requires that everyone share in that burden.urden. if congress were to pass the president's proposal to reduce tax expenditures just for high income individuals i think itusr yould be ver difficult toth revisit that at a later time and extend it to the entire population of taxpayers.o th population of tax payers. host: two voices in the continuing debate over tax policy. we have two at the table this morning. we are taking your telephone calls on tax policies, specifically using the president's proposals in his jobs plan at our vehicle for discussion. a viewer from new york says -- replacing the income tax with a consumption tax? guest: it would really raise taxes on lower and middle income people a great deal and cut taxes for the wealthy a great deal. i think it would be very

>> host: your thoughts on the consumption tax. >> guest: strongly in favor of the tax, and replaces it with a consumption tax that could be anything like a national sale tax or the flat tax steve forbes brought up a decade ago. basically, consumption tax is simpler than an income tax is have very prosavings and helps the economy grow more strongly. >> host: karl from san antonio asked about it, and he said it's a tax of a percent on every dollar received by every citizen, and i believe there should be be a tax for charitable donations.

they need to take care of disasters and the needy, the housing market and workers wages. >> guest: certainly, it's one of the huge problems we have is the weakness the hoying market. the housing market is not just about construction workers. new housing construction is a big source of energy for manufacturing because the things that go into homes are manufactured in the u.s. and when people buy a now home, they buy everything that goes into that home. it is a very important part of the economy, and that's one of the big reasons we have it and we're struggling right now. can i turn back to something chris talked about with multinational corporations? >> host: sure. >> guest: it's important to keep in mind the big multinational corporations that chris is worried about are, in fact, the ones by and large paying the least in taxes right now because the fact that they can shift income back and forth across borders gives them a way to avoid paying u.s. taxes, and

the system, the u.s. system which chris began to describe, you know, he said the u.s. would tax the u.s. company on its income in brazil, but there's a credit of anything it pays in brazil. there's not double taxes, and the benefit of the system, that i agree needs to be relooked at, but the benefit of the system is it takes away the insenttive for businesses to move jobs to brazil because they don't get a tax break from that. they pay the brazillian taxes, but in addition of anything they pay if they put the plant in the united states, they pay the united states. it's not illogical system. >> host: next call from massachusetts, gabe, independent there. >> caller: these guys can't tell you the truth because they'll get fired, but the biggest transfer of wealth from the poor to the rich because of

the patriot act. sitting here with this pay patriot act and, you know, having the technology go through the rich where the bankers targeted the middle class and the poor, and besides, the cato institute is the reason why this policy's been enacted. i mean, they were complaining about how the companies were not able to do this business. all the sudden the tax breaks come in, and we have tax breaks for ten years. the disparity of wealth is unbelievable. the poor getting poor and the rich get richer, and the reason why is because the rich elite want to be as rich as the compt guys in saudi arabia with the giant boats and everything, baa they are doing the same thick to the american citizens that those guys do over there to the poor people who live on $2 a day, okay? so when you start putting people in jail as opposed of rewarding them for doing the things that they have been doing, you know, technology is a very

double-edged sword. when you use it for right, it works, but when you use -- it to control the masses, that's basically what it is -- that's why the world has problems. >> host: i'm jumping in. thank you, we understand the points, turning you to for the response. >> guest: i understood little of what that caller had to say. he talked about the tax codes with the rich and the poor and blamed bush for everything. i mean, i must say, you know, bush variety of taxes and the way i look at the statistics is he cut taxes really across the board, and yowrks know, we talked a little bit about the tax breaks that people at the high income levels enjoy such as the mortgage interest deduction, but at the bottom end of the tax scale, there's a number of credits that exploded such as child tax credit and the earned income tax credit. these have been expanded by both republicans and democrats over the years and have been

enormously costly so we've had large amount of new tax breaks added at the bottom end of the tax code as well in recent years. >> host: any comments 1234 >> guest: no question the bush tax cuts disproportionally benefited the most wealthy. >> host: two views from the nation's editorial pages, the "wall street journal" that said yesterday this is another permanent increase in taxes to pay for more spending with another temporary tax cut, and the 13th "new york times" editorial page noted tax increases are a step in the direction of middle class prosperity. from mississippi, david next, republican, good morning. i have to put the button for there to be a david. good morning, david, you're on the air. go ahead, please. all right. we lost him. going to greenville, michigan, becky, a democrat.

>> caller: hi! >> host: good morning. >> caller: i have come up with a new tax plan, and it is so easy, okay? let me just give it to you here. >> host: we're holding on. >> caller: okay, okay. there will be only one loophole for charity because we all know that at the end of the year the rich figure out their taxes and then give a bunch of money to charity in december, and so i think that should stay. as far as what they are talking about -- >> host: sorry about that. i don't know what happened to her call. only one deduction for charity. earlier, you said that doesn't effect the rich's givings.

statistics say it happens in december. >> guest: there is an effect. i mean, it's economy 101 for having a tax break. you do increase charitable deductions to an extent. i go back to something interesting an earlier caller mentioned that it is important to have a large non-profit charitable sector in the united states. it is something that makes us different than europe, that help for people in need, for example, just doesn't come from the government as it does in a lot of countries in europe. it comes from a very large charitable sector in the united states, and americans, of course, are very generous. you know, we have to think twice about reducing our appealing the charitable deduction tax credit. >> guest: yeah, i mean, you know, chris and i are not that far apart on this. it's useful, helps, some is exaggerated, you know, by charities who are rightly

concerned about what the impact would be if they got rid of the deduction, but, you know, i think they are probably overly worried about it. >> host: i have statistics from the center for american progress that i'd like you to explain to the audience. these are numbers from 2010. that year tax revenue was $2.2 billion while tax expenditures were $1.2 billion. >> guest: there's tax breaks that, in fact, their purpose is really a spending purpose. well, you know, something to insent behavior, to incent oil drilling or filing a home dissh buying a home. their purpose is more like the purpose of a government expenditure than anything having to do with the tax system. it really doesn't make any difference whether the government sends you a check to help you pay your mortgage or

reduces your taxes. it's the same amount of money in your pocket and the same amount of money that the federal government doesn't have to provide goods and services, so the -- what the statistic points out is that both tax expenditures have grown and grown and grown and grown, and some for good and some for ail, and we're at a level of a trillion dollar in tax expenditures at this point which is really eating into the revenue we collect. >> host: also like to show you, mr. edwards, which you well know, the irs's chart of 201 # 1 individual's income tax rates, and that is for people under $8500. the tax rate is 10%. next level is 15% at 85-34, 500. 25% is 34, 500-87,000.

and your rate goes to 35% if you make over $379,150. what's the real picture about what people pay? >> guest: well, i mean, listen to you read the rate schedule is complicated. there's six rates under the code. ask your viewers to think about the fact back in the 1980s there was a bipartisan tax reform in 189-- 1986 reducing it to 15% and 28%. it was just 28% in the 1980s. the congress at the time, both democrats and republicans, got together and reduced the tax expenditures that michael talked about and used the money to lower marginal tax rates and simplified the code. that's still the direction of tax reform we need to go down the road of and to simplify this rate structure and lower these rates. >> host: david, republican. good morning. >> caller: good morning.

can you hear me? >> host: we can, sir. thanks. >> caller: okay. i was going to say we have tons of people in prison for taxes, and i didn't know we had a debtors prison, but we have the poor in prison for taxes, and they can't go after the rich. they can't really put them in prison, but they put all the little people in prison, and that's what they do to load the prison houses up with all of us. they told me they said, well, you owe $5,000. i said, i do? really? he said i don't care if you lie, steal, or cheat, he said i just want you to roll. i said isn't that wonderful? you just want me on the roll. put everybody that's poor in pried, feed us, take care of us, you know, get rid of the corrupt irs people, all of the organizations that destroying the people. count how many people's in prison right now, debtors prison

right here in america over them stinking taxes, thanks, you guys. >> host: is there number of americans in prison over nonpayment of taxes? >> guest: he indicated the irs goes after people lower than the top end. the audit is higher at the top end rather than the bottom end. at the bottom end there's special refundable tax credits, a lot of cheating on, and at the high end, because of the rates are so high in my view, it incentivizes people to avoid and pay taxes. i think a tax reform are lower rates, frankly, could reduce cheating, and across the income spectrum. >> host: another question. since the debate over the bush tax cuts threshold for what's called high end earners or the rich is 200 individual, 250 for couples. what's magic about those numbers?

>> guest: i don't think there's anything magic about it. it's about the richest 2% of the population, and that's, you know, that's taxable income is what they're talking about in terms of applying the rules. you know, i don't think there's anything magic about it. i think it's a level where, you know, it's, the rich is 2%. it's a wealthy segment of the population. i think one thing -- people get upset who maybe two earners making a combined income of $300,000 living in a relatively expensive place and they don't feel rich and they are not rich, but what's important to realize is just the way the tax code works. people making $300,000 a year don't pay much more under the sorts of proposals that hit everyone over $250,000 because it's on the marginal income and so really you kind of -- to get the truly wealthy, you bring in a swath of people below that in order to make it work, you know,

so there's not sudden cliffs in the tax system, but there's nothing magic about that level in particular. >> host: any comments on that? >> guest: no, you know, i'm for a flatter fairer taxes for people across the income spectrum, shouldn't penalize people, the most productive people in the economy. people who pay the highest rates is they are entrepreneurs and doctors and people like that, we should not be punishing them with the tax code. >> host: next call from new mexico. independent there. good morning. >> caller: chris, i find your position on carried interest amusing, and you especially talked about, you know, just recently your last comment about those high earners and productivity. i have a specific example. it's john paulson. he has a hedge fund called

paulson and company. he bet on the sub prime crisis and walk the away, his company walked away with $40 billion. his share of that was $4 billion as carrying interest, and he would pay 15%. now, his company, the one vehicle he used was abacus, and that was a synthetic obligation, and he was just betting -- this was simply a bet -- there wasn't any tangible property or anything involved, and most recently, his hedge fund in 2010, he walked away with $5 billion. now, betting on just betting and not having anything tangible out there as somehow productive in our economy, i don't see it, and i see the only way that you're

really going to address these people who do nothing but make bets is capture, somehow capture their money in the tax system because we have been unable to do it otherwise. we're unwilling to really deal with these hedge funds. another example -- >> host: john, interrupting you for the sake of time. >> guest: he has one example i'm not familiar with about a particular high income person who apparently cheated on the tax code somehow. i don't think that's the prototypical type of person who lives in the top een of the income tax spectrum. i think steve jobs is more of a typical example of someone in the high earning part of the income tax spectrum. steve jobs or bill gates have done enormous things for the economy, and i don't begrudge them making billions of dollars in the least. the current tax code really

punishes these people at the top. they pay in general a much higher effective or overall tax rate than people in the middle or at the bottom, and i don't think is does the economy any good to punish them more. >> guest: well, under the current system that's not true that they pay a higher effective tax rate now. people make a big deal about the bush tax cuts on the rich, and oh, it's going to stifle entrepreneurship, and it's punishing these people. here's the really of it. -- reality tf. at the rate of income, it's equivalent of a one-time 10 month pay freeze for them. stack that up against the middle class with a ten year pay freeze and counting, it's a matter 23 we have to pay for these things, we have obligations, and who can afford it? a ten month pay freeze for those people, not isolated example, but for the entire richest 1% is

a modest ask. >> host: a comment from a viewer who write us the flat tax drives them and the middle class down. 1% for the poor mens more than 1% for the rich. next call from maryland, republican there, good morning. >> caller: good morning. what i wanted to say never in the history of our country have we cut taxes during the time of war, and we had two wars, and we gave them a blank check, and when brenner was there, the hearing where they gave bags of money out. we want to blame obama for everything, for his health care, at least health care is helping people, money squandered over there didn't help anybody, and they still hate us over there, and it's fair that obama gets

the blame for everything. >> host: thanks a. a call from baltimore. you're on the air, democrat, please. >> caller: my question is for mr. edward. thank you for michael for being the head out there because a flat tax for everybody out there, the question i ask for him is as a mobile -- tax return for the -- million dollar tax return from a year of $1 billion. i don't think that's fair. also, charity. charity, given to charity is not deductible. it comes from your heart and conscious, and i don't think anybody expects the government to give you money back 23r what you give of the good of your own heart. pay for deductions that you reach out of one's pocket. it's not fair to anyone at all,

and bank of america is also laying off 30,000 employees sometimes in the next few years and got money for the government to hire people, and thane are not doing that. we give money bat toke wealthiest -- to the wealthiest companies when they should be investing, but they keep it for themselves. >> host: your response? >> guest: i mean the caller pointed out companies that, you know, apparently paid no tax in the current year he was looking at, and that's true. i think one of the problems is there's a high statutory rate, but it's true. a lot of years, you know, companies don't pay any tax, perhaps not profitable. i think general electric, flex, didn't pay -- for example, didn't pay taxes, but wal-mart, for example, has a very high effective tax rate, pay e enormous amount of taxes. it's an uneven system.

