we would welcome ideas, suggestions, concrete proposals from all members. two dozen pieces of legislation that go directly to this issue. let me just list some of them. senate bill 14 by senator ensign to establish the commission on congressional budgetary accountability and review of federal agencies. senate bill 81, an isakson bill to direct unused appropriations for senate pernld and office expense accounts to be deposited into the treasury and actually reduce the federal debt. senate bill 102, a mccain bill, which requires o.m.b. to transmit to congress a message with specified information requesting any rescission the president proposals under the procedures instituted under that act. senate bill 162 by senator paul

to cut $500 billion in federal to cut $500 billion in federal $500 billion in federaly spending from fy 2011. senate bill 163 by senator to me the full faith and credit act to prioritize principal and d interest payments whenebt and ii the debt limit is reached. senate bill 170 by senator demint to reduce federal spending by $2.5 trillion through fiscal year 2021. er, hi senate bill 225 bi cementer corker, the so-called ek to a d create discretionary spending path for congress. senate bill 259. this is my bill to privatize social security payments if and. when the debt limit is reached.o senate bill 360 by senator der t inhofe to create a point of order to exceed on security discretionary limits and

spending limits for fiscal year 2017 to 2021. senator senate bill 389 bayh senator kirk and senator hatch has a blo very similar bill to establish a commission to review cost control. and to rescind all on obligateds balances of president obama'sl. stimulus bill. senate joint resolution three by senator hatch, a balanced budge4 amendment, and senate joint resolution four by sat hershelt. be on the same topic and senateb joint resolution by senator lee on the same topic. e,is is a long list but it'sxhav certainly not exhaustive, mr. president. if i just read a partial list t: with ideas, proposals comerage solutions. we encourage every senator of every party to come up with

ideas, proposals, solutions, any what's actually talk about theas greatest threat we face as a country.let's let's talk about it now, let's the date now, the exchange ideas and a positive atmosphere now c before we reach any crisis remosphere over the debt limit.p again, mr. president, i respectfully urge the distinguished majority leader hd senator reid to heed our call to take the call to arms to read ad our letter and react by creatine identified time on the flooratur well before we reach the statutory debt limit to debate . and pass solutions on thisdon't crucial topic. again, mr. president, i don't think there is the date thatfacs this isn't the greatest challenge we face as a country,o

that tnohis isn't the greatest economic threat we face.imply, a so quite simply, what are we t waiting for?e ideas we need time to bring forth thea we need time to do this well before the statutory debt limit is reached. we need to do the people's business in a reasonable way and a sober atmosphere, not anr atmosphere of hysteria orached i threats when the debt limit would be reached in a matter of days.all with that, mr. president, i urgo all of my colleagues to join us, ,n this effort to come to thedes floor with your ideas, your proposals, and let's do the lr people's business. i would ask unanimous consent oh our letter be made a part of the record. i >> without objection. c >> i also ask unanimous consent that this partial list ofpart oe

republican solutions anding of proposals be made part of ther: record.oor. >> without objection. >> with that mr. president, i yield the floor. >> more than 100 years ago his grandfather left china on a steamboat bound for america where he worked as a domestic servant in washington state. a century later his grandson will return to china as america's top diplomat.

the chief actuary of the social security administration said thursday the long-term solvency of the program depends on lowering benefits or increasing funding or a combination of both. stephen goss spoke to the national economists club for a little more than an hour.

>> there we go. okay. very good. objective was to come talking with duals and ed and thank you very much for the invitation to talk to you all today and share a little what we know and think we know and to have the opportunity to learn from you more of what we should know and that is my objective here today to learn as much as to tell you what we know. what we think we know quite a bit about this social security, we social security is going to play out in the future, what forces are driving it, that there is a shortfall coming, what solvency is and what sustainability of the social security system is. one topic that has been of interest for a while now is the

concept of to trust funds matter. social security is after all the trust fund based program which is different from other programs in the federal government. there are other trust funds, the hospital entrance program of medicare is a trust fund program, very similar to the social security program. and one other thing i am going to want to talk a little bit about today and looking for your feedback on is why are there shortfalls in the future for social security? something we are not sure everybody understands as would be desirable so hopefully we can shed a little bit of light on that. second topic to get through is how about this budget issue? you have heard all of the discussions about social security in the budget, medicare and the budget, what is the interplay and what are the implications about the trust fund programs vis-a-vis the budget. many people have said many things about this. there's been people from the administration. paul ryan was on the fiscal commission and is the chair of

the budget committee for the house representatives have stated that social security is not part of the budget issue and we have a slide show to address a little of what the thinking is and we look forward to your thoughts on this. let's go to think i know best which is the solvency of social security. looking at social security it does have trust funds, it is charged by law. we have a board of trustees. secretaries of treasury, labor, health and human services, the commissioner of social security and to public trustees, the urban institute and chaka, formerly of the national economic commission of the white house and the bush administration. we have the six trustees on staff and their charges the board of trustees is to look over the trust funds and their operations and to monitor them.

now it's not to come up with ideas how the law should be changed in the future but it for the operations. part of the charge in the law for the trustees is to then develop with the assistance of the actuaries center for medicare and medicaid services and social security where i am to come up with a projection that could to the annual reports to the congress of the actuarial status of these programs. so that's really the basis of most of the work we do as assessing what the act or status of the program is and of course we have work on the side in case members of congress and others come up with ideas how we can change the program and what the implications of those changes would be. but this picture you see in front of you tells the picture of what solvency is for social security. solvency is at any moment in time, any point in time the trust funds in the position of having enough money to be able to pay all the benefits scheduled to be paid at that point and if there's enough money at that moment to pay the

benefits and fulfill your scheduled in the trust is solvent at that moment so what we tend to look at is looking to the future are we solvent now the answer is yes. and for how long will we be solvent under the current law and that is the critical thing. estimates for the trustees reports are under current law what's going to happen in the future and you see the picture here. the black lines show you for the social security trust funds the survivors insurance and disability insurance which are legally separate funds. we tend to get them together because what in some trouble often there were changes in the law to have the other one reality the tax rate or whatever to make them more similar. the funds are dominated by the survivors insurance trust fund that something like 85% of all the cost comes from the fund as opposed to the disability fund but he conceded projected exhaustion dates for the survivors insurance and disability insurance combined

fund is 2037. a number that you probably heard before. that's when we project that nothing is done by the congress and we belong exactly as it is. that's the tradition we have until the trust fund will use up the reserves and at that point we would not have enough money coming in to be able to fully pay all the benefits and real-time. we do break it on to the separate trust funds. it's a lot better off financially and that will last until about 24. as opposed to 2037. the di trust fund significantly with current financing and current expectations is projected to actually become exhausted in 2018. will that have been? we will get more into that, but you will notice on the bottom part of the graph there's a little point back here in 1994 where the actual reaching the point of the trust fund was moving down and approaching exhaustion and the congress

relatively easily came in and said let's reallocate some of that 12.4% tax rate that goes to the trust funds that has been allocation of how much goes to each fund and the simply changed the allocation of the total 12.4 to put a little bit more of it into the fund and a broad back up and made them financed on a more equal basis. and because it's so easy to do something like that and history tells us at least in the past it has been that's why we tend to look at the trust funds on a combined basis. so this is the picture of what solvency for social security looks like as it is defined based on the trust funds having enough money to be able to pay benefits and under the current law. i should mention the reason we always do this under current law and some people might say orland walz going to change? we certainly expect they will. there's no question about that, but our job and our trustee's job is to lay out are the expectations of the law does not

change because that tells policymakers what it looks like there will be changes by and gives a sense of what kind of changes and how much change will be necessary to avert having this happen under the current law. the second picture we have speaks a little bit more to the cash flow concept. again remember solvencies of the trust fund is having enough money when we were the other but it's very useful to look at the cash flow of the system. cash flow is defined looking at the non-interest income. large taxes or whatever else has come to the trust fund other than interest and comparing that to the cost of the program, the cost of paying the scheduled benefits are a little less than 1% of that amount that is for administrative expenses so when we compare the income level and on this graph we've got everything expressed in terms of the percentage of our taxable payroll, our tax base so it's not a surprise the income level was pretty much flat line because we have a 12.4% tax rate

so the taxes on their earnings is a 5.12% of our tax law. it does grow a little bit, it's not easily perceptible here, it grows a little bit over time because we have another component of income which is revenue from the taxation of social security benefits which we actually split. we get a part of that and part of that goes to the medicare hospital insurance fund. but that tends to be growing overtime as a percentage of payroll and that actually is causing the trend line to grow ever so slightly in the future. but the real story is the blue line, and the blue line on this you can see that we are projecting for about the next three or four or five years to be very, very close to half non-interest income is be at about the same level as the cost of the system. they are going to be very similar and that's not a problem, plus or minus a $2 billion isn't a big deal because remember if we go back

to the slide before, the trust funds these are not in dollar terms but right now the level of the trust fund you are probably familiar for social security and conveys -- combined basis is a very large reserve and that is why when you see on this graph the blue kerf starts to go up well above the ret curve, we show the cost of the system is going up and in fact the system will still be able to pay the benefits because the reserve will be available to augment the taxes the will be coming in for a period of time. but there will be time after which the trust fund reserves will be used up and the remaining taxes will still be coming in of course but we will no longer have reserves to get into to augment the taxes and we project now on the combined basis and 2037. if this were to happen, if this plays out and we use up the trust fund reserves and there's no change in the law and all the assumptions for the projection comes through, then we will

suddenly during the year 2037 reach the point we no longer have trust fund reserves to augment the taxes and the trust fund set special rules. the trust funds are only allowed to pay with the available. there is no borrowing authority. it's not like the rest of the government. they are very segmented and separate from the operations so if indeed we reach the scenario trust funds run out and we project in the year 2037 of the point of exhaustion we would have about 78 cents of tax revenue still coming for every dollar of a scheduled benefits. the means we would simply not be able to pay out full benefits in real time. through most of the wrist the 75 year period the relationship is quite stable of 75 cents coming in for every dollar of benefits. and you can see that the little - line is the cost of the scheduled benefits which of course the trust fund exhaustion is higher than the amount of

income we would have come in once we exhausted the trust fund and that's why we save the reality of the trust fund is if they were to exhaust and we have tax revenue after that point coming in that is less than the net benefits we wouldn't be able to pay them all exactly how that would play out hasn't been determined and the good news is because we've never gotten there but we will get to that in an upcoming slide. so, we talked about solvency of the program, we talked about the cash flows that are contributing towards possibly using up the reserves we have and having the trust fund become exhausted. another has become a very big topic that is much discussed is the sustainability social security and lots of programs. everything we worry about the sustainability social security, medicare, other programs concerned and we want to pay attention to the system of devotees of the question really is what do we mean when we say system of the the? and others to definitions that

have evolved on this. the first is related to the fact under the current wall the scheduled amount of revenue based on schedule texas coming going to be sufficient to pay for the scheduled benefits and the answer to that is no. so in that sense, sustainability is not achieved if by sustainability amine under the current wall will there be enough revenue coming with no change to be able to cover the currently scheduled benefits so in that sense currently scheduled benefits are not sustainable with currently scheduled in come. there is another concept though of sustainability which is a more fundamental concept and that is the system as we know it in its basic structure sustainable into the future and our sense on that is of course 535 people at the road here who are the ones who will decide the direction the program should go but if we look at the chart we

had a moment before it shows the percentage of gross domestic product at the cost of social security is and what the income as you can see again the income is up relatively flat line the schedule of tax revenue, but the cost based on the scheduled benefits is a different story. it's been actually operating many years in the past where a was less the amount of revenue coming and that is why the trust fund buildup and we have reached the point we have come to the plan there are a lot of parity between about 2008 to 2030 or so we are seeing this little shift in the cost of social security. it's making a big move up, a very substantial movement toward the higher level of cost and it's coming up about the level of tax revenue. beauty is always in the eyes of the holder and the question is does this look as though the system is sustainable or not? some suggest while it looks as though because the kurds are not diverging from each other

perhaps what can be done is to make some adjustment in the level cost to bring it down or some adjustment in the level of tax revenue and bring it up to get the two closer together and the system in its current structure with such adjustments certainly can begin to be sustainable. others say that in more fundamental change to the nature of the program really would be desirable or might be in order and that's why we are so glad that we are only after werries and we just from the numbers and make policy decisions to others. but this does give you a picture for you to have your views about what you think about the sustainability of the system in the future. there's clearly a little shift from the cost of social security having been about 4.3% gdp for a long time, to over the next 20, 25 years it's going to be around 6% of gdp, level schiff and it's going to be relatively stable after the projections.

