> my comments will be shorter than the last one. there are several debates going on. one is whether we want to raise tax rates that obama, reid and pelosi put together, or do we bring spending back down to 20 and whether we try to go further down than that by reducing spending. so there's a question, do we want to bring taxes up to the spending level set by obama, or spending down to the previous 30, 40 years of spending level, and i would argue going below that. that's one set of questions. the other is the tax reform issue. that's been put forward, and there's been some conversation. if you go back, what's cheerful

is those of us on the center-right who don't want to raise taxes to pay for obama's government, we want to bring obama's government down to american levels and down to even better levels than we've had, there's a consensus. people are all talking about moving to a single-rate tax, the tax is consumed income one time. and that's, actually, tremendous progress. we've actually sort of been there shortly around '86 on. i think there's been consensus in the center-right and that we briefly -- but then the question is, i was looking through, you know, why department we get to this conversation earlier? well, when you have a democratic president or a democratic congress, you can't have this -- you can't pass legislation. you can have the conversation. we had a debate between the fair tax people who want to leave you alone, and then if they see you buy something, the government steals some. or the flat tax people who want to, if they catch you earning some money, they steal some, and then they leave you alone. in both cases they sort of focus on one thing you do in life, smash and grab and then go away

as opposed to the present system where they watch you earn it, save it, get a capital gain, if you're stupid enough to die, they take half. they keep coming back to take bites at the apple. so moving to consumed income one time at one rate is now a consensus position on the center-right. our friends on the left who are trying to figure out how to grab enough money to pay for obama's government are not part of this conversation. never will be. flat tax, fair tax is not going to pass if you have a democrat house, senate or president. so what we're waiting for is a republican house, senate and president, and then you can move on this to make it permanent. you need 60 seats. luckily, if you look at who's up in the '12 and '14, we can get to 60, and we're on track to do that. so we want to go to one rate. why? well, because then everybody has the same relationship with the government. i'm originally from massachusetts prior to emigrating to the country --

[laughter] and in massachusetts we have by constitution a single-rate tax. that's liberal, democrat, ted kennedy massachusetts. five times our friends on the left who want to bring taxes up to pay for the size of government that they imagine they would like to divvy up and share with their friends, five times the voters of massachusetts have voted that down with a very sophisticated argument. divide us into ten groups, five groups or mug us one at a time. and the most important thing about a single-rate-tax is that it doesn't allow the clinton campaign gets elected, gas tax on everybody. or obama. i'm not going to raise taxes on anyone anywhere who earns less than $200,000 a year. sixteen days into his presidency, first tax on corporate jets, first tax on billionaires? no. first tax on people who smoke cigarettes. there's only one person in the entire country who smokes cigarettes and makes more than $250,000, and he lives in the

white house. [laughter] so obama's first tax was on low income people. to get to the office, he does the, you know, hey, look at the shiny thing over here while he reaches for your wallet. so having a single-rate tax makes it tougher to rate taxes, easier to reduce taxes and clearer what everybody's paying, and that's why the good people of massachusetts won't get away from it. given five opportunities to get away from it, they keep saying we want to stick with it. can we sell the country on it? well, you can't sell massachusetts on moving away from it. on 9-9-9, here's my concern. i applaud herman cain for saying the present system needs to be radically changed. and i think he wants to go to retail sales tax, a fair tax. we can discuss that later. it's this transition period which i always worried about, but when he lays out a japanese-style vat, a sales tax and an income tax, three different taxes all very, you know, 9%, okay? >> but that's like saying i've got one bush that's overgrown,

why not prune it back? the no, i'm going to plant two more, and then we'll come back and end up with one pruned one. you know, i've got a long tapeworm, i'm going to swallow two small ones while i talk the other one into shrinking. i'm not sure we want additional, you know, needles in your arm draining out more blood. three needles can take three times as much money as up with. with -- as one. that's strictly political. if you were a czar and you were, you know, borrow one of obama's czars and you were able to set up a code and nobody was able to have an election and change anything, you could have a conversation about that. but that's not the way we work. if you're going to have a policy shift, you invite the other team to win elections in between each of your periods of transition, and you have the possibility that these things will grow. and the history of vats and other taxes in europe is not encouraging. but you don't have to go to europe to find those examples.

people in new jersey in the '70s had very high property taxes. oh, we must do something about that. democratic governor says here is our fix, we'll have an income tax, a teeny income tax, and the property tax will go down so low, you'll hardly ever know it. fast forward, what do we have? high property taxes and income taxes in new jersey. people of connecticut are slightly more dim-witted, and after watching that they said, right? decade and a half later, oh, my goodness, we have high property taxes. we should do something. let's have an income tax. boom, they got an income tax and a property tax. both are getting extremely painful. introducing new taxes to fix old taxes doesn't work, and i think it's dangerous. if you said let's go to a sales tax from the present system, you could end up looking like france or greece or one of those cheerful countries overseas, and that i would like to avoid because i'm not up for dragging out of the american people enough cash to pay for an

obama-sized government. so there's two fights. you want the government as big as obama wants it or down towards more american historical levels. that's one fight. how do you get enough money to pay for the size of government you want is another one, and i think we have consensus on the center-right both, we're not raising taxes, end of conversation. i know obama keeps trying to hope that the present modern republican party forgot '82 and forgot '90 and would like to relive football for a third time. thai not going to -- they're not going to, so he's not going to get his tax increase. spending's going to have to come down. and on the tax side, let's not put ourselves in the position where we create additional taxes that can grow. >> thank you very much, grover. now we hand it off to steve moore who's an editorial board member and senior economics writer for "the wall street journal". steve? >> thank you. i'm sorry that mark block isn't

here. tell mark for me, by the way, thank him for making smoking sexy again. okay. i just have four or five quick points. by the way, my opinions are my own, not the editorialboard. if you want to know our position on the 9-9-9 plan, we wrote an article called cain's tax mutiny, and that explained the editorial board's position. four or five quick points. one is there is nothing, nothing, nothing, nothing more regressive than our current income tax system. we have 14 million unemployed people, we have 20 million that can't find a full-time job. the economic policies of the last four years have been a catastrophe, and i would make the case that the income tax system that we have right now is just an albatross around the neck of the economy, and i do believe the people who suffer the most from our current tax system are, obviously, the people who don't have jobs. and they're the people at the bottom. and that's a point, rich, i wish that herman cain and newt gingrich and rick perry would make all the time. nothing could possibly be worse and more harmful for low-income

people and low-skilled people than what we have right now. second of all, um, this plan, um, that -- well, let me put this in the context, i really believe all these plans, rick perry's plan, newt gingrich's plan, the 9-9-9 plan, they're all pretty much the same in terms of taxing consumption, not double taxing and triple taxing saving and investment. that's one of the common themes. and the other common theme is getting the rates down as low as possible. and as grover said, i think we generally all agree as conservatives, those who are conservatives in this room, that that's a very, very good goal to have. there was a question earlier, kevin, about, you know, doesn't consumption drive the economy? and this is something that just drives me crazy. it's this kind of keynesian notion that what drives our economy is consumption, and it is 100% wrong. what drives our economy is entrepreneurship, investment, savings. those are the building blocks. until you have a business, until you have a job, until you have