we need a simplified lower system so businesses pay more consistent, but reasonable rates year after year. >> host: one tweets us, business' create jobs if people buy products, not when they get tax cuts. put money in the hands of people with high propensity to consume. >> guest: that's a big part of what the president is proposing. there's the payroll tax cut on the business side and expands the payroll tax cut on the individual side, on the workers' side. he expands unemployment benefits so unemployed workers are not forced to constrain their spending excessively, and puts money into the economy by investing in the infrastructure and putting teachers back to work, which, you know, 24 is not the time to lay off teachers, and it's an excellent time to be doing what investments we need anyway in terms of our national

infrastructure, both expanding it and repairing it. interest rates are low, idle work force in the private sector who wants to work, there's private contractors who want the jobs, so that's, you know, that's in essence the president's plan, and i think the tweeter is sort of capturing the spirit of what the president's proposed. >> host: 14 minutes left with the two guests. only on the air two hours this morning. house is in session early today. they will be considering the legislation that has to do with boeing and moving plant facilities from south carolina to seattle. next call, missouri, don or ron? >> caller: ron. >> host: ron, independent, you're on the air. >> caller: i have a suggestion to create perm -- permanent jobs. i'm a baby boomer and small

business owner. we are at the age of retirement, but will not because the 401k's are down. if you can retire at 62, retire at the age of 65 rate making some of us retire and create jobs for people who are currently laid off. i mean, it's -- how would you pay for this? it's an extra cost to the social security, but, yes, coming out of the other bucket is all the unemployment costs that we're currently paying. with my small business, i have a number of employees ready to retire, but they cannot because the 401(k) eerks are down. i think a stimulus would force them to retire. >> guest: that's the opposite of what you want to do. in the long run, the problem with the american economy is there's going to be a huge increase in the amount of people retired and fewer and fewer younger workers to support them. in the long run, we should

reform the social security system so that it doesn't encourage people to retire early. the current system encourages americans to retire frankly earlier than they should. in the future, the number of young people to support the retirees will be dropping creating a large cost on young working families, so we should reduce barriers to people working longer in their lives. after all, people in their 50s are very productive, knowledgeable, and skilled people we should be keeping in the work force. >> guest: you know, i don't think as a long term plan that's a good idea, but i've proposed pretty much exactly what you're suggesting in the short term. in this period where there's not enough employment available. you have elderly people, you know, people approaching retiermt age who -- retirement age who if they are unemployed it's unlikely they'll get a good job again.

i just recommended one year to keep the costs reasonable, but i think somebody like that right now would make a lot of sense. >> host: a tweeter says america is supposed to be a place where anyone can be rich. most are getting poorer. why? because the land of opportunity is gone. cleveland, next call, a democrat there, good morning. >> caller: oh, good morning. i have a little something for chris. bush gave two tax cuts, one was in 2003 for jobs, tax cuts for jobs, and $3.5 trillion was given to the republicans' job creators, and by 2008, we had 99ers, and those are people who ran out of their unemployment which means that the 99ers were

actually unemployed in 207, so i'm kind of tired of hearing about the republicans' job creators. where is the taxpayers 3.5 trillion bush gave? that's taxpayer money. where's our cash? where's our jobs? somebody needs to go to jail. i'm tired of the jails being filled up with the poor people, and the rich people are skipping away with all the taxpayers' money. you guys are not credible anymore. republicans are just not credible. where's our money? >> host: thank you. >> guest: i partly agree with the caller that republicans lost credibility in the bush years. some were important for the growth, the capital gains tax rates, but other cuts like expanding the child credit

didn't do anything for the economic growth. i agree with the prior callers who pointed out that bush spent a heck of a lot of money on wars, and that has damaged the economy. we spent over a trillion dollars on wars over the last decade. there's no doubt that that money was sucked out of the private sector economy and damages growth and job creation, so bush made a lot of mistakes, but unfortunately, i think president obama's making 5 lot of mistakes as well. >> host: the weekly numbers in unemployment, let me put them into the discussion at this point. ap reporting on a number of people applying for unemployment benefits last week jumped to the highest level in three months, a sign layoffs could be increases. weekly applications rose by 11,000 to a seasonally adjusted 428,000 which included the labor day holiday when applications drop during short weeks. in this case, the applications didn't drop as much as the department expected so the

seasonally adjusted values rose. the four week average rose for the first straight week to 419,500. either of you want to comment on this? >> guest: we need a jobs bill. >> guest: i think congress and the president are not very good at micromanaging the economy. we've had the last few years, president obama's tried everything to try to micromanage businesses and hiring and demand and that sort of stuff. it doesn't work. the government is not good at that. we need to focus on long term reforms. there's more agreement about what to do in the long term, and i think by putting in place long term reforms like budget reductions, it would help in the short run as well. >> host: next, washington dc, ross, republican. good morning. >> caller: good morning, yes. you know, this flat tax seems to be a very simple way of doing things, and it is a simple way of ding things. you know, right now the marginal tax rate for the wealthy is 35%, yet the percentage of total

taxes that we pay, it's insignificant, and when warren buffet says he pays 16% on average for taxes and secretary pays 36%, there's something wrong. somehow, we're going to take the marginal tax rate down to 17%, and we're going to get rid of -- we're going to get rid of the upper end taxes, and mere rack cowsly, all the benefits occur. when you earn your money outside of the standard paycheck, there's all kinds of deductions you can take that the average guy can't even think about including trust funds and special deductions for investments. it's a ridiculous simple minded thing that all the sudden we're going to get more revenue. it's idiotic, a waste of time, and we need the tax rates back up to where they are. thank you. >> host: thank you. any comments? >> guest: you know, i think the caller is on to something in the sense that i just disagree

with chris that there's some miracle from lower margal tax rates. i think, you know, i think we have a system that's a mess right now. i don't disagree with that, and there's 5 lot of inefficiencies, and what i eluded to earlier that the president's preparing in the jobs package, start to get it, some of the things the caller was referring to, and so i think we need to straighten out the tax system. i don't think we need to drastically lower top income tax rates. i think, you know, the wealthy invest and hire people because they can make a profit doing that, and what's going to determine whether they make a profit doing that is not their tax rates. what determines that is whether there's demand for the products and the economy is well. the key 1 a strong middle class. i think that needs to be the focus of our tax systems and of our economic policies in

general. >> guest: i'd like to comment. i mean, quickly the caller raisedded the warren buffet comment. warren buffet for years claimed that he pays a lower tax rate than his secretary. in general, that's nonsense. it might be true for warren in particular. i don't know what sort much tax machinations he's been able to do, but if you look at the overall data from the congressional budget office in terms of overall federal taxes paid, income taxes and payroll taxes, the top 1% in the country pay 30%, 30% effective tax rate, in other words, add up the taxes, divide by the income, the top 1% pay 30%. if you then look at the middle income people, they pay about 14% according to the cbo. the tax rate that the top end on average are much higher than people in the middle and bottom, and sure there's exceptions, but those are the overall averages. >> host: another tweeter says

give $3.4 trillion in tax cuts to the top 400 families and keep our fingers crossed? that's an economic plan, she asks? >> guest: i disagree that people at the top end are the highest earner in a market economy are generally the most productive, most skilled, most knowledgeable. you're talking brain surgeons who already work enormously hard. they had an enormous amount to the economy, and they create jobs. they already pay a higher relative burden than other people, and i think it's really costly for the economy to burden them with additional taxes as president obama wants to do. >> guest: i just don't think throwing money at them is particularly the answer, and it's been a tried and failed strategy time after time, and, yes, there's those people in the top and other kinds -- there's paris hilton too, but throwing

money at them is not the answer. >> host: a couple minutes left. john, independent from indiana. john, good morning, you're on the air. >> caller: hello? >> host: yes, we can hear you. >> caller: okay. when is the smoke screen going to come down? you know, our economy is not stuttering because of taxes. our economy is suffering. we have 14 million people out of work. we've got a poverty rate of 15% now, and it all boils down to the wto treaties that we're giving our jobs away to china, and this jobs bill here has three more fair trade deals in it. why doesn't anybody address the real issue on if everybody that was working and paying taxes and 40-some thousand or 40 million factories still working here in the united states, we would not have a tax problem. thank you very much.

>> guest: well, i think there's a distinction between sort of long term trends and the immediate crisis. you know, the reason the unemployment numbers are spiking this week -- you know, that is not particularly because of jobs moving overseas. that's a long term trend, and we have to look at the currency manipulation and long term trade and the problems there and the damage it's done to the u.s. economy, but we do have a short term cyclical problem right now that we need to address, and that's really what the president's job creation program is focused on. you know, it's focused on getting people back to work creating a virtuous circle that people are back in their jobs and working means businesses have more faith that hiring and investing pays off for them resulting in more hiring, and we can end upturning this thing around. one quick additional point which is just that, i know it's

important to know that when the president started the policies that chris is being critical of, we are losing over 800,000 jobs a month, and for the last 18 months, we've had private sector job growth, created 2.4 million private sector jobs. given the hole we're in, that's not good enough, but just dismisses we're not where we want to be does not mean the president's policies have been a failure. you also have to look at where we were. >> host: time for one last caller. where are you from? stanten island? pat, you're on the air. >> caller: i'm tired of the global companies referred to as americans. i pay taxes because i'm a patriot, and i keep america going. the other thing is we stanten islanders are now going to pay higher bridge taxes, and one of the reasons we're going to pay higher bridge taxes --

>> host: i'd like to hear it, but we are out of time. can you comment on corporations and the patriotism. >> guest: look, the reality that the prior caller complained about free trade deals, but most of the globalization happened not because of government policy but because of the advance of technology, the lower costs of shipping around the world, international trade in investment exploded because of freedom and the advance of technology. you know, the trade deals are a minor positive benefit in my view, but globalization in general has been very positive. >> host: thanks to both of you, michael, chris edwards of the cay toe institute for the discussion on taxes and you have a good thursday. thank you for being with us.

>> now, a hearing on the army's contract with host nation trucking in afghanistan. an internal defense department investigation showed $360 million ended up in the hands of war lords and insurgents. a recent report found that $60 billion was lost to waste and fraud in iraq and afghanistan over the last decade. this house oversight subcommittee hearing is an hour an and a half. >> committee will come to order. good morning, welcome to today's hearing on defense department contracting in afghanistan. are we doing enough to combat corruption? thank you all for being here. apologies on delays. you're all busy with important responsibilities, and i appreciate your patience as we had votes on the floor earlier. i'd like to welcome ranking member tierney, and others in

the audience for being here. overseeing the millions spent in military operations in afghanistan. last year, we conducted an investigation of the defense department's host nation trucking contract to supply the military with the use of private contractors to remove the armed forces while at the same time promoting local afghan economy. almost since inception in 2009, allegations surfaced that war lords, power brockers, and the taliban would seek, "protection payments" for safe passage through tribal areas. according those familiar with the contract, it was a potential wind fall for our enemy. in short, the american taxpayer had allegedly funded the same enemy our soldiers fought. while the investigation did not yield smoking gun evidence this occurred, at the same time, the investigation revealed the defense didn't's contract oversight was woefully inadequate. despite whether the allegations

could be sub stanuated, the oversight structure did not allow for swift review. the findings we were leased last june which the leaders testified. as a result of the hearings and the investigative report, the defense department established three task forces to examine these particular issues as well as corruption in general. today, we're hear from the defense department about the findings and progress from last year's hearings and recent revelations between $30-$60 billion was misappropriated in iraq and afghanistan since 2001, it's critically important that pentagon gets 24 right. i hope they made progress in this regard. i want to commend my colleague, mr. tierney, for his great and tireless work here doing great research and diving deep into this and grad that we can continue on with the work that he initiated, so i now would like to recognize the ranking

member, for his opening statement. >> thank you -- [inaudible] ai soup you can hear me, but i'll put that on in any event. just marked the 10th an anniversary of 9/11 and almost a decade from going into afghanistan. we entered that conflict for a cause, and our brave men and women in uniform largely accomplished the mission of ridding al-qaeda and those threatening the united states. i wanted to begin today by honoring and stating how proud i am of all the people who have given service to the question and want to thank you for your services to the country. i scdz the chairman to call the hearing to examine the problem of contracting, corruption, in afghanistan, and i thank you for doing so and working with us on the issue. last year, i led a six month subcommittee hearing on the trucking contract in afghanistan. they found the trucking contract spawned a vast protection racket

in which criminals extrouterred contractors for protection payments to obtain safe passage. our investigation further showed senior officials within the united states military contracting chain of command were aware of the problem, but did little to address it. in english, the investigation found the didn't of defense's supply chape in afghanistan paid the enemy and fueled corruption in order to maintain the footprint. following the subcommittee's investigation, general petraeus established three task forces designed to address the problem of corruption and new guidelines to break silos of contracting a operations. they were important first steps. the department provided multiple briefings to the staff showing progress identifying where u.s. taxpayers are going. i commend the department tar that effort. unfortunately, the picture presented 1 not pretty. recent news reports stated that the tasering force 2010 has

identified over $360 million in contracting dollars in afghanistan diverted to war lords, power brokers, and criminal patronage networks. the task force con flirmed the -- confirmed the results finding the trucking contractors were making payments that ended up in the hands of the enemy. the commission on wartime contracting looked at contracting in iraq and afghanistan, and estimated $60 billion in u.s. contracting dollars were lost to waste, fraud, and abuse. i fear these reports are only the tip of the iceberg. much of the afghan economy now centers around the united states and military presence and logistics contracts, but the funds support the dubai real estate market. there's weekly reports about brothers and cousins of politicians with multidollar contracts with the united states government.

