>> savings that would meet the requirement that congress gave us. and that is tough. it's real, and it's something that obviously will cause some pain, but at the same time we

recognize that defense has to play a role in getting with the national deficit. >> in terms of the side of the army briefly, i'm confident, for 90 active by the way is the right number for 2017. and may not be the right number for 2020. i've always said that the army, when i was the army chief that the army needs to be adaptable enough to provide the greatest number of options given the security environment we face. so we grew the army to confront a particular kind of conflict to conduct the stability operations counterinsurgency strategies that we were asked to execute. those demands are going to but i think it's perfectly reasonable that the poor structure of the active army would go down. >> secretary, you talked about additional request, 88-point for billion. given that a year ago --

[inaudible] the numbers in afghanistan are coming down, why still so high? can you just give us some sense of what that is? >> obviously, we still are maintaining a significant force in afghanistan to conduct the war there. and the cost associated with that effort are ready significant, as we try to deal with the supplying of our troops. this is not, you know, it's not as easy as iraq in terms of our ability to provide the supplies and needs that our troops need. so that was obviously maintaining, even as we draw down surge, the reality is that we will continue to maintain very large number of troops that would be present in afghanistan to support them, to give them

the best supplies, the best weaponry that they need in order to meet this nation is going to continue to require support, funding it can't i add, please? there's two people, two groups that put demands on oh go. what is the combatant command and the other is the service chief for recapitalization, reconstitution but we've always said it would take years following the end of the conflict to recapitalize the force. some of the occo cost are caught up in that. panic mr. secretary, are you seriously considering and asking the president to ask congress for another round of base closures? your civilian have to still trying to do with the 2005 base closure within the shangri-la. and for general dempsey, you want to restart the undersea strike capability? the bush administration tried

that. congress, our allies and a lot of the other communities, the obama administration has resurrected it. but what has changed in the last few years to prevent an adversary or the rest of the world from confusing what is conventional missiles as a nuke? >> i'll go first. the technology and, therefore, the trajectory that would be required to deliver it. the speed at which these delivery systems can move and, therefore, you can lower, you go to the trajectory and, therefore, avoid the confusion you're talking about. in terms of it being mistaken for an icbm with a nuclear warhead. there's issues beyond that but fundamentally that's it. technology has changed. >> you know, it's a fundamental problem. we have to confront, as we draw down the force, without to take a look at the infrastructure that is supporting the remaining force. and the reality is that we're going to have to be able to reduce that infrastructure. the best approach to reducing

that infrastructure politically on capitol hill has been to work it through the back process, and to develop an approach whereby we would submit recommendations. the commission would look at those recommendations, and then make a complete presentation to the congress and it would be voted up or down with one vote. the process provides that kind of the process. i've been through bracket. i know it's weaknesses and its failings. obviously, we will continue to work to make sure that it is done effectively and that we achieve the savings that would help to achieve from the process, but i have to tell you, there is no more ineffective process to make it happen than using the brac process. [inaudible] >> we do not want to tie any savings to because very frankly we need the congress to authorize it before we decide to put -- if we put number's in

there and congress didn't do, it would have underbite our whole budget so we just thought let's go with the brac process and then we will submit recommendations once it is put in place. >> speaking of numbers, 50 billion views a for projected savings for efficiency. that's always kind of a fuzzy area. unit, or use information, technology. how detailed is this savings actually? >> it's actually pretty detailed. we will let our reverse go into specifics, and i've asked the same question and dealt with deficiencies in the past. we have to have some meat on the bone. as you know, secretary gates begin that process, and we have gone back and said okay, what have we done to try to meet the goals that we were assigned by secretary gates. there are some very good progress that's been made with

regard to those efficiencies. that's what encouraged us that we could do another 60 billion on top of that. [inaudible] >> all of that will be included, but more importantly going after duplication, going after overhead, going after waste, going after the kind of tightening up on systems here. this is a very big bureaucracy, and it can use a lot of efficiency. [inaudible] >> no, no. we are talking about civilian pay savings as well. that's built into the president's budget. >> general dempsey go i want to ask about special operations. the budget calls for protecting that investment. but considering how much special operation forces work as increase over the past year, do you believe funding is increasing enough to support

their added role in the department? and mr. secretary, you say you hope congress will see the budget at nasa, but as a former congressman, can you give us a reality check? what you think the chances are of this getting through congress, relatively unmolested? >> on special operations, and you may of heard me say before, when you say what's new over the last 10 years, i would say notably three things, the capability and role of special operating forces, isr and cyber. i'm confident that each of those, the three new and emerging and more important capabilities are adequately funded in this budget. but imbalance. unit, -- can only be special if there's a conventional force that allows them to conduct their operations and shape the entire. so we got to do this all in balance. i'm confident we have done that.

>> this is -- look, this is going to be tough. this is a tough challenge, and nobody ought to underestimate just how difficult it will be. one of the problems with dealing with the whole issue of deficit reduction is it's very easy to talk about deficit reduction. it's very tough to do something that, in fact, reduces the deficit. what we are presenting here in this strategy does something about reducing the deficit, and achieving the savings. now, it's going to impact on members. it's going to impact on district. it's going to impact on constituents. i understand that. when i was in the congress i went through this process. i understand what it means. but it's also an opportunity for members to show that kind of leadership that the country expects of them when it comes to

dealing with this challenge. i think we presented a great blueprint for the kind of defense we need for the future, and it does it anyway that achieves the savings that are necessary that does not weaken our national defense, maintains a strong military force for the future. to your point, you know, we briefed members of the committees that are responsible for the defense budget. and i'm very confident that these leaders understand the challenge we face and that they want to work with us to try to see if we can achieve what we have presented to the congress. >> mr. secretary, general dempsey, help me understand can you talk about hard choices, you talk about accepting some measure of risk, but you also point out the ground forces will still be higher after 9/11, still be a joint strike fighter, still aircraft carriers roughly at the same level. given that, where is the risk and what are the hard choices?

>> look, the risks come with the fact that, you know, we will have a smaller force. as we said it's larger than we had prior to 9/11 but obviously it will be a smaller voice and we have a smaller force there are risks associate with that in terms of our capability to respond. we think we have dealt with those risks because the combination of forces we have in place and the ability, if we have to, to mobilize quickly will give us the capability to deal with any threat. but nevertheless, there is a risk there. there's a risk frankly, you know, technological area. we're depending a great deal on being at the technological edge of the future. as i said, i think we even have to leap forward if we're going to do with the kind of challenges we're going to face. we've got to be smart enough,

innovative enough, creative enough to be able to lead forward. can we do that? can we develop the kind of technology we will need to confront the future. i'm confident we can, but there are risks associated with that. so it's, the risks we're going to be facing, obviously come with some of the areas where we have had to reduce the budget. but what we've done is to try to develop the kind of agility and capability so that we can respond to the threats that we're going to face in the 21st century. and i think, i think this is the forest for the future here are the risks associate with that? you bet. can we do with those risks and make them acceptable? you that. >> if i could just elaborate, 37. the greater risks would be had we decided that we would just wish away any particular capability or any particular form of conflict. we are never going to, never

going to do that. so what you're expressing here is the recognition that we are retaining our full spectrum capability, and that we didn't take any risk with that. >> we have done for one more question. >> mr. secretary, in terms of security challenges and security threats, what is worrying you most, particularly over the next 12 months? >> that's a set up. [laughter] >> look, the one thing we had to do obviously in developing a strategy, and the one thing that frankly distinguishes this from past drawdowns, as i said before is that in past drawdowns usually we've, you know, we've come to the end of a particular threat that we confronted. and we could move on. the reality is that as we

drawdowns from iraq and afghanistan, we still face a number of very important threats in the world. obviously we're continuing to fight a war in afghanistan. we continue to face the threat of terrorism, as successful as we've been in confronting that. we continue to see that challenge, whether it's in yemen or whether in somalia, and elsewhere. so we're going to have to continue to confront the threat of terrorism. we see the threats coming from iran, and a nuclear capable iran represents a threat to us into the world. weapons of mass destruction, are a concern. north korea is a concern because they, too, are developing a

nuclear capability. add to that turmoil in the middle east that we have to confront. add to that the whole cyberthreat and the potential for cyber warfare. you can see the vast array of threats that we have to confront with the force at we designed here. so it's all of those that are my concern for the future. >> i'm sorry but that's the last question. thank you very much. [inaudible conversations]