so if -- essay, another question that oftentimes a rise is that has arisen is due the trust funds matter? what is the sycophant of the trust funds? weld if the assets exhausted 2027 by law, the commissioner of social security at that time will be constrained to have only about three-fourths as much money available as would be necessary to continue paying the scheduled benefits things would have to be done and all is not specific about what would happen. so then you might ask a logical question well, i will ask, has this ever happened and the good news is no. the reason is because obviously congress and the executive branch has always understood this wouldn't be a good thing to have social security become exhausted the trust funds and have a drop in benefit levels for all beneficiaries and as a result we can see as we approached such times in the past and it happened in 1977 and

1983 we end up having amendments to the social security them a kick difference and in this graph you can see what happened to the trust fund and here we express the level of the trust fund as a percentage of gdp and again the trust fund is the reserve that are there for social security available to help of my taxes when we need them. well you can see the trust fund reserves have been what about 4.5% of gdp back in the 1950's and they gradually came down to the 1972 amendments to 4% of gdp but there were some amendments in 1972 that modified the benefit formula and made it grow faster than it had been before and that ended up without commensurate increases in the tax rates and that cost the trust funds to start diminishing. by 1977 was realized fully and sufficiently that this trend

wasn't going to be sustainable and there have to be changes. the 1977 amendments made huge changes in the nature of the benefit for social security. the problem being faced at that time was on the order of three to four times as large of the long-range problem we have now. the 1977 amendment fixed about three-fourths of the shortfall, not all of it but about three-fourths of it at that time. that little bit more work to do and six years later in the 1983 amendments we came along and have further amendments increasing the retirement age and other provisions that took care of the remaining gap that had been left for the 75 year period and the 77 amendments increased taxes somewhat, lourdes benefits, the usual compromise and you can see at that point the level of the trust funds turned around and turned around quite dramatically. the trust funds have since that time been growing very substantially as a percentage of gdp and that is why we have the $2.6 trillion in the trust fund

assets and are at the point of what amount 18% of gdp as of 2,009 for the magnitude of the trust funds. so, is this the end of the store? will now we have our projection. the projection of the current law and policy is that in fact the trust funds will not start diminishing over time and we will in a minute to get to why which for me is the most fun part of this. but the projections are that the trust fund assets will start going down in the not too distant future and start dropping rapidly towards the exhaustion of 2037. the period during which the trust funds are being spent on of course are in which the debt the treasury goes to the trust fund which are the trust fund assets will be diminished and during that period we assume there will be debt by the public --

>> [inaudible] favor the demographics? explain this three to 4% of gdp. >> it was favorable demographics during the period and the fact that the tax rates had been raised up to a level. basically what happened in the 1983 amendment was that changes were made so as to look the 75 period as a whole to make sure things would be okay, and at the time we didn't have the computers we have now and we were not able to turn off estimates on the year by year basis on very short order which we cannot do overnight so at the time when we were doing estimates they came up with a solution that would get financed for that over the 75 year period the cost versus the revenue were not as well matched as we would

like and this really speaks -- this is a great opportunity to mention the sustainability aspect. since about the mid-1990s the had actually incorporated the new concept into the trustees report and i'm glad you raised this point. it's not to look over 75 years whether there will be enough to fill in come to the total benefits because this isn't a pretty picture we don't want to see the assets dropping like this towards the end so the new regimen and i'm very happy to report to you all the legislative proposals we dealt with for the last 15, 16 years now have taken this seriously to heart. this should not only keep the trust fund ratio above zero for the next 75 years but to aim towards having a level or maybe slightly rising at the end of the 75 year period. if that is achieved then we declare the plan is achieved sustainable solvency. the 1983 amendment didn't. it ended up having the extra

revenue the was being brought in in large part for demographics which we will get to in imminent. so great question but the money will drop and again if this were to happen and we had 2037 run out of revenue that is not payable under the current law we would be the to pay about 75% and that would be the reality if nothing else is done. but something will be done. we know there will be more amendments. >> i forgot to mention just briefly when the graph is downward sloping i interpret that to mean you are actually drawing money -- the social security system is actually drawing money from the trust fund? >> that is right. well, actually any money ever paid by social security is always drawing on the fund because the revenue is coming on a daily basis and the funds -- >> when there's money going into it. >> it builds up in the funds. >> right. >> exactly.

>> because it is relative to the gdp if we could a -- no cash flow in or out its growing with interest it would be relatively flat as compared to the gdp. when you see it going down or going out there is cash flow going on in the trust funds on the net basis. so now let me get to what i think is really the significant and important thing to focus on and to understand. so you've seen the social security has in the past and was corrected and we are still facing the future shortfalls going on and you saw how the shift on the cost as a percentage of gdp and of the tax base is happening on a fairly sudden basis you might ask why is this happening? the reason it's happening is because we are an aging population. but does that mean people are looking a lot longer? well, first of all here is a picture of what our aging population is going to look like in the future, these are the projections for the trustees and you can see in the past focusing

on the yellow band of the top 65 and over which is a representation of the beneficiaries we have that's been growing a little bit as a share of the population. but there is a rather perceptible and sudden shift of the growing substantially between about 2010 and 2030 or 2035. there's a big change in the share of the 65. chariton is 20 to 64 is staying about the same but the key thing is the ratio between the members over 65 and those of working age changing a lot. ..

>> well, another thing that's looked at is life expectancies. they have been rising for males and females here, the top line is that birth, and we are projecting that these will continue to rise. people live longer, and more importantly for the cost of social security benefits, life expectancy at 65 since 1980 has been growing faster, women faster than men, but we're catching up. we are expecting the life expectancy will continue to rise in the future putting pressure on the cost of social security, but the big factor of the next 0 years far -- 20 years far and away is the change in birthrates, and change

in birthrates, remember, we used to have on the order of three kids born per woman, and now it's 2 kids born per woman, and that is our assumption we'll continue with a birthrate of 2 children per woman over a lifetime in the future. they made significant impact on softening the impact on birthrates. looking at the total fertility rate, the sum of babies 14-49, so it's an age-adjusted con cement. look at the birthrates of those ages, add them up, that's a rough estimation for a woman aged 14-49, a million women in that cohort, the average fertile they rate tells you how many babies to be expect to be born

to that group of individuals. the dashed line is the fertility rate historically back to 1875. it's been dropping generally. we had the sort of dip in the 20s and the depression and then pushed back up post world war ii, and then a level shift down after that, but we also created another line here which is the solid line which is a little bit of a modification, a total adjusted fertility rate looking at just not the number of children born, but the number of children born in a year expected to survive to age 10. this from the theory that when people have children, it's just not about having babies, but a desire to produce adult offspring down the line. when you make that adjustment, you can see the curve looks different as though the number looked stable but for the dip in the roaring twenties and the depression and the bump up in the postworld war ii baby boom.

it's been in the upper two's to three children per women rather stably until the end of 1975, and then the number dropped down. people were taken aback by the fertility rate dropping below two, and we now see this as a transitional shift because women decided to have fewer babies in a lifetime, but having less children in their 20s and more in their 30s. when you move through a transition like that you have a dip. >> we need to ban birth control. >> well, okay, we've got the first policy option put on the table here. [laughter] very good. [laughter] so you can see what happened here is we shift from on average roughly three children per woman to two, and you can see that this happened quite per siptously, and so what are the implications of that? well, here's another view by the way, because i promised to say

something about immigration and how it impacts us. remember, two ways to bring people into the population. one is they are born, the other is they come across the borders and enter the population. we have upwards of a million people entering our country more than leave our country in total every year. there's 4 million births in our country every year and almost a million net immigration coming in so clearly immigration is a clear factor in augments our births. not all countries have that net immigration. we continue to have positive net immigration in the future. it's not been an extremely long standing phenomena. since 1980, there's been substantial levels of immigration. we suspect those levels will continue in the future, and basically, if we add them into the birth and say what is an adjusted total fertility rate treating the people in the country as though they were

births -- >> legal immigration only or both? >> both. this is all people in the country, legal and not legal. a great point because the key thing in our projuxes, long term projections whether they are in the country legal or undocumented, what gives the most impact on our trust fund solvency and our program financing down the road is not just that they come in. if we have people coming in in the year 2011 and paying into the system and getting benefits, that is a wash during the period. what counts is the fact that they have children when they come here. we actually have more births as a result of the net immigration in the country, and those children have children themselves. it's the additions to the population and the multiplication of people coming in as workers during that period having a positive impact on the trust fund financing. >> for instance, tighter border control and what that would mean for the social security fund?

there's a reduction in the social security system. no, no, no, but if there's a reduction in illegal immigration, my sense is there's not a bang out of immigration as you would have if the borders are loose. >> that's true. it's available if anybody is interested, but there's estimates done for ted kennedy and charles grassley and others on specific and very comprehensive immigration reform plans back several years ago, and we do to estimates about what the implications for social security financing will be the basis of various kinds of legislation that would impact immigration. it does affect our population in the future. >> looking at european and japan's statistics, they are lower than ours. if any, these are optimistic figures. >> that is exactly right. japan as you probably all know

has a birthrate not of 2.0, but more like 1.25. their population, i think, is about in 2005 has been declining even though people are living so much longer. their population is declining and they have essentially no net immigration, so we are still having at least essentially replacement birthrates and having net immigration so good point. our problem is significant, but it's actually worse eel where, so -- elsewhere, so if that's solace, that's real good news. again, if you look at the birthrate at 2.0, add in the net immigration, it makes the equivalent of 2.3. that means while the birthrate dropped from about 3 down to 2 with the help of immigration it's 2.3. it's not quite as bad as just looking at birth rates, but it's still very, very significant. now, the imp nations of all of this -- implications on all of this in social security and beyond

social security currently, we can look at what has happened to the relationship between the number of workers and the number of beneficiaries. this is very similar to a pure demographic ratio that is oftentimes looked at which is the age of dependency ratio, age of 65 divided by the number of working age people. this has the same shape after 1975. i put a vertical line here prior to 1975 because these statistics for social security before 1975 are really not very meaningful because in the program first started back around 1940 essentially all workers paid in taxes, but in 1940 when monthly benefits were first paid, you had to have worked in the last two of three years. there were not many people at that point, so there was very, very few beneficiaries at the on set of the system. it took awhile until 1975 for the the system as a whole including the disability program that came in in 1957 to really

mature and get the stability and this is what maturity looks like. from 1975 to about 2008 or 2009, this ratio of the number of workers divided by the number of beneficiaries, the support ratio, the worker to beneficiary ratio is remarkable situation of the demographics and increasing labor rates especially for women during that period, but the compensation made this ratio constant during that period. however, over the next 20 years, things change. this level shift which should now be familiar, the timing and magnitude of it, there's a big shift in the ratio of work es to beneficiaries and drops from 3.3 workers per beneficiary which was stable from 1975 to 2008 dropping down to about 2 workers per beneficiary moving out to