the contractors is a moving industry. today, the business of afghanistan is war. how can we hope to rid ourselves from war if the security continues to justify our continued presence. we crossed a tipping point in which the size of our military fosters further instability. every additional soldier and supply convoy we send to afghanistan further fuels the cycle of dependence, corruption, and end legislation war. with that said, i want to focus today on the hearing of three basic questions. one, what is the scope of combating crouping in afghanistan, what is done to address is, and how can we reduce it? i'm skeptical about the current design of the united states' endeavor today, hopefully we'll focus on solutions to be implemented right away. congress has an important role to play. this spring i worked with the armed services committee to include an amendment of the defense authorization agent

giving commanders in the field more authority to immediately stop contracting with companies 245 undermind the effort of our troops on the ground. i established a bill to give a permanent inspector general, one of the key recommendations of the commissioner of the wartime contracting. i encourage the colleagues here to join me in that legislation, and i'm also working to draft comprehensive con contingency legislation to change the way we do business in war zones. i want to close by reading from general petraeuss contracting guidance released in december of 2010, he wrote, and i quote, "if we spend large quantifies of funds quickly with insufficient oversight, it's likely some of the funds will unintentionally fuel corruption, finance insurgency organizations, strengthen patronage networks, and under mind our efforts in afghanistan. we cannot afford to fail of getting a handle on combating corruption in afghanistan. it's utterly unacceptable for

any taxpayers' dollars to make their ways into the hands of those who use them to harm our brave men and women in uniform." i appreciate your testimony here, look forward to the discussion, and, again, thank you, mr. chairman. >> thank you. any other member have an opening statement? mr. lynch is recognized for five minutes. >> thank you, mr. chairman. i appreciate you holding this hearing, and i want to associate myself with the remarks of the ranking member who has done humans work along with the chairman on this issue, and his staff. i had the benefit of traveling many times to afghanistan, several times in the company of mr. tierney's staff, and on this issue, and i just -- i just want to emphasize or amplify some of what mr. tierney has said here.

we have a lawless environment in afghanistan, and while i understand the mission there and i understand the president's approach, there is still, i think, a wide distance between where we should be in terms of watching our money and resources in that country and where it is today. i honestly believe having -- i don't know maybe eight or nine trips over to afghanistan and many times on this issue and on corruption in general along with kabul bank, a whole other issue -- i honestly believe at this point that corruption, corruption is a greater enemy and greater threat to afghanistan stability than the taliban. i think the taliban can be

beaten. or coon thed. i think -- coopted. i think culture in that country is a much tougher road, and i just, you know, i applaud mr. mr. tierney on his great work and mr. chaffetz has been there a number of times doing great work, and i see that dod made changes in their contracting protocols, and that's good, but i don't think it's enough. i don't think it's enough. i think we have to get a better handle on this, and i think it needs to be a tighter reign and a greater concern for the theft, the theft of billions of dollars of american taxpayer money. the american people are doing a good thing. they are trying their best to help a country gain stability, but our kindness and our generosity is being abused in this case, and it needs to

stop. it needs to stop. we node to put systems in -- we need to put systems in place that will prevent that abuse from continuing. we're partners in this. we're partners in this -- the congress and dod. we have to make sure that we tighten up this system and address some of the concerns that mr. tierney has uncovered. thank you. i i yield back. >> thank you. members have seven days to submit statements for the record. mr. gary motzek is the deputy secretary of defense. mr. kim dennever is the deputy assistant for the army for procurement, and steven pressfield is -- stephen townsend is part of the pakistan and coordination cell. pursuant to hearing, all witnesses will be sworn in before they testify. please rise and raise your right

hand. do you solemnly swear or affirm the testimony you're about to give will be the truth, whole truth, and nothing but the truth? let the record reflect the witnesses answered in the affirmative. thank you. in order to allow time for discussion, if you would please limit verbal testimony to five minutes and whatever materials and statements that you have for the record will be submitted in its entirety. we'll start with mr. motzek. you're recognized for five minutes. >> thank you, good morning, mr. chairman, ranking member, congressman lynch, i wish i wrote what you just wrote. i'd like to tie myself to your remarks as well. thank you for this opportunity to appear before you today and discuss the efforts of the defense department to reduce and control contracting corruption in afghanistan. this is an update to our testimony that begave last june, and i hope we can, in fact, demonstrate we've made some progress. contractors continue to provide

critical support to operations in afghanistan. the use of local national contractors in particular is a key to the counterinsurgency with coined strategy of our commanding general. they currently make up 47% of the dod contractor work force in afghanistan. there is no doubt that the strategy that promotes afghan first carries risk; however, it's clear the coined strategy's essential to developing a stable afghanistan. recognizing the essential contractors in december of 2010 as noted previously, the commander of isaf posted the contracting guidance. this guidance stressed that everyone must understand the role of contracting counterinsurgency and how it not only benefits, but underminds efforts in afghanistan. due no no small part to the concerns of this committee, task force 2010 was established by that same commander to address

contracting corruption and its negative impact to the coined strategy. the task force consists of uniformed services, union represents from a variety of contracting, auditing, and criminal investigating agencies. the team including contract forensic accountants acysting the task force in tracing money from the afghan domestic, international, and financial networks. i need not remind the committee that's probably the toughest part of this job as we all recognize. one of the key efforts of task force in 2010 took was the assessment of the host nation trucking contract. we are thankful for the committee's june 2010 report serving as an important resource. the host nation trucking assessment looked at a-prime companies that supported the contract to evaluate the extent, if any, that the power brokers, criminal elements, and insurgents had on the execution of those services. one of the specific concerns of

the committee was our use of a particular private security contractor, and during last year's testimony, i committed to ensuring action would be taken. immediately upon departure from this committee, we suspended operations with that contractor. on august 4, 2011, the army entered into an add min straitive agreement with that private security contractor that stipulates he will not provide convoy security for a period of three years. according to this administrative agreement, we have ceased to use this curet contractor for convoy security. there are a number of direct actions taken as a result of the 2010 trucking assessment. the most significant action was the contracting's command's decision to have a new way of addressing challenges with the new contract. the new contract vehicle expands the potential number of prime contractors, establishes new standards of conduct, and a

variety of ways of applying security. due to the complexity of this new contract and to meet operational requirements, we continue to use host nation trucking vehicles with additional controls until the performance can be started under the new contract which is tomorrow. to address the concerns that we -- that you expressed with host nation trucks. we put together a comprehensive strategy that should drive business away from the bad actors, enable smaller companies to prosper, and to meet the vast arrays of current complex needs. with the potential of nearly $1 billion, we have to execute the program with care and vigilance. this is one of but several actions taken by the task force 2010. other additional examples include the debarment of 78 individuals or companies, the suspension and pending debarment of an additional 42, and the

referral to the appropriate department official of an additional 111 persons or companies. we continue to pursue a wide range of corrective actions. however, we can't do this alone. as you are aware, task force 2010 is but a part of a larger organization that is operating there. of course, challenges remain, and there are concerted efforts to control corruption in and contracting must continue. in the participation was international community, we'll continue to make progress. i thank you and look forward to your questions. >> thank you. mr. denver, you're recognized for five minutes. >> chairman, ranking member, tierney, and members on the committee, thank you for the invitation to appear today to discuss army efforts to discuss corruption in afghanistan. i am pleased to represent army leadership, members of the

acquisition and contracting work force, and our soldiers who rely on us for timely and efficient terrible, supplies and services in support of operations. when the army deploys, they depend on civilian support. the last decade brought challenges to contracting. we've operated in theaters where the culture includes corrupt business practices. despite of this environment, we strive to uphold the integrity of the process and our speedometer to the american -- responsibility to the american public. we have several amendments in the current version of the fy12 authorization act as well as the investigative reports last year on host nation trucks and private security contractors. oversight of subcontractors has been a significant concern of the contracting community, the audit agencies, and congress. in response, we trained over 9600 contracting officer representatives, cors, instituted vetting procedures, and increased transparency of

government approval of all contractors. we're on the front lines of the oversight as responsible stewards of american taxpayer dollars. the army rejuvenated the training by mandating deploying brigades have training in cors. this is 5 key element in fighting corruption and ensuring security for war fighter civilians, contractors, as well as the security of the reconstruction effort in afghanistan. it's been a struggle to create a process for a country that lacks identity criteria. it's time consuming and relatively new provides means to assure security. the continued use of contractors reduces risk and creates a more secure environment. i'll provide an update on how we refind and improved the systems and processes in respect to transportation contracts. chairman, ranking member, we pay

serious attention to the findings and recommendations from this committee's report. the national afghan trucking contract, nat, addresses these concerns. there's new transportation contract awarded by the sitcom theater last month and enforces stricter controls than the previous contract. they ensure greater transparency into subcontracts, of ethics, ensures prior vetting, and establishes a tear rated structure and separates contracts into suites to encourage smaller and local companies to participate. the contract ends today. .umber of available .on the nat enables greater competition leading to greater work. it also provides a flexibility

to spend problem contractors and facilitate the development of the trucking industry in afghanistan. nat supports congressional recommendations on the role of afghan national security forces and highway security. nat inventories trucking assets available to dod on a regular basis. as a result, nat reduces cost, pays only for services performed, and gives timely delivery resulting in improved oversight and performance. we continue to have more effective ways to get the most value of the contracting dollars and the most effective support for the war fighters. i cannot stress enough the requirements overseeing tens of thousands of contractors, and awarding billions of dollars in an environment that is hostile on many levels. it remains a challenge to the contracting personnel t. takes time to change the environment. the u.s. army is committed to the protection of the united

states, war fighters, and tax fighters through all contracting activities. thank you for your support, and i look forward to your questions. >> thank you. we'll now recognize brigadier for five minutes. >> thank you for the opportunity to appear before you today to discuss our efforts to link contracting and the flow of u.s. contracting dollars to the counterinsurgency strategy in afghanistan. bottom line up front is we must -- we recognize we must see and address the challenges we face with corruption and popular perceptions in afghanistan. even as our supplies are fluent to the war fighters, they arrive with good reliability, surprisingly little loss in u.s. lives and battlefield resources. the focal point for the coined strategy in afghanistan is to

deny terrorist safe havens and secure the afghan people. our effective management of our government's contracting dollars is essential to the success of the strategy. as you all know, after 30 years of war and social devra davis revolution, congressman lynch said corruption's a greater threat, the stability of the afghanistan than the taliban. i would agree, and so would many of the other soldiers, sailors, airmen, and marines i was privileged to serve with recently. this involves efforts at all levels so we can see where the money is going, gain an awareness of level of control overred unintended consequences of our spending. we have, and will continue to take appropriate steps to reduce the effects of corruption and be good stewards of the american taxpayers' dollar. the u.s. military greatly

increased understanding of the problem and the contracting dollars' effect on coin operations in theater. this report was helpful to that increased awareness and understanding. since last year, you've heard here we've taken a number steps to combat corruption, joint inner agencies and that's helped to map out the criminal patronage networks that exist in afghanistan and to address corruption as a strategic problem. task force spotlight aided in tracking and enforcing procedures regarding private security companies, and task force 2010 has given us a better understanding with whom we're doing business and providing commanders and contracting activities with the information they need to take informed action. i visited with task force 2010 just three days ago to see how they are doing. under army brigadier ross ridge,

task force 2010's accomplishments include a detailed study of the host trucking contract leading to identification key changes they made and contracting practices. these were integrated into the new national afghan trucking contract. this new contract provides a better understanding to service costs and increases the number of prime contractors which you already heard. they al identified individuals and companies for referral and debartment. these are the preventative actions that they've taken. task force 2010 implemented, including working closely with sitcom's command and share information cruet the theater to share with kabul, u.s.-aid, nato, and other partners. this vetting process helps