people being innovative, then you don't have any consumption. you can't consume if you don't have a job. so it's investment and savings that drive growth and prosperity, and that's one of the things that's very attractive about this plan and the flat tax plan. so i think when, for example, bill says, well, tax policy doesn't really matter. just to put this in the context, i wrote a piece a few weeks ago in the be journal, and it was very innocent, and all i did was point out that, you know, you had two presidents that came in, inherited incredible economic crises, right? there's no question barack obama inherited a great crisis. ronald reagan, in my opinion, inherited an even greater economic crisis than obama did after the terrible 1970s with 1% inflation -- 14% inflation, the economy deindustrializing. and all i did in this piece, and it drove liberals crazy, okay, let's face it, reagan and obama used die metrically opposed models. reagan cut tax rates from 70%

down to 50 and then to 28%. reagan deregulated the economy, we got some control over domestic spending, and we got inflation way down. obama came in with trillions of new dollars of spending, and i just asked the question, okay, let's look objectively at what worked and what didn't work. two amazing statistics. if you look at the fall of 1983, the exact same juncture of where the economy was, you know, the same juncture of the obama presidency versus where we are today versus where reagan was in '83, the fall. in september of is 1983 after te final leg of the tax cut, you don't think tax cuts matter? the economy created 1.1 million jobs in one month. 1.1 million jobs. that was the most jobs the economy, the u.s. economy has ever created in american history. the economic growth rate. you saw that we had 2.5% growth this third quarter, that brings our annualized rate of growth to about 1.5% this year. the third quarter economic growth rate for the u.s. in the

fall of 1983 was not 2.5%, it was closer to 8%. so policy does matter, and i think tax policy matters, and that's a point i think herman cain and the rest are going to have to make. um, all of these plans -- i want to restress this point -- all of these plans are very similar in terms of talking about getting rates down and stopping the double and triple tax of saving and investment. and that's critical because i really believe that one of the things that's really holding back the economy when somebody said, well, there's a trillion and a half dollars on the sidelines, that's exactly right. there is. partly because there aren't customers in the door, but partly because look at what businesses are looking at. they're looking at an incredibly anti-growth regulatory environment, a president who's saying, by the way, if i'm reelected, i'm going to raise the taxes, who wants to invest in that kind of climate? i talk to businessmen and women all over the country, and they say, are you kidding?

they are hunkered down. and, you know, one of the great things that herman said this morning, he was exactly right. what businesses are talking about right now is not growing, they're talking about surviving, and that is true. and i think it's because there's a real anti-growth element. i do believe as an economist that if we put in place the herman cain plan or the rick perry plan or the newt gingrich plan -- they're all talking about getting rates down to 20% or lower -- we could create a million jobs a month. and you want to talk about getting the budget deficit down, you put a million people back to work each month, you're going to have incredible revenue growth. final point. i do think that the good news about what's happening on the republican side of the aisle right now is the republicans are having an incredibly healthy and stimulating debate about what to do about our tax policy. and this is great, you know? i applaud you, rich, for -- i don't agree with everything in the 9-9-9 plan. i've been critical, as grover is, but this is a great debate to have. the question i'd ask, where are the democrats on this? what are we hearing on the other

side of the aisle? obama's running around the country saying, you know, soak the rich. that's a tax reform plan? to raise taxes on the rich? i'm just disappointed on this. in the q&a for bill to respond to this, you know, democratic party once was intellectually curious about tax reform. you go back to the mid '80s when we passed the 1986 act, you remember that, kevin. that bill cut the top tax rate to 28% and cleared out a lot of the pollution in the tax system. that bill in the united states senate, remember this, kevin? passed 97-3. 97-3. there was a bipartisan consensus back then. you've got to get rates down, and you've got to broaden the base. i don't think you could get two democrats in the whole house and senate today to vote for a 28% rate. i mean, it's sad to me that the democrats seem to just not be interested in creating a more positive tax reform. tax policy. and sort of the last thing i'll say is it's amazing to me that barack obama when he ran for president in 2008, he ran on a very pop list theme of hope and

change, right? hope and change. now what's the party that's talking about hope and change? it's the republicans. they're talking about hope and change with respect to changing the tax system, and obama's running around the country on an agenda and a campaign theme of fear and envy. and i certainly hope that fear and envy is not what americans vote for in 2012. >> okay, thanks, steve. and now rich lowry. rich is senior economic adviser to herman cain and has been officially since june 2011, but i know that he's nobody mr. cain for -- known mr. cain for many years. he's also the managing director for investments at lowery, smith welch management, and he's on the advisory board of the american conservative union. he was previously senior vice president at mcdonald investments. rich, welcome. >> thank you. thank you, kevin. and thank you to aei for putting this on and allowing us to address, you know, some legitimate and some not so

legitimate concerns. um, i'm not sure where to begin, but let me just kind of go through and respond to a number of these, you know, as i have been able to take notes. you know, the first thing that mr. cain did by being bold is made it safe for politicians to follow. um, now that we've steered the debate towards pro-growth tax reform, pro-growth, pro-job, pro-export tax reform, we can get away from this debate over a austerity economics. the next discussion we're going to have is over the difference between the incidents of a tax and the burden of that tax. and let me explain. if you think that the incidents of a tax is the same as the burden of that tax, all you look at is your paycheck to understand how much taxes are being withheld. but if you understand that the

burdened and the incidents are different, then you see how the farmer marks up their product to cover all their costs including all their taxes, passes that to the food processer who marks up the same product to cover all their costs including all their taxes, and then that continues to the distributer and, finally, the grocery store. so by the time you buy anything, all of these taxes are already baked into the price. what we're doing with the sales tax is removing them where you can't see them. you are paying them, but you can't see them, and we're making them visible. and we think by making them visible, we're going to make more people aware of exactly how much it costs for you to fund the goth -- the government, and whether you aim the tax at the business or not, it's going to land in your wallet whether you like it or not. you're going to pay out of your income, and you're going to pay out of your purchasing. and the more we make that transparent and the more people see what government really

costs, the more people are going to want less government. that is our number one defense against rates going up. um, the argument that, you know, 9-9-9 will turn into 10-10-10 and then before you know it something higher doesn't, first of all, it's a legitimate concern. development to dismiss it. i don't want to dismiss it. it was a top concern of ours as we designed the plan. but when you examine the logic behind it, it somehow assumes as its underlying premise that the current counterproductive, convoluted tax code is somehow acting as a restraint on the size of government and that by moving to a more efficient, more productive tax code that that will somehow unconstrain, you know, the size of government. so the underlying premise it's built on i don't agree with. um, a bigger component that drives the size of government is when washington is in the middle picking winners and losers.