2035, and then it remains quite stable thereafter, and it's not a stretch, of course, to understand that this really 1 the shift, this timing, this magnitude is because of the shift in the birthrates. here's a little example because over the years we've always tacked about the shift from three to two children and the impact on that in terms of the cost of the system. you can actually break this down and the numbers actually add up which is always a very, very comforting thing to us and all atonnists too. the average beneficiary receives something around $1,000 a month. let's take that as a starting point. if we were operating in a world with 3.3 workers for every beneficiary, that's $300 each on average they put on the table. high earners more, but on average, $300 each for 3.3 of

them to pay the $1,000 benefit to individuals. well, in fact, over the period of 1990 to 2008, the workers were paying more than $300 each because, remember, we were building up the trust funds, taxes were coming in more than needed to pay the current benefits, so actually it was this stylized example it was more like we had something like $341 of taxes coming in for each of these 3.3 workers which, of course, produced more than $1,000, so we had the trust fund build up. now, let's fast forward to a world with only 2 workers for every beneficiary. if this worker continues to pay the same $341 they paid in the past which is equivalent to keeping the 12.3% tax rate where it is, the average retiree doesn't get $1,000 anymore, but $682, a 30% drop in the benefits. well, this doesn't add up with our projection that under

current law there's a 25% reduction in the level of benefits that can be afforded with current taxes, so what's the difference between the 25 and 32? we isolated the items that explain the difference. one is between now and 2022, we're going to have another change in the normal retyrant age that lowers benefits by 7% and that explains a portion of the difference of the 25 and 32. the revenue from taxation of benefits under social security is actually rising relative to payroll and gdp, and the reason for that is because the 25 and 32,000 thresholds are not indexed. an increasing number of retirees are subject to tax and there's a slight increase, and the third point, a little more subtle, is that if you compare the average benefit for people receiving social security benefits to the average wage or the average earnings in the economy, that number even though we have a

wage indexed benefit system, the benefits are wage indexed up the to the point where you are eligible for benefits which is age 62. the average benefits go up with the age with the average wage. after you are eligible after age 62, the costs go up with the cost of living. we estimate that's 1.2% a year slower than the average wage growth. well, if our distribution of our beneficiaries by how long they've been receiving ben if thes stayed the same over time, say ten years, that would mean that they would all have the same number of cost of living adjustments and would have fallen behind, and, in fact, the standard of living because every year there's a cost of living, you're in effect falling behind the worker's stand of living by 1.2%. over time as people are living longer, our average beneficiary

in fact has been on the roles for more time, had more cost of living adjustments, and therefore fall a little further behind on general standard of living of workers which, of course, is the place where we derive our tax revenue from. the longevity lowers the tax level a little bit relative to the average wage level, and those three factors explain the fact that we have only a 25% short fall instead of the 32% short fall. now, with this, let me jump to sort of the second part, and i don't know how we are doing on time here, but have just a few slides on another topic that of course is of a lot of interest lately, and it certainly is of interest to us. that is social security and the budget. how do these interface? you heard a number of people from the add mrks, from capitol hill and others talking to the

extent which social security is part of the budget and negotiations, and we can look at this from a technical point of view and make obvious vaixes that are of some help in thinking about this. first of all, social security, remember, it is not just mandatory spending. there's mandatory versus discretionary. osi, di, the medicare parties are all trust funds operating under the basis of dedicated revenues coming in. as a result, the trust fund assets developed, the $2.6 trillion, those trust fund assets are, ncht, assets that have been loaned to the general fund of the treasury and they represent debt. they are a liability in the general fund of the treasury just as publicly held debt if you have some e bonds or treasury notes, some i bonds, kips or whatever at home, those are publicly held debt. they are not marketable, but

they are money that the general treasury borrowed from another entity. look at the two of those together, the trust fund to assets and publicly held debt create the total debt, so the question is what is significant to this? osti is, in fact, accounted for in the budget. there's on budget and off budget so there's the opportunity at least to look at these as separate entities. the budget focus one might say should be at least on this basis that the on budget should be the focus for people who are worries about what's happening in the budget because social security is separate definable entity operating on its trust fund basis, and one could say that the total debt which is what the general fund of the treasury owes to the public and to the trust funds is something that might be of issue. publicly held debt is what's looked at most generally, but

total debt is another concept, and both of those should be on the table to be considered. just to give you a little picture of the effect of social security historically and in the future on on budget balances, so if we say there's a trust fund perspective that says the trust funds are about solvency of social security, that's one picture, and the rest of the government is the on budget, then social security's impact on the on budget is a red line. it's nothing. it doesn't really matter because if social security spends or costs built up trust funds or whatever, that doesn't affect the on budget actions except possibly for one thing. you can save interest that is owed by the general fund of the treasury to the trust funds is, in fact, a cost to the on budget accounts, however, consider all of the assets that the social security has amassed over the years which is the basis for the interest that the general fund

owes social security, and social security had not amassed those assets and all other spending were as it has been, then that bond would have never been to the trust fund, and it would have been borrowing from the public, and treasury would have to pay interest to the public, so the trust funds amast these assets which are liabilities to the treasury, the treasury pays interest to the trust fund, but if not, it would be to the public. the interest of the social security and trust funds don't create a net effect on the on budget flows. now, if you look at it from a unified budget point of view, and this is the world of suggesting let's not world about the trust funds, just the flows year to year and not really pay attention to the trust funds per se and just look at the flows. if you look at the flows then, the effect on social security is really just its own cash flows over time, and one of the key things on this issue where you can see it went up and down as

it did in the past and it was positive and now it's going to be dropping down because of the big shift in the demographics, and we will, in fact, be spending down the trust funds which is a draw on the unified budget if you account for it that way, but one of the key things is to draw on the unified budget stops once the trust fund exhaust. once the trust funds exhaust, there's nothing to be tapped into other than the current taxes, so there would be no impact. the unified budget, even the unified budget flows are not impacted under law going past the point of trust fund exhaustion. a little example here of how the on bowget works. imagine living in a world where there's excess on budget spending. that would require whenever we have excess in budget spending, more than brought in in revenue, there has to be borrowing from

the public or trust funds. both add liabilities to the treasury, and one can be substituted for the other. they are both liabilities and they are both money that the treasury owes to various entities. if it it's publicly held debt, it's directly, if it's trust funds, it's owed indirectly to the public because the trust funds are there to provide benefits to the public. now, imagine a world in which we have positive social security cash flow which we have had for a number of years. in that case when there's positive social security cash flow, we are building up the amount in the trust funds which means we're loaning money to the treasury, and so there's more trust fund being built up, but that means there's less publicly held debt building up during that same time period. now, imagine a world that we'll be facing in the future under current law in which social security csh flow law turns negative. that pushes down the level of debt treasury owes to the trust

funds, but, at the same time by exactly the same amount, pushing up the amount of debt owed to the prick. from that point of view, it's a swamp. the question is i think for you all as economists to ponder is do the markets first of all understand this? do they and should they care? certainly our trustees are out there and can see what's happening in terms of the buildup of the social security trust fends and the spend down that the markets understand as one would presume that markets are good at discounting future events especially when they are at all predictable, and if they understand this, they would see this coming, and therefore, when it happens, it should not have a big impact, but i guess time will tell. now, another look just in terms of social security's trust funds in the effect on total federal debt. this is a/picture to the -- similar picture to the annul budget balances. the red line is social security's impact on total federal debt.

of course, it doesn't have any impact because the social security builds up a bunch of reserves that is that much less that the treasury has to borrow from the public, so it just balances out, so social security actions on total debt that the federal government owes to the public and the world is willie-nilly. but if you look at --- >> [inaudible] >> we are virtually done. if you look at the point of view of total debt and believe that total debt matters and the world in financial markets care about the totality about the debt of treasury that the social security size of the trust funds other not, it doesn't matter. if you believe publicly held debt is, in fact, the issue, social security has a big impact, but i drew the dashed line here that shows underbudget scoring convention.

that, by the way, just to flip to this, the budget scoring convention considers only publicly held debt and assumes something very interesting that trust fund programs like social security will continue to pay out benefits even after the law does not allow it. when the trust funds do not allow paymentings of the benefits at the level that's scheduled and moreover whenever we reached that point, the law has always been changed. congress really does respond, and they changed it to more revenue or to take down the benefits or a come combination of the two to write this. the concept of actually doing budget scoring on having this really quite e enormous rise as percentage to gdp and publicly held debt on the presumption in a period of which the dashed line is on that social security would continue to spend money it's not allowed to spend under current law is interesting. i point that out when you interpret congratulates you see about the rise in publicly held

debt that that does presume that social security and medicare will continue paying benefits long after the trust funds are exhausted and by law they are not allowed to pay those benefits. so, should we consider only publicly held debt? you know, i think that's something for people to consider. as i mentioned do the financial markets understand the concept? do they pay attention to it? my guess is i know most are savvy and they pay attention and they know a lot. cash flows are not budget issues from that point of view, and i think this is part of why you heard paul ryan and other people say that social security per se is not really part of the budget issue. how this plays out in the discussion is really hard to say going forward. finally, who do we do -- this is coming away from the budget, but

social security and really now that we've talked about the fact that it's the demographics, the shift in the aging of our population, not just social security affected by that. medicare is affected by that. if you have a nice big house that you bout at a time when there was a lot of baby boomers bidding up the price, and there's 20 years that pass and you want to sell it, but every asset, every flow is affected by the shifting of the demographics, so what are we going to do in general going in the future? we can encourage people to work longer. we are, and certainly will be doing that. that's of some limited help. we can increase the retirement age, and that certainly is a big help. we can reduce monthly retirement benefit levels, reduce the basic benefit level. there's lots of proposals for that. we can increase tax rates, not only the 12.4, but we can increase tax rates on earnings

above 106,000 where the payroll tax is now zero. we could have some or all of the tax at that higher level. we could perhaps increase immigration further. we can change laws to do that and we can encourage births as someone suggested earlier by various means. we have lots of different possibilities here on how to sort of write this, but remember what we are basically facing is that with the current demographics and the economic situation of the future is not optimistic or pessimistic. it's a nice down the middle of the road projection where there's either lowering benefits by 25%, increase revenue by 30%, or a combination of the two, and that's what's required of the future, and it's just that simple. i'll stop there. sorry for taking up so much time. please. >> thank you very much for being

here. this is very informative. i'm 69 years old, still working, finally drawing in social security, and i sat down and made a double check of the accuracies of the social security calculation. i'm filing an appeal because of that. i got close, but not exactly. what i learned in doing that is what the effect of these local bin points are, and i don't know how many people have done the social security calculation, but what you realize when you do that is the amount of income redistribution within social security because of the vine points. my question is this -- as you talk about changes down the road, one the ways to deal with this is to in effect shortchange higher income people more than they are now being shortchanged by social security, but then the question comes at what point in time does social security lose the political support it has and

higher income and middle income people wake up and find out how badly they are shortchanged under the present bin points and taxation. >> good point. there's a progressive benefit formula up to something like the first $800 monthly earnings. you get 90%, and then for the next something like roughly $4,000 monthly earnings above that you get 32%, and above that, it's a 15% return. there's proposals of various types. ..

the political impact. >> however there is one thing you should be aware of and a lot of people have them work on this at the institute and many others have worked and we tried to do a little work on that it's true people with lower earnings benefit however one thing we also recognize when we look into the estimate is that people hiring tend to live longer. people with lower incomes tend to live not so long and there have been studies done that suggest it ends up being awash in terms of lifetime benefits where you get a lower replacement rate, lower return if you are a high earner, and you live longer you end up getting in a lifetime basis for as much in the way of benefits for the taxes you pay them as the lower income people.

i think the estimates indicate maybe it's not a complete wash there's still some shifting towards the low earners but not nearly as much as you would think by looking at the monthly benefit. >> talking about your long-term projections could you talk about what kind of assumptions were making about long-term economic growth and particularly as part of that productivity growth because that's an important -- >> get some numbers about what kind of growth assumptions are some for economic. >> for economic growth we are projecting the enterprise that aggregate real gdp will be growing in the future for one principal reason. if the growth rate in the numbers of workers is going to be slower, less than 1% of the future whereas it was two and a half to 3% in the time the baby boomers were coming increasing in the labour force if we go from 2.5% in the labour force down to 1% growth rate in the labour force that takes 1.5%

rate of the top and aggregate the gdp growth. per capita gdp growth, per worker gdp growth which is labor productivity project in the future the labor productivity growth will be about 1.7% which is above the average over the last century. and we discussed this a lot with our trustees and lots of opinions there was a purple between what was that 1973 and 1995 and many recall the economy wasn't doing so well and many people thought it should be much lower below 1.5 has appeared between 1995 to 2005 sometimes in the new economy. a lot of people say we have productivity can be over 2% as it was and our trustees preach that understanding there are cycles and things to come and go what we look at the long-term averages to set our assumption and we are up 1.7. the one quick thing on that is that because the benefit levels for people becoming eligible

grow at the rate of average wage and of course our tax revenues grow with the average wage the actual solvency and cost of the system relative to the payroll is relatively insensitive to the differences in the rate of growth and productivity and wages. it's very sensitive to bow to the differences in the rate of growth of the population by birth rate and other demographic factors because we don't have anything that offsets -- >> i want to make sure i understand. sometimes when there is a surplus technically the trust funds don't contribute anything to the debt. however, last year there were more benefits paid out in revenues taken and which means the treasury basically has to cash in the securities that are in the trust fund. when the treasury does that it counts as a liability.