identify high-risk contractors before agreements are entered. i've highlighted just a few of the efforts that dod is making to counter of the effects of corruptions on coin operations in afghanistan. these underscore or focuses to overcome the challenges we face in afghanistan to help improve how we perform now and in the future. thanks for your continued support of our men and women in uniform, and for in opportunity to appear before you today. i look forward to answering your questions. >> thank you, gentlemen. i'll now recognize the ranking member. as has been said before, has really done some very important work on the subject. now recognizing mr. tierney for five minutes. >> thank you, mr. chairman. thank you for the testimony, gentlemen. your testimonied height lighted the -- highlighted the creation task force 2010. it's serious about attempting to

understand the problems with corruption that are going on in contracting in afghanistan. i think those are good efforts. i praised them in my opening remarks, but i do a significant problem seeing tangible evidence of them really being put into serious action at this point in time. last year, when you were in front of the cheat, you did, as you said in your testimony here today, assure us that you are concerned about commanders and risk management taken seriously and that you would start action, and i understand that you did start action on debarment for those two individuals on that. in fact, the army announced suspension and debarment an made a big deal out of that fact, and it right any was. the task force 2010 found significant sums of money from that company went 20 insurgents while the commander served as the principle security provider. now, the findings -- you understand that our committee

investigation was a committee investigation, not department of defense investigation or doj's; is that right? >> sir, it's source document, that's correct. >> i was disappointed to learn without further investigation, this went to a hearing, and then the army basically cut a deal with the trucking company. they claimed they hadn't understood what was going on in the investigation which i would pose as nonsense, but at any rate, i was disappointed the army didn't do its investigation to nail down facts not to allow for that determination. they said, well, it wasn't much of a punishment on that basis. according to task force 2010, a war lord, a bad actor, malign

actor free to contract with the united states. you have watan free to interact. do you feel you fulfilled your promise to the committee? how do you feel about it? >> sir, when we came together we said we would take under advisement, and i used the term in your investigation, anything that was in there was actionable, we'd deal with it immediately, and so the short term solutions, as you recall, there were issues with army, the primary reason we were able to suspend the group at the national outset, and we continue to march forward. task force 2010 did, in fact, do additional work with regards to both cases that you talked to. what is important in my mind to remember is that debarment by the code of federal regulation

and your own excellent congressional research service shows this over and over again should not be interpreted as punishment. debarments are there to protect the interests of the united states. >> well, you know, i'll grant you that point. >> sure. >> so the findings, $1.7 billion made in payments, passed on to malign actors. they found, in fact, he was not such an upstanding character himself working in concert with waton contracting company. assuming what you said is true, let's protect ourselves from contracts with them, and wouldn't that require debarment avoiding to deal with these characters again? >> there's an independent suspension department official that makes the judgments based on facts presented to him. without reading into his decision, he believe, and he is

the deciding official, that the government was protected because you cannot -- he agreed you will not go into additional contracts with them for a period of three years if they try to go around the corner, but -- >> he's fired for doing business there and given up with a host of others. the management company is the brothers; right? cousin to president karzai; right? get it on the table, there was a deal to appeal this, and they got a war lord of a malign character off the hook as well. i don't find that satisfactory, sorry, i just don't find it -- general townsend, i appreciate your testimony, but when i saw on page two, the afghan population perceives our money is not positively benefiting afghan people instead of supporting malign actors. they found money was going to malign actors. >> that's fair.

it's a fact. it's also a perception amongst the people. >> okay. >> we're both going down on that. it's a problem here, and it has to be stopped. now, the other part of this thing is we have a serious issue on that. what are we going to do about it? we have the task force finding telling us that we have choices. we have use of united states or isaf forces to protect the convoys, but we want to use them in other ways, and we don't have enough of them to put them into protection; is that fair to say? >> yes. >> the forces are not ready or able to in this point in time, is that a fair statement? >> that's fair for now. we're working on it. >> you're working on it, but it's a ways from happening, so what does that leave you with to protect the convoys and to get this done? >> for now, private security companies as we build the afghan

protection force. >> back to the same people involved in the problem who instigated the investigation. now, let's talk about -- one of the things found in the investigation was there was little going on to actually oversee and manage these contracts, and i know that some of the regulations addressed that, but let me -- tell me whether this is happening on the street. are people going outside the gate in observing those convoys, riding along on the convoys, auditing, and taking investigations and inspections to be sure they are getting from one point to another? is there physically people out there doing it or just relying on reports and somebody's word that these things have been done? >> i wouldn't say that every convoy is observed or escorted, but i think significantly more of them now are than were a year ago. >> sir, if you recall last time i was here, our biggest

deficiency with regard to the pse's were failing to follow our own procedures requiring the dual licensing process as you'll recall, but if you're going to use a pse, it must be dually licensed in the country, and we had a procedure we were supposed to follow, and in this particular time with regards to wanton as the subcontractor, we failed to do that. task force spotlight under general bore's, one of the primary functions was to get her hands around that licensing and vetting process which we should have done before. the other piece that has occurred since we discussed the last time is if you'll recall, we had temporary rules in the federal code of regulation regarding the use of private security contractors overseas, and then they don't apply to us, but they apply to our sister agencies. since we've met, we've been able to finally push through the final rules which are a

substantial improvement over the original, so they were published about six or eight weeks ago. that was not an easy process to get them through the cfr, and that's my fault, but they are out there, so that process and those procedures are in place. the visibility because of president car city's -- karzai's decree is driving this entire institution inside afghanistan to a different standard right now. as you know, we are not going to be giving up pse's as a nation overall the. dip maltic side of the house will continue to use them and in retrospect, yes, in the short term, we'll use them, but our intention is to have the options to use the other two alternatively. >> i recognize myself for five minutes. can we get a grip on the

dollars, and i want to understand what is also being transported. because it's by understanding there is a difference as to what the actual physical materials that are being transferred, so if -- do we have a sense of what we think we have lost? what has been pilfered through this trucking process? >> if i could take that question -- >> yes, sir. >> as it relates to the h and t contract, i'd have to take the question for the record in terms of getting you the specific items, but understand about 700 million has been paid out, and we've -- >> paid out? >> paid to the contractors for their services, for the transportation they provided, but we have about 145 million in penalties and withholds that relate to lost equipment, pilferage -- >> do we have a total value of

what had been shipped and what had been lost, pilfered, or simply didn't make it to the destination? >> i can get that for the record, sir. >> my understanding is the task force 2010 being stood up, a number of items have been recovered. do you know the value of what has been recovered? >> about $172 million in recovered losses. >> and what would be included in the list of the $172 million that was recovered? >> i think probably just about anything we transport. you know, a piece of anything we transport on the roads from unit equipment to general purpose supplies to kind of get at the question of a second ago, we transport roughly 1.5 billion gal lores of fuel per day in afghanistan, and roughly half of the cargoes moving on the ground. >> there's certain cargo not

transported via this. >> that's right. some of the recent press accounts talked about ammunition being transported in these con -- convoys, and that's not the practice in afghanistan. ammunition is typically transported only in a u.s. military escorted convoy and not in convoys 245 are secured by private security companies or moving unsecured. >> so, with these private security companies providing the transportation and security, do we do sensitive electronics in those shipments, jump drives, and those types of things? >> i think -- we have electronics that track what the electronics do. we have intransit vehicle transponders that -- >> i'm talking about the content of what's behind those. >> so, the standard is no class vibe, no ammunition, and what we have is a class of supply called sensitive items.

the simplest answer i would give you is things like night vision goggles would not be permitted to be transported by them. loaded computers would not be allowed to be transported by them. we could take it for the record to give you -- >> weapons on that list? >> no, they are sensitive items. they would not be transported by them. >> un-- uniforms? >> uniforms were transported in the convoys earlier in the effort. we've made large efforts to reduce that now because of problems with the -- >> reduce that or eliminate that? >> probably the goal is to eliminate it, but i wouldn't say we eliminated that completely. >> that's not too reassuring. i appreciate the candor though. medical equipment? there's a "wall street journal" report i would appreciate you familiarizing yourself with. it came out in the last couple weeks talking about some of the horrendous and horrific

situations that are happening in afghanistan. the article is entitled "afghan military hospital graft and deadly neglect. ". we are talking about the oversight issues. i would appreciate if you would look at the article dated september 3rd of this year as well. win of the other deep concerns here is that these -- that we're not doing our job on the ground, and i recognize in the theater of war and all that's happening there is an added degree of pressure that i'm sure only those in theater can appreciate, but one of these reports said that often the containers were never counted or reopened once they got to their destination. what assurance can you give to the committee that you're actually solving that problem because it's pretty easy to tell -- you should be able to tell what left and what arrived,

5e7b yet the -- and yet the reports say that that check point at the end doesn't happen when our men and women receive these materials. >> i think i can -- the ground truth out there is the vast majority of everything that shows up at a base gets opened, checked, received, and looked out. there's a percentage of stuff that doesn't get received or inspected? yes, i'd say there is. one example to describe this from my own experience. we found in a yard, we took, you know, we did a transition with the unit before us. we started inventorying everything on the base, and found a series of containers there locked up. what are they 1234 the last unit didn't take them. we opened them up and discovered parts that had been ordered overtime, you know, supplies ordered over a period of time, so the unit, so the unit ahead

of us maybe didn't even order it. these things arrive, and, you know, you do your best toking the for your equipment, and now you start accounting for someone else's equipment that may be on your base. that's how it transpyres, but, yes, there's a tremendous effort for unites to account for their stuff. >> not just their stuff, but checking the manifest as to what was shipped and did it arrive. >> of course. >> mr. denver, and then i'll yield back. >> if i may, chairman, let me talk about the process of what's happening and what we do in the contract to get our hands on the pilferage and address this issue. first, there's an understanding that the that is transportation mission request is sent to the contractors, and within that, identifies what is to be thans -- transported and trucks we need to transport further. within the convoys, we have --

if there's sensitive equipment or pilfered equipment, we seal the trucks so if they are unsealed, we're aware of it at destination. if we find a situation where that occurred, pilferaging or the seal is broken, that's a failed mission, then the contractor does not receive payment for that mission. the other thick that happens is they also, within the contract we built a d-duct relating to their total mission throughout each month, and if there's instances of pilferages, there's deductions that takes off their invoices from the monthly shipment, and we hold it from their invoices. we're taking a number of steps to identify that. the other thing we're doing i'd say is with dcma. the intent on the previous contract is we did not have a random inspection method. in the future object nat contract, we'll have dcma at the gate, both in where origin and

destination, and it will be random so that we can conduct spot checks based on what was shipped, the condition of the trucks, involving security personnel being checked that they are appropriate and banded and licensed, but the real answer is are we putting 234 the oversight? the oversight takes more than just contracting, takes a management agency, an officer, a requirement. >> do we have a log of what is missing and the value of it? >> i would have to take that for the record and get that back to you, sir. >> thank you. >> gentleman yield for a second? >> yes. >> it's the time to have this on the record if i could. this is a sheet that the department made available to us with respect to oil deliveries. all right. it's a multipage item. in the red there's the amount of percentage of shortage of

delivery. there's mostly zero. what should have been 100% is zero on that on significant occasions. now, we're also told that $25,000 is the penalty they pay for not delivering a full load, yet the value of this over $40,000 on the street, so i'm not sure we got our penalties aligned with the price on that and certainly there's 1100 trucks delivering oil that were pilfered. 5.4 million gal lores of fuel, gone, no explanation on that. i hope we address that and i ask the chairman to put that into the record. >> without objection, we'll enter it into the record. i'll yield back. yes, general? >> i just want to put that into a little bit of context. you're right. fuel pilferage rates are higher than we want them to be. overall, pilferage rates on the ground locks in afghanistan is about 1% plus or minus, so

that's overall context here. still, you know, the level of our endeavor in afghanistan, that's still a lot of stuff, 1% even. with fuel, it's up to 15%, and part of that is congressman, what you just pointed out there about penalty may not be offsetting the street value of this commodity, and this is a discussion i 4 with general ridge three days ago. he recognizes this and is working on adjusting that penalty. >> thank you. now recognize the gentleman from massachusetts, mr. lynch for five minutes, or maybe a little bit more. >> all right. thank you, mr. chairman, i appreciate that. i want to thank you for coming before the committee and helping us. like i said before, this is one team, one fight, and we're all trying to do the right thing here. we had an opportunity, myself, i believe the chairman, and several of our staffers here. mr. alexander was there,

mr. lindsey was there, but we went into kandahar and went down that route 4 that leads from karachi, goes up through qweta, and then into afghanistan. the major sea port there is in pakistan, and then these trucks leave, and the pakistani trucking outfits take over at a place that we went into. that's controlled by a fellow by the name who is now general razik. now, they had, you know, they had threatened if we went in there to do oversight on the trucking operation that they would shut the border down, and there's thousands of trucks going through there, you know, in the course of a day, and so when we, on behalf of