anytime they can divide two people or two groups and get a politician and a lobbyist to step in the middle and charge a toll on both sides, that is what drives the growth of government. we have progressive rates which mr. gayle and others think are actually accomplishing something positive, but let me address that. a progressive rate structure simply guarantees mathematically that in periods of economic expansion the tax burden on the american people will automatically ratchet higher, and it means that revenues to the federal government are going to grow faster than personal income which is not a good thing at all. conversely, it means that in periods of economic decline revenues to the treasury dry up faster than perm income. they decline faster than personal income. so now you've just created this boom/bust cycle of revenues. and the boom/bust cycle is the other thing that contributes to the size of government. the first upturn we have, of

course they're going to try to spend that money, and then the first downturn they have it's going to raise the argument behind raising taxes. what 9-9-9 is going to do, among other things s level the relationship between revenues and economic growth and eliminate the boom/bust cycle. you know, regarding the issue between consumption, does that drive the economy or production. we have a tie on the panel, so let me break the tie. the first economic guiding principle is that production drives the economy. and if any of you are unsure whether that's true, just consider the fact that all of you have to produce first. that's the only way you can get paid, and that's the only way you can consume. so there's no chicken and egg problem. you have to find out how to solve somebody else's need first

and do so at a price that's going to be accepted by the market. and if you don't do that, you can't get paid, and you can't consume. so some people will look at the fact that production and consumption move at the same rate. but the, the production of society pulls along consumption the same way the engine of a train pulls the caboose. and the problem we have now is that we have a president that thinks the caboose pushes the train down the tracks and has been feeding it with valuable fuel. and he wonders why the train has stalled. the first thing we need to do is feed the engine which is all of our roles as producers, as suppliers. and that's what is going to get the economy going. the second economic guiding principle, and this is going to govern not only 9-9-9, but energy policy and everything else, is that risk taking drives growth. in order to expand output by one unit, somebody somewhere has to take a risk. and if you're going to bear down on the risk takers and make it

unattractive, prohibitively expensive to take risks, you're not going to get risks. and i give you one example. the part of the argument that the tax policy center made is that the higher income or the wealthy, they blend the two terms together and high income doesn't mean wealthy and vice versa, but to try to support a regressivity issue they point out the fact that higher income people realize more capital gain. well, the capital gains tax is double taxation on production, and if production drives the economy, taxing it once ought to be enough. you don't want to double tax it. and secondly, the capital gains tax is voluntary. if government does anything important, why would you want to fund it with a voluntary tax? it makes absolutely no sense at all. and we look at that as a wail that separates people with ideas

from people with money. and what good does it do for us to wall off people with ideas? those are the people that create new businesses. those are the people that create jobs, and those are the people that innovate. so to borrow a tase from my favorite -- a phrase from my favorite president, tear down the wall. get rid of the capital gains tax. that's going to reward risk takers. that's going to increase capital formation. and a at the end of the day what you really want is higher wages, you need to improve the capital to labor ratio. and the way you improve the capital to labor ratio is to end the double taxation on capital. the more capital invested per worker is what's going to drive productivity, and that's going to drive wage growth. we've had the plan independently scored by gary robbins who is one of the most respected economists, ran the econometrics consumption for department of treasury under president reagan, and his independent assessment

is this will expand the economy by $2 trillion, create six million jobs, increase private business investment by a third and, ultimately, push up wages across the board by 10%. um, on the issue of whether this is a vat or not, it doesn't matter what you call it. it matters how it is structured, it matters what it does. and let me walk you through the first 9, the business 9. whether you call it a flat tax, whether you call it a business transalaskas tax, whether you call it a subtraction method vat, pick your poison. what matters is that we're getting rid of five taxes on production, they're all corporate income taxes, all personal income taxes, all payroll taxes, capital gains tax and the death tax. so we don't have one bush, as mr. norquist says, we have five ugly ones, and we're going to

pull 'em all out by the roots, and we're going to put in three nice and neat ones. then we're going to count on spending restraint and the fact that these taxes are visible to draw the line on the growth from there. um, when we talk about whether this helps or hurt, you know, the poor, um, first thing the tax policy center did when they issued the hit piece on the 9-9-9 and released it two hours before the debate, you had to read to the second to last paragraph to find it, but they said we totally excluded the poverty exemption so that we can conclude that you guys hurt the poor. so let me walk you through what they ignored. before we determine the 9% rates, we carved out a substantial poverty exemption. dealing with those at the bottom of the economic pyramid were so important to do it right, that

we broke it into two different initiatives. you can't legitimately help those at the bottom which tend to be concentrated in geographic areas, major cities, unless you get the whole country going first. so that was the 9-9-9 plan. but you can't have a genuine prosperity for the whole country if you leave the more distressed areas behind. so our solution was that we would come up with two separate initiatives, they would be designed from the very beginning so that they were integrated and compatible. so step one was the 9-9-9 plan. if you go back to the very first brochure that we passed out in south carolina when we rolled out the 9-9-9 plan and every step thereafter, it said we're going to do -- we called them initially empowerment zone, so if there are any confusion over the issue, it had nothing to do with how much we carved out for a poverty exemption, it had to

do that we changed the name because we wanted to distance ourself from what president clinton did. jack kemp had a wonderful zone in coming up with what he called empowerment zones. president clinton borrowed the terminology, heaped a bunch of praise on congressman kemp but managed to turn the whole thing upside down where it had nothing to do with positive incentives, and it had everything to do with a one size fits all, um, top-down micromanagement with strings attached and mandates which, of course, haven't produced the positive outcome that one would expect. so we're going to go back to the original design of congressman kemp which, by the way, in researching empowerment zones you may want to check out stuart butler at heritage. you know, he pointed out to me that kemp's original bill had a majority of a democrat house all

sign on as co-sponsors. and somehow the bill was never called, you know torque a vote. -- to a vote. so that shows you the bipartisan support, you know, for the concept. and essentially, what we did was carve out an exemption that the announcement in detroit of opportunity zones made the statement first and foremost that 9-9-9 just made the entire country one giant opportunity zone. kemp's design was to say let's get rid of the capital gains tax, let's allow immediate expensing of business investment. um, those are now factory installed across the whole country which makes that one giant opportunity zone. so the whole country is going to have an exemption to the poverty level that corresponds with your family size. and that only uses up one-third of the total amount we have for poverty exemptions. we fully plan to use the remaining two-thirds, a good portion of that is going to be directed toward the business

side to incentivize hiring, particularly at the lower ends of the labor pool. and the remaining portion is going to be used as, essentially, a challenge grant for the inner cities. and if they're serious about reducing and removing many of their own self-imposed barriers, they will get awarded with opportunity zone designation. as far as the revenue-neutral, i'm not going to address it. it's revenue-neutral period. our numbers back it up, and if anybody claims otherwise, they should come out with a fully-scored report showing what their assumptions are. as far as the income mobility, whether this hurts those at the top or the bottom, over a period of time people at the bottom of the bottom fifth of the income distribution have just as likely of a chance -- i'm sorry, they have a greater chance of moving

into the top 20% of income earners, and the people at the top have a greater chance this falling from the top to the bottom. that was work that steve moore and others have produced. getting better all the time, is that the right title? that has a lot of research that addressed the fact that you can't create policy that's going to cover real life and more like a motion picture by taking a single snapshot in time that simply assumes that this underlying premise, that we're locked into that snapshot. >> could you try to wrap up, rich? so we can open up for conversation. we don't have a huge amount of time left. >> let's just go to questions now. >> okay, thanks. i'd like to give each panelist a chance to ask a fellow panelist a question. >> bill, thanks for being here. you know, you did say you favor