>> okay, welcome again. i'm not going to try to repeat a being has been said before. we are really good answer your question. i hope you all have a copy of the white paper that describes the key decisions that we've made in connection with 13 budget and connection to the strategic guidance which we released a few weeks ago. i which is, on one of the questions that was already asked. oh, i should say by the way that this is a pretty complete description of the many tens of individual decisions we made, many, many individual items in your decor happy to answer questions but any of the items that are in the white paper. we won't be releasing the full budget until the president releases the full budget. and we won't be going into

detail on all of these items until i've had a chance to confirm with congress which will begin next week. but fundamentally, the detail in here describes the enormity of the adjustments that we were required to make. i think the sector described it very well. the base budget is not decreasing over the years, but neither is a continuing to rise in real terms as it has over the past few years. and as we planned before the budget control act was enacted. so the difference between the amount that we planned to have and the amount last year that we now amount to have, now plan to have, that's where the famous $487 billion comes from. it's that difference over 10 years, $259 billion over five years. and adjustment of about seven,

or eight to 9% over all witches are substantial amount by any measure. and if you add to that, reduction overseas contingency operations, consider the an entire budget, you can see that we needed to make the most consequential adjustments that this department has had to make budgetary in more than a decade. so it is very large. these decisions were stood by the strategic guidance as the secretary and chairman said, a kindred from president obama and from them come and the sequence of strategy that budget is critical to us. no part of the budget was unexampled no part was sacrosanct if you see everything in here. i think we look at everything. so there are lot of tough decisions in their. some parts of the budget were protected, or even increase and inevitably that meant because of their importance to the country

and to the future, inevitably that meant that other areas took more guts. the result, and the secretary made this point, i just want to emphasize, we emphasize it, it is a carefully balanced package. just can't be looked at or modified piece by piece. since the change in one area and inevitably requires offsetting changes elsewhere, right? unbalancing the overall package. so it is a package. the paper describes it in three parts. first, our continued effort to make more disciplined use of the taxpayers money. that was alluded to in one of the questions. second, we made investments in structure and invest in accordance with the strategic guidance, and third we made modest but an important adjustment in personnel costs. because of the value we place on people, the all-volunteer force, you are what make it the world's greatest force. there are lesser cuts in this

category, but the senior leadership including the joint chiefs of staff believes strongly that this category need to be included in the overall package. so these are the three parts of the package described in the white paper, and we are pleased to answer your questions. >> on the nuclear arsenal, president obama has given his pledge to the aspirational goal of going to zero. and the documents that were given to us before this briefing there's no cuts at all except for slowing one ohio class summary by a couple of years. does this imply there will be no reduction in the nuclear arsenal absent negotiations with the russians? and there's no pressure to cut the new course even if it makes sense financially and no risk to our country and our environment? >> there are no cuts made in the nuclear force in this budget. the white house, and we are obviously working under their

direction, are considering the size and shape of the nuclear arsenal in the future. so when those decisions come, we will factor them into our budget. i'll make a couple of comments about what isn't in this budget that does bear upon the nuclear triad. one, you mentioned which is a slipped by two years into the government of the ohio class replacement submarine. this is not a strategic decision. this is a managerial decision made partly for budgetary reasons but mostly because that puts the ohio class replacement on a more predictable and stable schedule. second thing i'll note it as we did protect the bomber force in its entirety in this budget. again, that's not just a nuclear bomber force your it's a conventional bomber force as part of our capability, and as we consider our force as it applies to the asia-pacific region and to the middle east, bombers play important role in

the. that's the reason for protecting the bomber force. and then, of course, we're beginning a new stealthy, long-range strike platform. and we did protect that. we are continued with that. we started that last year but there are some things that they are on a, but no decisions that are strategic in nature reflect in the budget, yes. [inaudible] >> secretary panetta led to the probation, but at the same time there's a slowing production to allow for more developer to take place before you go into full production. the marine corps has expressed an urgency to get as many of these in the fleet as possible and get those carriers set a. do you expect that while the numbers produced vehicles will be going down that the numbers will be going up to accommodate the marine corps? and then secondly, can you address whether or not any of the department requirement for js effort going to address, if

there were any changes made as result of some of the concerns with over cyber warfare and potential vulnerability to that? >> you asked several questions embedded in this i'll take it to an end ask the adults add whatever an event. with respect to the joint strike fighter, secretary said it right. we want the airplanes that we want all three variants of the airplane. we got some good news this year with respect to -- secretary panetta took the stove off. that was the result of some good work done last year. and that means that all three variants can go forward. at the same time, the issue with the joint strike fighter cost and performance of the program in this difficult position, part of the program we are

transitioning and trying to reach full rate production, that's still a concern to us. all of those associate with the management of the program. our industry partners, ourselves are working our way through that. and we will ride up the curve to full rate production as and when it is economically and managerial prudent to do that as far as the variants come specifically is concerned, i think with probation behind us, all three variants are not any more or less equal footing in terms of their engineering readiness to go for. so if it comes to to see for all of us and also for the marine corps. >> i don't want to add too much more. all terrific airplanes. it does represent the future for

this country and a lot of our partners. we just need to manufacture ability of the sting to catch up so we can start buying equipment anxious to get into the fleet. [inaudible] is any development being adjusted or director to address the cyber bullet those that might be an aircraft? >> not that i'm aware of. >> there are, we are very attentive, i'll use it as a general matter, to cyber vulnerabilities in weapons systems, those of ours and others but it's a highly computerized airplane like all other computer systems we have to be attentive to it but i knew you guys do want to pick apart individual items but i'm going to also ask about the carrier decision to not cut at least one most talked about a lot, specifically why we need it come a unit, why not any of the big ticket items? there's no f-22, no giant cancellation year like you come to expect to find quick saving. >> let me ask admiral who is --

i think if you look at this paper just to get the last little thing you added in your question, there are 50 or 60 things listed that we are not able to do. because of the reductions in our planet budget, budget control act. i think if you go into you'll find plenty of things that we plan to do that we're not going to be able to do. now, you're right, they are not the things that are most important keep our strategy and to our future. that's precisely, it's the things that are most important our strategy and a future that we protected. >> specifically as far as the carriers, i think it's well documented, and we carefully examine inside the department and if i consulted with the white house, everybody is in agreement that the capability, the flexibility, the independent

state, capability of the carrier from basing, the applicability of the ship and its particular, particularly useful role in the middle east and the pacific which is where we've emphasized most of the regional, strategic focus here. just makes it a particularly depth platform for the things who are strategically in the future. and we saw, it made no sense to take any carrier force structure so we'll stick with 11 carriers. >> on the navy, the strategy posture, talks about especially in the western pacific, the secretary talked legitimate of logistical ships, and also getting rid of what i presume to be the ticonderoga class cruisers as well. without replacement. how does that square with the

posture of being forward deployed with those ships leaving the fleet? >> a couple of things. first of all one of the things we all have to about the strategy is in many cases it's a lot more about where you're going to cut rather than where you're going to add. there are much fewer reductions i was in the things that are focused on to include naval forces but if you look at the navy's plan this gets to the chairman's point. this is really a budget has to look out to 2020 for some of these particular decisions, particularly navy type things because they are big muscle movements. you're going to find a gradual shift in the navy core structure from east to west. in terms of aircraft carriers and the like. you'll see that gradually flowing over there and i believe to the navy to articulate that over the coming weeks or so. >> also i would just add, looking at what we're doing with australia, the possibility of the combat ships in singapore, what we are doing on guam,

there's quite a bit to represents a movement into the asian pacific and around the southeast asia and the indian ocean extra have to look at the whole picture. >> the secretary emphasized you want to keep people who have gotten a lot of experience in iraq and afghanistan. given that a lot of this budget and strategy diminishes in some ways, the institutional of the army and national strategy, and cuts the armies strengths and what you say to someone in the situation will also be adjusting to appease -- [inaudible] i want to say something about that first and then asked ago, the premise of a question about the institutional army. the army is in the midst of a transition, a strategic

transmission. the army particularly of necessity been very riveted on counterinsurgency operations in iraq and afghanistan. and is now returning to full spectrum, training and full spectrum capability. and so it will be, still the army that can dominate any other army, anywhere, and so it is trying to build forward into that post iraq and eventually post-afghanistan army. so it's got a very important role, strategy, important role in the pacific area and the real vital role in the middle east. i will that said into question by want, the premise is not right be back i would say, you know, all services are critical. try to single one out as i get

strategy. isamu private in my own mind if the military can sell stock right now i would be buying. and i would applying it to the army equally as well to the air force, navy and marine corps. the army has a critical role. just because withdrawing it down to reduce some of the capacity that was built up in a counterinsurgency environment, tends to go the fact that they have a tremendous potential role in asia, particularly in the korean peninsula if north korea should ever become aggressive there. and all the way the army can execute a logistics of this weekend somalia can probably the last time, the helicopters that polish hostages out of that camp were army helicopters. so across the full spectrum to put a very important role to our millicent in regional engagement when they come out of afghanistan. so i'm big on the army right now. it has an important role in the strategy. >> so you don't think there's a

problem or potential with some people who might really want to ask themselves why they should stay? >> we have terrific leadership in the army. every traffic mission. and i don't think we will have any trouble keeping those people on the can you talk about the future of the global hawk program? our defense industry consultant at a briefing the other day and find a program has been canceled, terminated, will be mothballed. and yet i look at a madrid commuter basically truncating the third generation model called the block 30. what army helicopters are used, block cox origin next? >> okay, let me start with the global hawk. sorry, it's a little tedious but there's several different versions of the block 30. but it's a good example and actually highlighted it in the white paper because it's an example of the way that we need to pay attention to cost performance. with the budget like the one we have.

block 30 was supposed to replace the u2 for taking pictures from the air. and that was the idea to do with the uac. there are other forms of global hawks, three other guys for those of you who know, the block 40 which is a native version and allied ground surveillance which is a version for the allies there. those are not affected by this. but the block 30 priced itself out of the niche of taking, for taking pictures in the air. so we'll continue to use the u2. that's a disappointment. we hope to replace the u2 with the global hawk but the global hawk became expensive. and that's the fate of things that become too expensive in a resource constrained environment. [inaudible] >> know, this variant, this one of the four. the block 30 is canceled.