mr. tierney at the time who was the chairman, they shut it down just as they threatened. you know, first of all, we couldn't refuse to do our jobs doing oversight, but he followed through on the threat and shut the trucking center there, the border crossing down until we left. you know, we did as much oversight and inspection as we could, and then when we left, the oversight committee left, he opened up the border again, and, you know, myself, we had a striker brigade with us. we didn't go down there by ourselves, but god bless them. you know, that's pretty tight control when you can shut off the oversight of the united states congress and dod and the military did what they could to get us in there to do the oversight, but that troubles me greatly that here we are

spending billions of dollars in taxpayer money. we go down there. we're elected by the folks that are actually paying the freight here. we go down to inspect what's going on there, and you got this -- he's a general now, he was a colonel back then. he's a war lord is what he is. he's got -- this is all sort of taliban controlled territory that we drove through from kandahar down to the port, and i just -- i got to tell you, you know, it's a whole lawless area, and if the guy can shut off congress from conducting reasonable oversight, then what chance do we have of implementing a system where we actually perform due diligence on protecting the taxpayers' money. it's just a, you know, i just

have great misgivings about this, and unless, you know -- look, we have some leverage here. they need our help. we need to use that leverage to make sure that they operate by our standards. we shouldn't be operating under the wild west standards that they operate under, and that's sort of what's going on here, and, you know, i have to say it goes right from the top from karzai on down. it's just rotten from top to bottom over there, and, you know, the goodness and the generosity of the american people is being abused. here they are trying to do the right thing, i know the president's going to withdrawal plan there, but in the meantime, he's trying to do the right thing. the average afghan over there is in a desperate strait, and we're trying to do the right thing

from the humanitarian stand point, stand up the country to take care of themselves, but in the meanwhile, we're getting fleeced by the same people we are trying to help, a certain portion of it; right. i don't think the average afghan is really as malicious as these folks, but it's a game. it's a game. .. into that some warlord down there, you know, blocking off the united states congress from doing its constitutional duty, to make sure that the appropriated monies here think the american people are getting to the source that they are

targeted to an spent in a way cons is consistent with our mission.is this just can't go on. so you know, i appreciate what you are trying to do. i appreciate your tweaking the e contract by going from eight too 20. 20 helpful, but next time to make going to face the same situation, where they are blocking the oversight committee from going down there quite >> circum- a very possibly. you hit the nail in my mind on the head. what we are doing in the core of this hearing has to do with a couple of contracts. you hit the larger ratio and covers the interior is raised as has chairman that this is a society that is based on 3000

plus years of doing things this way of 30 long years of war and we are not going to change it overnight. i mean, that's the frustration we have. the metrics of the number of convictions i have are interesting and they are important, but the real issue is the efforts quite frankly that the larger task force is doing to try to engage, to change the tones so you have a judicial system that you can trust. you had a police system you can trust in the leadership system that you can trust and it goes back to congressman tierney's comment about who is related to and what not. it's not going to happen overnight. we all know that. >> i don't think it's going to happen in a thousand years. >> and it may not. because in this committee we are not taking the narrow view. america would've been task force

2000 spotlight. to have the other partners, international partners, paul said the isaf side of the house, so we have to look at it directly. we get the right words. make no mistake. we get the right word to the senior leadership about the importance of corruption and controlling corruption. years ago we do need to get the right words. my frustration and i'm sure everyone's frustration is the same of yours is what is tolerable. my personal opinion is we are not going to eliminate corruption. we are not in our lifetime. our efforts right now should be centered on primarily controlling corruption we can control so that our interest in dollars and values and our resources are protect it as our our allies and resources. what happens to you as you go in and as soon as you leave, unless we have a presence there 24 hours a day seven days a week, we take risk double transition

back exactly as you said. so we all share your frustration, but i would say that the fact that we are looking probably cannot is going to be very tough to measure. as you know, i can't give you metrics that says that the executive branch of afghanistan is now good because these for metrics. the proof will be if we can reduce the numbers. the only numbers they have to show you is a reduction in the number, the dollar value. that will be the bottom line. >> the gentleman's time is expired. i want to make sure we have time for the gentleman from kentucky. i recognize you for five minutes. >> thank you, mr. chairman. i'm going to use part of my time to make a unanimous consent request to sort of document into the record, last month ranking member coming request authorization from me to join

the authorization to afghanistan led by senator wyden. the purpose of the delegation was to investigate allegations of contacting fred and corruption. as today's hearing demonstrates come the subcommittee is done great work on this issue and given recent media reports and to know to be here today, it is clear we must continue this oversight of this very important issue. as a member of the subcommittee, i wanted to join senator wyden's delegation to price u.s. officials for exactly the kinds of questions we examine today. that's why was extremely disappointed that chairman isaiah rejected my request. they should not be allowed to drink bipartisan delegation to list a republican from a committee joins. this is a misguided policy that has no basis for rules and policies. the policy established by speaker pelosi and continued to speaker boehner is every foreign

delegation must be bipartisan and include a republican and democrat from each committee. i'm sorry, not included republican delegation. it meets the standard because it has another republican house member from the david schweiker. but the committee and house administration opposite interparliamentary affairs have come from this misguided policy is not the speakers, the chairman isaiah's a loan. i ask unanimous consent to chairman issa to immediately reverse this policy. thank you. >> going to hold off a ruling on that. but you might have a chance to look at the letter? >> certainly. >> you may continue. >> thank you, mr. chairman. this conversation that mr. lynch has talked about comments and misuse of taxpayer dollars and a waste of taxpayer -- american

taxpayer dollars that sometimes go to where people are trying to help and according to the task force 2010 reports that task force 2010, it indicated that they have identified $360 million that has been diverted to insurgents and power brokers and warlords and so forth. some of that money, presumably funding the very insurgency that our counterinsurgency is designed to combat. so general, as he taught about the counterinsurgency strategy, i'd like to ask you, to what extent do you think these diverted funds are undermining the counterinsurgency strategy and to what extent they are being used to attack our own troops and you think we are doing enough to make sure we are not funding attacks on our own men and women?

>> thanks for the question, congressman. i had this conversation with general bridge a couple days ago and the 360 million that they have identified, that was cited thayer, is a buck at $31 billion in contracts. 31,360,000,000 is still a tremendous amount of money. >> if it's correct, it's really bad. so, i don't know how you can quantify how much money. i think part of it is probably going to just simple prime that would exist in any society. some of that money for sure is going to i think the insurgency. i can't codify how much money it's going to taxa can thus versus some other insurgent purpose. it is clear to estimate the money goes in the insurgency and we have to do whatever we can to stop that.

we have to do whatever we can to minimize it. there's nobody in uniform over there. everybody in uniform as a taxpayer, two appeared to don't like to hear that our tax dollars to funding the guys were trying to say. what i can say is we've got the processes in place partially due to the efforts of this committee, with the process in place to address it. it'd be hard to quantify how much of the money is going to the insurgency. clearly some as too much. >> if you have a strategy or are working to develop a strategy to determine how it is getting to the insurgent and stopping that? the >> well, absolutely. you have certain task force, you have to thought and integrate the efforts of some of the other organizations like 2010. they also integrate our efforts

across not just u.s. government, the afghan government and also our nato and other partners they are. so there's other organizations over there. the afghan threat finance attended a briefing with chairman mullen just a week ago by the afghan threat finance and they are an intelligence organization in a regency organization their job is to delve into this and point folks out. i can tell you they're certainly taken action there. >> title ii the extent that you can't, you can report to the subcommittee is to progress you've made any discoveries you've made about how this process may be going on and whether you've had any success in stopping it. >> thank you, mr. chairman. the gentleman yields back. the gentleman previously requested unanimous consent to insert a letter dated september 15, 2011 without objections ordered. now recognize the gentleman from

massachusetts, mr. cheney for five minutes. >> thank you. the problem is the money. nobody wants to lose the money, but the larger parties but is it doing to afghanistan in terms of this the angle that we've taken over there. one aspect of that firm jenner petraeus and songwriting that corruption is not going to be helpful is not the main things that has to have been for the counterinsurgency to be effective. the publicly available legal documents filed by wartime in the case said there is. the alleged tribes were not birds per se, but rather facilitation papers. they argue what tom had no case or to pay government officials and other groups for police while transporting the united states military through this volatile war zone. do you agree that the security operators and contractors had no choice but to make those

payments? >> i do agree that in many cases they don't have a choice in the perceived they don't have a choice. they perceive they will be attacked if they don't make some of these payments. >> and mr. motsek, do you agree with the watan's facilitation payments or bribes of large sums of cash per by provincial governors to local police or warlords in order to ensure their trucks are bothered you think that's legal in united states law? >> clearly it is not. it is clearly counterproductive to what we are trying to do. it's part of the larger systemic problem we have. >> so here is what watan's profile designed to stay. at last be whatever necessary to ensure convoy security and prevent loss of life. the abnegation the affirmative misconduct encouraging private contractors to undertake activities that the army disallowed once they were exposed to the public. with the army aware of the

common part is and does it encourage people like watan to make them? >> i am not familiar with whether the army had that information. i would tell you this. in conversations when i had a meeting but the department official, he indicated the same that you've heard today that the facilitation payments were necessary. so in that context, i would say when watan came to the table and identified what they paid, in that context i would say that is when we were aware. i'm not familiar as to whether we are aware prior. >> watan stated the policy made a policy demonstration that's cheaper than paying for the same guns, bullets and bodies. the court goes on to call extortion payments the realities of afghan society and reality is that war. do you agree that it's simply the cost of fighting were?

>> i am not sure i would agree that it cost of fighting war in afghanistan. it's certainly part the land keep in afghanistan. we took extraordinary efforts at the low tactical level to trade route out with your report that a check point was charging passage fee toll. we would go investigate that and go to great lengths to try to find out if they were charging a toll in ways we could mitigate that. there is one example of billboards with check point says that there's no total required to pass up such a point. then you have to do with the afghan literacy rate below 30%. >> somebody with a gun will stand there and ask you flory told. >> there's no argument from us that the corruption is probably the big country because victims are the afghan people even more so than the american taxpayers.

>> said there is a nexus between criminal enterprises, insurgence networks and corrupt political practices in afghanistan? we know they are relatives of people in high political offices that are involved in these contracts and subcontracts in making these payments or whatever. my question is in order to break that nexus, what prosecutions have been? how many people are prosecuted? how high up the chain? can they see an example of the well-connected people actually been brought to the rule of law or will they continue to be an impediment to our counterinsurgency because they think the whole game is great and the government says that if the taliban? >> i can answer that question him in the context of what were talking about here, trucking, corruption. >> at the much larger picture. >> kabul bank, for example, there's a number officials under investigation with respect to the kabul bank situation

corruption practiced very. and i think we are hopeful that the afghan government will prosecute some of those parties, but it's yet to have been. there's a number of investigations, over 20 investigations and work with kabul bank were waiting to see what they do. right now the united states government is conditioning some of our support to see the outcome of kabul bank. >> well, you would hope so. reject to the airport to the capital of the cup and you can see houses that are well-heeled people living in that and the other people suffering and having a hard time making it an eye, too. i don't know he got the confidence of that to support have in this country, around the move in the right direction without doing more in that regard. so i think you got your work cut out for you. we have to take a look at our mission and prospects for accomplishing well intended

goals on this thing without really addressing the issue of the way it ought to be. another's people and for the watan case and that toll brothers and a good reason why people would be disgusted when someone should've been disbarred and all of a sudden they get a slap on the wrist. this is not good and i think we have to be cautious of that. i yield back. >> the gentleman yields back. i now recognize myself for five minutes. under the host nation tracking, with a prime contractors. six of those they were found to have committed some sort of fraudulent behavior. the fraudulent paperwork, reverse money-laundering, excessive profiteering, aiding and abetting. so now the plan is instead of having a contractors coming out with got to go to 20 contractors. one of the criticisms of the host nation tracking process was way too many contractors who can

keep track of and sometimes people pay themselves only to pay themselves again and again and again. so what are you doing to alleviate this problem because you're expanding the number of contractors and at the same time, what are you doing to make sure this nefarious characters are not indeed getting on my thumb off a different name? >> fair, if i could take that question, as i indicated earlier, the real approach is ensuring that we have the right oversight. it is true that the number of prime contractors has expanded in the new contract and many of those contractors came from the previous contract. >> how many? >> i believe it's 11. 11 total play a primer subcontractor capacity, sir. >> how many of those have previously found to be involved

quite >> none of those were involved in this. 11 contractors we know that they were conducting performance previously. >> my understanding is in order to be considered from you have to have access to 600 tracks. is that right? >> it may be across. i would tell you that -- >> and afghanistan, i have to believe the universe of potential vendors and contractors is fairly small. >> i have some information on the contracts. i would tell you it is a growing industry. but when we without the contractors. >> we are $.2 billion. if the growing industry. probably the most enriched industry areas next to the poppies. go ahead. >> but basically, we asked contract is to come into the prime contractors and