tax reform, right? i think -- i don't want to put words in your mouth, and i just wonder what, what you would do to fix the tax system. >> ah. well, i think the right place to start is cleaning up the income tax that's -- i remember i wrote a piece, i think for you, a symposium you'd developed for "the wall street journal" in 1993, i think. use some of the revenue to close the deficit. i think we need to consider a value-added tax, as i mentioned, if we are -- it's great to talk about keeping spending in the 18-20% of gdp range, but when people actually look at what that entails in terms of the cuts in social security and medicare, medicaid that involves, i believe you're not going to get the american people to support that. and then the flip side of that is, therefore, they're going to have to pay for it, and the value-added tax is the proven method of paying for that. and the third thing, the thing

that's really depressing about one of the things that's depressing about the tax reform debate is that energy taxes are off the table right now. there are all sorts of good economic reasons to tax energy; pollution, congestion, global warming. it is a classic experralty -- externality in that you want to tax it regardless of, especially if you believe in markets, you want to close off the pollution and congestion issues, and i won't get into global warming. but i do think that global warming's occurring is an additional reason. most of the estimated optimal tax on energy comes from the pollution and congestion issues. so i would say reform the income tack, add a value-added tax -- >> so does that mean you would not favor repealing the bush, you know, that means you don't want the capital gains rate to go up, you don't want income tax rates to go up. because the president's agenda is to let all these tax rates go up, not down. >> as, yeah, as part of a

broad-based reform, i would like the rates, income tax rates, i believe there's room to make them come down rather than up, yes. >> okay. bill, i actually have a question which is just, you know, larry wrote a typically for larry understated criticism of your analysis of the 9-9-9 plan. but i think that he raised a legitimate point that's an interesting challenge for the kind of calculations you've got to do, and i'd like to give you a chance, also, to respond publicly to larry. but the basic idea is, you know, if warren buffett takes money out of the bank and buys a sailboat, then right now he doesn't pay any tax except for maybe state tax. but in a 9-9-9 plan, then when he buys a sailboat he's going to pay at least the sort of business tax which is like a value-added tax, you agree, and the sales tax. so you could think of the 9-9-9 plan as being like an 18% tax on

existing wealth which is a highly progressive thing because wealth is distributed in a way that is unequal. and yet since my reading of your report is that you ignore, quote-unquote, transition effects which means that, you know, really by the way the best paper on how to allocate vats was written by the tax policy center last spring and talked about these transition effects and did it really, i thought, in a way that helped me think it through. so i just wonder if you think you guys should put out anage sis that -- an an jis that -- analysis that captures that too. >> thank you. let me just clarify for those who department know, i'm a co-director of the tax policy center with, which rich referred to earlier. and we did put out a distributional analysis of the cain plan. rich, we would love to be able to talk to you guys more about

understanding the details. we have found it difficult to get straight information from the campaign staff. we've found that the people we talk to says something different from what the web site says, and then both of those are saying something different from what the candidate says. so if we could work with you to clarify this, we would love to do that, all right? and, please -- >> i'm communicating with one of your colleagues, and i look forward to helping you guys out however i can. >> good. i appreciate that. um, we -- a number -- the tax policy center does not take positions itself. a number of of us who are invold with it do take positions. i believe we need to have an add-on consumption tax. one of the things i like about a value-added tax is precisely the progressive feature that larry mentioned. one of the things i don't like about his article is that he insinuated that we are deliberately and knowingly misleading the public, and we are a vested interest in the current system, and those remarks are not only wrong, but offensive. ..

>> we're talking about replacing a progressive income tax that includes a corporate tax and a state tax, graduated rates, ect. with a flat rate consumption tax, so there's a lot going on in the analysis, and i think there's confusion. if you compare a flat rate income tax to a flat rate consumption tax, this stands out, but add in the corporate

tax, state tax, and a rate structure, that mitigates some of the original -- >> so what number in a simple model and apologize for getting technical on everyone, then, yeah, you get the wealth effect. which imposes more taxes on wealth to begin with than a flat income tax and switch from that to the consumption tax, you're not only imposing the wealth part of consumption tax, but taking off a number of wealth features in the existing system. >> i talked about why i think going to 9-9-9 as a transition

is politically dangerous, but i want to suggest it's important for those of us thinking about tax reform. began, on a revenue neutral model. it's a different argument trying to do something different from what we mean in talking about tax reform. we're never going to move from the pent system to the retail sales tax or the fair tax. if you are 65 years old and paid income taxes all of your life, and the politicians say we have a great deal for you. we are getting rid of the income tax. that's good. i'm restorying. here's the new deal. there's a 23 or 33% sales tax on everything you buy, okay? now that you retired, your pensions were 30% less, life savings 30% less, catch out your house at 30% less. that transition doesn't matter

to a 12-year-old. what does he care or a 13-year-old or a 15-year-old or probably 21-year-olds, but 21 yeerls don't tend to remember to vote. 65-year-olds rem to vote. 65 year olds plan to be 75 and 75-year-olds are in the same position. if we elect herman and republicans say that's a great idea, who cares, income tax, it's just consumed income, let's go. as soon as you got close to it and people looked at it, the 55-plus guys would go and beat senseless all the 21-year-olds, and so this is not going to happen. it's a fine conversation. i enjoy having interesting debates with the fair tax people on agreeing how bad everything is now and what a tax on consumption looks like, but just politically, if you got close to the edge of the cliff, you

wouldn't go over it, okay, because of the politics of it, so what are we going to do? if our team wins, and we have reagan republicans running the country, we take the present income tax, squish it down, get rid of the death tax, capital gains tax, and drop the rate down as much as you can, take the present mess and comb it back. on social security, permize it so it's not going through the tax code, don't replace it, keep the fica taxes and invest in the future, so that's just a moment on the national sales tax because some people have gotten really enname -- enammored with it. they have not thought through creating a new device to steal as much money from the economy as the old device will not be any fun or pleasant. >> okay. we got both rich and bill with one more quick question. >> let me respond to both of those. i know a lot of 65-year-olds,

and i think -- i give them more credit for actually looking at what we put forth. i think they realize that right now, taxes from the farmer to the food processer to the distribute ire to the retailer are baked into the price of everything they buy. we are not adding on a new tax on top of what we already have. we're pulling out 40 percentage points of taxes and putting in 27 distributed between three tax bases. if you're a senior, you realize that the cost of everything you buy is higher because of all the embedded taxes. all we are doing is flipping a light switch called visibility and making it apparent how much of the cost of everything we buy is due to taxes, and by pulling it out where it's invisible and printing it on the sales receipt, we're not increasing

prices. a bottle of water will cost you instead of a dollar, there's an income tax in that and it's a good thing to remind people government costs you more than what you see out of your income. as far as doing a premise of distribution analysis, why does this have anything to do with consumption? you know, consumption is the caboose in the train. it doesn't drive the economy. why would you make that as a basis for determining regressivity since everything you buy already has these taxes built into it. when you take taxes out where they are visible, make them visible, you don't change regressivity, you just change visibility. for example, let's say you have two people. you and i earn the same income, but you decide to be thrifty and save, but i spend mine.

