so we are all in and as you know, the army has the five installations where one of them is in colorado by the way where we are trying to receive a net zero energy situation but that this kind of the garrison environment, operational the we are trying to do the same thing with the tactical units. every service frankly is working on this iraq diligently and this reflects that. estimates the compelling stories of the marines are doing in theater a at the front lines and as your predecessor put it saving energy saves lives and so i commend you for what you're doing and i look for to working with you in this area as we move forward. >> mr. secretary, if i could turn to you, as i think you are aware the congress what the department to establish the responsive space office within the air force to rapidly filled the small responsive satellites are tactical in nature and tasked by the combat commanders in the field.

that's in comparison to the large national systems that take six to eight years of literally billions of dollars to field. the house understand in the fiscal year 2013, the department is proposing to abolish the operational base the zero budget from the $111 million last year in and integrate whenever capability is left in the space the of the system center. can you explain the department's thinking when the satellite the launch was judged by centcom to be successful or started sending images back to them in the fall of 2011 almost three years to the day after the program? and one additional question is there a possibility of the decision to put the cart before the horse? i assume the alleged was probably put together before centcom started using the system. can you explain the reasoning here? >> center, but we have bald hill talk to that yet estimate

center, what we have done as uses terminate the program office but not the commitment for the operational response initiatives. it will be put into the space command where it can be looked at in the broad context and we think it is the right decision as those focusing on the one particular approach, but to look more broadly at this initiative a lot of ways to do need to find a cost-effective way so that is our approach to the estimate i look forward to working with you to make sure we continue to get this right. we talk about small round golf courses on this front line and this is the way of doing that, but in space. let me turn to iraq and afghanistan. we ended our mission abroad and we are drawing down the forces in afghanistan, we proposed reducing the and strength in the service branches and a substantial number of aircraft ships and hermene brigade combat teams. after all that and more when adjusted for inflation that the budget for the 2017 will still

be at almost exactly the same level as it was in 1986 that's the height of the ronald reagan area build up against the soviets can you talk about the major reasons why we are spending the same amount of money for the smaller force? >> senator, what we have here is the $487 billion was in the plan dod budget over the next ten years and that included obviously a lot of what we have been we had to reduce in the budget looking forward. so overall, make no mistake about it. even though the defense budget shows a slight increase between now and 2017, the bottom line when you add what we've proposed in the budget plus the amount

would be involved in terms of the war cost we are going to be going down dramatically by about 20% which is comparable to what we have seen in the past drawdowns. and so, this budget by its but at the same time by virtue of what we've done we have made it much tighter. obviously, we have had to take on the force structure, we've had to make cuts in the ships and planes and other areas of space as you said, but the bottom line is we think we have a sustainable budget that will take us to the kind of force we are going to need to meet the threats out there in the world. >> thank you for your service. >> thank you senator udall. >> thank you mr. sherman. i am sure at this point to end the hearing secretary panetta that you are contemplating what daniel akaka said to you and are wondering about your career

choice, but we do appreciate your service and the service of all of you. general dempsey, i want to bring up with you in the issue that really troubles me. since may of 2007, afghan security forces have killed 70 americans and allied troops and wounded many more come over 100 more. in 45 separate attacks and one of those killed was the unnamed soldier private first class buddy mclean. i am so disturbed by the frequency of these attacks it raises questions about our the bidding process, it raises concerns among our troops when here they are risking their

lives to train and assist these afghan troops to only have some of them turn on them and kill them. it's my understanding that the central command report concluded that there was the crisis of distrust that permeated both the national afghan security troops that we are trading, and our own troops as well so here they are being sent out on the joint missions trading side by side, but they don't trust each other unless the steps are taken to stop these attacks on our troops by the off can security personnel that level of trust that is so necessary for the successful strategy is going to be extraordinarily difficult to achieve. after all, these are the very

security forces that we are depending on to take over from us so that we can come back home. so i would ask you what is being done to address this very serious and destructive problem? >> thanks, senator. i'm well aware of this issue. i recently briefed the president on who shares your concern to the sec is actually 47 instances. about 11 of them were related to infiltration yourself radicalization. the remainder were issues of personal. its stress, it's trouble, it's not related to the taliban influence or ideological issues. that is an important point. does it make it any better, but it makes it more understandable. the other thing i want to mention is it's not just what we call -- it isn't just than attacking us, they are attacking

