The Real Skinny on Herman Cain's 999 Tax Plan
Policy + Politics

The Real Skinny on Herman Cain's 999 Tax Plan

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Is regulation strangling the American entrepreneur? Several Republican presidential candidates say so. The numbers don’t. The anti-regulatory fervor was in evidence Tuesday night in the latest GOP debate, but rhetorical flourishes, on that and other issues, masked far more complex realities.

Here’s a look at some of the claims and how they compare with the facts.

HERMAN CAIN: Repeatedly touted his 9-9-9 tax plan as a “bold” overhaul of the tax code that would get the economy back on track, and be embraced by the nation.

THE FACTS: Cain’s plan is bold, and some economists think it includes features that would help the economy. But it is unlikely that the millions of low- and middle-income families who would face significant tax increases will embrace it. The wealthy, however, would probably love it because they would get big tax cuts.

Cain would eliminate the payroll taxes that fund Social Security and Medicare, and replace the progressive federal income tax with a flat 9 percent tax on income. He would lower the corporate income tax from 35 percent to 9 percent, and impose a new 9 percent national sales tax.

Cain argued Tuesday night that low-income workers would pay less because he would eliminate payroll taxes, which total 15.3 percent of wages, when employer and employee shares are included. But his analysis omits the fact that most low-income households make a profit from the federal income tax because they qualify for so many credits, deductions and exemptions. The result is that most low-income families currently pay less than 9 percent of their income in federal taxes. Nearly half of all U.S. households — mostly low-and middle-income families — pay no federal income taxes at all, according to the Joint Committee on Taxation, the official scorekeeper for Congress.

Additionally, all households would face a new 9 percent national sales tax, again disproportionately impacting those with lower incomes who spend all or most of their money.

High-income households would get a tax cut from the lower income tax rate. Also, Cain's proposal would eliminate taxes on capital gains.

MITT ROMNEY: “All of the Obama regulations, we say no. It costs jobs.”

RICK PERRY: Regulations “are strangling the American entrepreneurship out there.”

RICK SANTORUM: “Repeal every regulation the Obama administration put in place.”

THE FACTS: Labor Department data show that only a tiny percentage of companies that experience large layoffs cite government regulation as the reason. Since Barack Obama took office, just two-tenths of 1 percent of layoffs have been due to government regulation, the data show.

Businesses frequently complain about regulation, but there is little evidence that it is any worse now than in the past or that it is costing significant numbers of jobs. Most economists believe there is a simpler explanation: Companies aren't hiring because there isn't enough consumer demand.

The conservative National Federation of Independent Business asks its small-business membership each month to name the single most important problem they're facing. Last month, the most common response was “poor sales,” cited by 28 percent. Government regulation came in second, at 18 percent.

Concerns over regulation have increased in the past two years — only 11 percent cited it in April 2009, not long after Obama entered the White House. But the rise hasn't been outside historical norms. More small businesses complained about regulation during the administrations of President Bill Clinton and the President George H.W. Bush, according to an analysis of the federation's data by the liberal Economic Policy Institute.

High levels of economic uncertainty are another drag on business, but economists say that's less due to regulation than to fights over government spending and taxes. Both consumer and business confidence fell in August, for example, as the White House and Congress wrangled over the nation's borrowing limit. But that was a bipartisan dispute that can't be solely pinned on Obama.


REP. MICHELE BACHMANN: “We have a big problem today when it comes to Medicare, because we know that nine years from now, the Medicare hospital Part B Trust Fund is going to be dead flat broke.” She also charged that “President Obama plans for Medicare to collapse, and instead everyone will be pushed into Obamacare.”

THE FACTS: Bachmann is mixing up Medicare while exaggerating the danger of insolvency.

Part B is not for hospital payments, but for outpatient care, and it’s technically impossible for that part of Medicare to go broke because it is financed by the federal government’s general fund and by beneficiary premiums. Medicare's Part A is the hospital trust fund, and it is now projected to become insolvent in 2024, 13 years in the future. Even then it would be able to pay 90 percent of its obligations, a far cry from “dead flat broke.”

When the fund has been threatened in the past, Congress has come through with changes that restrained program growth, largely by cutting provider payments.

There is no evidence to support her charge that Obama plans for Medicare to collapse; his health care law envisions nothing like that. In fact, a Republican budget that Bachmann voted for would make far larger changes to the program for the next generation, converting it to a voucher-like system.


ROMNEY: “On Day One, I will issue an executive order identifying China as a currency manipulator...If you're not willing to stand up to China, you'll get run over by China. And that's what's happened for 20 years.”

JON HUNTSMAN: “I don’t subscribe to the Don Trump school or the Mitt Romney school of international trade. I don't want to find ourselves in a trade war.... We have to get used to the fact that, as far as the eye can see into the 21st Century, it’s going to be the United States and China on the world stage.”

THE FACTS. Economists largely agree with Huntsman, who was U.S. ambassador to China earlier in the Obama administration, that confronting China head on over currency manipulation would bring retaliation against U.S. business. The policy debate among Republicans — Democrats, too — is whether that risk is worth it.

Few dispute that China manipulates its currency by pegging it to the dollar. However, opponents of confronting China worry about a trade war that the fragile global economy cannot afford.

China may have more to lose than the U.S. if trade in goods were curtailed. But Washington depends heavily on China to buy U.S. Treasury securities to help finance its budget deficits.

PERRY: Pointed to “the 54,600 jobs that have been created” by two state funds used for attracting businesses to Texas or helping new companies get started.

THE FACTS: The funds have not delivered that many jobs yet. Lucy Nashed, a Perry spokeswoman, said figures for 2011 are not available, but as of the end of 2010, the funds had only created 30,749 actual new positions in the state.

To be sure, the 89 firms that have received $439.5 million in state money have several years to create the jobs. But one study found nearly half the companies that got money had not met their goals. In many cases, the governor's staff allowed the companies to renegotiate their contracts or pay back a percentage of the funds they received.


BACHMANN: “I think if you look at the problem with the economic meltdown, you can trace it right to the federal government, because it was the federal government that demanded that banks and mortgage companies lower platinum-level lending standards to new lows. It was the federal government that pushed the subprime loans.”

THE FACTS: It might be argued that the government pursued policies under both Democratic and Republican presidents to promote home ownership, such as setting up mortgage giants Fannie Mae and Freddie Mac to make more affordable mortgages possible, and the tax deduction for home mortgages. But it’s a stretch to suggest that federal regulators forced banks to make mortgage loans to people who could not afford them. And neither Bachmann nor most other Republican presidential contenders are calling for a repeal of the home-mortgage deduction.

Many of the subprime loans that inflated the housing bubble were not made by banks, but by mortgage companies that weren't regulated by the federal government. A big reason they made the loans was because they could profit by selling them to Wall Street investment banks, which made money by packaging them into securities and selling them.


Associated Press writers Tom Raum, Stephen Ohlemacher and Ricardo Alonso-Zaldivar in Washington; Brian Bakst in St. Paul, Minn.; and Chris Tomlinson in Austin, Texas, contributed to this report.

Copyright 2011 The Associated Press.