does your behavior make it regressive on me? why would we use consumption as a basis for determines regressivity? thank you. >> bill -- bill thinks he can respond at some point in the response to the question from the floor, and it's time to open up. anyone have a question? yes, in the back. wait for the microphone and please identify yourself for the transcript, please. >> thank you, panelists. robert with the rural school and community trust. we work across the country in rural communities where we have more than 12 million children that go to school in small towns and frontier areas. about 50 million americans living in rural america. i want to push back a bit or ask for clarification actually, rich, when you say the opportunity zone would be a country wide opportunity zone,

9-9-9 or 9-0-9 or whatever, but access to services for the poor, improving schools, improving local control in rural places is very different than dealing with those issues in urban centers, so how will the plan impact small towns where we have sometimes 80% to 90% of folks living under the poverty line? >> a great question, thank you. there's two issues with the opportunity zones. one is #-9-9 made the whole country an opportunity zone. there's a across the board exemption of the poverty level all across america using one-third of the amount we carved out and set aside to address the issue. we'll do it better than how it was done before because you correctly identify the needs in rural areas are different than major cities, we're not going to pursue a top-down government

knows best solution. there are going to be stake holder organizations that are going to help identify and tell us what is holding back this rural community, and it may be different from not only another rural community, but a major inner city, and as long as the local entrepreneurs, the local business owners who knows best what's keeping them from expanding and adding another job, as long as they can identify it, we'll going to get a bottom-up solution that is based on those closest to the action knowing what the source of the problem is, and if you have one rural community, say, we're not going to do anything to knock down many self-imposed barriers at the local levels or state level, and there's another that does, the tax incentives are towards the one that does, so our response will be this is based from respect of the fact that the people in the local community know what's best to

help get the situation turned around, not the government, and our plan is going to be designed to respect and reward that. >> but just to sort of push back, it seems to me like if you had a fair tax like prebate, and if i'm a poverty person level anywhere in the country, then i don't have to pay tax. taxes are not going up if we adopt that. if you focus your poverty relief in opportunity zones, then if i'm a person living outside the core opportunity zone, there must be something. the fact you say you focus on opportunity zones means something is happening there that doesn't happen elsewhere giving the impression if i'm a poor person outside of the zone, i'm not getting something, that people in the zone are getting, and so i wonder about the fairness. we talk about treating people fair, and webster's fairness. it doesn't strike me as webster's fair that if i'm a poor person and i live here or there then i get a significantly

different tax treatment. >> i'll clarify. the whole country has the exemption on the poverty level. it's fair and eligible for everybody based on the usa opportunity zone that uses up, but one-third of the amount we have set aside, and these are not the official numbers, but think of the conceptually between a third, a third, a third. there's going to be another amount directed towards all businesses in the u.s. opportunity zone that will incentivize hiring. that's going to be across the board. the two most important incentives are going to be personal incentives to work or business incentives to hire, and that's going to be across the whole country. there will be a portion that will be for certain geographic areas that have concentrations of poverty whether it's rural or inner city, and those are going to be challenged to see who can

knock down barriers that are in front of them. the reason we don't do a prebate is because you are already paying the taxes, you just don't see it. for us to say right now the farmer passes the taxes to the processers, distributer, and retailer, whether you're poor and buy a gallon of milk or whether you're rich and buy a gallon of milk, those taxes are passed along and embedded in the final price, and if we're not going to change the overall burden, we're actually going to reduce the burden making taxes visible doesn't change regressivity, so our argument is going to be that this is not an add-on tax like you find at the state level. some of the other candidates make an assumption that this is an add-on that will increase prices which you find in a state level. our sales tax is going to replace taxes that are already in the price, and we're not going to change regressivity;

just change visibility. >> question there, and dave, you go next. >> ryan from atr. jim, during the herman cain said you would answer the question. >> oh, yes. >> namely, why does 9-9-9 tax wages twice, but capital once? >> actually, the 9-9-9 is neutral with respect to capital and labor, so if you think of kind of your circular flow of the economy, goods and services are produced, the income from that flows from the production, and then that income is consumed. in each one of those stages, we essentially -- at the first stage, we treat capital and labor the same. there's essentially a 9% tax on capital and labor. the current problem that we have

is that we overtax capital, and when we overtax capital, it's the worker that is hurt the most because it reduces the capital to labor ratio which is a constraint on productivity, and that's what drives wages. on step one, the business tax is an eel call 9% tax. when it flows to the factors of production on the second nine, that's a second tax. dividends are taxed at nine like labor income is taxed at nine. capital gains 1 a double taxation, and we eliminate that. under the first nine, it's deductible because it's a double taxation if you don't. in order to treat capital and labor neutrally in the first nine and the second, you have to have expensing of business investment, and you to have a zero tax on capital gains, and you have to have a zero tax on

repay repatriated profits. >> can i ask a related question to this? i wrote a piece not long ago suggesting because of the arguments grover made about the problems with the national sales tax, and i regard the problem with the national sales tax more of a political problem than i do an economic problem. i mean, i just think americans are kind of afraid of the idea of introducing a new tax, and one of the things i suggested is why not get rid of the national sales tax which might be a bridge too far for people and have a 9% payroll tax so your 9-9-9 is 9% corporate tax, 9% personal tax, and 9% payroll tax with the art being that's the devil we know and not a devil we don't know. you're right on the argument of knew -- neutrality. this generally does the same thing. i want to ask both of you guys sitting next to me what you think of that.

grover, would your objection to the plan be less if they have payroll rather than sales tax, and rich, is that something you'll consider if the american people don't want a national sales tax? >> less of a problem. >> yeah, less. >> i think as far as making any changes to it, and this is advice i borrow from grover, let something come up with a plan, let me score it to show that it has all of the same positive dynamic effects in expanding the economy and creating jobs. let them go on record showing there's equal support for it, and then we can see where the differences lie, but it doesn't make since to negotiate against yourself. we wanted to get rid of the payroll tax because we viewed it as standing in the way of real reform. there's half the country paying half the income taxes, and they look at people on the other

side, but in reality, they pay 15% of a payroll tax. we said a tax is a tax is a tax whether you label it income or payroll, let's acknowledge we're all paying lots of taxes, and we're paying too many. let's end that divide and unit all taxpayers, be on the same side of the rope, keep taxes low, and then the other thing is the next tug-of-war which is flat taxes on one side and fair taxes on the other. if i had a penny every time a flat taxer says ditch the sales tax, and a penny for every time a fair taxer said do flat tax, and we could pay off the national debt. >> do both. >> okay, yeah. [laughter] you know, we're running really late, and i've acknowledged david, so you get the last