each other and probably at a rate of three times, so we are interested in this and have an eight step vetting process that includes -- i don't have the entire thing ever laced but it includes things like letters from the tribal elders, training, indoctrination, and then the counter intelligence agents, u.s. and coalition and also afghans themselves. recently because of the recent issue with the french you may recall, president karzai and the ministry of interior agreed to invest some counter intelligence throughout the afghan national army to try to get after this. so we are seized with it. it is tragic, and we are taking steps to improve its. we are not going to get it to zero is the nature of this kind of conflict. estimate you know, it's one thing to tell a family that has lost a loved one that they did

so in support of the afghan people to help them have a secure country and to make our national security better, but it's so different to try to console a family that has lost a son or daughter as a result of the afghan security force members telling them. and i just think it is a terrible problem and the seeming frequency is really disturbing. i realize we are never going to get to zero, but there are too many incidents. >> if i could, i share your concern deeply and i just returned from the nato ministerial we're obviously the french were very concerned have lost some of their troops in the situation. what we did at the nato ministerial was to task general

allan to report back on the steps that are being taken. before this he had actually taken some of the steps that general dempsey recommended, and they are moving aggressively to try to do a better review of those that are going into the afghan army, better checks and background checks in order to ensure that these incidents are cut back. even know killings this we are in any way justifiable, that is still remains something that is endemic. it is sporadic but nevertheless we have to address it and make sure it doesn't happen. >> thank you. i would ask that you keep me informed as you do try to improve the process. secretary panetta escher's a lot of the concerns that my colleagues have expressed about some of the cuts in the budget,

particularly those that have shipbuilding in the size of the fleet. seems inconsistent to say that we are going to focus on the asia pacific area, and yet not seek to get to for what years has been the absolute minimum goal of 313 ships. i am pleased however the the budget request indicates that the department intends to seek a multi-year procurement plan for the 51 destroyers between now and 2017. first of all, do you support that plan, and do you see that as helping to produce the kind of efficiencies that will lead to a lower cost per unit? >> absolutely. i think it's extremely important. two things are important. we want to maintain -- we've to enter 85 ships now.

we want to be yet to under 85 ships in 2017 and the next five years our hope is to gradually move up to 300 by the end of 2020. so we are clearly intent on having the vv that is fully capable to project that forward presence that we are interested in. second, i feel that we have to do it in order to protect our economic base. we have to have a strong industrial base that supports the defense department, and for that reason, my instructions are to do everything possible, not only to get obviously better competition and better savings, but to make sure that we keep our industrial base busy serving our needs. >> that is so important because once that industrial base is gone, you never get it back and once those trained workers go on to other fields, you've lost them forever and that would weaken our capabilities.

i agree. thank you for that response. thank you mr. sherman. >> thank you. senator hagan. stomachs before mr. chairman and general, mr. panetta and mr. hill, thank you for your service and it is good afternoon now. thank you for your leadership particularly during this time made the ied proliferation is a key concern of mine, and it certainly has been for quite awhile. i support anything that we can do to counter them and obviously protect our troops, and i also support anything we can do to improve the detection rates and interdict the row and reported last year in afghanistan they cost over half the u.s. military deaths and the ied will continue to pose a threat to our military men and women to be the and i believe we need a capability to counter the threat. however we have to ensure our

countermeasures we deal with the types we face now and in the future along with the environment they will likely be legalized in and our efforts must be geared towards countering than in any locale and my figures show that we have spent approximately $17 billion on the various initiatives and equipment not counting the 45 billion spent on drug-resistant vehicles. i see these soldiers all the time with a loss of limbs. we host the wounded warrior luncheons in my office. i see them at the airports, and i really want to do everything possible what we can to contradict the ied. but at the same time, we are spending billions of dollars to find a technology that is currently costing the in many tens of thousands of dollars. so i'm wondering how do we figure out how to alter this investment ratio, and what investments will the department

began developing effective countermeasures in order to protect our troops into the same time avoid restricting their freedom of movement? >> welcome center, the ied challenges the enemy's asymmetrical tool, and i think that you are correct stating that it has been the biggest killer in the battlefield and it's likely to remain so and there will be true wherever we are deployed. i feel we are so capable but they will find ways to attack us and typically now that is the next challenge will be the precision rockets and missiles, but we will get to that one. the point about the ied, the way we are trying to address the cost ratio is by expanding -- and we have been doing this, expanding the aperture. defeating the in to device is important under the enwraps as