[inaudible] first i would say the commander of the socom is a very the confronted by buddies also a tough guy and i don't think i want to cross purposes with them. what i will say is that was a really impressive operation. that was a joint operation to quit air force aircraft, armed aircraft, navy seals, and he was very, very well executed. >> question on sequestration. i'm curious, has the department in any wargaming, if you will, on what it would do to this strategy if congress does not change current law? it would seem to me as good stewards of taxpayers dollars it would make sense to at least think about it given the political environment in this country is one in which people are doubtful that congress would agree to do anything. >> i will just make a couple comments on that. this budget is based upon the fiscal guidance that we got from

the office of management and budget. the work of the supercommittee failed sometime in mid-november. we were well on the way to putting this budget together at that time. we said repeatedly, the secretary said at the chairman's said it, that both in the manner that sequestration would occur and the magnitude of the cuts, that would be disastrous for us. strategy, we gave each with three weeks ago, we would have to start over again. with sequestration. so the secretary said it all right at the end of a sense, which is the congress needs to do its work here. sequestration is the way to do business. >> if i could add. we have just been through a very healthy process in this department of developing this budget. it's something i've never seen before in my 33 and a half years in doing this sort of work. and we did strategy and then we about strategy to guide budget

decisions. very refreshing. if we get into a sequestration position, that turns the entire process on its ear. it basically takes a chainsaw to a budget that is developed and out of the ashes will have to write a new strategy. that's not the way we want to do business. >> secretary, summit programs are being delayed for reduced in quantities. we'll were always told when you do that the unit cost goes up pics are you creating further problems down the line when you will be able to afford these programs? >> we are very attentive to that. in some cases that will occur, that managers of those programs are trying to mitigate exactly that affect when you're both slipping in reducing the side. >> missile defense, the reduction, where do you expect that to have the most effect, and how much capacity to the regional allies have to absorb

what you're saying is more responsibility over their shoulders? >> i would say first of all, we remain very committed to the european approach. that's on track and we intend to keep it on track for the other regions, we're not going to decrease anything we may just go as much from many other things in this budget are going to find it is in the situation. it's going to grow slower so we will have to work closely with our partners to ask them to invest in some of those capabilities as we invest in it as well. so i think in several regions of the world is where you see that the number of her but we are so committed to working closely with our partners to defend against missile attacks from rogue nations. >> reduced spending doesn't seem to do it is a slowing growth in spending? >> write. [inaudible]

>> has the department discuss with congress moving that even lower? >> we will be discussing that at all the other changes that we are proposing. after all, it is the presence budget proposal to congress did with the congress i want to say, the airlift, this is capacity that is access need, and in this budget environment we can't justify excess. >> thank you secretary. could you please elaborate on what would be the biggest challenge or threat to the united states in this region lacks and secondly, citizens today are negotiating with the u.s. to allow more u.s. military presence in the philippines. what would be implications for u.s.-china relations in the context of south china sea dispute? >> fun and no entity question,

this is a very dynamic region. it's going to be basin to reach into the world going forward. the united states has played a pivotal role in the asia-pacific region for decades. is that peace and prosperity, brought by the american pivotal military role there that has allowed the prosperity of all countries there, to include china. you mentioned china. and that is, that the liberal, some people intend to maintain and sustain. so that's fundamentally the reason for being there. there are a number of issues, and areas in the very fast region. and we intend to keep our pivotal role. you mentioned the philippines. we have a good relationship with the philippines, including a good security relationship. we intend and wish to build on

that in the future. >> we have time for two more questions. >> can i follow-up? >> two more questions. >> was a combat operations bear some of the risks, the risks that come with a smaller force? >> i would say that we are constantly, we are cognizant of that. and we do not plan on loading any of the risk in this strategy on our forces that occur in combat. we are very committed to taking care of the strippers and make sure they have the resources that they need to get the job done. so the short answer to question is no, we're not putting rest on current combat operations. >> mr. secretary, among the ohio class replacing, how delayed schedule more predictable go how you doing on cost control? and how concerned are you that that program will basically eat the entire shipbuilding account in the future? >> okay, the second and third

are related. with respect to the schedule, the schedule as it was was an aggressive one. merging on optimistic. so all i'm saying is this is a safer schedule. we are sure we can make the schedule is little more secure from a managerial point of view, a better place to be. in terms of cost control, you know that on the ohio class replacement, the initial cost estimates for the ohio class replacement came in quite high, unacceptably high. so high that they did have precisely, they didn't present exactly the concern that you mentioned, namely that in the decade 2020-2030 consume a disproportionate share of the navy shipbuilding budget. for that reason, the navy work very aggressively on the requirements, and i should mention by the way, admiral winnefeld is doing that as a more general rule and

requirements processor into building. do we really need this, do we really need that? and to get the design, to amend the design, look at the drivers of cost in the design, and manage the cost down. and that was done from a figure well in excess of 6 billion, to the neighborhood of 5 billion for both. that's the goal. by the way that something will need to do with all of our programs going forward. we are going ask ourselves in this kind of budgetary environment how much is good enough, is the 80% solution sufficient? and that's what we've done with the ohio classic was at that i think will be successful and that's the reason why it would be affordable. >> and with that, i thank you. >> just a more friendly -- [inaudible] you have any additional questions regarding context or potato disease to have been taken, please do connect with

our press operations. we do have a team of folks who have been involved in key decisions standing by to be able to respond to more of your questions. thank you very much. [inaudible conversations] >> later today, our road to the white house coverage continues. presidential candidate newt gingrich will give remarks at the hispanic leadership network conference in miami, florida.

>> c-span is road to the white house coverage take you live to the candidate events in florida through the weekend, leading up to tuesday's gop primary. >> by the end of my second term. [cheers and applause] >> we will have the first permanent base on the moon, and it will be american. and by the end of 2020, we will have the first continuous propulsion system in space capable of getting to mars in a remarkably short time because i'm sick of being told we have to be timid and i'm sick of being told that the limited to technologies that are 50 years old. >> when the founders said that the creator had endowed us with certain an animal rights, among them life and liberty and the pursuit of happiness, they laid

out a path for america that was not temporary but enduring. a path that says an america we can pursue happiness as we choose. we do not need a government that tells us what kind of car to get we do not need to details what kind of light bulb we can have. would it not be government to tell us what kind of health care we're going to have. >> see what against opposing on social media along with political reporters and viewers like you at c-span.org/campaign2012. >> president obama laid out his state of union priorities this week. next, discussion on the libertarian state of the union. topics include taxes, the housing market and government spending. posted by the cato institute, this is an hour. >> hi, everybody. we are going to go ahead andi, start to get started while youad are finding their and getting lunch.

thanks so much for coming, toda everyone. g i am laura odato with the cato institute, and today will be discussing the libertarian state of the union. we have such a great panel of speakers i'll introduce them to you and hand over the phone. our first big will be mike was to get institute senior fellow.n he researches a variety of care domestic policies with health care reform, social welfarey. policy and social security. social security. particularly served as director of research of the georgiarectee public policy foundation and as. legislative director of the american legislative exchange council. .. transforming the bankrupt system into a savings program. following that is daniel mitchell, and he was a senior fellow at the heritage foundation, and economist for the senate finance committee and serve the on the 1988 bush team and was directer of tax and budget policy for citizens for a sound economy.

third will be ill lya shapiro. he was a special assistant and adviser to the multinational force in iraq on rule of law issues and practiced and lectures on behalf of the federal society and adjunct professor at gw law school. before joining private practice, he practiced at the u.s. court of appeals. wrapping things up is mark calabria and spent six years on the senate committee in banking and urban affairs and was the deputy assistant secretary at the department for housing and urban development holding a variety of positions with national association of realtors and builders. with that, i'll turn it over to mike tanner. >> thank you very much. i appreciate you're coming

outment tonight, of course, you'll hear the president's campaign speech. i mean, the state of the union address, and we are here to present something a little bit different than what you'll hear either in the president's speech or in the republican rebuttal following that. if i could sum up my view of the state of the union in two simple words, it would be we're broke. the fact is that once again this year we will spend more money than we have, borrowing about 40 cents out of every dollar that we spend. we have just passed the $15 trillion mark in terms of on the book debt, but that debt takes

into agent a small portion of the actual indebtedness that this country faces. if you want to look at the way debt a calculated, there are actually three types of debt that this country faces. the first and most wadely considered is debt held by the public. this is debt that the government owes people and institutions in the country or other countries. it's the bonds essentially that the government owes and people have them in their portfolios and china and japan holds them, and this is the on the books most real debt if you will. it's probably about $11 trillion roughly at this point. there's a second type of debt that goes into the public debt, and this is called intergovernmental debt. this is debt in essence that the government owes itself or owns to various trust fends and entities.