subcontractors to come in and identify with the capacity was in the contract. i would tell you that with sufficient tracking assets to be provided within afghanistan from the afghan firms. so it is a developing industry. i would consider it a policy they were able to grow the industry to show some success. these new companies now participate in the new contract has been vetted. and so, are you here to assure us that nobody who has been found to be fraudulent in the past is involved in this new contract? >> no, sir. >> how to get the assurance to get the case? >> i retired there's risks associated we're putting the oversight. do not are they or they are not allowed to participate in this new contract if they're under suspension were found to be fraudulent in the previous contract? >> thereunder suspension, but

there's ongoing investigations coming after the due process run. and here to tell you something couldn't happen in the future, but those companies gewirtz who are not excluded and were not suspended commissary. >> that continue to dive further into that. time is short. laughter, propose here again. there's two programs via the afghan first in the direct assistance something the state department is very adamant about pursuing. with those two programs, is there overlap of contracts here do we think will become increasingly -- we're asking for more oversight. we ask for more accountability and yet at the same time the state department says you got to speed up pavements and make them direct. you've got to make sure -- and i see a conflict between those objectives under afghan first

and direct assistance to opera trained to do can making sure that two plus billion dollars is accountable. >> sera, that's something we talk about a leader that is the two pending pieces in the nba are somewhat keen to address your concerns. the fact that -- i can't remember whether it's a house or senate version, but both pieces passed in committee. it gives them authority to delve deeper into the secondary, those tertiary contract or so we've never had before. as you know, we only have a legal relationship with the plan. the law changes as in the nda. that's number one. number two, you are going to grant if the law passes. they command greater authority to take people off the table which frankly last legal proof that they are undeserving to

continue or to operate with us, that we can actually use in our judgment process, intel and a variety of other methods to make that assessment. both of those pieces we talked about that the early testimony we promise to review proposed legislation and it always gets a little more -- advocates on the hill. fundamentally, those two pieces are in the nda. they are key for mr. denver to dig further into the secondary and tertiary contracts. the reality is trucking industry is a decentralized process and the bulk of your tracker is our owner operators like they are the united states and that is not going to fundamentally change. so these guys to get these contracts are able to pull together 600 or 450 south tamayo 150. that's had to pull together resources to make this happen.

that's the reality of the business come in the same way in the night stayed. the key come as mr. denver said is we're trying to set that guy before he ever gets a chance to come to the table and not after the fact that your legislation gives us greater ability to do that. >> what the gentleman yield for a second? >> as early as the summer of 2009 your frequent reports of subcontractors paid money to warlords and the taliban to guarantee safe passengers calm voice. u.s. army investigators had a briefing that was the point title post nation tracking payments to insurgents. the investigators estimated the going rate for protection was $1500.1200 per track. i contractors and the private afghan security companies, allied with warlords are insurgents or in some cases directly to militias are told the commanders. the military maintained that the federal contracting rules do not

require them to some interpretations prohibited a close look below the level of prime contractors. i mean, that's a disgrace to someone in the defense contract to my people go deeper into what was behind those contracts with the subcontract level. to better quarters from someone in the military said these people should be fired and sent home. the senior defense officials said the military overseas beatitude is crazy. it's okay to pay the enemy because they are better smacks of the congress travel unimpeded? i hope everybody gets that now. that kind of contracting is before first level law school. >> will not recognize someone from massachusetts, mr. lynch. >> thank you, mr. chairman. i appreciate that. gentlemen, the commission on wartime contracting which is an independent bipartisan commission recently published a report summarizing their work in afghanistan and iraq since 2008.

in based on their estimates in the last decade, the united states has spent more than 192 billion continuing contracts and grants. at the same outcome as much as 60 billion has been lost to contract waste and fraud. mr. motsek, do you think that's a reasonable estimate? >> sera, i think i hold the record for testifying. the answer is based on the way we discuss, the answer is no. >> what do you think the better number? >> i can't give you an exact number. >> edges had one question you answered it. we need to move on. were short on time. i'm sorry. i don't mean to be disrespectful. you've been very helpful as a witness. here's my issue.

read on to present a couple plants, one in iraq or afghanistan for reducer profile for the military actually is more and more contractors. and so we've got this problem. at times, we've had more folks under contract than we've had in the military. so as this trend continues, they've estimated were already over reliance on contract is in iraq and afghanistan and it's going to get more so as we draw our troops down. and so, they put it this way. the united states will lose much of our mission, essential organic capability and also it will create in afghanistan a rise in inflation and economic committees. you have some bad incentives are there. how do we -- how do we facilitate this transition with greater subcontract or his? 80% are non-us citizens.

so we had very little control over that, you know, accountability guesses what i'm looking for. but 80% of those under contract to non-us citizens, i'm very concerned about, you know, this corruption, you know, undermining the remaining african-american in iraq and afghanistan to stabilize both those countries. where does that leave us? or does that leave us if we transition to a contract are based -- contact your century -- a >> sera, we don't have capabilities into force today in many areas we are discussing. you would have to grow the department of defense to make that happen. so that is the reality. so you're absolutely correct. we were attacked about the broad issues of what needs to be done. the microcosm in my mind to eliminate and to give competence

to local national is twofold. number one, with regard to post nation tracking this example. we're not going to pay in dollars anymore. we're not going to pay in dollars. that's a blinding/of the obvious. so now it's not dollars in the country, which has been a problem to begin with. the second piece and i don't know how to resolve this in the short-term and long-term, but until you wish or payment to the individual without payoffs on the way down, we had this problem with the police. we hve it e in theing some of the police on their cell phone because it poli directly to he dove ..ke them which are

absolutely correct. it will be a contract centric attrition. iraq obviously after december december 31st as things stand absolutely. >> mr. chairman, my tennis about expired. having been enough time over there in afghanistan, if that is the situation is, it would be worse if we had u.s. personnel, military personnel, you know, providing security of its convoys. the body count would be coming in now, totally unacceptable. so i appreciate the effort you've need to straighten this mess out. thank you. i yield back. >> i'm going to recognize ranking member tierney for just a moment here as they conclude, we have folks coming up on the floor. >> thank you, mr. chairman. kulak continues to be providing security and norton afghanistan to this day. anybody look at the intelligence

reports and our community about the background of this individual? >> sera, at the say this about roulette. can't go into a whole lot, but it's not a fair scope. >> but they get the gentlemen would provide in written form subsequent to this hearing, the amount of prosecutions that are ongoing right now before this type of corruption and draft as well as the amount of money recovered to date. lastly, to get an idea of who's responsible so when we look at this and try to evaluate lat >> as i understand it, the trucking contracts now for oversight is 419 mount patrol battalion in charge of managing the contractors; is that correct? nobody here knows. that's a problem. they report the 433rd

sustainment brigade? >> sir, today, they transition, before you even have your next hearing. >> that changes again? >> units rotate. i caution you about using -- we'll find the organizations for you and give you the hierarchy. i think that's what you're looking for. >> it is. what i have from the investigations that we did is the contract signing is -- the immediate responsibility of the biogram regional center responsible for contracting in iraq and affiliation who gets permission from the secretary of the army, but a practical matter, so where do you gentlemen fit into that chain? >> the commander of jtfcc -- >> rather than acronyms. >> joint support contracting command is my deputy, and he's

detailed there for a year or two to operate that. >> is he doing the regional operating center? >> he owns that. he owns that. >> you work for him? >> no, he works for him. if i could quickly explain it. the army is the executive agent for contracting in the conflict. we had to give the executive agency to someone and it could have been a service, it could have been agency. the army is the executive agent. they tried years to get away from that, but they are staying the executive agent, and because of that, the executive, mr. denver's boss, is the ultimate responsible agent from the contracting standpoint so the authority and the wairnts for the -- warrants for people to operate under the joint contracting command come via the army to spend money and so appeals and oversight, direct oversight of

contracts, with very few exceptions within afghanistan are the army's responsibility. >> sir? >> i'll give you the warrant diagrams sir. >> if i may add to that -- that is true. osd appointed army as the executive agency that went to my boss. i am actually detailed those authorities for executive agency, and i have an organization providing broad oversight. when you get into theater, the head of the contracting activity in theater, two senior contracting officials working for him, one for in afghanistan, one for senior contracting official in iraq. the senior contractor official in afghanistan oversees the regional managers, what you referred to, but that's the contracting flow of authority, sir. >> well, then, i suspect to see you gentlemen here again with your responsibility. i thank the chair for working with us on this and appreciate the hard work and leadership on

this matter. thank you, all, for testifying. >> i want to thank you you gentlemen for your commitment to the country for your service. we do thank you. the pentagon, the department of defense have to get this right. the state department has to get this right. we're talking about billions upon billions upon billions of dollars that unfortunately we know is going to fuel some of the very people that we're trying to surprise. that is totally unacceptable. the waste, fraud, and abuse that's happening in the theater of war is unacceptably high, and we see that in report after report. i understand the difficulties, and i'm trying to appreciate all the nuances in the difficulty of war, and there will be some small degree that happens in that theater, but when we hear about tens of billions of dollars in waste, fraud, and abuse, it's unacceptable. one of the next hearings that we'll have in this subcommittee

will be dealing with what's happening in iraq because we have to get the contracting part of equation right as the transition is made from the department of defense to the state department, state department is looking to bring up something like 17,000 contractors, so the news clips may be we're drawing down in iraq, but the reality is we're hiring up in iraq to the tune of 17,000 contractors in an unbelievable amount of money. we have to get this right. i thank you, all, for being here. i appreciate the great work from mr. tierney and his staff with a collaborative effort. you'll find republicans and democrats are united working together on this so at this time this committee will stand adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> even a partially successful strategic defense initiative would mean that the soviet planner looking at the united states could not be assured of the outcome of an acult in the

first -- assault of the first strike on us. >> the late malcolm wallace served in the senate from 1987 to 1995. he was a proponent of anticommunist party in america. watch the speeches from the senate floor and other speeches all archived and searchable online at the c-span video library. >> pat donahoe announced 35,000 postal employees could lose their jobs as a result of the agency's finances. he listed a number of possible closures for the facilities. they lost over $9 billion last year. this is 45 minutes. >> all right, good morning, everyone, and thank you for

coming. i'm sam pulcrano, the vice president of corporate communications. we're going to provide a presentation here today. after that presentation, we'll allow opportunity to ask questions and i'll step down off the podium and come back and explain how we'll handle it, but i want to introduce to you the postmaster general, pat donahoe, to my immediate left, and also our chief operating officer, megan brennan, who is next to pat. with that, i'd like to introduce the postmaster general, pat donahoe. >> thank you, appreciate it. good morning, everybody. thank you for joining us today. we'll be making important announcements about the future of the mail processing network. it's no exaggeration to say we're radically realigning how we process mail, the way we deliver mail, and the way we operate our retail network. we're doing this in response to a changing marketplace.

we're also doing this to lay the foundation for a postal service with a sustainable business model far into the future. we want the postal service to be profitable, to compete for customers, and to drive economic growth, and to do so, we must create a low cost, streamlined operational network. our immediate goal is to reduce total costs by $20 billion by 2015. we have to meet this goal to return to profitability. what we're going to announce this morning helps us get part of the way there, will help to create a low cost delivery platform that we need to serve our customers, and to best meet obligations to the american public, and now i'd like to introduce our chief operating officer, megan brennan. she oversees all the operations of the postal service and responsible for the transportation, lo gist ticks networks, retail, and delivery, and she's playing a big role in what we're doing now and saving

the postal service going into the future. with that, megan? >> hi, everyone. thank you for joining us today. i'm going to walk you through some changes to our mail processes network that will fundamentally alter our operating model. these are significant changes that will lay the foundation the way the postal service processes mail for decades to come. we are responding to a changing market place. the reality is the volume has declined more than 43 billion pieces in the past five year, and it will continue to decline. as a result of the declines, the mail processing network is much larger than we can afford. looking ahead, projected mail vol --

volume kick tames we make -- dictates we make radical changes to the process. we're going to radically realign the mail processing network over the next two years and study 252 mail processing facilities for potential consolidation or closure. let me start with a graph to illustrate the change. this shows first class, standards, or advertising mail, volume trends and projections through 2020. 2006 was the high water mark. since, first class mail has declined 25% due to electronic diversion and the economic slow down. now, the sobering reality is that first class mail volume will not return. people are communicating and paying bills electronically. we project a continued decline in first class mail. we do expect to see growth in

advertising mail in the outyears. the change in mail mix, however, has serious ramifications for the postal service infrastructure. first class mail defines our network requirements and it pays the bills. these volumes declines mean we have less revenue to cover the cost of the infrastructure, and we have excess capacity in our network. we simply need fewer facilities to process less mail. i'm going to mention the word "capacity" quite a bit. this relates to our ability to process mail and packages. our mail processing footprint evolved over the years in response to volume fluxuations and take advantage of technology developments. if you're an operations manager back in the day, 70s through the early 2000s, you were managing growth. mail volume and revenue grew

steadily during those years, and during this time we increased the use of automation to gain efficiencies. we were building newer and larger facilities to house this equipment. this was a period of significant capital investment. since 2006, our thought process has been reoriented. prior to 2006, our operational goal was to stay ahead of the growth curve to ensure we had capacity to support the increase, and now our goal is to stay ahead of the cost curve. we're contracting, reducing the mail processing infrastructure to ged ahead of the volume -- get ahead of the volume decline, and this is at the core of our ability to return to profitability. now, we've been dill gent in reacting -- diligent in reacting to decline. we've done this successfully and without any appreciateble impacts to the customers.