remember in the year 2010 our estimate is that we had about $16 billion more in benefit payments than tax revenue coming in. so the $16 billion of net that had to be drawn out of the trust fund in our interest in the trust fund was well over $100 billion to the was a small amount. it pays for the excess of benefits over tax revenue in that year and the rest of government were not running surpluses that would have been fine. the government were running surpluses they would have been biting down publicly held debt but they wouldn't have brought it down by as much. the rest was running deficits means the amount of extra publicly held debt they had to buy last year over a trillion was increased by about $16 billion than what it was

remember when the social security trust fund is reduced by 16 billion, the debt the treasury used the social security is reduced by 60 billion dollars. that have to borrow to get the social security to 16 billion to pay the benefits they have to borrow from the public to increase the debt to the public by 16 billion they've reduced the debt by 16 billion the total debt is just washed. >> the public demand for the treasury's and how our markets understand that. >> i understand the logic of that, but if you think of the plan you don't understand the way it's set up basically a pecos system. but logically these people have a claim on the government and everybody that contributed did their documentation when the get the 65 and in my opinion that's

not much different than having the zero-coupon bonds, sitting out there on the balance sheet so i'm saying i a understand your way of reporting and the analytical framework for it is traditional and its conventional. i don't have a problem with it, but as a supplement to get at the point of what is sustainable which is what you focus on why can't we talk about the part of it that is what is for us of a welfare payment for somebody else as a group. and if you do that logically than you know that your contributions have to match the accrued all you of your liability to come through to read a straightforward financial calculation. so my question is do you do that as an alternative so you get at the point of calculating what the days of the life of the because otherwise i'm afraid the politicians will continue the procrastination economics and believe we don't have a problem until 2037. the completely use that as an

excuse so my question is do you do that and do they ever see it? >> absolutely it's in the trustees' report. we have estimated not only on what is for the paygo system and do all described it, you look at any point in time and say of all the money coming up to the state and all the money that's gone up to the state what we are doing today we have enough money to cover it on the paygo basis and that's really for today the tax is coming into this is the benefits we are paying now. i think what you're speaking to is more like the normal for the advanced defined pension plan. >> [inaudible] >> it does. >> if you have a corporation that his employees in the pension plan regardless whether it is matched or not it should be on the balance sheet. >> what you have in the trustees are the close crew of the unfunded obligations which is answering the question if we were to close the system to people who are now under 15 and just what the system went out in the future and people 15 and

older you pay whatever taxes received and what of your benefits and close the system off and that is in the trustees' report. it shows with the unfunded obligation is on that basis. and so that is the number that you're looking for and that is a useful and reasonable thing to look at, but of course of your operating the system on the pay-as-you-go system where you have explicitly and the congress explicitly decided not, then it of course you can expect in on from that obligation. that's by design.

secretary state hillary clinton said today when she visits egypt and to nisha next week she will meet with of the libyans opposed to the government of the more khaddafi. those comments came during testimony on the president's 2012 budget request before the house appropriations subcommittee. this is a little more than two hours. >> the subcommittee on the state foreign operations and related programs will come to order. i want to welcome everyone to today's subcommittee hearing, madam secretary thank you for appearing today to testify on the administration's fiscal year 2012 budget request for the state department and foreignas

assistance programs i know lasta week was busy for you as are ald the weeks and for your committee and i am very glad that we weret able to get this hearing back oc scheduleia today and i appreciae it very much. e the issues we discussed a u critically important forsecurit. our efforts in afghanistan and pakistan, iraq must achieve clear objectives and demonstrate results. at the same time, we are all watching the rapidly unfolding events in the middle east and north africa. we must support efforts for reform in this region, continued investments in democracy promotion and military assistance will be critical to maintaining peace in a very difficult environment. in our own hemisphere, drugs and human drasking are -- trafficking are grave concerns starting through south and central mexico bringing violence to ore backyard. in texas, the violence is spilling across the border.

we must take action now. with the issues we're facing around the world, our debt is the greatest threat to our national security. we have to make difficult choices today to protect the most critical funding for the future. while it's not easy, the administration, the congress must work together to make wise decisions to lead this country forward and away from future threats. the state foreign operations bill supports critical national security interests, but we can't continue to spend like we have in the past. i want to be clear that i remain committed to protecting our national security with investments abroad while giving appropriate attention to our economic recovery here at home. while this congress and the administration still have a great deal of work to do, the state foreign operations portion of hr1, the continuing resolution passed by the house a few weeks ago was a first attempt to achief the right

balance. this prioritizes the front line states of afghanistan, pakistan, and iraq and key allies like israel and jordan. at the same time, they made cuts this programs we simply can't affordment plans to increase state and us aid staff support large multiyier commitments and boost lending by international banks must be reconsidered. the hearing today is a subcommittee's first chance to hear how the administration prioritized its needs for fiscal year 2012, the biggest budget request totaled $59 billion for the security which is almost $11 billion above the 2010 enacted level. this funding level includes for the first time a separate account for the extraordinary cost of operating in the front line states. i'd like to highlight several areas of the budget request that deserves the subcommittee's attention. the request for iraq is billions

more than spent in fiscal year 2010, but this is significantly less than the cost of keeping troops on the ground, and we recognize that. as the state department prepares to become the lead agency in iraq on october 1, serious questions remain about state's capability to manage a program of this size and ensure the security of diplomatic and development staff. in afghanistan, the administration continues to focus on providing direct assistance to the government. the subcommittee will continue to watch this closely. we'll be following how the administration monitors an evaluates projects because clear goals must be achieved so that the civilian effort complements the military activity. it's only through an integrated strategy we ensure terrorists do not have safe havens to plan attacks on the united states. i've been drawn to security changes by the government of afghanistan that can make the operating environment even more

difficult for u.s. government employees and contractors. a reasonable agreement must be reached so there's a successful transition to afghan security forces, but counterinsurgency and development goals can't be put in jeopardy. in pakistan, united states continues to demonstrate commitment to an enduring strategic partnership focused on economic, military, and police assistance to help root out extremists and support other rite call investments. for israel, this budget includes more than $3 billion to have a strong military presence in a volatile region. while it doesn't have planned reductions for columbia and moment koa, there's a focus on these countries and the neighbors in the region. the subcommittee needs to hear more about how the funding asked will sustain gains over the last decade and help mexico build the constitutions it needs to forge a lasting front against the

cartels. in closing, i want to thank the men and women of this country serving overseas, especially those placed in the most difficult circumstances. i also want to thank secretary clinton for her dedicated service to this nation. i believe working together we can maintain an effective and ficialt diplomatic development capacity in key areas around the world. by justifying the total funding levels proposed in this budget simply will not be possible. i hope today will be the first of many conversations to determine how the united states can remain a leader in the world through a period of extraordinary political crisis and at the same time emerge quickly from our economic turmoil. i want to turn to my ease temperatured ranking member and then i'll turn to ranking member rogers and then who is here in

seniority. i'll alternate between seniority and minority and keep your questions within 5 minutes. if there's time, there's a second round of question. there's a light in front of the secretary. i'll turn to mrs. lloyd for her opening remarks. >> thank you, and i join chairman granger in welcoming you back to the subcommittee, ms. clinton. it's an honor and privilege. we thank you for your extraordinarily strong leadership. your steady hand and effective representation of the united states of america never cease to impress and amaze me especially during crisis like those we face throughout northern africa and the middle east, and we thank you. in this time of fiscal belt tightening, it's important that we not lose site that diplomacy and development are crucial to

promoting stability, improving economies, sustaining peace. these investments help prevent threats to our national security and cost far less in lives and treasure than deployment of troops. we cannot let our current fiscal crisis create a future security crisis by cutting these invaluable programs. that is why i'm particularly pleased, the president requested $27 billion to support global development in fiscal year 2012. assistance for addressing global climate change, food security, and health challenges help create the conditions in developing countries for the growth of democracy, economic expansion, and ultimately increase stability. in addition, this budget requests would advance our security imperatives to both

encounter drugs and anticrime programs, combating transnational crime, strengthening our allies including israel, jordan, and egypt, and provide assistance in cop flick to -- con conflict to volatile areas. they will edge courage stability in vulnerable regions while meeting our moral obligations to help those most in need. however, i am troubled that this request is not prioritized with basic education, an issue i believe is crucial to the success of our efforts to promote health, economic development, gender equality, and long term security. over the last 10 years, i worked to increase funding for basic education programs, and over that time, we've made

significant progress. for example, in sub sai is a hair ya africa, it increased 70%, but children still remap out of schools, and i hope you will commit to me prioritizing efforts in support of universal primary education for all chirp by 2015. by the way, the amazing event you hosted at the state department in honor of international women's day. i was particularly pleased that prime minister of australia emphasized the importance of education, and i do hope we can continue to work together particularly focusing on girl's education which is a major obstacle in so many parts of the world. now, we know that the current

fiscal situation demands tough decisions, and this request reflects a thoughtful analysis where cuts can be absorbed. it appreciate the care the administers took to provide congress with a realistic request, however, we know from last week's debate on the continuing resolution, several programs included in your request are going to be subject to reductions in the house. one area of particular concern to me is the drastic cut to international family planning that was accompanied by divisive policy changes such as reinstatement of the local rule. i hope you can address what these cuts and policy changes mean to the millions of women and children and families who depend on these programs, many for their basic health. finally, we welcome your

thoughts on the effects of the revolutions in tunisia, egypt, unrest in yemen, nigeria, bahrain, jordan, and the new government in lebanon will have on both our foreign policy and our aid to the region. i smile not because of the seriousness of the situation, but the enormous challenges that you are dealing with so effectively and for that, we are so grateful and so very appreciative, madam secretary. thank you. >> thank you. . mr. rogers, do you have brief opening remarks to make? >> yes, thank you, madam chairman for the time. madam secretary, welcome to the old haunt here at the hill. we appreciate you being back here. we appreciate your service. i apologize about playing phone

tag about the breakfast meeting, and i assure you that's on my list, hopefully. i appreciate you being here today. truly a historic time for the congress, the nation, and indeed the world. i don't have to tell you i think we are at the cross roads here at home. over the last two years, we've increased discretionary spending by 24% including the stimulus funding that's increased by 84%, clearly unsustainable. since 2008, base appropriations for state foreign operations subcommittee has grown by more than 33%. we are borrowing 42 cents on the dollar that we spend, and it's time that we get serious about reducing spending, putting it dent in our record-setting deficit. it's difficult to believe that

the administration shares my goal to cut spending when the 2010 state foreign operations request of $59.5 billion is an increase of more than 22% above the 2010 bill. even if 2010 supplementals are included, budget still represents an 8% increase. when i share the chairwoman's interest in national security as o priority. we can't sustain the level of spending in this bill. we have some tough choices ahead for us and for you, and i look forward to hearing from you today about the administration's priorities, especially where we might be able to squeeze some spending out of the request, and i appreciate your thoughts. >> thank you. mr. dicks, do you have any

remarks? >> i welcome you today. along with defense, the state department and u.s.-aid are critical companies of the national security strategy and essential to making americans safe at home and abroad. i appreciate the work you have demonstrated with secretary gates to the country and to the world, and that's quite important, and it's somewhat unusual. with this budget request, the administration seeks diplomacy and funding levels to result in longer term savings as we continue transition from the military to civilians in iraq and support counter inser jen sigh and stabilize programs in pakistan, yemen, and sudan. we strive to use smart power and face increasing domestic needs. while there's signs of recovery in the economy with unemployment dropping to 8.9%, the growing budget deficit, the creation of

jobs, and provision of economic security for american families must be the primary focus of this congress. there's no doubt this bb difficult to sustain all the priorities laid out in the president's budget request, but i'm still optimistic we can balance our national and international priorities, but if we are, we must ensure every dollar is well spent. our investments in diplomacy and development continue to yield great dividends over time because as we all know, development costs far less than life and treasure than deploying ore troops and more effective methods of peace and stainability. they are less likely to pose a threat to their neighbors or to us. with this in mind, madam secretary, and i'm pleased the administration seeks to invest in the future by funding

activities like food security and global health which are clearly aimed at creating the necessary conditions in developing countries for the growth of democracy, economic expansion, and ultimately increase stability and the priorities we all share, so i look forward to your statement. i look forward to hearing a little bit about how things are going in this transition in iraq where the state department is expanding operations and the defense department is bringing down operations. i think this is a very critical moment. thank you. madam chair. >> madam secretary, feel free to summarize your remarks, and without objection, your full statement will be submitted into the record. >> thank you very much. i want to congratulate the chairman assuming this important postat such a critical moment in world history, not just american history, and i want to recognize and thank not only the ranking member, congresswoman lowey, but

also the members of the ranking members of the subcommittee. i want to say a few words about remarkable changing occurs across the middle east. yes, it's exciting, but it also pose z significant challenges to america's position, our security, and to our long term interests. next week, i will travel to cairo and tunis to speak directory with the people. i will be meeting with their transitional leaders, and i intend to convey strong support of the obama administration and the american people that we wish to be a partner in the important work that lies ahead as they embark on a transition to a jen new win -- genuine democracy.