there's over a hundred, and the most commonly talked about are social security trust fund and the medicare trust fund, the highway trust fund, a special trust fund for the gulf oil spill, and there's all sorts of these thing, and there's another $4 trillion that the government owes various trust funds. now, that is, in some ways, a little softer than debt held by the public, but ultimately, it has to be repaid, and therefore, it's a very real debt that the government will ultimately have to come up with money in which to pay, and you add up $4 trillion to the $111 -- $11 trillion to the rest and you have about $15 billion. there's other debt as well or unfunded obligations that government owes to programs such as medicare and social security going forward. we are able to look at these programs, and we know roughly what they have to spend in the

future under current law that is assuming we pay benefits as promised to do under current law, we know how much those cost, and we're able to project going forward how much revenue is expected to come in from the taxes that theoretically support the programs. the payroll tax and so forth, and we're able, therefore, to make a projection of the short fall in terms of what we projected in terms of spending and what we intend 20 take in in terms of revenue. the short fall in the programs adds up to, oh, $100 trillion to $105 trillion. that's trillion with a "t." meaning the total unfunded obligations is somewhere in access of $120 trillion. as i said earlier, we're broke. now, just to put this into

perspective, there's a couple slides here, and unfortunately, it will be hard to read these because of the lighting in the room, but if you want to look at the second bar over there -- this is the unfunded obligations of various countries, the total indebtedness done as a percentage of gross domestic product in the countries. the second tallest bar from the left, that is greece. we all know that greece is in trouble. you can't pick up a newspaper these days without reading about the greek crisis and how the eurozone bails out greece, and you're right. dwrees is over 800% of the growth domestic product they own, and they oh 8.5% of the value of everything produced in the country a year. when you owe eight times your

salary, put it like that, like your credit card debt is eight times your salary, you got a problem. the third from the left is in the were reasonable range, a little over 500%, that's france. the e.u. welfare state there, france owes about five times their gdp in terms of unfunded obligations going forward. you can see almost all of europe is more than double their gdp in terms of debt. europe's got real problems going forward. you'll notice the one country i didn't mention was the last number there on the far right, the tallest bar there, that's the united states. we owe 900% of gdp in terms of unfunded obligations. nine times the value of everything produced in the country. our unfunded obligations in the country are now higher than any of the european countries

including that of greece. clearly, we're broke. one other point i want to make is that for all the attention that debt is getting and the deficits and unfunded obligations and the terrible number i gave you, the reality is that debt is merely a symptom of the disease. debt is not the disease itself. it is a symptom of the size of government. this is a projection from the congressional budget office of the growth in government. traditionally, the federal government's spend 21% of gdp, taking in 18% in taxes, which is why we have a deficit, taxes because of the recession and tax cuts and other things are down now, but government is now about 25% of gdp in terms of federal spending. throw in state and local spending on top of that, we're

about 35% of gdp that's being spent by government at all levels. going forward, it's projected that we will be over 60% of gdp by the middle of the century. government at all levels spend 60 cents of every dollar produced in the country. whether that's financed through higher taxes or debt, that's an unsustainable level of government spending, and you're unlikely to hear anything in either of the state of the union or the republican response tonight that is going to seriously impact this projected growth in government, and just to show you where that leaves us, this is size of government today and e.u. countries, and, again, you can find that in moist of the countries, the government hovers around 50% of gdp, government spending at all levels.

the number of -- the bar on the far right over there is where the united states will be in 2050. we will be -- so we would have a larger government in 2050 than any e.u. country has today. we would be a bigger welfare state than france or greece or italy or spain and so forth. we are clearly growing government at an unsustainable level. now, i know that one of the things you'll hear tonight is that we can solve all of this if all we do is raise taxes on the rich. dan mitchell will talk about that in a minute and why that's not going to work, but i have a slide to show you. this is a slide to illustrate the dark bar there on the far right is the total up funded liabilities we're facing for the

various programs that i mentioned. the sprieped bar there is debt held by the public and intergovernmental debt. stack one on top of the other, and you'll get the actual debt of a little over 900%. the gray bar on the far left is the wealth of every millionaire and billionaire in america. if you went out and con -- took every penny owned by every millionaire and billionaire, you would not make a dent in what this country owns leaving aside you couldn't do it a second time and the fact that you would have a slight impact on our economy if you did that. you wouldn't make a dent in the debt. something like the buffet rule, which is supposed to get you $16 billion over the next ten years is not going to solve the debt

problem. basic story is state of the union is broke and we can't tax our way out of it. dan mitchell will fill you in more now with that taxing issue. >> well, thank you, michael. in the gallery, in the president's box or whatever you call it, sitting with michelle obama will be warren buffet's secretary according to news reports, and that gives us an idea of what type of rhetoric we could expect tonight in terms of tax policy. i think it's class warfare all the time at full speed. what i want to do is talk a little bit about some of the tax issues and define, you know, what is good tax policy and measure that against what the president is doing, but i suppose before i start on that, let me get out one little fact that i think is critical that you won't hear from the president, and i doubt republicans will be competent enough to bring it up

themselves. at least based on the cbo numbers from last year, and i don't think they are too different coming out with the new numbers this year, according to the congressional budget office numbers, we could balance the budget by the year 2021 if we simply limited the growth of government spending to 2% a year. in other words, if you look at these so-called baselines as described in washington, the revenue baseline, and this, by the way, is the west virginia power point slide, the revenue baseline -- hope there's no staff from west virginia in here. it's a joke. we can say it's arkansas. [laughter] revenues increase by 6% or 7% a yearment maybe cbo is wrong and overestimating or underestimating. it's a con consensus forecast. revenues at 6% a year and spend and grow by less than that, by definition, you lower red ink, and according to the cbo numbers

last year, if you limited the growth to 2% a year of spending, you solve the entire problem of red ink, and, of course, as mike, plained, red ink is not the problem. it's the symptom of the problem. the problem is big government. there's two things at the same time by controlling the growth of government spending, but what is obama going to do on tax policy? this chart right here, which you can't read because it's too far away, it shows the impact of double taxation, and this chart is important for those of you who watched the republican debate last night, newt gingrich and mitt romney figging about what the fax rates should be. this green box is your income that you earn. then you have a blue box, pay tax on the income, up to 35%. what's left is another green box, the after tax income. what can you do with the after tax income? you can either spend after tax income right away, or you can save and invest your after tax

income so you can spend it in the future. on the left side of the screen, you see what happens if you spend your after tax income right away. the federal government by and large leaves you alone. yes, there's an excise tax on gasoline and others like that, but if you spend your after tax income right away, the federal government does not molest you. what happens if you save and invest your after tax income? what happens if you do what every single theory, socialism and marxism, every theory of economics says you have to have capital formation saving in investment for higher living standards in the future. if you save and invest your after tax income, the federal government between the corporate income tax, the capital gains tax, the double tax on diff deppedz and the death tax subjects you to four different layers of taxation. now, why does this matter for the state of the union? because the president wants almost all of those taxes to go up. he wants increased double

taxation on dividends, increased taxes on capital gain, already restored the death tax, and what we're doing with the tax code is punishing the very behavior that you need for economic growth in the country, but it's not just bad tax policy with high tax rates saved and invested. in is a chart showing the number of additional provisions added to the tax code on a year-to-year basis. you can see that every single time congress meets, the problem gets worse, and i'm not just saying it's congress' fault. obviously the tax loopholes and shelters are there as a result of presidents asking for hem, but this here is from the congress clearinghouse showing the number of pages in the tax law that the very top is when the tax code first began, and at the bottom, it's where we are

now. 72,000 pages. in hong kong, they had a flat tax for 60 years. even after 60 years, the entire tax code, the last count i saw, was 157 pages. 157 versus 72,000. i gave a speech a couple years ago. they have a flat tack. i gave the example of the tax forms in the u.s. stacked up, and a professor said, oh, here's our tax code and pulled off the shelf what looked to be a magazine. i said, wow, your entire income tax is the size of a magazine? she said, no, no, this is our entire tax code, excise taxes, so on and so forth, opened it up, it was 20 pages -- this is our income tax. you can have a simple and fair and non-corrupt tax system, but not when you have politicians, and i fully expect obama will want to make the problem worse tonight, who use the tax code as

a tool of social engineering as a tool of industrial policy and a weapon to reward friends, punish enemies and garner campaign contributions. that's not what we want if we want a better and more competitive system. i want to make one last point. maybe more than one last point, but one last big point. when the president says he wants higher taxes on the rich, what he really wants is higher tax rates on the rich, but higher tax rates are not necessarily the same thing as higher revenue, and this is the curve, but i'll skip forward and show you some data. this is data i that took from the statistics of income published by the irs every year. in 1980, according to the irs statistics of income, we had about 117,000 rich people in america defined by $200,000 or more a year.