you say, the mine detection, deep penetration, radar, ground penetrating radar, but it's also training to identify signatures, and i will explain it briefly in the second, and then also attacking the network so you have to do all three, identify signatures coming and that is to say the components, the chemicals, and then find ways to identify those components and attack the supply chain and then its attacking the network that includes the finance years and those in place and finally it is deceiving the device, and we have gotten actually quite good at it. but this is the enemy principal munition that he uses against us and it doesn't continue to incur casualties. so we have to stay with it. i don't have a better answer than that. if i could, just to follow up a little bit on that. one of the best things that was developed was the mrap and it

saved a lot of lives and rustam on an expedited basis and was a good example of trying to produce something needed by the men and women on the fast pace, and we are continuing of the ghastly to do that kind of research to try to develop the best ways to try to protect our young men and women. all i agree with you, anybody that has seen the result has to shoulder at the devastating wounds that result from that. the of a piece of this though relates to the supply network and in some ways the relates to the safe haven pakistan that continues to supply a lot of this committee that is an area that we believe we have urged the pakistanis to address. we think that whole issue needs to be addressed if we are going to be effective to try to cut back on these. >> that was my next question coming and i know we've discussed this before but what is the department doing to put

pressure on pakistan networks in the distribution of the ammonium nitrate? pnac we have made very clear to them that where these threats emanate from we've identified locations, we've directed them to specific sites, we urged them to take steps. >> in some cases they are and we try to impress upon them that they have to be part of the answer to deal with this issue. >> i think that would help tremendously and hopefully slowing the number of the ied this place. secretary panetta, i also wanted to thank you for lifting the marine corps variants of the strike fighter probation. the decision i believe is the essential for the marines to operate and move seamlessly from the c code the shore and the air and it's also a key to preserving the strategic dhaka to of our invidious capability. the airlift capable of the short takeoff and vertical landing of

a great exceed was when the fighter pilot crashed in libya and they were able to within about 90 minutes takeoff from the large ships, rescue the pilot and have him back on board. so obviously there was a critical need. and i also understand that the regional joint strike fighter procurement originally was currently planned at 2,430 aircraft and then in light of the new defense strategy and budget, the joint strike fighter program perhaps is looking at being restructured which may include fewer aircraft spread out over a longer time frame, and according to the deputy secretary defense, the department will slow its approach to the full rate production of aircraft. do we have a project timeline to complete the necessary testing and implementation of the developmental changes in order

to start buying the aircraft in the half year quantities? and how has the department conveyed this to the defense industrial base with what center collins was talking about? >> we think it is extremely important to get the fifth generation fighters out there as soon as we can. obviously it's taken time. there's been a lot of testing. they've had to readjust. there were five areas that were identified that put it on probation. they dealt with all five areas. it's tested well. now we are basically in the software testing and one of the reasons we wanted to slow it is to make sure we knew what the problems were and we could get ahead of it rather than go ahead and produce these things that cost even more if we are catching up with some of the problems. so we think we have set the right time frame. i think our hope is that by, what, 2017 we will begin to produce these planes?

>> there will be aircraft as well we've just slowed the ramp so we don't buy so many and then have to fix them leader which is expensive, so we are buying them by the 29 aircraft in fiscal 2013 and i don't have it in my head the number but will be substantially higher than that. so just slowed down. >> mai tais for questions is over, but i did want to emphasize at and it's important to invest in the science and technology programs and the research and development initiatives. these are the seeds that we need to plant and nurture in order to ensure that our military remains the best and post technologically advanced in the world especially when dealing with the emerging threats. i don't think we could emphasize enough the need for the research and development. -- before mr. chairman. >> senator cornyn? >> thank you. gentlemen, think you for being here.

you have my respect and admiration. you also have a very difficult job, which we have talked a lot about but let me start with a quote from the director of the national intelligence james clapper who two weeks ago said never has there been in my almost 49 year career and intelligence, more complex and more interdependent a ray of challenges the and we face today. capability space technologies, noel, communications of environmental forces are confined by borders and can trigger the transnational disruptions with astonishing speed as we have seen and i doubt that you would disagree with these comments. i don't know anybody who would. but the challenge to think that we are struggling with me and senator lieberman and others have expressed this is our heartfelt desire to have the mission to determine the budget and not the budget the mission,

and you are of course constrained by law the congress passes and the president signs, so we realize that this is our responsibility to meet your responsibilities to try to minimize the risks and maximize our national security given the money appropriated by congress, and i appreciate general deinze talked about looking beyond the budget window to the long-term risk. but let me talk about the near-term risk and something that has already been diluted to, and that is the -- we have made the statement, secretary panetta, you and others, that there are certain red lines with regards to iran blocking the streets of hormuz, building a nuclear weapon. this is important to us and it's important to the region but it's an existential threat to israel, our ally, and i don't believe that they are going to wait on anyone else in determining what

determines the right to continue to exist and the people's security, so if iran is hit by israel, which of course iran has already been telling americans in afghanistan and iraq in the low-grade war against the united states and other nato allies, but sort of retaliation would you anticipate against italy israel but other countries in the region and american personnel in the middle east? >> the general suggests that we ought to look at a closed session to really address all the implications of what that may or may not mean. obviously we are very concerned about it. we are looking at all of the implications and consequences that could result.