some countries as of most of those in eastern and central europe navigated those challenges successfully, others have not. we have an enormous stake in assuring that egypt and tiew knee sha -- tunisia provide models for the democracy that we want to see. now, in libya, at the same time, a dictator is denying his people that same path forward, and we are standing with the libyan people as they brave bombs and mustets to demand that gadafi .. now without delay. we are hard at work with our partners and allies including nato, the arab league, gulf cooperation counsel to isolate sanctions to stop the violence against his own people and to send a clear message to those around gadafi who continue to enable this attack on his own people that they too will be

held accountable if they commit crimes against the libyan people. we remain engaged with the sanctions committee at the united nations to consider tougher measures as the situation develops, and we are reaching out to the opposition inside and outside of libya. i will be meeting with some of those figures, both here in the united states and when i travel next week to discuss what more the united states and others can do. now, the united states through the state departmentd >> already providing food, shelter, of water, medical supplies and the evacuation assistance to those who flee the island spirit we have dispatched expert humanitarians teams to assess the needs on the borders and we stand ready to expand those of words. of the military has positioned assets to support the critical humanitarian

missions and united states military i am proud to say has airlifted, hundreds of the egyptian migrants may be in the thousands by now who's n fled into two mischa as a direct request from the egyptian government through the supreme council of the armed forces. we are considering all options. in the years ahead we know libya could become a stable, peaceful society are in a way to a democracy or could fall into chaos and violence. the stakes are so high that only primarily for the abyan people but the rest chri of the world. this is the unfolding of how we use the combined assets of diplomacy and defense to protect our interests and advance our values. w thee integrated approach is not just how we respond to a to

crisis but it is the most effective and cost-effective way to advance security and only possible with the budget that supports all tools in our national security arsenal.to i want to lend my voice to the chair woman who has made it very clear that the american people have a right to me justifiably concerned about our national debt. i am to. but i know we have so many tough decisions we're facing right now that the american people also want us to be smart about the investments we are making in the future. two years ago iin asked thatnves we read new our investmentangi and we are seeing tangible results. in an iraq, 100,000 troops have come home as civilians are poised to keep the piece. in afghanistan integrated s

military has helped to set ther stage for the diplomaticd surged for afghan led reconciliation to end themp conflict to put al qaeda on the run berkeley have imposed with you're very strong support, the de strongest sanctions yet to rein in the ambition and greed engaged as a leader in the pacific and in our own hemisphere and signed trade deals to promote american deals and weapons treaties we work with the sudanese to achieve a peaceful referendum and a return to civil war and we work to createcieties and economies that have political cahal support and irreversible transitions. the progress is significant but the work is formidable that lies ahead.th fy 2012 budget is a budget that will allow us to continue pressing forward.s.

and that is celine budget for meantime sime launcheder the first ever development review to help maximize the impact of every dollar we scrub the budget and made painful but responsible cuts to central and eastern europe and a cut development assistance over 20 countries by more than half. this year for the first time our request is divided into two parts. the core budget request is $47 billion for the state department and usaid that support program and partnership every country but north korea and the essentiallyt flat from 2010 levels. t the second part funds the extraordinary and temporary portion of the war effortuest the same way the pentagon is funded with a separate overseas contingency o

operation account. instead of covering more expenses through supplemental appropriation retake a more transparent approach will leave reflecting the civilian military effort. president's the $126 billion request for wartime cost is 8.$7 billion. all told we have $47 million operational account and it a billion dollar overseas contingency account. a of the account referred to buy mr. lewis is 59 point* $5 billion that is both treasury and all of their foreign aid accounts that i als know that you are alsout paying attention to. but on this issue of

8.$7 billion overseas contingency operation we have a strongt support from m secretary gates and admiral paul molitor and next week's big to a general petraeushe last night he will be here on the hell strongly supporting the civilian effort going hand in hand withoi what he is doing so heroically in afghanistan. we're finding five o civilian missions pakistan and iraq and afghanistan with a planned $7 billion we do have al qaeda under pressure as never before. the military surge and a civilian surge, when i became secretary of state we had 300 civilians in afghanistan most ron six-month rotation. we're not doing our part to be a good partner to our military colleagues. we now have 12 hundreds of billions state yen and day out in the roughest terrain you can find. our commanders tell me every week literally we cannot

succeed without a strong civilian partner for the military efforts.as we're trying to deepen our relationship there are many challenges confronting as we know what happens when we walk away we did it before and the results were dire for us and after so much sacrifice in iraq we have a chance to help the iraqi people build a stable democratic country in the heart of the middle east. well we're happy with happens in egypt and tunisia will be positive weens have the electionsre twice held in iraq and a government that is set up nine is on his of his stake in belgium's but now we have to me there with support. the budget also saves us money because the military

total request and i know the congressmen is well acquainted, worldwide dropped $45 million from 2010. ourou cost will increase by less than 4 million. we think that is a good return on the investment of blood and treasures the country has already made. second, even as the wars come to a close we're working as hard as we can to prevent tomorrow. we devote 4 billion in the budget to sustain a strong u.s. presence in yemen, said the headquarters of the arabian peninsula working to provide security and development and humanitarian assistance and focusing on somalia and helping the northern and southern sudanese chart a peaceful future and helping haiti to

rebuild and propose a contingency fund that wouldirst pool resources for the firstnt time with the defense department to have the expertise and cooperation to respond quickly to challenges but we also strengthen our allies for training mexican police to take on the violin cartel to secure hour southern border. providing 3.1 billion for israel and support jordan and the boston dance and helped egypt and tunisia to provide assistance over 130 nations for crow we have gotten our money's worth. o support to the egyptian military over 30 years made it possible for us to have the open line of communication between our leadership and have been trained a generation of officers resaw of them refusing to fire on their own people under tremendous pressure.

third, we make investments with human security focusing on at hunger, a disease come humanitarian emergencies, the largest investment is global healthn programs including those launched by george to the bush.chle they not only stable societies devastated by a j.p., tuberculosis, malaria and others, save the lives of mothers and children and halt the spread of 10 of the disease through our country. global food prices are at the all-time high. three years ago it led to protests and riots we have worked closely with the agricultural experts into the food recipients is producers and we do believeco strengthening countries against drought and other weather disasters and preserving tropical forests helps with their own

security and air on challenges here at home. a forthcoming committed toing making foreign policy a source for economic renewal.ne we worked very hard to bringto t jobs back to the unitedonom states and create more economic growth here at home. one example, that eight opens i skies agreement we have signed over the last two years will open dozens of new markets to american carriers overseas. dallas-fort worth which already supports 300,000 jobs will see billions of dollars of new business. i know theow chair will manage grainger calls that the economic engine of north texas. this funds the people and platforms that make possible everything i have described. we have diplomatic relations cou with 190 countries having served in the senate for eight years i know what it is like to get a phone callne when the american citizen is

in trouble andnd i know what it is like to be told us secretary of state somebody is in trouble that we don't have adequate diplomatic relations. we have political officers using crisis and expanding opportunity and economic officersd working to make deals for american business. several of you have asked the department of the safety of your constituents in the middle east this helps to fund a counselor officers helping to evacuate americans from egypt and libya and 17,000 in haiti after the earthquake and issuing passports and the first line ofiopo t defense froa would-be terrorist seeking of the sick to enter the country prepare now 2011 is a tough time and a sense sense -- assent chairman rogers a letter and spoke to speaker boehner it will be in difficult as we planned our civilian efforts in the ongoing way and iraq and

afghanistan pakistan to absorber the 16 percent cut passed lastth month.ow we have to do our part with the military.s no we talk about non-defense le discretionary and of course, that leaves out state d and u.s. aid the and includes department of, and security, veterans and defense. and i have experts and helmand province and have them going again to kandahar in figuring out how we will have a strong robust. presence in iraq and to support theinst iraqi government. we cannot plan we are expected to do if we cannot get the budget for 20 of the event that we were planning on. i know how tough these 90 decisions are per car was here in the '90s, but not in this capacity and saw the us

difficult decisions we made then that blood is on the path to a balanced budget t and ahe surplus on the road toan balancing our budget. 9/11 have been dead a lot of other things happened in the following years. we're trying to get ourselves back on a strong this goalry footing. unfortunately the world has not stopped morrow we do that. as i look at the challenges of global leadership from the united states, we're tempted to try to step back from these obligations but every time we have done that -- 10 that it hits the square between the iceberg we left i a afghanistan afternd replenish the soviet union out now we pay a terrible price prepared generations of americans have grown of successful and safe because we step up. we think in the world today we have more than we can say grace over by weir position to try to deal with it but we cannot do what unless we

remember her national-security is not just defense but diplomacy and develop men working together on like anything historic lead to deliver on our security and interests and values. thank you. >> thank you mad madame secretary. we will begin the questions now and we will have five minutes. there is a light when it turns yellow that means you have one minute. madame secretary fy 2012 request includes funding for a number of global commitments the administration has made over the past two years. applied 3.5 million dollars for agriculture, the g8 segment coming multibillion-dollar is for climate change programs at the copenhagen summit, a 2,000,000,002 fund capital increases at the mall time lateral development banks and $4 billion pledge over three years.

that is overt $10 billion and two years on a. t the times we have talked to come of the have talkedhe about the high deficits andse budgets that might guess is that they will stop making the multi-year commitment. but i would ask you in your judgment, how would you suggest the subcommittee to about prioritizing those commitments? >> that is a fair question. i would answer in the following way. if h you take the health initiative which is building on what i eight sought as very good work from the pepfar initiative from president bush, that initiative has given us credibility and a very positive image in many parts of the world.

especially sub-saharan africa that we believe is right down the line with need to be doing. on the health initiative i hope we continue to supportn itfr strongly we have the infrastructure in place and we are viewed favorably.ds. on day agriculture initiative, look at all the money with emergency food, most of it on a supplement to zero and constantly attack dawn and people were starving and the lowered generous and congress was responsive. if we got smarter about teaching people how to farmot t oruse bring iraq's kurds back. we did that the 60s through the '80s are a brand to people actually produce their own food better then we switched. t we think is a good investment to lower the cost going forward. climate change, one quick example, they have strong

allies in the pacific island nations part of the vote with us in the united nations, some of ourpp strongestor supporters and china is making a big pitch toward the embed we hear they h need help dealing with climate change because they see the results to evacuate b the ireland. we have a lot of good we could get in our relations with the small nations around the world by investing as we have in the budget to mitigate the climate change issues not just saying these are nice things to do but they fit into our overall strategy of keeping friends and building friends and strongerng>> relationships to benefit in the future. >> thank you. you did note, prioritize big cave the very good of lobbying effort. i won't ask you again to issue your reply and right thing. the committee has supported mexico and the fight against drug violence.

the appropriations exceedscour 1.4 billion dollars pledgedwe who are married that i was encouraged lasth week with president calderon but the violence continues in last year they found performance de measures for the merit that initiative *dais dais h* merida initiative for lacking i ask you to devote your attention to this issue. the response say the government will be a close partner in the process but five months haveet passed since that response and said gao testified last week it will be at least another four months before we haverfor better information onut performance measures progress we put our bundy and together we will say what works and how can they prove that?ly.

they are far too important to find blindly what can you tell us about the progress is made and what goals are set to and how long will it take to develop these measures? >> we are in the midst of that and i shared your commitment to doing it. we have learned a lot from colombia and are applying the lessons and we have tried to be careful about putting money out until we could hold mexican and government agencies accountable which we are providing to do and i will provide a complete reporti and i so appreciate your support this i think it is one of the most important national security challenges >> madame secretary earlier week "the washington post" reported there was aed shift in the u.s. a strategy in afghanistan and the u.s. will no longer focus on gender issues. of the article reported u.s.