they reported $36 billion to the irs and they got $19 million. this is the tax system that some people want to move america back towards. a 70% tax rate and the government got $19 billion of tax revenue. by 1988, reagan had reduced the top tax rate down to 28%. what happened to revenue from the rich? did it fall sort of proportionally down to about $8 billion or something? i don't know. i'm not good at math. did it fall to just $15 billion? did it stay the same in was this is tax cut that paid for itself? what happened to revenue from the rich? what do you know, in 1988, we are 724,000 rich people almost, i think that's a good thing. we want more rich people. i hope to be one one day, those rich people reported $353

billion of income to the irs and the government got $99.7 billion. in other words, when tax rates fell from 70% down to 28%, the government got five times as much revenue. that's not just a curve, but that's the lapper curve on steroids breaking into mark's locker room in the gym to get that much additional revenue. now, let me be fair and give you some caveats. we have 40% plus inflation in this period. we had 7% population growth. there were other pro-market economic reforms and going back to the end of the carter years with transportation deregulation, so we have no idea whether cutting tax rates caused revenues to increase by two times, three times, four times, we don't know. ask nine economist, and you get nine opinions, but there's no question that when you try to tax the rich, taxable income is

going to fall from the rich, and the government will have a hard time collecting as much revenue. now, maybe in the short run they can, but in the long run, it's people adapting their behavior, it's not going to work, and that's why the class warfare approach is unsuccessful. let me make a final point about the value added tax. mike gave you horrifying numbers for the growth of the welfare state with the expanding burden of government in america. the only way that will be possible, the only way we become another greece is if somehow congress makes the mistake of giving the president a new source of revenue, and the only big source of revenue that actually would work would be a vat. a vat is a european form of a national sales tax, but it's hidden in the price of goods. even the "washington post," sort of a company paper of big government in town, even the "washington post" understands this is not a good idea. this cartoon shows uncle sam 408ing a vat tax call drone

watching europe, portugal, and greece go over the water fall of fiscal destruction. why on earth do we want to copy the fiscal policy of nations in the middle of going bankrupt and di sint grating? we are already heading that way which is why we have to reform. why make it possible for politicians to keep those programs in place and give them a vat? that would be a big mistake. thank you very much. [applause] >> good afternoon. thanks for having me. thanks for coming out. unlike my colleagues, i do not have a power point. in fact, i think powerpoints are unconstitutional. [laughter] among the very many things that are going on, but i kind of feel

like we're coming to the end of the empire strigs back. you know, it's always darkest before the dawn or until it gets pitch black i suppose, but i'd like to think of myself as an optimist. the constitution is in the news now, in public discourse unlike it's been in decades. that's, of course, good for those of us who make a living talking about the constitution and current affairs, but i think it's a healthy development for the republic as a whole because people are not just saying i disagree with that policy or talk about the economic costs and benefits of something that the president or congress proposes. they say where does the government have the power to do that? that's a healthy response, one that, i think, all members of congress and all citizens need to remember and go back to, certainly, this congress, at least the house, took a small, you know, mostly symbolic, but a step with the constitutional authority statements.

if these things put in at the beginning of last year even gave one member pause over one piece of legislation that he or she was going to introduce because they didn't know where in the constitution he or she had the power to do that, then it's worth the implementation. we've come a long way since when you remember nancy pelosi was asked where the government had the power to require people to buy health insurance, and she said, are you serious? because, of course, the constitution is the last refuge of the scoundrel that has no good policy arguments to make. indeed, obamacare, as we've seen, has not gone away. you know, you know, i can't claim to have read it all. i think mike tanner is the only person in the entire country to have read it, and he told me once he had a drink or two and skimmed the indian law parts of it, but anyhow, we now have collectively read it and now collectively more or less understood it, and it makes even

less economic sense and disturbingly it's more unconstitutional than we feared. the cases before the supreme court that will be argued at the end of march to be decided by june are only the tip of the iceberg. obviously, the individual mandate is the biggest problem, and it's the lynch pin holding it together. sure, you can have a free standing, you know, tax on indoor tanning services and reform, waste and fraud accounting provisions with medicare. you can put those in, but that was not the purpose of the legislation. the purpose of the legislation was to fundamentally reform health care as we know it. to paraphrase joe biden, it was a big deal; right? [laughter] that mandate is unprecedented, not in the sense of reforming health care, but in the sense of the government not even in the depths of the new deal or great society or the war that ever required people to buy something. this is just -- if the government can do this, there's no principled limits on federal power, and the, you know, we'll see what the government's

lawyers have to say at the supreme court, but so far, the best is health care is unique, enlisting a lot of economic facts for how it's unique. we can have that policy discussion, but as a matter of constitutional law, that's not good enough. the next time they want to bail out the financial or auto industry, they say the new reform scheme works if we require people to buy something or do something else we think of as otherwise unconstitutional. the federal government requiring states to transform their medicaid, their health care bureaucracies, not at the cost of additional fun that obamacare is providing, but at the cost of all medicaid funds. the states are quite literally between a rock and a hard place, and this is coercive. if it's not a coercive use of the government's power, i don't know what s. there's a lot of other things. the death panel, the independent payment advisory board.

there's something to that. there's unelected, unaccountable, free standing new bureaucracy that decides which procedures are going to be worth paying for, and therefore, for the person who can't otherwise afford them to get. there's waivers. arbitrary waivers, surprise, surprise. gourmet restaurants and other businesses in nancy pelosi's san fransisco district got waivers from obamacare and the whole state of nevada, but who is the senator from there? states like louisiana and indiana have been denied. there's a host of problems. again, it is a constitutional seminar. there's a host of liberty rule of law issues from the bailout of banks. today, a settlement was announced with lawsuits on how foreclosures and mortgage write downs work. there could be an executive order. weevil watch tonight, requiring banks to write down the bad mortgages, a subversion of creditor's rights. dodd-frank, if you like ox xley

that cost the economy more than it saved, dodd-frank has those costs, but a host of separation of powers creating new agencies and bureaucracies at the 12345*9, the congress can't touch -- at the senate, and the congress can't touch it. and the consumer finance protection board is one of those agencies, and we can't get its leadership in a constitutional manner. these recessed appointments when there's no research. on the energy front, keystone xl, right, i won't argue environmental versus jobs. my colleagues handle that area, but on the face of the law, the president was not allowed to delay implementation of the project for the reason he gave saying there needs to be more environmental impact studies. by the last law addressing this in the compromise over the debt ceiling, congress put in it and the president signed saying it was not a reason, and yet, here

he is with that. the federal government cited the government in contempt for implementing the moratorium on the drilling for no good reason. the government was cited for contempt by that court. oh, we think, okay, democrats are in power, civil liberties are at least doing well. we might not like the other things. well, the drug war has only intensified. the marijuana arrests are up. fast and furious; right? giving guns to drug lords, i mean i don't know what the theory was, but obviously we wouldn't have that without the drug war in the first place, and now, realm, you know, gabrielle gifford is resigning. i'd look for some aspect of a gun control message coming down tonight regardless of what the supreme court said about the second amendment and the right to keep and bear arms. religious liberty, immigration reform. when's the last time the president talked immigration; right? the great savior of minorities,

imgrants, and the poor? how about just yesterday the supreme court unanimously, unanimously ruled against the government's position in how the police can surveil people by attaching gps tracking devices to their cars for a month to 24 hours 5 -- a day seeing everywhere they go, and the government knew they didn't have a warrant, but it was to see if they could do it in the first place. it's the majority that said this is ridiculous, you know, even under basic concepts of the government stress -- trespassing on the car, that great civil libertarian sam alito; right? the alternative view presented was, no, it's just reasonable expectations of privacy that were violated, not the search of the car, so we have that debate about exactly to what extent and how the government violenced our civil liberties. look, all roads lead to the

constitution. we have to fight the cases, look at the legislation. those of you working for members of congress, make constitutional points of order and talk to dlsh talk about this with your con constituents. i'm optimistic. i think we can turn it around. we'll see what the court rules on obamacare with a whole host of big issues before the court this year, but, look, the constitution is in play. the law matters. it's not just a matter of with due republic to dan and make, dollars and cents, that matters, but if we get rid of the stuff that's illegal and unconstitutional, a lot of the bad dollars and crepts go away -- cents go away by themselves. thank you. [applause] >> well, if dan can invoke a west virginia-arkansas pourpoint, i'll use the italian pourpoint which is i'll speak

very loudly with my hands and pound when i want to make a point. [laughter] we run the financial area and in a twist of the way this is a neat state of the union for me. i'm not used to banking, mortgage finance talked about in the state of the union, but it will be talked about, and you don't have to look at housing starts or foreclosures or those numbers. just look at a paper every day to see the housing market, our mortgage market pretty much sucks, and, again, the reason for that is a bigger issue on the economy that is two-fold. one, when there's less housing wealth, we feel poorer, spend less, reducing consumer spending. look at it in terms of anything that's going to determine this election, it's the labor market. 40% of the job losses during this downturn were a direct result of the housing markets, things like builders and realtors. from anybody's perspective,