question, but it has to be really quick, as does the answer. >> mr. cain threw out a little bit about reforming social security. is that a plan that maybe you can give us a little bit of information there whether it's something to get rid of the ponzi scheme part of the current system or perhaps you can expand on that slightly. >> you know, he's been in favor of the model for social security which is basically a permizedding the. last time the subject came up, it was positioned as privatization, and it's not like we're going to take the social security system and turn it over to ge, the manager or anything like that. it's going to be a perm account. by ridding payroll taxes, all we're doing is having a more productive way to fund government, putting revenues into the system to pay

benefits. we're not changing the benefit calculation, but at some point there's an option to allow younger workers 5 choice to direct some of their own income that would otherwise be directed towards the government into a personal account, and we'll have more details when we're ready to roll that out. >> thank you, all, for coming, and thank rich, grover, steve, and bill for a tremendously interesting conversation. thanks. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> in is wrapping up the talk about the herman cain tax plan. we heard from him during the first hour of the discussion, and if you missed those comments, you can go back and watch them online at the c-span video library. more remarks coming up at 1 p.m. eastern today from herman cain. he's the day's luncheon speaker at the national press club, and we'll have that live for you on our companion network, c-span. the house returns to legislative business tomorrow. they will take up a number of

bills under suspension of the rules. later in the week, work on a bill to remove the regulatory ban that prevents small privately held companies to use advertisements to solicit investors for private offerings. live coverage of the house on c-span. here the senate returns today on c-span and in morning business until 4:30 when they turn for a vote at 5:30. they also plan to finish amendments on the so-called minibus. they gavel in here at 3 p.m. eastern here on c-span2. >> i think if they come up with recommendations for the congress on deficit reduction that it will include a proposal relating to auctions of spectrum. >> verizon looks at key

telecommunications issues including spectrum sales, net neutrality, and the fcc's decision to redirect the service fund to bring hi speed interpret to underserved areas of the u.s. tonight on the communicators at 8 on c-span2. >> the head of the small

business administration last week said her agency had a record year last year backing some $30 billion worth of loans. karen mills appeared before the house small business committee followed by a panel of small business lenders who generally thought the sba improved operations but expressed concerns about uncertainty created by the recent debt ceiling debate with the possibility of future tax increases. this hearing is just over two hours. >> good afternoon. we'll call the hearing to order. the most important thing this committee can do is create an environment in which entrepreneurship is fostered therefore producing jobs vital to the economic recovery. there's many aspects in creating this environment. we'll focus on one of those, and that's access to capital. the committee has heard on multiple occasions from small businesses they cannot get funds needed to operate and expand their businesses. at the same time, banks testified before the committees saying they have the funds available to lend.

small business administration oversees a number of programs working in conjunction with the private sector partners to bridge the need and availability of capital. sba's statistics shows volume in connection withed, and these efforts are implemented by promises made by banks to increase lending to small businesses. it's an open ended question to see whether these are sufficient to expand and create jobs. the sba programs operate with loan guarantees issued by the federal government. congress is determined that the risk to the taxpayers are outweighed provided by the benefits by small businesses. this committee has a responsibility to ensure that the desire to get money into the hands of snap bidses does not come at the expense of exercising due diligence when making a loan, especially when taxpayers are on the hook for government's bad decisions. the committee needs to know they are come pliant with the requirements of the small

business agent and not issuing loans with deficiencies as the inspector general recently found. ultimately, the committee needs to understand whether the programs are currently constituted are unabling small businesses to create jobs. if not, we need legislative changes to capital without placing the taxpayer at risk. with that, i yield to the ranking member for the opening statement. >> thank you, mr. chairman. in the last year, our nation's economy has experienced steady private job creation; however, it has not been enough to have a sizable impact on the unemployment rate that remains high at 9.1%. the reality is that we will still have a long road ahead of us. with millions of americans who are seeking work that cannot find it. front and center to any solution to this dilemma are small businesses. in every previous downturn, it has been small, innovative firms that created the cutting edge

products and services to lead us forward. in fact, more than half the companies on the 2009 fortune 500 list were launched during a recession or bear market along with nearly 50% of the firms on the 2008 ink list of america's fastest growing companies. whether it is a silicone valley start up or a main street mom and pop, it is clear small businesses are the nation's job creators. in order for us to continue to play this traditional job creating role, it is essential that they are able to access capital. doing so provides the fuel for innovation and economic expansion across the spectrum of entrepreneurship. it enables individuals to start their own businesses, help domestically companies to sell their goods and foreign markets, and allows high-tech firms to reinvest in research and development, but small business

faced real challenges in the capital markets. while lending conditions and others are easing, companies have still not recovered from the financial crisis and recent recession. this has left many without the assets to borrow against and with lower revenues than in years pass. business owners now have fewer options to secure affordable financing. lending through the sba is always critical to fit into this. several provisions this committee crafted in the recovery act temporarily boosted sba and lending. raising guarantees and putting fees on sba loans was key for the record setting year the agency experienced. with the record of nearly $20 billion, an increase of more than 50%, it is clear these policies worked. impressive growth in the program as well as smaller growth in the

504 program confirmed the important role these initiatives play in the capital markets. with this growth came other challenges in the portfolio. the average sba loan grew by nearly 40% while there were percentage declines in smaller loans on those two start ups. smaller loans are especially important as an average and cost nearly $75,000 to launch a new enterprise. with an average loan size of now, $365,000, five times the cost of a start up, we must make sure that the agency is not fore saking its rules solely to set records. during today's hearing, i'm hopeful we're not just talk about past penchs but talk how to improve business especially in the early stages of the cycle. business in the high growth

sectors remain central to our economic recovery, and it is critical that we expand their ability to secure financing. .. on that note i would like to think the witnesses for taking their time to be here. i'm interested in hearing their thoughts on how best to make the entrepreneur is capital needs so they can create the jobs that we

need. thank you, mr. chairman. islamic as i mentioned in my opening statement the first witness today is karen nels, administrator for the small business administration. she's been with the sba or has been the sba administrator since 2009 and is obviously no stranger to the committee. prior to joining the small business administration she was an investor in small businesses and all the struggles businesses have in obtaining capital and we are very familiar to you. thank you for being here and we appreciate you coming in. >> well, thank you very much, chairman and ranking member velázquez and members of the committee. thank you for asking me to testify on access for capital to small business. for the fiscal year that just closed, the sba hit an all-time record in the 60 year history. we supported over 30 billion in lending to 60,000 small businesses, and we brought back 1200 lenders mostly community banks and credit unions who had not made a sba loan since 2007.