we delivered record service during this period. we also accomplished reductions without laying off any employees. these consolidations were accomplished through a frl process -- formal process of area studies. 24 process working very well, and we've been using it for decades. the study profits uses objective criteria to determine the feasibility of consolidation. it also includes a public meeting to allow community members to ask questions, and provide feedback. what we're proposing to do over the next two years is a dramatic acceleration of the process we have been using. we expect to shrink our network to less than 200 mail processing facilities by 2013. we will continue to follow our established process when studying the facilities for possible consolidation or closure. now, this is an aggressive plan,

but it puts us ahead of the cost curve for the remappedder of the decade, and what remains 1 the core of the operating network going forward. here's what our mail processing footprint looks like today. you can see we have facilities throughout the country, these vary in sizes and employee anywhere from 50 to nearly 2,000 employees. here's what happens in a mail processing facility. mail is collected from our blue collection boxes from post offices or dropped off directly by our large business customers. it's sorted mostly through an automated process, and then it's transported back for local delivery or to another mail processing facility, depending on the destination. most of this work takes place in the middle of the night, and this is to support the overnight service commitment. in fact, the entire network was designed based on a requirement that we maintain the capability to deliver first class mail the

next business day, and this requirement limits our ability to sort mail and all the mail to be sequenced for the local letter carrier has arrived at the facility. this has enormous implications for how we process mail and means the operating windows are constrained, and it's why we currently maintain so many processing locations. this shows all the facilities we're reviewing for possible consolidation or closure. as you can see, we're taking a comprehensive look at the entire network. the blue stars represents studies that are already underway. the red stars represents the new studies we're announcing today. what we are releasing today is the list of 252 additional mail processing facilities that we will evaluate for potential closure. we'll conduct the area processing studies to determine the feasibility of consolidations, and these are

considered the overall financial impact and will include considerable stake holder input. it's expected that the studies take approximately three months from today to complete. we're aggressive, but not that aggressive. [laughter] here's what the future mail processing network might look like. you can see there's far fewer facilities, and each supporting a larger geographic area. we are able to study closing so many facilities because we're also proposing a change to our overnight requirement for first class mail delivery. this is also known as a service standard change. service standards are a stated goal for service achievement for each mail class. we built our network to meet these standards. our plan is to rebuild our network based on a two-three day standard for first class mail, and this will have tremendous benefits from an operational perspective. it will allow us to design r much more efficient, lower cost

mail processing network with far fewer facilities. to give you a since of what the change represents, let me show you how we meet the current overnight commitment. this is a 24-hour clock, and the graphics show the overnight requirement compresses mail processing time into this window of activity that begins roughly at midnight, runs for four to six hours. in order to sequence mail volumes for the letter carrier, we must wait for all mail to be delivered that day to be available. this is not especially efficient. the time and distance associated with getting mail to and from each facility requires us to maintain so many facilities. our new operating model is based on a two to three day delivery requirement allowing mail to be processed approximately 20 hours a day enabling us to process more mail per facility. another way to appreciate the

power of this change is to see it expressed geographically. now, this is the central pennsylvania postal district service area which is served by six mail processing facilities. these six plants are overnight to each other. because of the overnight standard, we have to maintain all this capacity and infrastructure within relatively tight geographies. now, this is a function of the capacity requirements due to the short operating window and the time and distance of getting mail to and from these facilities. if you think about the clock and the way we're processing mail today, our current overnight commitment means maintaining excess capacity, equipment, facility space, and work force. with the two day service standard, we can meet all demands of this region with two facilities. those two facilities would process mail continually. we can maintain fewer facilities because of the expanded operating window and geographic

reach. let me point out that i use this example simply to demonstrate the business concept. no decisions have been made regarding these particular facilities, but as we get to a network that looks more like this, we'll have less equipment, fewer facilities, and we'll realize significant savings for the postal service. our future network will support a two to three day first class service standard. it will include revise entry times for first class mail, and these consolidations will result in an estimated 50% reduction in our mail processing equipment, a significant reduction of our physical footprint, and will eliminate the excess capacity in our system. it will also enable us and our customers to optimize transportation. for mailers, let -- less entry points allow for better unitlyization of trucks. we expect to realize an estimated $3 billion in savings

from this initiative. how does this impact our customers? there's really two area of change that our customers will be interested in. literally, where will they need to drop mail? at what time? this change will largely be transparent to the residential customer and the receivers of mail. there will be no impact at the post office or with mail delivery. we believe our commercial mailers will be able to readily accommodate our new schedule, and, in fact, many of the larger customers have been telling us, you need to do this. that being said, we know the proposed changes have industry specific changes. we've outlined the changes to most of the major industry groups on a concept basis and are pleased with the initial response. there's a strong record of working with our customers to mitigate potential issues and

committed to making sure this transition works as smoothly as possible. we're also seeking comment through an advanced notice of proposed rule change regarding the service standard change which should be published within the week. we plan to work closely with our customers as we've done over the past five years of aggressive consolidation. we don't make these business decisions lightly. this change is going to impact our employees. we have a dedicated and committed work force. our employees do a tremendous job and deserve credit for the record service levels achieved and efficiencies these past few year, and every mail processing employee will be touched by these changes, and we know change is unsettling. we'll make every effort to accommodate employees to the extent practical. we'll reposition impacted employees. we are a responsible employer.

over the past 12 years, we reduced by 250,000 employees through attrition. we have never laid anyone off. we do have a challenge ahead of us, to reduce the size of our work force to match our future network. to put the employees' impact in context, i'll walk you through the numbers. we have 559,000 total career employees, 151,000 total mail processing employees. we anticipate we'll have 35,000 fewer mail processing positions in the future. now, what i've discussed today will reduce annual operating expenses by $3 billion. this is one of three significant network realignment initiatives. we're also redesigning our delivery functions to improve

service, strive for efficiencies, and reduce costs. we're expanding the nerks of retail partners and online officerrings and transitioning to fewer brick and moe tar post offices. this these changes will net a billion and a half in cost reductions. all told, the realignment of our network will result in more than $6 billion in cost reductions by 2015. this sets the foundation for a profitable postal service that will carry us forward. now, let me turn it back over to pat to explain how we get to the $20 billion in cost reductions by 2015. >> thank you, megan. so, our -- as we've said, our immediate goal is to get to the $20 billion by 2015, and we've just described a very ambitious

operational plan that we think we can accomplish over these next few years, and perhaps most importantly to note here, this is something that is within our control. we've been saying we've got plans that we need congressional help on, and we've had things within our control to get us to the $20 billion. unfortunately, like you can see with the numbers, this is just a part of where we need to did to get to the $20 billion. for the remainder, we are counting on two additional things. one, the cost reductions 245 we think we can achieve working with the labor unions going forward. more flexibility like we were able to achieve in the awpu contract and other changes with the health benefits payments that we have. we're also looking to -- seeking substantial and comprehensive long term legislation to provide us with a much more flexible business model. we've made a number of proposals to congress over the last few months, and we've got to get the

cost structure in line both with the legislative issues and with what we've got going forward. if we're going to return to profitability, we've got to have legislation that allows us to be flexible in the way we manage this organization. specifically, delivery flexibility. we need the legislation now to move from six to five days. we lost 22% of the volume, and the look ahead like what you saw, is not going to show increases, so we needed to make those changes now. the second thing we need to do is resolve the prefunding issue that exists out there. there's two options. one is a transfer of the civil service fund. we think we have a good proposal out there for us to take over our own health benefits like any other private company. by that, we can pull down costs which we'll pay $7.2 billion, an opportunity to reduce somewhere

between 8%-10% as well as reducing long term costs. we have an excellent plan we shared can congress, the administration, and looking to push that going forward. additionally, there's work force issues we'll continue to work through with our unions as well as proposals around retirement plans and streamlining governance going forward. if we can get the legislation pushed through, along with the plans that we have in place, we know we can be successful achieving what we need to do in this organization. we knew we can get there, we'd get there by 2015, resolve finances, and put the postal services on firm financial footing going forward. we put a lot of ideas out here in front of you this morning. we've talked about a number of these over the last couple weeks. what we'd like to do now is take the opportunity to answer any questions that you might have. sam, you want to start us off?

thank you. >> thank you, pat and megan. what we'd like to do is limit the questions to three if possible. there's two microphones, one on each side. as you have a question, wait for the microphone to be brought to you and we ask that you please provide your name and who you represent. starting with this gentleman over here. >> omari stone from news four. what role as the internet played with reduction? >> here's the thing. the internet had a substantial impact on the postal service. today, about 60% of americans pay their bills online, and that's gone -- that's moved from about 5% in the year 2000. that's had a dramatic effect on first class mail, and we're facing the reality going forward that that will continue to change. what we're saying is we need to make the changes in the system now in order to get our finances in order, and also be healthy

financially going forward. >> and what do you say to people concerned about their post office closing in their neighborhood? >> well, we're looking at from a retail perspective is this. we want to provide the best access that we can to the american public. some of the proposals we have right now, we're looking at small offices without a lot of activity. we're looking to redesign the way that we provide that service. one of the suggestions we came forward last time with was the village post office that provides better access to customers at a lower cost. >> what can congress do to help you? >> long term legislation. we need to resolve the five to six day issue, the retirement health benefits, and other things i mentioned up here. we need the administration and congress and the postal service all on the same page to get this moving. it's important for the american public and the mailing industry. >> yes, james? >> james from post and parcel.

can you tell us what the impact will be on priority mail and on your standard mail service? >> there's no impact on priority mail. that's a two to three day product. could be changes with the standard mail, service standard. >> can you tell us, you said the -- that your customers are relatively positive about these changes. can you tell us how this will impact small businesses, particularly with the entry point of changes? >> big thing on entry points is this 6789 as we lay this out, there's entry points coming in a number of places. the local post offices, that won't change, but the thing with the plants, what we will be doing in the plants is reviewing plant by plant whether we keep them open and what's the alternative? we won't leave customers high and dry with business mail. they'll have the same opportunities and even better opportunities in some cases if

they want to go to the consolidation point. that saves them transportation costs. we want to make this as transparent and as easy on our customers as possible. >> i might add that as we go forward, there's extensive outreach effort now throughout the process to ensure we hear all voices from the mailing industry. we'll work with them for tailored solutions. >> okay. bring the microphone over here to angela, please. >> high, angela with bloomberg news. you want to be ahead of the curve in the close sures, and yet you can close half the facilities and still deliver the mail. how did it get to this point even though you closed a few in the past few years? >> what we closed to a large extent was offices, airport mail facilities, some of the consolidation points. what we're going to now are much larger facilities that will require a change in the entire network. >> why haven't you done more

sooper? >> the difference became the whole decision around the service standards because we've looked forward. what happened is this -- you know, first class mail as the first class mail has dropped, it caused us to step back and two -- to do two things. say to the customers, what should we be doing? one of the things customers have said to us in consistency is predictability is important. designing the network so you can get the most out of your assets, and provide time own delivery. ..ing is exactly what they're looking for. >> you say this is going to be more consistent. relaxing the standards from one to two to two to three, you're making its lower. why on earth is this a better system for customers who these

days are more reliant on faster delivery. >> here is the thing, if you take a look at what happens in blue mailboxes, customers have moved to electronic bill payment which has had a dramatic effect on our system. a lot of the consolidations we have made have been smaller plans we can keep this going on forever. that is completely irresponsible. customers are saying to us, again, this is the larger customers that gives us consistent timing and the opportunity to bring them melt into your facilities and keep your costs down because we don't want to be priced out of the system. those of the decisions we have to make. >> the five pop a birthday card into the mail two days before the birth paneling in the past it would get their in time, you're telling me now that might not happen. >> washington d.c. >> new york city. >> it will still get their in today's. >> you are sure? >> as a matter of fact, express mail we will guarantee it.