getting the housing market moving again is issue one. i expected the president to talk about the housing market, and i expect him to talk a lot about how do we want to do with the mortgage market, and, again, one of the options we'll hear is in the expansion for refinancing. it was talked about potential write downs that could come back and why that's important and what harm that would do, but i'll talk quickly about two fundamental problems with refinancing everybody's mortgage underwater, and underwater means you owe more on the mortgage than what the house is worth. first is, yes, i can write down the mortgage, you'd have more money, spend more, you'd be wealthier, but i'm doing that at someone else's expense. let's keep in mind a mortgage is one person's little, another person's asset. you make one person better off while making another person worse off, and, again, you know, despite the fact i think this administration and the last administration took the perspective that somehow the redistribution of wealth is the

same as the creation of wealth, we should have learned over the last couple of years that transfer of payments, redistribution of wealth does not turn your economy around. again, this is not doing anything for the economy, but it will do something in terms of politics, because, again, one of the themes here tonight is fighting for the middle class while republicans defend bankers and defend the 1%, and, again, one of the things we're going to hear is a friend of the middle class is refinancing everybody's mortgage because you played right, played by the rules, it's not your fault housing prices went down, and, of course, the government has to underlie and guarantee the liability for you. you know, not only is it doing nothing for the economy because it's a transfer of wealth from one person to the other, but it does nothing for the housing market. if i refinance you into a lower rate and the mortgage you have, guess what? you're less likely to go out and buy another house. why? you have a cheaper rate. you would actually when you look at it and say i'm buying this

house but my mortgage is 5% than 4%, you are less likely to move, reducing home sales in the future rather than increasing them. the way i think about it and the way you have to think about the housing market is we have a weak demand and excess supply. any policy that does not increase demand or reduce the supply of housing is simply a joke. it's a diversion. be very clear. what we've heard planned so far, what we were here tonight does very little in that regard on either front. again, it should be kept in mind, and anybody with economy 101 knows 23 there's excess supply with insufficient demand, there's only one way to cure that. let prices fall to clear the market. absolutely, there is no other way, and, again, maybe the positive is that despite the best efforts of this administration and the last administration, housing prices have fallen, over 30% nationally. i personally believe we are 90%

threw the depreciation in the housing market, but we have dragged it out. we would have been far better off to take that 30% over six months rather than three years, and why is that? because my friends at the home builders continue to add to supply as long as we hold prices above construction costs had which is what we have done. other than working off the inventory we have, we subsidized the additional supply when we already are in a glut. this reflects a per perspectivem the white house that the problem is not the bursting of the problem, but we have to build a bridge to the next bubble, and that's the liking of it. i'll talk about it later with the federal reserve, but the attitude is that we have to replace one bubble with another to make us wealthier. that's not something that works in the long run. now, ideally, i'd love to hear the president talk tonight about the plan for ending freddie and fannie. that should be on the top and

the other government subsidies for the mortgage market; however, i expect him to do a good job at talking about what more they can do while he fails to mention the $170 billion we have so far put into bailing out fannie and freddie. at the end of the day and according to the cbo and regulator, there's $300 billion to bail out freddie and fannie. we'll just hear that they would do more, and, again, as was mentioned, the write down eluded to, the regulator for freddie and fannie said if we did a write down, it would cost potentially another $100 billion. again, let's keep in mind this is a transfer from the taxpayer to borrowers who have mortgages over their head, and the worst part of this is it's regressive. home owners are wealthier than renters. why should renters subsidize home owners? they pretend to fight for the

99%, yet there's a plan that says let's take and give money to people who don't need it. there's nothing that hurts you because your mortgage is worth more than your house. anybody who has a car loan probably has a loan worth more than the value of the asset. that does not man tan a government bailout. that said, unfortunately, despite discussions we'll hear no talk about freddie and fannie bailout, in all likelihood, this will not be the only bailout. we'll probably, in my opinion, have the federal housing administration, fhament i think ultimately we would put another $50 billion in fha. keep in mind, i oppose t.a.r.p., bad things to do, but the losses on the t.a.r.p. were from the aig, and we got most of that money back. we'll not get the money back from freddie and fannie or fha. those are costs that will be hit and, again, we'll not recover them. they are not investments in the imagination, but just transfers. you know, it's one thing that's

lost as well because one of the things we'll hear and what we constantly hear is a rhetoric against the banking industry. if you wanted to stick it to the banking industry, let's get rid of freddie and fannie and fha. they are ways for the banking industry to transfer credit risk to the taxpayer, and if you want to stake stick it to the banks, make them take the risks. that's what they are there for rather than us taking the hit every time the market goes south. as was mentioned in addition to refinancing, the question could be raised about reducing the principles. let's say your house, a 20% down on the mortgage and the value's declined 30%, so we'll give you a 10% write down to make the value of your house the value of your mortgage. i should say, i have nothing against and i greatly encourage lenders to voluntarily if they can work it out and it's in their interest, more power to them. that's free markets. coming to mutual benefit exchanges. a fourth right is difference.

it's nothing other than theft. taking from the taxpayer or the investor, and keep in mind whatever we hear in the settlement today, whatever it looks like, it's often this picture of the banker being the investor. that's actually not the case. they are two separate entities. more often you see the banker come to the table and wink and nod and say i'll give you this money and up vesters here, pension funds, our retirement, that's what takes the hit. the banker walks away clean, we are hit on this, and, again, it's a transfer from taxpayers and up vesters, and why that should be the case has hardly been illustrated. again, i'll argue and see this repeated pretense that redistribution is wealth creation has actually harmed the economy rather than turned it around. i will also note as realm that the primary driver of default in the mortgage market, as it is in any credit market is because you're unemployed. istle --

i'll give you the example again, if you were a responsible home owner putting 20% down, but lost 10%, you're only 10% underwater. if you lost your job, that's doing nothing for you. in a sense is a pitching of benefits and subsidies, redrix of wealth to the vast middle class who don't need it. it's coming from their own pocket. i steal from your pension fund to lower your mortgage payment making you think you are better off in this case. again, nothing to be done in that regard that turning around the housing market. ultimately with the housing market depends on now is the labor market, and, again, things like obamacare made benefits -- it's interesting. if you look at benefits cost total compensation, ignore the inequality discussion on wages because if you include benefits, it's not the case. we increased the cost of hiring people over the last several years. no wonder there's less hiring going on because it's more expensive to hire people, and

that's health care benefit, and so, again, if we make it easier to hire people, we would turn the labor market around turning the housing market around. the recent appointment to the protection bureau, and i think that recessed appointment was unconstitutional. i'm not a lawyer, but i read the constitution unlike others, but i don't expect the president to make the case for saying why it's constitutional but say the senate obligations instructed me from working my will and the will of the people. i'll note this is despite the fact that of all nominations submitted to the senate in 20111, 97% of those nominations were ultimately confirmed by the senate. this blocking of nominations is simply not correct. i encourage any of you go to thomas and look at the senate website. those numbers are the facts. the overwhelmingly vast nominations have been confirmed. it's not reason for the president to rip up the tewing.

i think we'll hear about the implementation of dodd-frank. it's the juxtaposition of republicans remitting wall street and president obama says forget the fact that i'm holding hands with tim geithner and all the goldman people in the administration. i'm the one fighting for the middle class and taking on the banking industry. despite the feelings of dodd-frank, we'll hear defense of it because if you elect anyone else, you'll see the repeal of dodd frank and back to the wild days of banking deregulation which never happened and we won't deal with the causes of the financial crisis, but the other side of that is if republicans get the white house, the public, we all need to hold them accountable to twaim -- actually do and address the causes of the financial crisis. dodd-frank did not do it and repealing it while absolutely necessary is insufficient. we have to go forward. we need market discipline. to me, if you try to achieve one

single thing with financial reform is you have to bring back market discipline on the part of creditors. they must believe their money is at risk, and the importance of this is that a properly freely functioning financial market, the price of borrowing acts as a break on the irresponsible, criminal, wreckless, or stupid, and that means when you have a management not knowing what they are doing, following a bad strategy, other participants raises the cost of borrowing to them and stops lending to them. they are the most important monitors we have. unfortunately, decades of government intervention severed this link. we say to creditors today don't worry. if you lend to a too big to fail institution, we'll bail you out. we've long done that for the depositors because they little to worry about. the difference is 90-plus percent of funding of

institutions comes from creditors. we cannot rely on management in the board alone to monitor, and, of course, the government strategy has been yes we'll create more, protect creditors, but the government's coming in, and we're going to substitute. i think the repeated financial crisises we have had is good evidence that the regulators are not up to the task, not sufficient to substitute for regulation by creditors. i think we have replaced weak incentives which is, okay, if you're a bank regulator and the bank you regulate fails, okay, we'll transfer you. we won't fire you. that's too much to ask. we have weak incentives. one of the primary bank regulators in the crisis was the then president of the new york federal reserve, tim geithner, and he gets a promotion. it's perverse and weakened incentives replaced with a strong incentives that credits would have if you tell creditors that you invest and you don't p