but it really involves intelligence, and we should be in a closed session. >> i respect your judgment on that, secretary and general dempsey, and i look forward to the further briefing on that. but it strikes me at a time we are already -- i know we are not calling this, we are not saying we are cashing the peace dividend, but we are certainly needed disproportionate cuts to the department of defense and of the national security expenditures when my view is this is the number one responsibility the federal government house. a lot of other things we can do we could put off or do without. but this is it. this is the most important thing that the federal government does and there are real and not near term and long term potentialities that could embroil not only the united states, but the police and our allies in a full-fledged war that would have dire economic

consequences to our country and obviously to our allies more than economic matter of life and death and existence. >> senator, without getting into the particular school let me just assure you that we have very strong capabilities in place to deal with any circumstances that could develop in that region. we feel fully prepared for whatever might take place. >> i am sure that would entail -- i'm confident we've done everything you know how to do to prepare for our military and defense department has and will not be without cost, it will not be without casualties and will not be without serious consequences is my only point. and so, it troubles me at a time when our national security apparatus is asked to do more with less and the world is

getting more dangerous, not less dangerous, the we have a budget that unfortunately i think in cages in the most charitable words i can use this phantom savings, phantom savings come some might call it budgetary gimmicks and the like. for example the so-called trillion dollars of savings from the drawdown in operations in afghanistan and iraq that are not currently planned, which have been funded by the borrowed money in the past ten years and which really represents one headline in the national journal it says pentagon budget revives war spending voodoo, and like i said, the phantom savings is the most charitable thing that i have seen, but it strikes me as an extraordinarily dangerous at a time when the risk is deadly

serious to have a budget proposal which makes a trillion dollars of savings on expenditures that we never anticipated spending in the first place at the same time i will grant you we don't know what the risks will be in the future. let me close on this item. it's a little more concrete. it appears from my reading of the budget that there is a decrease of about 50% in the budget for training and equipping of afghan security forces from 2012 to 2013. i would like first leg is a confirmation that my reading is correct, and number two, you're nodding it is correct, so i would just ask you if in fact our withdraw from afghanistan is conditioned on the ability of the afghans to defend themselves and maintain stability there, how is the cutting of the budget

by 50% from 2012 to 2013 consistent with that? >> i will take that one, center. the afghan national security forces fund was front loaded when we had to develop a lot of their infrastructure. we purchased a lot of the equipment and what you are seeing in the budget is most of the capitol investments in our terms have been made in the previous years. so the reduction is the reflection that we have what we need a and most of the fund now is for the replenishment and training and operations, but simply answer to the question is a front loaded the investments and the capitol investments. >> of the chairman will permit me in terms of the size of the force and to become a do you see that getting larger or maintaining the status quo? >> we are committed to building the afghan security forces ought to three did 502000, 195,000

which is the army. there will be completed in the next 90 to 120 days. we haven't decided how long we will keep it at that size, but that is a question that we are looking at as we determine how to get from here to 14 and deliver the lisbon objectives. ..

>> i'll respond quickly. >> very quickly. >> that "national journal" article, i don't subscribe to its conclusions because i've been so involved in the process, and some of the changes we made definitely will have an effect on the base budget. some of the effects will be mitigated in the near term by oco. that's what he's talking about, that we papered over the problem, but i don't accept that. the army, in particular, has 10,000-12,000 non-deployable soldiers resulting directly from repeated deployments, and we pay that out of oco because it's related to that. >> we don't know what the expected challenges and threats the country will face in the future is my point. >> we do not, and i accept that, but that's what contingency funds are for. >> senator mansion. >> thank you, mr. chairman,