we also had a record year in the small business investment company program that nearly 2.6 billion in overall financing. this is a zero subsidy program that targets high-growth small businesses, the main driver of the net new jobs. today come sba's lending volume is back at the pre-recession levels. however, it is our agencies continued obligation to identify and fill gaps where the market is not working. this is particularly true for low dollar loans and loans to businesses in underserved communities. and as i describe this effort i want to be sure that the committee understands that all of the sba's programs and initiatives have been implemented in accordance with our authority as provided by this congress. so, first, low-dollar loans. under 150,000 have not come

back. we found treatment causes: they have a high cost for processing relative to their size, so banks often don't want to make them. to answer that, we streamline to simplify paperwork on the loans to incentivize the lenders to step up. second, we need more points of access to get small loans to the entrepreneurs in underserved markets. that's why we developed community had a vintage come to let community-based lenders with proven track records and historical low default rates to make 70 loans for the first time. third, when many of the large banks withdrew from lending during the recession and the credit crunch in october, 2008, small loans to small businesses were very hard hit. that's why we have secured a $20 billion of additional commitments over the next three years from 13 of the largest banks, many of them will focus

on underserved markets. i also want to be sure the committee fully understands the facts about loan performance in the subsidy costs. loan default rates now have begun to fall. they are not rising. and loans made in the past three years are actually performing significantly better than foot cohorts of 2005, 2006, 2007. as i testified before, we are also focused on linder oversights and the elimination of fraud, waste and abuse through a three-pronged approach. we look at up front of eligibility to make sure the loans are flowing to the intended recipients, and continued monitoring and oversight of our lending partners and finally, we enforce -- we focus on enforcement efforts to pursue fraud and bad actors. my commitment is that we will

continue to expand access to capital while protecting taxpayers' dollars and as we embark on another critical year in sba lending. thank you very much. >> thank you come administrator mills. we will turn to you, mr. kaufman, for opening questions. >> thank you, mr. chairman. secretaries mills, since the sba-backed loans are only a small percentage of the over all small-business lending, what steps are you taking to encourage private small-business lending? >> as you heard me say earlier, we have as you described on a good day a small portion of the market, may be 10% of the market, so the entire market, the conventional market for small-business lending needs to also come back. we went out to our 13 largest lending parkhurst, all of the

large banks, which hadn't comeback enforce the sba lending and other lending. they've come back to sba but they haven't shown enough members of conventional lending and as for increased commitments and promised to work with them to make sure they had access to the demand that we see out there. they have committed $20 billion of additional capital, incremental to what they have done. >> who is they again? >> versus 13 banks so we can give you the list. it was public, you know, our primary purpose, jpmorgan chase, a los cargo, u.s. bank, pnc, huntington bank and the aggregate amount is $20 billion incremental small-business lending over the next three years. >> thank you. secretaries mills, do you have any of the analysis to determine

what sba for backed lending would be without the reduced fees and higher guarantee? 75 to 85 per cent guarantee still provide banks a way to mitigate risks. >> we do have evidence and the chart which was attached to my testimony you can see what happened. the actual 90 per cent guarantees in the on december 31st last year. we had a big spike right before that happened so we had a recovery dipped and then we came back to a level that was significantly above 2010 and also of the 2008 levels so it seems to be working. >> thank you. i yield back. >> ranking member? >> thank you, mr. chairman.

madam administrator, since start accretes particularly wise during economic downturn, you might expect to see a rise in lending for such entrepreneurs. however, small-dollar loans are a percentage of sba lending last fiscal year. does this mean that the agency is shifting away from making these types of loans and focusing on larger loans to the more established and mature companies? >> no, the agency believes as you do that there is a gap in the smaller loans. and in fact of the reasons for the holley unemployment right now is we are down about 100,000 new business starts, so we have been extremely concerned, as i know you have been, about the fact that the market did not come back and that's why we came out with a three-pronged

approach to promote smaller -- >> so, why is it that last year sba spent nearly $70 million, 84% of your subsidies on loans of $1 million or more? bye contrast, subsidies for loans of 250,000 or less for which there is the greatest need right now of just 1.9 million. does it seem fair that so much money goes to benefit fewer than one in ten of all borrowers? >> as i said, we are in complete agreement with your analysis of this problem in that there is a gap in the small business lending. we have continued to focus on that, but the job is not nearly done.

we are -- we have made slight progress over the last year in the smaller loans sizes, but there is still a very, very large gap. >> what do you think it will take so that we can see more loans going to smaller start up businesses? because that's where the need is. >> what banks coming back to that area, and what we have done is try to make it more cost-effective for them to use the sba loan for a small loan to the we tried to bring together our large lending partners and get them to focus on it. we tried to bring more points of access to make small loans like our community developments and financial institutions, give them access to the sba lending. we will get every possible lending within our authority to do that. >> okay. thank you.

last week your agency issued final rules to permit the wholesale of refinancing of commercial real-estate in the 504 program. with foreclosures expected to climb this year, how much will this new refinancing program contribute to the subsidy rate? >> this new rate financing program has the authority to pay for itself. so it is separate from the subsidy rate. >> so you don't expect the refinancing initiative to contribute to the subsidy rate. that's what we heard before regarding the regular financing 504 program and you came back and for next year you will require nearly $90 million in subsidies. so, what would you do or your agency do if the default on the

financed 504 loans began to charge to cover the losses? >> this program is authorized to charge additional fees and we will charge the fees necessary for the subsidy. >> it is the same situation that we have with the 504 regular program, and when you continue to charge those fees and increased those fees to cover for those losses, you could reach a point where you reach the maximum cap allowed by law. so what would you do then? you would have to come back here and ask for subsidies to cover for those losses. >> the refinancing program ends a year from now. >> okay.

and as you say that from a year from now that will end, the same situation we find with the stimulus funding for the 7(a) and 504, it will expire in december. the loans have fallen back to levels not seen since the worst of the credit crunch. why is it that two years after the credit crisis began sba cannot find a long-term solution to provide a meaningful level of credit to small firms? >> the facts, as you've just stated them, i think are not correct. if you look at the chart next to my testimony, you will see that even in the last three quarters we have rebounded to levels that are at 2008.

>> half of all of your lending last year occurred in the first quarter when the incentives from the stimulus package were in place and that is the only reason lending was up as high as it was. so every month since the provision expired we have seen the lowest number of loans that have been issued backed by the federal government. >> with respect, i believe that the facts are not correct. >> it's not the amount. it's not the amount of the money lent. it's the amount of the loans that have been made. >> the number of loans that we have right now is impacted as you mentioned before by the fact that the decline, most of the loans are in the small level in

the previous year's those have not come back. >> thank you, mr. chairman and ms. mills for being here. appreciate your efforts and everything that you try to do to help small businesses in the country. just listening to some of your testimony, i'd like to get a little bit of clarification. you mentioned in order to be able to get the banks to start making loans again, you would streamline some paperwork. can you describe a little bit for what the actual cost savings are to the bank as an incentive in the streamlining of the paperwork? >> i know we have that, but i don't have it here, and happy to get back to you. >> fighting we'd like to hear that, because we often hear government is simplifying things coming and that rarely is actually the case.