aid has removed gold from promotion of women's rights from $140 million land reform project from the $600 million municipal government project. senior u.s. of quotient -- officials say quote my gender issues will have to say a bat succeed there's no way we can be successful if we maintain every special interest and pet project. i know you pretty well. this is quite frankly unacceptable and any progress we have made with regard to women's rights will be quicklyn s kl rolled bak buy the karzai government and others if we do not continue to emphasize the importance of genderadvo equality per or have been a strong advocate for women's rights and i know that you have. i don't think we can stand by let the administration will back off the critical work we have done in

afghanistan. t is this report accurate? if so what is the justification? >> it is not accurate and i am trying to find out who's beneficial is because that is not the policy. we believe strongly that women and girls are essential to building democracy and security. what we have done is to develop the civilian assistant strategy for afghan women and current a providing more support than it in the o time to address the literacy for health and extreme poverty and partner in with a lot of courageous afghan women and men. you met them at the women of courageous been to readdress discrimination and inequality. we have a lot of challenges. i do not want to sugarcoat this but there are deep

cultural c challenges to doing this work long excluded from education, health care when men are still not given their rights orar the opportunity to participate. but we have seen real progress and i think first of the bush administration down the obama administration i want to thank mrs. bush for her leadership when she was first lady. since the fall of the taliban we have seen to would half-million girls go to school and women in the w the parliament, the high a council that has been set up on that and more than doubled our spending on women and girls since 2008, tripled staff on i the ground in 2009 when i got there and a new 4% gender unit ande koppel to keep a

close eye on where the money isaf going to work with the afghan ministry of affairs. in the work that we're now doing with military with three integration we are absolutely clear that women cannot be used as pawns by fed taliban if they want to reconcile the have toghwhic renounce al qaeda and five men suisse said that checks the price to win it. >> i would get another quick question. our policy in haiti has been very involved there has been to move people out of port-au-prince and i have been a strongd advocate for putting a school in the center of a community with economic development because

of they don't t have the jobs are services they will go right back.rece they're recent reports of a south korean textile who will be outside providing 20,000 jobs.ha if we don't have enough time to respond on like to know what we're doing to really provide incentives for people to stay out of port-au-prince to provide the necessities of life so they can have a decent life. >> very quickly, we help reopen 80% of pay the schools until now and assess damage at 400,000 buildings and allow people to go back. b but we believe moving people out will have a good impact on the haitian and economies of the very large textile plant going in the north will have a whole community

built including schools as well as other facilities. >> i just want to say madame chair, this would really be an amazing opportunity because we don't have al qaeda a or the terrorists and if we could do this as a model, it could be replicated elsewhere. >> i would quickly add the chairwoman went down for the announcement of the textile factory and was very positive of what she saw. >> i hope we go down as soon. that community is growing ahe to be strengthened.u. thank you. >> chairman rogers? been thinking and congratulations on your elevation to the office. thank you for your service. >>ou secretary, true the defense of the recent months and north africa and the middle east happen remarkable.

and all of these events seemed to have one common theme that it is a popular uprising not today talk but a street level appraising. tak how do it explained that? and is there something we are not seem to cause the revolutions to take place? >> that is a great question. i am sure experts and historians will come up w with significant interpretation and sen the future but there is a number of forces converging at one time. the united states has always advocated democracy, freedom, giving people the chance to have their own lives without control from this day andssiv everything we have seen with repressive regimes.

but until the technology revolution, that information was very hard to have wide the spread as a way to helpem people organize so they could speakse up for the salzburg for i give tremendous credit to the social networks that young people use which is why when i first became secretary of state i said we will have new outreach through facebook and twitter and everything that is going on now we see the results of people saying what happen to thaten blocker -- blogger and alexandra that was being toan gr death or the university graduate who was selling vegetables who set himselfnow on fire?t. people know about that. they can communicate and organize over it. what we have seen his

populistthat coming from the bottom up. that is the good news. uncertain news is next we have seen governments peacefully toppled in tunisia and egypt and a very serious conflict going on in th libya and governments from bahrain, yemen looking at how they will deal with the challenges and we watch as china does everything it can to cut off the internet because they have reached the conclusion this is a tool that has never existed before. partge of our internet freedom agenda is to do everything we can to keep the lines of communication open so that people can stand up and speak out for their own rights. >> from a far it seems these. revolutionaries are the duralast.

that is good at the outseted t but what do you do now?ight had to put in place as a sort g of government that has fairness andin bob? >> mr. chairman this is subject we will have a lot of conversation about hopefully some time outside the hearing room and bring in others. >> couey don't have the leisure of times. >> we don't. we're reaching out to everybody we can. we did evacuate personnel and families from cairo but leftri aen solid team with very experienced ambassador and bringing people back.v we're talking toer everybody who has ever been identified as a potential leader and talking on a regular basis to and reaching out to the new prime minister, a foreign minister of egypt.

. .because who do you negotiate with? who do you bring in to sit down across the table? because by the nature of a lot of these social networks, they are leaderless. they are, you know, people coming together through technology and through the streets, but not designating anybody to be their leaders, so the elections are going to be very important there. >> quick question. aid to egypt, military and otherwise, what can you say about that now? >> well, i think we have to continue and look for new ways to assist egypt. they had a serious drop in their growth domestic product. their tourism industry was very badly hit. in fact, it stopped. their economic condition is quite challenging. they have not yet opened up their stock market because they are worried that waited

egyptians will take money out of the country. they have a lot of big problems, and so what we're doing and what i hope to be able to tell them when i get there next week is that we reprogram with your approval $150 million, $90 million of which goes into economic assistance, $60 million put into helping them prepare for elections, set up political parties, help train people to do their part, but we're going to have to look at bigger things than that because i know from my conversations with egyptians both inside the government and outside the government that they are not looking to europe, the gulf, although they are happy to have their help, they will looking to us, and that is a good thing, and we need to be there to help them. >> thank you, madam secretary. >> thank you. mr. dicks? >> thank you for your outstanding testimony and one

thing i'm concerned about is a situation in iraq as we build down our military forces. can you give us kind of a picture of what the state department is doing? yng there's a may -- i know there's a major increase in employment with people there and contractors. can you give us kind of an overview on this and tell us your concerns. >> i have a lot of concerns, congressman, and i want to go back to also the chairwoman's comments in her opening remarks. now, we are aiming to be able to take over from our military as they leave. as you know very well, under the agreement signed in the bush administration, the status of forces agreement, all of our troops will be out by the end of this year. in fact, most will be out by october, and there's been no decision made by the current iraqi government for any kind of requests for any of our troops

to stay. under the strategic framework agreement also signed into the bush administration, the state department and u.s.-aid are now expected to. here's what we're trying to do. we are trying to have a consulate in bosra which is important in the south where most of our oil companies are going to be doing business across from iran. we want to obviously keep our embassy in baghdad safe and those of you who traveled there know that we have a lot of alerts and we have a lot of missiles that come in and we don't know what the situation will be once our troops leave and take their surveillance and intelligence capabilities with them. we want to have a consulate in kurcook and another one in the curdish part of iraq and in

mozul so we're able to stay on top of what is the continuing center of al-qaeda in iraq. now, all of that costs money, and we are going to have to put in a very significant number of contract security forces in order to keep our dip mats safe -- diplomats safe wurches -- once our military forces leave. the total military government population in iraq following the 2011 transition will be approximately 17,000 personnel including personnel from state, dod, dhs, you name it place security contractors, and it's 50% security. then we have what are called life support contractors. >> is there a number going with that? >> 50% of the 17,000. >> 17,000, okay, i got you. >> yep. 17,000 all together, 50%

security. 30% life support contractors which are, you know, the people who prepare the food and do all of that support work, 10% management and aviation security because we have to run our own aviation assets in order to get people around iraq, and then 10% problematic staff. now, dod is looking, as you know, congressman, for setting up office of security operation outposts in iraq. they will have about 4,000 personnel out of that 17,000, so it is going, you know, district hire is 16% of the total, contractors will make up the other 84%. that is not an optimal situation in my view, but it is what we have to do in order to meet the obligations we took on under the bush administration that we accepted in the obama administration, and that we are prepared to fulfill going

forward. .. almost 300 million children. and that period, for 5 million lives and developing countries. as the united states taking the leadership role in supporting role to save the lives of children through immunization? >> yes, it's one of our most important partners in achieving a for child health goals and as you know it's a partnership we get money from other countries,i plus the gates foundation, and we have invested $647 million through fy ten.our fyn reques our fy 12t requesters11mill 115 million.iothat that is $7 from other contributors which we think is a pretty good deal, and we believe we can demonstrate we would save

5 million children lives. we are on the brink of elinating eliminating polio from the worlr which would be great news fory everybody. >> one quick point on that. th it is still the problem in afghanistan, pakistan, india and nigeria. i t northern nigeria, that's right. we are working with the allianco northern nigeria because we had to condense their religious leadership and northern nigeria, the imams and the elected leadership as well that polio vaccine was good for their children and it wasn't some kind of conspiracy that would sterilize their children. we were successful in getting both religious and elected leadership to do public service announcements and other things, so we really put a lot of effort behind this. we couldn't do it without the global alliance because they leverage our money. >> thank you, thank you madam chair. >> chairman lewis. >> thank you madam chairman. before turning to the secretary

let me say that i would like to echo the remarks of our chairman you are absolutely going to be a magnificent chairman of the subcommittee. >> thank you for helping me get here. [laughter] >> am secretary you and i have had a chance to spend some time talking about pakistan, india and others in the region and i cannot tell you the number of occasions i have had to discuss with people who have knowledge in the arena, democrat and republican largely nonpartisan. the numbers who have expressed great appreciation for not just your homework and knowledge but the articulate way you go about expressing our interest in that very diverse world marketplace so thank you for that. and having mentioned that, nonetheless, while you were in that former job that you mentioned earlier, he referred a moment ago at a glance relative

to what occurred in our successful effort in dealing with the mujahideen in colombia. indeed we were successful they are because we were able to forge a coalition of partners among a number of countries in our hemisphere who were willing to go a long, long ways to deal harshly and directly with the cartel and eventually broke their back and colombia had the chance then of being back as the real world country in our hemisphere. then you kind of referred to mexico in connection with that. i know that we are making some effort to develop similar coalitions. there is absolutely no question we are not going to deal with the breaking the back of these cartels in this drug scourge without that kind of effort going forward successfully. can you help the committee understand what is taking place and what progress we have made in real terms? >> i will.

we have as i said, focused on mexico with the merida initiative which predates this administration to try to do in mexico that kind of work that was successful in colombia and in fact colombia is now training some mexican law enforcement officials. we have started by building up institutional support and training as well as providing equipment, helicopters and other things that the mexican government wanted and needed. we are made in progress. it is comparable i would argue to where we started with colombia where i think when we started and you of course wherein the congress, it looked pretty hopeless. i mean it was an insurgency plus the drug cartels. what an unholy alliance it was, hundreds of thousands of people were being dislocated because of the violence.

so colombia in many ways was a worse situation than we see in mexico where the violence is fairly -- i mean it is horrific that it is fairly limited. there is not the massive dislocations internally. we have a president, president held the run who shares the commitment that president uribe had that it is going to take time congressman. this is not easily done and the other problem we have which we are now addressing is the central american countries. several of them are very weak, very dominated by the drug cartels, so that the southern border of mexico is an area that we have to help the mexicans try to fortify it because a lot of the drugs are coming north, a lot of the guns, a lot of the other problems so we are looking at how we strengthen central america at the same time that we strengthen mexico and we are may king progress. we have a long way to go. >> madam secretary, in mexico we

have known for a long long time that merida seems to be always alive and well. when you are dealing with cartels and you are dealing with that history, breaking the back of these drug warlords essentially is indeed an intense, difficult task. i believe that both our defense people but also the department of state needs to have our members, both houses, better know the harsh steps we took to be successful in colombia and the harsh steps, very harsh steps that may be necessary to identify and deal directly with these cartels. >> that is an excellent idea and if i could take you up on your invitation we would like to put together a kind of hole of government briefing for members who are interested here in the house and of course we would do it in the senate because i want everybody to know what we are doing, what we are up against.