>> why don't you take a minute and talk about the increase in reliability. >> let me add, when i mentioned about revised and three-time, 61st class mail is large commercial mailers. these revised entry times, we will work with them. depending on the time of entry we can accommodate overnight service. >> okay. yes, please. >> a couple of questions when it comes to these 250 closures being studied, he showed the maps of the announcements today, plus the ones that have already been announced, what is the number we are talking about in total, and what percentage are likely to close? >> let me describe the process. what we are announcing today are studies. sixty-one studies in progress and another to wondered 52 studies that we will work with. now, we have stated driven

information. we looked at the overall financial impact ending with considerable customer input. it would be premature for me to speculate and give you a number as to how many we will ultimately close. as you can see, it covers the entire landscape. >> as to the 305,000 if your mail processing employees, you spoke about not having had to lay off anyone, the jobs that have disappeared through attrition, what are we talking about now? number one, is that 35,000 person figure to be reached by 2013 or 2015? are we talking layoffs? >> let me put it in context. we have 151,000 mail processing employees, and they will all be directly or indirectly impacted. 35,000 fewer positions. the broader picture, we currently have over 150,000 postal employees who can retire today. we will continue to work with the union, and the expectation

is that we can achieve these reductions through attrition. >> you talked about creating enough breathing room putting you on financial footing to be ahead of the cost curve to the end of the decade. is this enough to really for a long term stability or will we find out and 2020 that another round of this would be necessary? >> there are two things. number one, we want to the address cost in a very short term. when you move from six to five days, bank, $3 billion out of the system. put this process in place, $3 billion. the longer term issues are addressed with what you do with retail managing the assets. we operate over 30,000 offices. as we go forward you have to look at the best way to provide access, keeping the cost down. the other thing is the

employment cost. our proposal for health benefits, our proposal for retirement plans give us short-term savings, but they also help to control the cost for a long term, so we are looking for short-term close the gap in the long term manage the cost. >> we come over on this side. >> thanks for taking the questions. what happens to the actual facilities themselves, buildings, if the decision is made to close it down? >> we are actually going to study over 30 million square feet of space. so the disposition plan would be either resell the access outright or we look to bring existing postal operations that may be housed in leased space in tech own space. >> possible, the orlando facility, possible that other regional postal services would be brought into that structure? >> we will look at the use of that asset space. >> the other question, you mentioned all distribution

center and will use will be affected somehow in some way. though some be moved? will sunday given a choice to move to this new facility or lose your job? >> yes. we have contractual agreements with our respected unions that dictate the repositioning of employees, and some may be access to the site. >> come over here please. >> so, first of all, when is the change from one to two day delivery guarantee to two to three day taking place? and then, do you need regulator approval for any of these things, or these things that you have the authority to do right now? >> we are obligated to file proposals for a nationwide service standard change. the icrc would offer a nonbinding advisory opinion on the proposed changes. >> when does the change --

>> we will file that in november. >> abcaeight. >> and the transition, as you shrink the facility network down with the transition and all the things we do with the customers so that uc changes and service standards, changes in acceptance times and the whole 9 yards. the key thing for customers to understand is that we have an excellent plan, and we will be working with people, not just at this level, but site by site to make sure the customers are fully taking care of. >> the question over here. >> hello. pat donahoe, you testified before congress last week or the week before. how encourage argue -- you expressed your urgency to get approval to have the legislation. from your testimony in talking with the members, how encouraged were you that there will be fast action on this considering all of the bipartisan -- the partisanship going on on the

hill and that sort of thing. how encouraged are you, and do you think we will seek quick movement on this? >> well, one thing that i think was encouraging was the administration came out and said they would support the 90 day extension on the payment which gives as breathing space. when i say us, i mean postal service, administration, and congress. we are looking for bipartisan work. definitely an opportunity for everybody to get together because the postal service is still a critical part of the american economy. we are not going out of business. we are not pulling out of business. we are trying to get our finances in order so we can stay in business to provide excellent service for a long time to come. we think that the proposals on the table, they are good proposals, support from republicans and democrats that support those in the house and the senate as well as the administration. i think they will come together and we will see a viable bill this year. by the end of the calendar year,

and i think the congress knows very important and responsible thing to give us long-term comprehensive legislation. >> questions over here, and then not come back over to the side. >> hello. from the buffalo news. i am interested in this because the buffalo facility is on your list for potential closure while the rochester facility is not. i am wondering what standards you use to try to determine which facilities you would study for closure and which you really planned to have as part of your network long-term? >> as part of the processing study, the components that we review our capacity, projected volume, customer input just to name a few. >> it is really to do with the mail and how it is processed, not in terms of numbers employees and the quality of the facility. >> no. when we are talking internally

with our employees and the management team we are clear that this is not an indictment of the performance of an individual and the facility. the objective criteria to make the best decision regarding the network. >> a lot of times when you're looking at is reached and if you think about the geography around buffalo versus rochester, retail and a place like rochester. the employees of those places to a great job. >> the history of the process. >> the studies have been around for decades. long, established process. vetted by both gao and the office of inspector general. we clearly are a very transparent about the data and also the inclusion of customer input as we work through the process. part of the process is, we will have a community meetings to beat in buffalo, new york, so

the local community and mailers will have an opportunity to provide comments and feedback. >> thank you. this side please. >> amelie long. the 35,000 employees, part of the 220 by late 2015? >> yes. >> and then the 35,000 comes by 2013? >> what we are looking at is a number of things. six to five day proposals, these network proposals. when we talk about the number we set up to 220,000, and the reason we put that in the white paper, we felt it was very responsible on our part to say to congress we need to address this issue. we talked to the unions. there are opportunities that can create opportunities to move people off the role and irresponsible way. >> will this have any impact on your ongoing union negotiations?

>> always discussions that go on within the in union negotiations. it is a situation right now where we have to unions in negotiations and won in arbitration. any time, especially when you have the economic issues we are facing, it has to be taken into consideration. >> any other questions? okay. it back over here. >> to sandra. is domestic mail transitioning, will the impact on international mlb? >> not anticipating an impact. the mail that is two to three days won't have any impact on international mail? still the same as it was before. >> no proposed changes to international standards. >> international comes into our hubs and it's distributed from there. there will not be any major change. >> thank you.

>> hello. usa today. could you give me an example, please, of a specific industry that would be affected by these new standards, what kind of discussions you have had with them, and how they received it. >> let me comment. i mentioned we had conceptual briefings with the industry association and also the technical advisory committee. obviously there are concerns. it is an important topic to work through. our intent over the next few months is to sit down with the various segments of the milling industry and work through this process to determine how we can mitigate these service standard changes and as i mentioned, with the larger commercial mailers, we think there will be able to accommodate that rather readily and maintain that overnight standard. >> could you give me a specific example.

>> one of the things that we have seen over the course of time, to big changes that have been going on in the first-class mail area. one is the payment issues that people pay more bills online and not through the mail, but there are still a lot of bills that get paid through the mail, so as we work through this change we have to make sure that bill payment, we work with that industry to make sure that we are echolocation and consolidation points are such that they are able to handle the volume and handle it in an expeditious way to get that money -- to get that money through to the recipients. the other thing, this is kind of what has given us the idea behind this. if you look at what has been happening over the course of the last few years in the first-class mail business, there

has been a lot of consolidation, and the generators. a lot of the generators have moved to consolidation points where they are bringing mail to our system, and we get to end three day service standards from that point. working both ankles we think we are making the right decisions on both the service and cost standpoint. >> any more questions on this side? how about over here? >> the back. >> i'm going to get to you in one second. >> a quick question. what do you say to folks who are saying, wait a second. i am concerned stabbed prices will increase. i will have to pay more. what can you tell them? >> the key thing is that $0.44, putting a piece of mail in the mailbox from washington d.c. to alaska is still a very good proposition. we also provide tremendous safety and security of that mail as it goes through our system.

we still think we are important to the economy and society and provide excellent value. >> will you increase price? >> we will see what happens next year. we are looking at that. it would be limited to the cpi, which is 2 percent or less. >> it could possibly go up. >> it could possibly. >> let's go to the back. >> hello i was wondering what if congress does not act by the end of the calendar year, what will happen? >> we will continue with our activities as we are currently underway. we have to. we have to reduce the network footprint and get the cost in line with the shrinking volume. we also will continue to work with the unions and work out how we can get more work force flexibility and lower the cost of labor altogether. i seriously think that congress and the administration of the gravity of the situation and will act. >> but what if?

>> what if, i can't control that. the mail will get delivered. we do not have cash flow issues. i can't make this five and a half billion dollar payment. we managed cash, made changes and will make sure we make the rest of our payments the rest of the year, pay employees and suppliers. mail is important to get through to people on a daily basis. it is still very important. i have faith that congress and the administration will work with us and we would get this solved. >> yes please. >> talking about the switch from low one day to day, how many pieces of mail, do you know how much mail will be affected? >> it depends. the mail in blue mailboxes' has been decreasing, like we said, 30, 40, 50 percent, dropping a 12% a year which represents probably less than around 15 billion pieces. so that would be affected. and like we said before, commercial mailers, the largest,

lions share of the volume still have the opportunity to bring that mail and to our centralized facilities and retain that overnight service. >> and then going back to the press conference you had a couple months ago about closing post offices, what is the purpose on that? have any offices been closed and when can we expect to start shutting down? >> we are working through the process. the earliest we would finalize this review process would be late december, early january. and i might add, as evidence that these studies are not a foregone conclusions. we are working through the post office closing process. today we have discontinued 21 studies because we did not believe that we had sufficient alternate access and product and service is available in the community for our customers. >> the key thing going bull work for us on the networks in terms of the retail side is access.

we want to give people excellent access. online, in stores, number of different ways, and we want to make sure the american public gets that. we just have to keep our eye on the cost. >> let me get to the back. >> we have been talking a lot about what kind of cuts are being made. what is the post office doing to possibly create new business to compete with things like e-mail and create more revenue? >> a couple of things. and we have not touted a lot of these things we have been working on. we have not taken our eye off revenue. we introduced a product in the last four months. it is a simplified advertising products. in just four months we have made $65 million. we continue to see real growth in priority mail and what is called parcel select.

fedex and ups are our largest customers. we have seen good growth and now looking to get into the digital world more than we are today. additional announcements. we think we play an extremely important role in digital because we do a couple things. we are the most trusted network in the united states, probably the world. we can provide excellent security. working with customers, asking customers what they want and how we can help and working through it. >> over here. >> if i am a member of congress the first thing i do when i see this list come out this the, is there a facility in my home district, and how they're protected? probably going to be getting letters and phone calls from members, you know, protecting jobs in the district. what role does congress play in this process if any? you know, frankly, how do you keep politics out of the

process? >> again, the important thing is, as megan said, follow the things we are doing. they are standard criteria. no favorites. we did that with the post offices, the 3700 in the same thing here. if you remember, when you actually step back uc of very viable and a distribution of facilities across the country that makes sense. congress, again, needs to work with us going forward. we all have a responsibility to take the best interest of the american public in general as well as what happens in the entire industry, and i think congress will work with us on that. >> any other questions? >> this 35,000 figure. i believe you said yes to both questions. >> 35,000 employees. >> 35,000 employees. the question, 2013 or 2015,

which? >> here is the thing. what we have laid out through 2015 are a set of activities. six to five day delivery and other changes within what we do for my contract standpoint. what we are looking to do is to get to 420,000 employees by the beginning of 2015. there are of bunch of things in that timeframe. in three years we will move through that. of? >> any final questions? willing to stay for a few more minutes if you want to come up and ask any additional questions. with that we will and the conference and thank everyone for coming. >> thank you. >> thank you. [inaudible conversations]

a country in >> now, a look at president propose jobs bill on thursday's "washington journal," two policy analyst debated costs and

potential benefits. wonderful chris edwards at the cato institute and make a islander of the center for american process. this is an hour and 10 minutes. postcode this thursday we are f back in her focus theocus next r is going to be taking the majord provisions of the president'seno se,playing the haveb plan tha h the revenue raising side in the tax increase he is proposing let me introduce you to our two guests that will be part of our discussion this morning. on my left, michael ettlinger is the vice-president for the center of american politics. chris edwards is from the cato institute. thank you for being here. i want to begin with what is the largest revenue raiser. president obama's plan to cap

itemized deductions for high earners. the president says doing this will raise $400 billion, according to bloomberg news. the specifics of about this, the president planned to cap itemized deductions at 20% of income, and this would apply to individuals earning $200,000 or more and couples earning $250,000 or more. guest: we have a strange system of upside-down subsidies. people in the highest marginal tax bracket, 35%, when they take their mortgage interest deduction, they are getting a 35% subsidy from the government, 35% of their mortgage interest paid for by the government, and they are getting the money in the form of reduced taxes. someone in the 25% bracket, or

lover bracket, gets lower levels of subsidy. no one who is designing a subsidy for home ownership outside of our weird system would ever give higher percentage subsidies to wealthier people than middle income people. but the president is trying to do is double that. people in the 35% bracket, you do not get a hold 35%, you are capped at 28%. >> other countries --host: other countries, like canada to the north, do not give any subsidies. can you talk about where that comes from? guest: i think it comes from home ownership and the value of that. it has really become embedded in our system. we have proposed a plan that reduces the level of subsidy, but it would be a real sck