and in terms of trying to be able to create some cost savings because that is the real issue. you also mentioned non-performing loans are dropping. >> correct. >> is that a result of the improving economy or is that a result of people simply gone bankrupt and no longer on the board? >> our loan portfolio is made up of cohorts made in 2005, 2006, 2007. many of those, when you look at our delinquency rate, field in the recession. and therefore caused a peak about 14 months ago in august, 2008, of our portfolio, our overall default rate peaked 14 months ago and now it is improving slowly as those loans have passed through. cynics of the stabilization of the business is basically bill yep? >> actually the new loans are

defaulting early but they are defaulting at a much lower rate measured by their month from inception than the loans from the previous cohorts, so we anticipate the improvement will continue. we also know that credit scores on the current portfolio of the loans made in recent years are much stronger. >> okay. you mentioned there is a commitment of $20 billion in commitments from larger banks. how much of that has been loaned? >> we made the announcement on this three or four weeks ago. so, probably not very much yet but it's coming. >> okay. looking for your written testimony, you seem to give the tip of a hat to the president in regards to the $467 million stimulus and indicated that there was paid for. mauney concern and a lot of our constituents concerns that are small businesses is is being

paid for on the backs of businesses that are currently struggling in terms of increased tax rates. could you speak to that? >> we are talking about the american jobs act. and the american john zach has received very strong support from the small business community because it includes a payroll tax cut, which they are very eager to get because it means cash in their pocket right away. those, you know, inslee understand no specific pay for has been decided yet because the bill is in the hands of congress, but definitely small businesses are looking for that cash from the payroll tax cut in their pocket. >> do you think small businesses are going to be concerned about increased tax rates? i have a letter from a gentleman named jim come small construction company and

colorado. been a successful business, small business, and because of a lack of access to capital he paid down his line of credit to zero. went back to the banks trying to get that line of credit and he actually purchased to be able to grind rocks to put on the roads come to grow his business and create jobs but because of the regulatory compliance, the banks wanted to loan the money but could not loan the money. he had to line up his equipment, so let off till 24 employees that they no longer had a job. but under the presidents calculations right now, and there is and we both need to pass on the message the plan is not paid for he would have been labeled as rich a couple of years ago. do you think it is counterintuitive coming and in fact counterproductive, to be raising taxes on small businesses at this time? >> first of all, if you have

another small business like this or, you know, she is still available, please tell your small business a winner in that situation to get on sba dhaka of and come to our district office because that is the situation where we can help and one of my jobs in my task before me is to make sure small businesses are aware when the bank can't because of regulatory issues they are guaranteed can always -- can often, very often make a difference. >> that is a lot of cleanup that we can do to streamline paperwork in eliminating the regulatory requirements on banks so they can loan. wouldn't you agree? >> we have sat with banks and i sit on a continuous basis with the regulators to make sure that the guidance they have given the small business lending at the top is making its way all the way down to the regional, the regional regulators so that we

have a consistent set of regulations at the bank so that they can open their doors to small businesses and get some of this money out into their hands. >> i hope that will happen. my time is expired. thank you, mr. chairman. >> ms. mills, the ranking chair of the contracting subcommittee, and last week congress nammuldi ne dalia were able to have a hearing in los angeles and it was about sba and what does or doesn't serve the businesses of our area and at that hearing jesse torres, the ceo of blank bank testified about the small business program. he's doing the job we want. he's providing the underserved communities with small business lending options. it's not easy but they are successful. they don't operate a sevena program and he said the reason

that they don't is because you need a team of experts to ensure the meet all of the requirements to ensure that they did the sba guarantee. the teams are expensive and not cost effective for the banks in that if sba finds out the requirement is the net they will withdraw and the bank is liable for the entire loan. why but experts be necessary to operate in sba loans and what can we do to ease like panamerican bank. >> first mr. torres and blank bank are on our list to hopefully come and do some training and some not reached so that we can perhaps get into the program. the problem of that you described, we have put forward what we call a ten tab program. what happens when a bank makes a loan we've developed the system

so that if they put the right paperwork in every single tab, when they come forward at some point to have us honor the guarantees if there is an issue, we will know that every piece of that paper work is in place. when we come out and speak to mr. torres we are going to teach him this tab business and e alleviate the need for the extra cost that he is concerned about and assure him that we will be able to make a proper payment on that guaranty because of his paper work will be in place. we do have paperwork and rules. they cannot make payments on guarantees if they are not in place. >> is this a program you have in place, technical assistance for the smaller banks that need this kind of training? >> is it is and it's one for our district office and that is one of their primary focus is. >> how often do you withdraw the guarantee so that a bank might be held liable? >> we honor the guarantee of 95%

of cases. >> on another topic, something else we learned from the field hearing in los angeles is that microloans are incredibly important, and in particular the crime program seems to really work especially now that big banks are likely to deal with millions of dollars. these microentrepreneurs create jobs for themselves and contribute to the economy but before you know they could be a major company. many entrepreneurs only need 50,000 or a couple hundred thousand to get started but i understand in envy sba 2012 budget you say that the program is duplicative of the small business microloan program but i believe the program is different in that the prime program gives entrepreneurs ready for the loan whereas microloan technical

assistance programs trains already existing programs for growth. just to give you an example of a prime program's success story, two sisters, one a recent college graduate, invested in a business of fashion design and manufacturing. the one under 35,000 but the needed to borrow 35,000 to cover their working capital. they came to crime because the regular banks wouldn't help them and where would businesses like this turn to if the prime is eliminated? >> first, you are correct there are thousands of stories out there where crime has helped many small businesses with technical assistance. the issue we face is everybody has to tighten their belts in the difficult budget times so we look at programs we could execute those activities through other programs we had or through

partners, and it turns out that the intermediaries and the community development financial institutions provide terrific technical assistance and that we felt that our value added was to provide them with the ability to use our program and get access to capital and that we would use public-private partnerships and public partnerships to work together with them to make sure but the technical assistance through our entire network of small business development centers, microlenders, women's business centers was still robust and growing. >> thank you. i would like to get that list of partners you think would help get these entrepreneurs ready. >> yes, we can do that. and i yield back.

>> thank you mr. chairman. ms. mills, i represent pennsylvania's 11th congressional district in northeastern pennsylvania. my district has one of the highest unemployment rates in the state of pennsylvania. on september 8th after hurricane ike ai reena and tropical storm lee we experienced the worst flooding in the history of the area. many people, many businesses as you can see have lost everything many people did not have flood insurance as they were told they were not in a flood plain. as i travel around talking to the residence there, many businesses were saying they are not going to open again. they just don't know what they are going to do. many folks there a lot of them senior citizens asking what will the federal government do to help us, and what i had to tell them is they could qualify for a

sba lummis your individual the 2.7% interest. if you are a business and you can't get credit anywhere else we will give you the loan at four per cent but if you can get credit somewhere else, we will give you the loan at 6% interest. i've got to tell you why was almost in their list to tell the people back home, especially when every disaster strikes somewhere else in the world, america being the most generous country that we are are always the first to help people. in fact, in the last two years we gave pakistan to hundred $15 million for flood disaster relief. no interest, no payback. i don't know about you but i think we should help america and americans first. what do you say that i tell the

people back home in northeastern pennsylvania why the interest rate would be 6%? >> i am familiar with your district, and it was extraordinarily hard hit by both irene and tropical storm lee. for those of you knew of the committee we run a ready reserve of 2,000 disaster of operators to within 24, 36 hours or on the ground in these areas assessing damage, speaking with people comco locating with fema. we have to page petition, we do homeowners, businesses damaged and economic injury to make sure even if they didn't have physical damage because the real was cut off businesses suffered damage or because so distressed they can get 30 year