monitor, you take a hit. you take a loss. that's going to wake somebody up. again, we need to reimpose that market discipline on creditors to bring that monitor and bring real effective regulation, market regulation of behavior rather than the government regulation that we have that is incredibly failed every time. i should also mention that i think one of the largest sources of bailouts and our financial markets are the ones less transparent. yes, we've seen t.a.r.p. and these lending programs by the federal reserve, but even just as importantly, i would argue more distortionary, is every time the federal markets are in trouble, they flood it with liquidity, cheap money to drive up the value of the assets so you speculators in the financial markets are better off. it doesn't matter this pushes inflation to the rest of the economy. it's, again, a blender of last

resort that is constantly there, and i think this is something that absolutely needs to be addressed. the fed tried to do the same thing for households. after the dot-com burst, the reaction was we are all poorer, $8 trillion after the stock market burst, so let's make a housing bubble. we have seen this repeatedly. we've seen it recently over the last several years where low interest rates pushed up the stock market and commodity prices. again, it's making people feel wealthier to spend more. it's not an economy where household wealth is based on fundamentals of investment and productivity. this constant manipulation of consumer spending via asset prices driven by monetary policy is incredibly dangerous leading to one bubble to another that is incredibly costly. it's distorted relative prices, invested in the wrong thing, and

we reduced the efficiency of the economy which means we're poorer of it, not because we're wealthier. i don't expect -- on the other hand, credit to ron paul for making all republican no , ma'am tees talk about -- no , nominees talk about the fel reserve. if the president says anything, he'll pat ben bernanke on the back. we have to look at the value of the money and price stability and what to do in that regard and interim things to do whether it's moving the dual mandate, having inflation targeting, but ultimately, we cannot continue to believe that prosperity is brought to us by a series of asset bubbles. we have to have real growth in the country that is brought by real investment determined by real prices, real interest rates, and not distortions. i know that's a lot, and i look

forward to your questions. thank you. bels -- [applause] >> great. we have time for questions and answers. i'll note you'll be sharing two microphones. mark gets his own. we don't have a microphone for questioners, so answer the question in a way that makes the question clear and the questioners make sure you ask questions. with that, go ahead, sir. >> [inaudible] >> the economy to be bailed out. i'm we're so big that nobody's going to bail us out and the fact that we're just a little bit greater in terms of personal

of growth national product to the debt doesn't capture how bad things are. >> that's right. works both ways in terms of the size of the economy of greece relative to the u.s., and the fact we're a bigger economy makes us a better risk for people lending us money which is why we're still the currency and people are willing to lend us money at very low rates. that's what is keeping us going. the problem comes in down the road, china and others decide we're not a great risk anymore and interest rates approach anything near their historic levels. we're at historic lows in terms of what we borrow money for. people looked at this, larry lindsay suggested if we go back to approaching historic levels, the 900% goes through the roof. it's already high, but it's an unbelievable level, just totally unsustainable if you get close to the levels historically. on the other hand, germany, the

german banks bail out greece. there's no germany out there waiting to bail us out. we would have to face up to the problems in an entirely different way. >> one thing to add to what mike said. in some sense we're benefiting from the chaos in the rest of the world because there's a flight to safety. put your money in u.s. treasuries, and that's part of keeping our interest rates artificially low, and as mike said, at some point, you hit the wall, you fall off the cliff, whatever metaphor you want to use, and then we're in even deeper trouble, and this brings us back to the message that we both had -- the problem is spending. >> i'm a lawyer -- well, retired, somewhat cynical, and i think the judges on the supreme court on both sides are really not much more than puppets. can you talk about justice kennedy and suppose the people

vote to say it's unconstitutional and all the democratic appointed judges say, well -- i guess one republican judges -- well, that it is constitutional. what will kennedy do? what did he do in the marijuana case in california? >> kennedy, you're talking, of course, about the individual mandate aspect of the obamacare litigation and the conventional wisdom that kennedy 1 the swing vote. others point to scalia with the marijuana case, but, of course, that was scalia's drug war exception to the constitution and there's been writings sense and before making him a safe bet, but kennedy also. he had a concurrence years ago in this case in interpreting the proper klaus not involving the use of the commerce clause and said were a case to come up to interpret the necessary and

proper clause context, there has to be heightened scrutiny. that's hartening. he wrote last term in the bond case talking about how federalism is there not just as a vindication of what james madison learned at princeton or apply the political theory or whatnot, but ultimately there to support and protect individual liberty, federalism, all the structural provisions there. writings in lopez, all the big presidential cases that he's been on lead me to be optimistic about him so without any spin, i say it's more likely than not that supreme court 5-4 vote strikes down the individual mandate. what they take with that is 5 greater question, the so-called severability issue. can it be severed from the rest of the legislation or from parts of it? the government, itself, has conceited to its credit, but it couldn't do otherwise, that the community rating and guaranteed

issue provisions requiring ensurers to cover people regardless of preexisting conditions and accepting premiums not based on individual risk, but on a complicated community based formula, that's tied to the individual mandate. the decision is between that and the whole thing. we filed a brief not taking a position on the whole thing, but says that clearly title i, which is the individual market and title ii, which is medicaid, are completely tied together, and that's the basis of the whole national reform. i think that paul and mike harvard and their respective briefs on severability made a devastating case why nothing would have passed without it. as i said in my remarks, it's not like they were going to separately pass medicare, waste, and fraud reform and the indoor tanning services tax and indian reservation tax reform. that was a big package, but we'll see what's done there. i think roberts could be the swing vote on severability.

>> i'll follow-up with a brief comment for the panelists, and this is based on what you were saying about the massive liquidity injections that facility the bubble economy that we have. choice and currency and followed up by denationalization of money. what do you think about that idea of having a more free market and money and, you know, what -- how that would be helpful or harmful? >> well, i think ultimately, we need to have a wider choice in money. ultimately, having some variety, having some choices, not dependent on the federal reserve is incredibly important. i think our economy would be more stable, avoid the asset bubble booms and bust, and in the long term we'd have a more stable economy with different

choices in money. >> we have had in u.s. history and history of other countries examples of free banks, competitive currency issues. they work well until government shut them down because if they have a monopoly on the issue of money and monopoly on monetary policy, it makes it easier for them to finance their activities. .. >> a lot of what you say is obvious, and there are some pretty smart people like mitch daniels, i think he's giving the response tonight. what would be the reluctance of someone like mitch daniels to bring up your points? i can understand democrats not wanting to wring this stuff -- bring this stuff up, but what

keeps those guys? >> i think because it would force them into a position of actually having to cut spending. and the republicans have not shown any great desire to cut spending. i mean, we had a huge fight, two fights in fact, last year. one about the continuing resolution and one about the debt ceiling increase, and the net result is that federal spending will go up this year.gu so the republicans have not shown a great deal of courage on this. you can look out on the campaigo trail, i don't recall if mitt romney or newt gingrich has specified a single government program that they would eliminate. as far as i know, they came outi last night for sugar quotas, and ethanol subsidies.e so i don't have a great deal of faith in the -- >> and this is after the iowa caucuses.a >> that's right. [laughter] thi >> and i'll add one thing to that. mitch daniels was, what, bush's first budget director or second?

i think first. that's when we got no bureaucrat left behind, that's when theti medicare prescription drug plan was concocted. i don't know, yeah, there are a handful of republicans around the country that are good one g republican spending, but i don't know whether i would put mitch daniels in that category. categ. >> on issues like housing your starting to see mitt romney backtracked and nevada saying into the market find the bottom now going to florida and is a little behind he seems to think housing is a different perspective on that. as i mentioned ron paul forced the other candidates to talk about the federal reserve. again, part of the issue is its search to see the typical american probably doesn't understand what the federal reserve although the financial crisis and the bailout certainly put on the radar screen in a way that wasn't there before. the stuff i work with on the banking the costs are hidden.

anybody with basic economic standing by for six years ago could have said freddie and fannie were huge contingent liability the will that cost you and it's a cbs credit they said that and it's never scored in the budget and you can always look like you are giving away free be i think it's difficult for politicians and the republicans to make the argument and the costs of a door hidden. they are a little more explicit now. but certainly i would say to some extent the fight and the republican primary is about what are we going to be honest about the direction the country is going or are we going to try to find somebody you think is going to knock off obama. i think that debate is happening. how it's going to come out certainly i'm not optimistic about. >> of the labor regulations have been a huge issue. this is something the republicans haven't been bad all natural lehigh and in the homestead about whether to pass

right-to-work legislation to preclude union mandatory union power and one of the things that's been overlooked somewhat in the debate over the recess appointments with richard kortright and c efp b and dodd-frank is that obama also made three, the same quote on quote recess appointments to the national labor relations board and this is of course the organization that extorted from boeing a promise to build the plant in washington so it would drop its case against them in south carolina for building the green line there. we have just vast industrial policy going on understandably given the overwhelming union support to the democrats and obama in particular and 08 and coming up in this cycle so that something that republicans have been pretty decently hitting on and this would be a prime opportunity for someone like mitch daniels coming from indiana to raise that. >> yes, in the back.