mr. secretary, thank you, mr. controller as well, and i understand you touched on the value of the garden reserves and how important their services have been serving in afghanistan and iraq. with regard to your air national guard strategy, your air -- excuse me, your air force restructuring strategy, about half the cuts have come out of the guard even though the only represent a third of the cost, and i believe the joint chiefs did a -- who did the report? yeah, vice chairman of the joint chiefs did a report talking about managing budget issues and actually made the point that guard and reserve provide capabilities at a lower cost than would be the case where nation relies solely on full-time forces. i have a question with the air national guard and specifically because of the assets new york has and we have specific assets and strategies and resources in our states we think are particularly important for our

national security, but one thing that a lot of our bases and assets has are the reserve and components that have been effective in iraq and afghanistan. i would urge you to look at restructuring to see if there's cost savings by maintaining reserve components as they are whether it's in niagara, they are important aspects. the second issue to highlight with regard to new york specifically is the cyber mission we do. we do such an important mission for sib -- cyber security and research vital for the cutting edge of technology and research and development, and one thing i want to bring your attention to is what makes new york so good at doing some of this is the public-private partnerships that developed with the private sector. a lot of the dod contracts are done by private developers,

researchers, and scientists that developed as a hub across new york. we have the nanotech center, a lot of research and development that complements the work the military's doing, and i understand there's interesting consolidations and cutting, but you'll lose that synergy, that effort of collaboration and clueserring that's so important in the -- clustering that's so important in the sector, and i don't want you to lose how valuable that is for the military. last, the assets in new york, 100% staffed, no environmental issues, we have a work force and communities that are so dedicated to the mission that the armed services have placed on these men and women that you will lose some of that e mori nows benefit to the extent you have to consolidate or restructure. we'd love to gain missions, particularly with the national guard reserve training with unmanned aircraft and with

cyber, so i wanted to just give you that background. >> yep. senator, just a couple thing, and then i'll yield to the general. first of all, on cyber, we are making increased investments there of $3.4 billion and more in the out years because cyber is extremely important. obviously, partnering with private sector is extremely important in being able to develop the technology capability that we're going to need to have for the future, so i think that is important to remember. secondly, with regards to the air reserve and i understand the concerns. the air force made the decisions, and some of the planes in the past came out of the active duty force and that's one of the reasons they try to look at where some of the reductions could be made based on the age of these planes as well as their capabilities, but they are trying to do whatever

they can to mitigate against those, you know, what impacts it because, again, we have to depend on the reserve to be there. they have responded in dramatic fashion over these last few years. every time we called upon them to come forward and take their place alongside other fighting men and women in the battlefield, and they've done a great job. we want to be able to maintain that for the future, but that was the reason some of the cuts were made in those areas. >> all i add, you mentioned cyber, and i want to mention for the record, we support the lieberman rockefeller legislation to get us in the proper place in dealing with the cyber threat that's significant and growing and as well as the senator feinstein amendment to the legislation. i'd like to say that, and also as one of your constituents, how about them giants 1234 >> go giants. thank you, all, for your service. i wanted to make sure there's

nothing else you need in the cyber bill as well that you have reviewed it, and that it is providing that assets and resources you need to enhance your mission. >> i think the general's correct. the bill that i know is put together by senator lieberman and others reflects all of the issues that we think are important to address so we'll continue to work however with the senate and with the congress to make sure that if a bill does emerge, it addresses our concerns about trying to make this country better prepared to deal with the cyber issues i think are growing every day. >> i request you look at the legislation with an eye towards making sure you have all the authorities you need to support this growing mission, and also the resources necessary to do adequate recruitment because obviously we want the strongest pipeline for cyberdefense that

ce could create and the flexibility to bring in the talent you're looking for. we want to ensure whether it's civilian talent or through the normal course, we want to sure you have the flexibility and ability to recruit, train, and keep thee best and brighter to do that. last, if i have time, mr. chairman, a separate issue, but one i feel strongly about that i'd like your commitment. i've heard you already speak to the issue of sexual assault in the military, and the ability of the military to respond effectively to those concerns to allegations and to making sure we have the best fighting force we can have, and that means that we create the right protocols and the right ability for women to be able to report such incidents and to be heard on those issues. i'd like your comments on your views on that, and i would like to work with each of you on

developing stronger protections for our women who are serving. >> senator, we look forward to working with you on this issue. you have provided great leadership on the issue, and it's an area that concerns me greatly, that the incidents of sexual assault have grown and frankly, my concern is that we've got to be able to take action in these situations. one of the keys, as you know, i announced a series of steps to try to improven our response -- improve our response to sexual assault. one of the most important things is to make sure the command structure that responds to the situations because the longer they take to respond, it inhibits the ability to bring a case, and that's what hurt us in being able to move aggressively. we have to do a broad education