as you've probably heard the attorney general announced the arrest in murder of our consulate employee yesterday, so we are making progress. we are bringing down some of the high value cartel leaders, but i would like you to know more and we would like your help and advice on at. >> thank you madam secretary. >> let me thank you for that commitment because it is extremely important and i believe that congress would respond very positively to that. mr. jackson please. >> thank you chairwoman granger. thank you chairwoman clinton and welcome back. secretary clinton before 9/11 august 171998 arcs the first time outside of attacked our embassies in nairobi kenya and tanzania killing hundreds including 12 americans at the embassy in nairobi. since 1999 i long with several of bipartisan members of work to

provide compensation to these 12 americans who are bravely serving their country despite intelligence unknown to the victims that show those embassies were likely al qaeda targets for attack. since the attacks a houses passed legislation during three separate congresses to address the issue only to be held up in the senate. furthermore the subcommittee has continually requested your department provide a legislative proposal for compensation to the state department employees killed by terrorist. yet no such legislation has been brought forward in the state department has failed to provide a reasonable proposal since the first congressional request in 1999. i'm sure we will be including similar language again in fiscal year 2012 bill. will you commit to work with me to finally bring peace to those families have been suffering for the last 13 years without compensation or closer? >> i would work with you. i know that this is a passion of yours congressman as it is that many of us. i remember meeting the families of the victims at the memorial service and we will certainly

see if there is any way. i can't make any promises but i will certainly work with you on that. >> thank you madam secretary. three weeks ago the house passed h.r. h.r. 1 which eviscerated and yesterday the senate rejected a bill. as you can know congress and the executive branch have a fiduciary responsibility to ensure tax dollars well spent and reflect the interests of american people. the budget represents less than 1.5% of total budget. as the head of the state department why should americans support this funding even in these tough economic times in what does it take for all americans? >> congressman first thank you are helping to set the record straight because i know in many polls, the american people think that we can balance their our budget by eliminating foreign aid and that foreign aid is 20 to 25% of our budget, so thank you for saying that everything we do in the foreign aid world which is more than just the state department and usaid is less than 1.5%. our share of that is you know

obviously about 1%, a little bit less. now why should a hard-working person in my state of new york or the chairwoman state of texas or your state of illinois either care about or think we should support this foreign aid budget and i think there are three reasons. first of all, i really do believe this promotes american security. i think it gives us tools that are in addition to and different from our military tools. and, i think most americans don't want to seek young americans going to war. they would rather see us prevent war, work with like-minded nations to try to help societies

people come as you see the response after the earthquake in he or the concern that americans have about drought in africa or hiv/aids or any of the challenges that they see on their television screen or if you are living along our border with mexico and there are so many ways americans are affected by what happens in the world around us. and so promoting our interest is another area where we can't do it without the state department and what usaid do every day and finally it reflects our value. you know, we are a really generous extraordinary country. and people know that. i sometimes am amused i will go to a country where the leaders o ey wbe publiclyu criticizing uh and then in private they want

all the help they can get. they want us to support them, and it's because we are not thea formerre colonial power. andismm or fascism or extremism, so we really do try to help people and that reflects who we are. so for our security and our interests and values, nearly every american has some concern that fits into one of those categories and that is where it happens. it happens out of our budget. >> one final quick question. the chairwoman granger ranking member lowey and i found ourselves in a peculiar position late one night defending our bill and in an effort to eliminate the institute of peace arguments were made on the floor of the congress that the state department and the had the institute of peace have duplicative functions and therefore it should be stricken from the budget. with the secretary please like to make the distinction for members of congress big tweens lets but your mission is and the

institute of peace? >> the institute of peace is a not-for-profit institution form by the congress to operationalize america's commitment to peace by working with like-minded individuals and groups around the world. sometimes the united states government coming in to train people in democracy is not as effective as seeing one of our expert teams from usip or iri or ndi. i think that it's been one of the strengths of american foreign policy is that we have faith-based groups who are working on all kinds of values issues. we have ngo's who are working on humanitarian disaster relief and other important matters and we have these organizations funded directly by our government, which is kind of unique that fills a real place in our whole arsenal of what we can do when we interact with people.

>> thank you very much. mr. kho. >> thank you adam secretary -- excuse me madam chairman. i would be remiss not to add my congratulations as well. i know how i got on this committee. madam secretary thank you free testimony and i would be remiss not to mention this. you won't recall that the first time i had the opportunity to meet u.n. former close for -- president clinton. u.n. president clinton just performed so magnificently, not just at the moment but for months and months afterwards as we continue to work through our issue so thank you very very much and thank you as well for the role i perceive you to have played in developing our current afghanistan policy. that was a tough moment. you may not agree with the analogy but it was like a search moment for bush when you do something that is not very popular and particularly within their own political rank so i think that was very much the national interest and i appreciate the additional military commitment. i've been on the ground in

tennessee and to see what your people in the state are doing and it is night and day different than it was on previous trips so again thank you very much. i think it is making an enormous difference. i want to go back to libya for a minute and dry comparison with egypt and get your thoughts. in egypt we have a long-standing relationship. we have a lot of contacts. we have an institution to work with them through an army and so i can sort of see a more hopeful scenario potentially unfolding for us. libya is so much more challenging. you know we have very little in the way of civil society and very little in the way of the long term relationship. we have got a dictator who is back to the wall and has no way out like saddam hussein in a sense of the us every reason to fight to the last bullet so to speak. he is that significant domestic support, not the majority but it is enough. and we have very few ways to directly impact the situation. and i know you were getting a

lot of competing advice about no-fly zones but i just want to know what you are -- your thinking is about how we should proceed step by step, what kind of acid to think we have to deploy here and what you envision moving forward? >> congressman, i think that is the question of the day, because that is what we are really focused on, trying to figure out how to get through by thanks for your kind words in oklahoma city. at a picture of that lone laundry that survived in my home. you are right, your analysis of libya is right. you know we didn't have diplomatic relations with libya. we were able thanks to a lot of good work that lasted over a number of years to get him to give up his nuclear weapons. i was involved becoming secretary of state to get the last of the a.g. you out of libya. imagine what we would be dealing with it that had not been done. he still does as you probably know still have some remaining

chemical weapons and some other nasty stuff that we are concerned about. so clearly we are working on three different levels simultaneously. first, we are working to create an international consensus because we think that is absolutely critical to anything that anybody especially us does. you can see that there is a lot of ambivalence in the international community because of the reasons you pointed out. people don't know what the opposition represents. they don't know the most effective way to try to get rid of qaddafi so everybody is working hard. nato is working hard. we are internally and our own government looking at every option imaginable. at the same time, we are pushing out on humanitarian assistance. we really believe that getting in as much help articulately for those leaving libya but also

increasingly if we could figure out how to do it safely assisting those on the ground who are running short of medical supplies, who need doctors, who need in some instances clean water etc. that we are able to help them when we can get a clear way to do that. and then we are trying to sanction access that he has to his accounts. we are trying to make it clear to the people around him that there will be accountability through the international criminal court and other steps taken. but i appreciate the tenor of your question because if this were easy we would have already done it. but this is not easy. we did have 30 years of relationships. it is a much less easily understood situation that we are making progress. we are talking to a lot of the opposition leaders. i will as i said be meeting with them myself. we are suspending our

relationships with the existing libyan embassy, so we expect them to and operating in the embassy of libya. and we are looking to see whether there is any willingness in the international community to provide any authorization for further steps. i am one of those who believe that absent international authorization, the united states united states acting alone would be stepping into a situation whose consequences are unforeseeable, and i know that is the way our military fields. it is easy for people to say do this, do that and then they turn and say okay u.s. go do it. you use your assets. you use your men and women. you get out there and do it and you take the consequences of something bad happens and i want to remind people that we had a low -- no-fly zone over iraq or kuwait did not prevent saddam

hussein from slaughtering people on the ground and it did not get him out of office. we had a no-fly zone and then we had 78 days of bombing in serbia or kuwait did not give milosevic out of office. it did not get him out of kosovo until we put troops on the ground with our allies. so i really want people to understand what we are looking at and i will reiterate what the president has said and what art administration has consistently said. we are considering everything, but we think it is important that the congress and the public understand as much as possible about what that actually means and i can assure you that the president is not going to make any decision without a great deal of careful thought and deliberation. >> i appreciate the thoughtfulness and the caution, i really do and i will reserve my questions obviously. thank you madam chair.

>> thank you. mr. schiff. >> thank you for the absolutely extraordinarily job you do. let me just pick up where my colleague left off. i concur completely with the idea that we need to do whatever we need to do with the international community. what has made these revolution so powerful as they have been indigenous. they have not been at the tip of the american sphere or imposed from outside. all that being said, i hope that we can find success working with the international community to take as aggressive and swiss action is possible for. it is excruciating to watch the libyan people attacked a their own government with all the powerful machinery as the libyan mattila terry is just devastatingly trapped -- tragic to watch. i think this period period is one of the most promising

potentially that we have seen in decades. with the transition going on in the middle east and north african what happens in the next couple of years may be something as momentous as the collapse of the soviet union and the legacy of this a demonstration may have as much to do with this has anything else and maybe a lot or. so, the success of what is begun in tunisia and egypt i think is such an enormous irony. in terms of undermining al qaeda narrative, what happens in those countries may eclipse the significance in iraq and much less cost of life and treasure. so i'm all in favor of what in that -- whatever investment we can make and these people powered revolutions and i know we'll win the collapse of the soviet union took place we were in an economic recession and it

didn't stop us from helping to build eastern europe and our current economic circumstances cannot cripple us from seeing the opportunity and the necessity of a vigorous effort now. a lot of these revolutions have been powered by economic factors, not just political ones and their success may depend on economic factors. at the egyptian people don't see any progress in the economy, we may trade one authoritarian regime for another. so i wanted to ask you about that. there has been some reprogramming that you mentioned with respect to each of. can we do some reprogramming to help the tunisian people. that is a great prospect for success in tunisia, a smaller more homogeneous population. do we need to look at the calibration of military and civilian assistance to egypt in

a finite resource to world? obviously the relationship with the military is key. we don't want to do anything to undermine that. at the same time there is a tremendous civilian economic need. how can we find the resources to help those countries economically stay on the path they are on? >> i think you are asking the right question because i believe that if people don't see some improvement in their economic circumstances, they will become discouraged and maybe even start to turn away from democracy and we can't permit that to happen if we have any role to play, we need to play it. again, and mean a lot of it comes down to the money that we already have that we are trying to reprogram. we are going to be -- i will be working to get up to $20 million for tunisia to respond to some of their needs. when i met with the tunisian secretary secretary of state in geneva about a week and a half ago he said we want american

help. we remember america was with us when we became independent in the 1960s which goes back to kind of the feelings, the attitudes and the values that people have so i think you are absolutely right. we need to have a very big commitment to tunisia that we can be ready to help them economically as well as with the democratic transformation. similarly with egypt, they have asked us to look at a lot of different possibilities. we are doing the best we can within the budget we have, and that we can anticipate. but i underscore your point congressman. this is an amazing opportunity. when i spoke with the egyptian officials just over the last couple of weeks they kept mentioning central and eastern europe. they kept saying that is where we want to turn out. we don't want to get derailed. we want this to work. so we want to help them make it work, and i think it is going to

require that we have budgetary assistance for them, that we have economic incentives going to small and edm enterprises which could help stimulate the economy from the bottom up in each of. we are looking at all of that. >> thank you very much. mr. diaz-balart. >> thank you very much madam secretary. let me first that my words of gratitude for your service to the united states of america. madam secretary, in october, i am sorry in september 2010 you made it really impacting statement and if i may just to take a few seconds to quote what you said. you said -- posted national security threat into in two ways that undermine their capacity to act in our own interest and it does constrain us where constraints may be undesirable and it also sends a message of weakness internationally. i share your concerns about the threat that poses to our national security.

when you made that statement, that was 13 for -- $13.4 billion. would it be fair to say that of secretary that you have 13 trillion more reasons to be concerned about the national security of the united states? >> i don't think it increases it by 13 trillion. i think it goes up to 14 trillion i think i'm a but it is a big number congressman. let me, let me take your question very seriously because obviously you quoted me and that is what i believe. if we are not strong at home we are not going to be strong abroad and i know from my own experience, both serving and this esteemed congress and in being first lady during the '90s, that there is going to have to be a deal. and the deal is going to have to put everything on the table and the deal is going to have to include revenue and entitlements along with spending because i am just looking at this budget.

you cannot get to where you and i would like to see us headed by cutting nondefense discretionary spending, so that is number one. number two, i think it is important to consider what we do as part of the nation's defense. if this body is going to cut defense board dhs or veterans, a smaller proportion, and they are going to cut us a much larger proportion that has implications for dhs and dod because we are on the frontline of border security. we are on that early the frontlines in iraq, afghanistan and pakistan so we want to be treated the same way you've treated fence and -- so that would be the second i make. thirdly, i think that the budget that we have proposed is a budget that number one, puts everything into the budget

because up until now, we have been funding a lot out of supplementals. both in defense and in usaid and in the department of state. you know we kind of ride on the back of dod when they come in for these big supplementals. so what we have said and maybe it was a political mistake, but it was an honest effort to say let's be transparent, let's put everything into the budget. let us tell you what our core operations are, 47 billion let us tell you but our frontline state overseas contingency operations are comet 8.7 billion. .. you've got to cooperate the same way we are cooperating. i'm in touch with secretary gates and admiral mike mahlon and the general austin in iraq and general petraeus in afghanistan and general mabus

and centcom because we are literally joined at the hip now with the concourse is still pretty stovepiped. you look at the 150 account, the defense committee looks at the pentagon account and the usual treatment is the pentagon doesn't get whacked very hard and then everybody comes over and decides to make it up on the 150 account. in my opinion, congressman composting is are over and so i would make that strong case for your consideration. >> thank you peery i have very m little time but so for thenistro administration has announcedannn easing of sanctions on cubatwi twice. cr increasedd repression and oppression you are aware of the case of [inaudible] and others taking an americanu hostage. the question is what does thee regime have to do to have consequencesco from this administration is the administration willing tot looko at the tightening of the regulations, harder push forfor democracy assistance of the very

least the state department travel warning again? what would be the consequences bywi the way or actually has now this american citizen has been put through a kangaroo court.urt so again, they're have been easing of sanctions sanctions. further repression. will there be any consequences for that further repression for the death of a political prison and the taking of the american hostage and my time is running out. >> congressman, very quickly, and i will be happy to get more for the record. we share your commitment to freedom and democracy from the cuban people that is an absolute ironclad commitment. i had that commitment myself this administration and president share it. we deplore the injustice towards our in gross. he needs to be home with his family immediately. and we mourn the loss of the mistreatment of the mother and all of the other abuses by the cuban government.