>> the unfunded liabilities are $120 trillion. the unfunded liability includes federal pensions which the dallas federal reserve said may 25th, 2009 federal pensions unfunded liabilities is 99 trillion by itself. now you get social security, medicare, and then i say to myself the country isn't ready to give up anything. and i look at this on a personal basis i say what about me? i say i'm 75 years of age, they paid me three times what i have paid into social security, and they also give me $25,000 more a year than i pay in federal taxes i can be means tested. when i say that to my peers i

get one or 2% and the rest went to throw rocks at me we've to say we are in this together and until we get leadership that says we must sacrifice it just will not be done to example it is starting to work david cameron says we are all in this together the u.k.. the irish prime minister says no group, no sector camano individual would be scared from the sacrifice even the minimum wage would be reduced one euro. everybody pay something. everybody gives up something. what do you think of these ideas? >> eddy reza couple of important issues one is the actual indebtedness nor was it and putting the money with fannie and freddie in the future both of which would add to that $120 trillion that would be in that. as the man gets a special

category. the historian. [laughter] -- of the 120 trillion is the optimistic scenario that is giving. the second is in terms you mention the benefits for the wealthy. it amazes me that the president continues to call on raising taxes on the wealthy which they will have a deleterious effect on the economy but is unwilling to cut benefits for the wealthy. we are not just talking medicare and social security but the wealthy qualified for unemployment benefits others qualify for all sorts of things that the government benefits. if we are going to extract fairness it is maybe warren buffett might not need the social security as much as the secretary and we could make some times there. but the big problem is there isn't enough rich people to go around. in the end, there is not enough money you can get from them when they show that sly and what you are going to have to do is reduce spending across the

board. >> let me add one thing to that because i agree there aren't enough people to make the means testing work but it's a second-best solution even if there were enough people because what is means testing? it is an implicit tax rate on people who save an investor in their working lives because that is how you get it up there by the means testing when you are retired. it would be much better to do the types of reforms that were in the rye and budget many of which came from the good work on medicare and medicaid. that is the way they deal with these problems without putting these implicit tax rates. >> unfortunately we do have to wrap up. our speakers listed above for questions afterwards. thank you for coming and please join me in thanking our speakers. [applause]

[inaudible conversations] >> house democrats are attending their annual retreat on the eastern shore of maryland in the town of cambridge. vice president joe biden will attend the conference today and make remarks. that's live at 10:30 a.m. eastern. and later in the day president obama will attend the same retreat to lay out his agenda and talk about election year strategy. live coverage at 1:15 eastern. >> i do believe that the west for all of its historical shortcomings -- and i am scathing in my book in discussing these shortcomings because they have to be admitted -- or for all of these shortcomings, the west still

today represents the most acceptable and workable, universeally workable political culture. >> in 1991 the united states was the only global superpower. today, how to restore its status in the world from former national security adviser brzezinski on his strategic vision saturday night at 10 eastern on after words. also this weekend, did fdr use world war ii as a cover to create a more powerful executive branch? saturday at 11 p.m. and sunday night at 10, the new privacy is no privacy. lori andrews on how your rights are being eroded by social networks. booktv every weekend on c-span2. >> now, a conversation on the influence of super pacs on elections. the u.s. supreme court's ruling on citizenned united v -- citizens united v. the elections

commission was a focal point of the discussion. the sunlight foundation hosted the event which is an hour, 35 minutes. >> good afternoon. no response. let's try this again. good afternoon. >> good afternoon. >> well, thank you for coming. welcome to this conversation about super pacs. as everyone from comedians to federal candidates know, super pacs have changed the relationship between money and politics. this year alone they spent over $33.2 million at least as of noon today and raised an even larger, albeit currently unknown amount of money, some from original donors we'll never be able to identify. so the focus on today's event is what the public knows and should know about super pac activities. we're going to look into the legal and policy implications of money flowing in unlimited amounts into presidential elections with particular attention to whether more transparency is needed. today's event is hosted by the

advisory committee on transparency, and you can find more information about us at transparency caucus.org. i'd also like to thank darrell issa and mike quigley who helped us hold the event today. i'd also like to thank c-span for coming and broadcasting us live, and if you'd like to join in the conversation if you're watching on tv, go to twitter hash tag super pac act. and just before we move on to the panelists, i should disclose that the sunlight foundation has released a draft bill called the super pac act which is unrelated to the twitter hash tag, but it happens to be the same, which would tighten disclosure requirements. the public has been invited to comment by visiting public markup.org, and along the same lines you can see the sunlight foundation reporting on super pacs at sunlight foundation.com/super pacs. so moving on to our panel of experts, the first one all the way to my right who has been stuck in today's horrible traffic but will be here shortly

is mimi. she's from the brenton center for justice at the university -- new york university school of law. she covers the issues of lobbying and influence, and be i have it on good authority, but you also coined the term super pac. >> that's correct. >> to my immediate left -- that's pretty cool, by the way. >> thank you. [laughter] >> to my immediate left is paul ryan, associate legal counsel at the campaign legal center, and finally all the way to my left is alan dickerson who's the legal director and interim executive director at the center for competitive politics. more information about our panelists is available at transparencycaucus.org, and, of course, i'm daniel shoeman, director of the advisory committee on transparency. i've asked each panelist to speak of different aspects of super pacs and going to first turn to eliza to talk about a

little bit what's available in the public record, what's absent and how the information effects the stories that reporters can tell. >> thank you. thanks to the sunlight foundation for having this event. well, in the movie "all the president's men," the character known as deep throat tells bob woodward and bernstein to follow the money, and even though that was not actually a line from the book, that was something that a screenwriter wrote, it became a rallying cry for generations of people who care about transparency and accountability. i think it's fair to say it's more difficult now to follow the money than it might have been, and there are a number of reasons for that. the truth is, transparency has been eroding for some time now. it's not just because of the citizens united ruling. my own view is that the greatest threat to transparency if you could call it a threat is the increased activism and political engagement of nonprofit groups as i'm sure you guys know, the internal revenue service doesn't

require nonprofits to disclose the source of their spending. there really are minimal disclosure and reporting requirements, and that's probably for very good reason. it dates all the way back to the civil rights era when the irs wanted to protect groups that were active in issues like civil rights and protect the anonymity of their donors. but nonetheless, beginning with the 527 organizations in 2004, we've seen really millions and millions of dollars flow through nonprofit groups of different types to be spent in, arguably, campaign-oriented fashion. now, the 527 groups did disclose everything to the irs, so eventually you saw the money and where it had come from. with the advent of super pacs, i would argue that there are a number of new transparency challenges that have been presented. um, and super pacs present special transparency problems, in my view, for three reasons. one is that sec disclosure

regulations are, arguably, incomplete. to some degree the sec has basically said unless a donor earmarks a contribution for a particular campaign expenditure, the organization, the super pac doesn't have an obligation to report that. so you could theoretically have a donor give money to a group for overhead and say, well, this wasn't really for a specific ad. and so we, the members of the public, wouldn't necessarily know who funded that group even if a lot of the money went to a particular campaign ad. and the latest crop of super pacs have found ways to at least delay reporting their receipts at key junctures. and a great number of them, excuse me, i want to say hi to mimi. hi, mimi. >> hello. >> how are you? welcome. >> i'm very well. [laughter] >> we jumped in, so i'm going to keep talking. >> yeah, no, i think that's good. as a civil rights attorney, the

first amendment slowed me down. [laughter] >> there you go. so, um, the super pacs, many of them have decided that instead of reporting on a quarterly basis, they're going to go to a monthly reporting. this was months into them having formed themselves which meant less disclosure on the eve of these early gop primaries because when you disclose quarterly, you have to do a preprimary report, but if you disclose monthly, you don't have to do that. so they now will disclose on the 31st of january, and lo and behold, a great many primaries will be done by then. so that's been a challenge. the third is the use of nonprofits. as i alluded to earlier, a number of super pacs have established affiliated nonprofits. the leading example right now is the, um, crossroads operation. there's a super pac known as american crossroads which has an affiliated nonprofit, a 501c4 social welfare or group called

cross roads gps. these two groups have predicted they plan to raise and spend on the order of $240 million on this election which is actually twice as much as they predicted originally. and my guess is that a pretty good chunk of that -- maybe half of it, maybe even more -- is going to go through the nonprofit which means we'll never know where the money came from. i shouldn't say never because journalists have been pretty good, actually, at finding out the source of a lot of these donors and donations, but nonetheless, it's a lot more challenging, and it's not immediately evident. and there's another trend that has to do with nonprofits and super pacs which is that some super pacs have actually been accepting donations from nonprofits. so, you know, even if super pac discloses and says here are our donors, and one of our donors of x million dollars is this nonprofit group, you still don't know who funded the nonprofit. so that is one of the third or, that's really the third transparency challenge