so we share the same goals and the same emotions. our decision to try to engage more in the cuban government only indirectly by helping the cuban people is intended to try to strengthen the direct engagement and provide more support for grassroots initiative. so can disagree about the tactics that we can have total agreement about what we are attempting to achieve in terms of goals. >> one comment before we go to mr. roffman. as i sit in my remarks, h.r. one we absolutely recognize the part that this committee and this bill had in our national security and so in putting that together and we said, you know, that would be the last place we would try to cut and recognize non-defense discretionary spending. >> i could spend the entire five minutes and more in your

extraordinary work as secretary of state. you bring incredible energy, intelligence, command of the issues and if i may say so your credibility as hillary rodham and hillary rodham clinton both. and the united states is much more secure your service. god bless you and god speed in your work. i want to think you for your leadership in the united states veto at the security council on that one-sided ridiculous resolution that was attempting to force agreement on the two-stage solution that is also desperately but the palestinians are resisting by utilizing ulin just to criticize israel completely one-sided to complete one-sided prejudicial actions and grateful for your leadership. i hope this now closes the book. the palestinians or anyone else who would try to use the dram as

a substitute for direct negotiations between the israelis and palestinians. the israelis desperately want it to state solution and have put everything on the table and i regret the palestinians haven't come to the table. i know you do too. i also want to think you for your remarks at the commission in geneva where you very candidly and forcefully questioned why there's a separate account of standing committee to criticize the state of israel with all of the slaughter and genocide and human trafficking adel the other horrific things going on in the world they have a standing committee only to criticize the jewish state of israel and i want to thank you for your candid and remarks. iran still remains the number one threat to the united states as the national security. iran has a great interest in the instability for the north africa but along the gulf and

throughout the middle east. bahrain is the gateway perhaps to saudi arabia. it is a banking center, our fleet is there, and a lot of people are worried that iran is trying to use its influence to destabilize of rain and to take a practical control of bahrain and then move on to saudi arabia. do you share those concerns? do you see involvement in the protests and demonstrations an uprising in ball game and how we continue to prevent iran from developing nuclear weapons and destabilizing the region for its own hegemonic interests. >> i appreciate your raising the continuing threat we see from iran while we are focused on the developments in north africa and the middle east we have to continue to keep focus on iran

and we certainly are. what we see happening right now, and i can only give you that snapshot because our assessment now is that the internal disk course in what came is a domestic phenomenon that comes from the demand by the 70% shia population for greater political rights, greater economic opportunities and it requires a domestic solution. so we have been doing is working with bahrain to work with themselves to try to come up with a way forward. now there is no doubt as we have publicly and privately expressed all people according to our values have a universal right to express themselves to associate

assembled freely and swedes urged the government of bahrain to expect those rights of the same time we have also credited with the government is trying to do three national dialogue to come up with some agreed upon reforms that would be implemented. you know bob green is a friend, the are an ally. we deeply value their longtime association with us. the king has announced that the princess to lead the national dialogue and we are encouraged by some of the steps we've seen recently that this can result in a genuine dialogue. >> madame secretary we're keeping an eye on iran to influence the region. >> so far we don't see if evidence in itself, but we keep a close look on that because we think that iran would try to influence anybody anywhere against their own government and

against us. so that's a jury did part of the we are doing and the sooner the people themselves of of rain can move towards this national dialogue the less concerned we will have about iran. >> thank you. thank you madame secretary for being. littleness for having to part for part of this hearing that i was encouraged in your testimony use it with a standing with the people as they braved the bombs and bullets and demand he must go down without further violence or delete. i certainly agree and appreciate what the department and the administration are doing with respect to food, water supply and other humanitarian support to the libyan people. but on the broad level i am a little bit concerned about what i would call perhaps a lack of clarity in terms of the administration policy with respect to the various uprisings we have seen throughout the middle east and north africa. i am concerned about the repetitions of what happened in hungary in the 1950's and in the arab uprising in 1991, the arabs

and the kurds after the 91 gulf war. and i'd just very concerned that we are seeing a lack of clarity in terms of maybe a failure to distinguish between the madmen and tyrants who use terror to suppress their people and perhaps friendly autocrats who used teargas and my fear is we are not sending the right messages in some cases to friend and foe alike and i'm curious what your reaction is to that question. >> congressman i don't agree with that, i do agree these are very difficult situations and i am not sure that there is one response that adequately addresses the differences that exist. we were just talking about bahrain. bahrain is a very different challenge in our view than what we are seeing in libya which is different from them in and egypt, and in each of those

places, america's interest are uniform with respect that we support people's universal rights, their genuine aspirations. but our approach towards each is obviously guided by what we see on the ground and how we think we can influence. take libya for a simple, i was speaking earlier with one of your

>> might i suggest i know in my district the leadership positions related to the people part of the purpose i would encourage i could certainly get to their contacted might be of some help to your department. >> we are reaching out to everyone we can so we will take on those boards. >> this committee has pleaded several funds over the last few years to build the state's global diplomatic staff. we have envisioned as a five-year initiative to expand the number of foreign and civilr service personnel by 25 and 13% respectively in the currentrr fiscal really require we examinc whether thea continued buildup a both affordable and sustainablee we've invested i think in theusd usaid development leadership and initiative but today i would like tole focus on the state's ate's staffing plans to do you plan tc continue the staffing buildup ii fiscal year 21 and what are your plans for the 2012 budget?

>> well, congressman, we started this in the bush in the bush administration. both president bush and secretary rice realized that we were just not equipped to do what we were expected to do particularly the front line states, and one of the reasons i've been able to more than triple the presence of civilians in afghanistan and accept the responsibility of what we are supposed to do in iraq is because of that increase. we've been able to take our people and redeploy them and not leave out the essential functions and processing visas in mexico or china for example. so it has been considered view not only within the two administrations but outside experts from all sides of the political spectrum who said that the state and usaid had to increase their personnel mission and and it's in accordance with what congress decides and we are

going to try to do that. >> i yield back. >> mr. austria. >> thank you, madam chairman. madam secretary, thank you for being here. think you for your commitment and service to the country and we appreciate it very much. let me if i could go back to israel for just a minute because it's an important issue to me and looking at the events of the recent weeks it's highlighted the unique role that israel plays in the middle east as a reliable comes to win the democratic ally that shares our values and interest. we talked about iran which is extremely important to me that with the trauma of the fence in egypt and libya and throughout the middle east that overall unrest in the middle east i'm concerned the world attention not be diverted and could be diverted from the danger of iran's nuclear program. and i am concerned that iran could use its time to speed up that program and crack down on the opposition of human rights

activists and i think it's critical that iran understand that the world is still watching. we are watching them and there will be consequences for continued disrespect for international policy. my question is the administration has yet to sanction the non-irani in banks with turkey comes off korea, ukraine, chinese banks and the financial institutions. and i'm concerned about the lack of sanctions on companies that continue to invest in iran's energy sector in violation of the u.s. law. the state department i'm not aware of any sanctions on any non-4n or monatana iranian foreign company for its investment in iran's energy sector and i wanted to ask you and i know there's legislation also pending that was signed i believe last july by the president which requires the

state department to complete investigations within 180 days after receiving credible information of a violation. what is happening as far as the sanctions towards companies still dealing with iran as far as the bank of iran and what is the state department doing to enforce this? >> thank you very much, congressman. last summer we were pleased to work with the congress to pass the comprehensive iran sanctions accountability investment act which we call of of of the state department. and last fall i became the first secretary of state ever to impose sanctions under the prior act, the iran sanctions act and you're right it was on a swift pace iranian firm that was a major investor in the oil and gas development that became the next test case because of until then, they're had not been an agreement upon the criteria and willingness to oppose that

sanction. on the human rights side we have been designating iranian for human rights abuses and we will keep that going and i am very committed to that. we have also used tasatto to convince shell, state oil, in packs to withdraw from iran so the threat of the sanction has produced the result we were seeking. and we have also been opening up investigations, monitoring sanction activities. we are going to pursue a lot of these leads we have. some of this is in a classified format but we would be happy to give you and your staff a briefing so we know what we are doing and how we are pursuing with a lead that we get from our investigations. >> thank you. let me say i want to thank you and your staff. we had a situation in egypt and you talked about the wonderful job that's being done with the

staff. we have a situation where over in egypt during the uncertainty over their with the government and your office did an outstanding job of helping that student and other students who were at the american university over there to ensure their safety to get back to the united states and i want to thank you for your work on that and help on that and with that i will yield back. >> thank you very much. we promise the secretary would be through at noon. it's not, however, time goes fast we go down to three minutes each. i will ask a question, one for a short question has to do with some concerns of it coming to my office about the ambassador's fund for the cultural preservation and the projects such as restoring the mosques and other religious sites has been a pretty.

the h.r. one prohibited those funds but the administration is included 5.75 million in the fy 12 request for the ambassador fund. also, u.s. aid does similar funds. can you provide us with how much has been spent on cultural preservation that both the state and u.s. aid and most importantly, why does the administration think we should continue to fund projects like this? is this a program would be willing to give up for the higher national security priorities? >> madame chairwoman, over a ten year period since 2001, the ambassadors cultural fund has provided $1,179,684 to 29 projects. mostly archaeological sites including churches, mosques and synagogues. what we have used that for, but ambassadors have used that for is to illustrate to countries

respect for their culture, the history, the religion, and we think it's been a good tool but obviously this is an area where we like to give some discretion to our ambassadors so that they are able to do things that can make people feel good about america but obviously we would be more than willing to talk to you about it. >> thank you. one other concern that cannot in the "washington post" that has to do with it was a criticism of the u.s. civilian surge in afghanistan the civilian surge is hunkered down in the capitol removed from the frontline where they are most needed. can you give an update on that? >> it's really not fair. our people are out there. that's why when our military leaders appear before you like general petraeus he talks about having our civilians right there. they are in bed with them, they go out with them and come in with them.

we do have a staff in kabul because we work closely with the afghan government which is a very important priority, and we also coordinate closely with general petraeus whose headquarters are also in kabul. don't hold me to i will try to get the exact numbers, but our percentage of people now out in the country not only has gone up dramatically in the last two years but is more efficient in the way that we are partnering so can give you additional details about that. >> thank you. >> thank you again. we want to get you out on time. two quick points. first my colleagues mentioned sanctions and i want to congratulate you and the administration for really moving that agenda in the united nations and also through state and treasury. however, there was an expos day in december, 2010. it listed many possible clues to

companies getting around the sanctions. so i just want to emphasize again that this committee feels very strongly about continuing to tighten the sanctions. another issue that you have been dealing with that i know having watched you talk to many governments about corruption, corruption, i have been very concerned as have you about the fact, and i quote, fewer than 3 million of the pakistan's 175 million citizens pay any income taxes and the country's tax to gdp ratio is only a 9%. this is one of the lowest acts to the gdp ratio in the world. and i know that you have spoken up about this. these countries have a very difficult time and we know just recently it is an outburst from the elite but if there's anything we can do working with you we understand the importance of the relationship and the

alliance but the fact that we are spending billions of dollars and our tax dollars and they are not contributing with regard to the taxes. so if you have a quick comment on that i would be most appreciative. >> i have a comment to say thank you because this is a pet peeve of mine. i am more than proud to have the united states help countries in need, but it's very hard to accept helping a country that will help itself by taxing its richest citizens to start their and we know because i spoke out about it when i was in pakistan the jury first time. the tax system is woefully in equitable and does not in any way reflect the need the people of pakistan have for schools, health clinics and so much else. so i've been very outspoken about this. it has caused some criticism, bu