effort to ensure the command structure understands how important it is to respondent in these situations. we also need a legislative package, and i'd like to work with you in addressing the legislative needs that we're going to need in order to really be able to get this problem in control. >> thank you, mr. secretary. >> thank you, senator gillibran. senator shaheen. >> thank you for your stamina, we appreciate it. i want to begin where you began, mr. secretary, where we have to do everything possible because i certainly agree with that. i share the concerns we heard expressed from my colleague, and you don't have to respond to this, but i certainly hope we, in congress, would do what you all have been willing to do, put everything on the table and put aside our posturing and come to some agreement that addresses the long term debt and

deficitness of this country. it is inexcusable that we are in this position now with you and all of the men and women who are serving in defense and in our military and across the federal government, not knowing what we're going to do because we have been unable to act, so i would like to go in my questioning, i'd like to start with where senator left off, and that is with the guard and rereceiver, and i was very pleased, mr. secretary, to see in your statement that you talked about continuing a national guard and reserve that's equipped and ready, and i know the decision to transition our gad and reserve -- guard and reserve units from a strategic reserve requires investment and a change in strategy, so general dempsey, i wondered if you could speak to

the original rationale for that transition. >> well, i think it's important to roll back the tapes, maybe all the way back to 1973 when coming out of the vietnam war, there was no joint chiefs at the time, but the service chiefs all realized that one of the problems we had in that conflict is we never got the american people involved because it was born on the back of the active component with little reliance on the guard and reserve, and so we built a structure that not only allows for the unitlyization of the guard and reserve, but it makes it absolutely necessary. the question is not will we use the guard reserve because fully a third of the capabilities necessary at any given time to do anything lie in the guard and reserve. we are committed to it. what we found is we relearned lessons, made significant investments, and the guard and reserve and ac --

active component have never been closer. as we go forward and demand and budget goes down, that puts strain on that relationship. you've seen some of that already, but i can tell you that each service has a plan in terms of the rotational readiness of its formations, that they will include the guard and reserve in that rotation, so the entire guard will never be operational anymore than the entire guard is operational. i think you can feel secure in the knowledge that we understand and we'll work towards this goal in a rotational readiness cycle. >> i appreciate that. as we look forward this year, i know that the air force is going to be making some initial decisions on where to base the new kc-46 tankers, and i would hope that the air force and dod will take a look and ensure that at least some of those aircraft are based at guard bases around

the country. i have one particular in mind, but i'll let you draw your own conclusions, so -- but, can i ask you is there a commitment on the part of dod to base some of those new tankers at guard facilities? >> i think the air force is looking at a whole set of options in order to make sure that we mitigate whatever cuts have been made and make use of the facilities that are out there with the national guard and reserve. i think i can assure you they'll be in consideration. >> thank you, i appreciate that. and i would also like to go back to brak, which a number of my colleagues addressed, and i share many of the concerns expressed, and i know secretary panetta that you've said you've seen about every side of the process. can you commit to providing us with a comprehensive assessment

of the savings from the 2005 round and also to, i assume, if you look at 2013 and 2015, that you also have estimates of savings in those two rounds, and that we'd also see those as we look at the decision about what to do with the next round. >> i'd be happy to give you whatever information we have regards to the past backgrounds and obviously ideas about what to do in terms of future rounds. you know, as i said, i've been through the process, and frankly, i don't wish the process on anybody having been through it because it is tough. 25% of the local economy was hit by virtue of a closure, but we used it as an opportunity to develop a college university campus there, and it's proved

were successful as a reuse. i think the issue is it did cost more than anybody anticipated, but the fact is we are achieving in the long run significant savings as a result of that. that's number one. number two, i don't know if any other way to deal with the kind of infrastructure savings we've got to achieve here as a result of reducing the force without going through that kind of process. that's the problem i have. it's the most effective way of addressing the issue. >> well, certainly in new hampshire, we saw both sides of the issue. the first base closed in the country, and fortunately, it's doing very well now, and the ports that they >> senator, as i

stated before, and i'll say it again, we have to maintain the industrial base line and the shipyards we deal with are important to the ability to respond in the needs that we have, and so we will do everything possible to work with you, not only to increase the competitive nature of trying to achieve savings, but also to provide upgrades. >> one of the reports we heard over recent years is the challenge attracting the backgrounds we need with science and math and stem subjects to

continue to do the jobs that are critical to our defense establishment, and i wonder if either you or general dempsey could address what strategy we have for trying to attract those young professionals when the private sector is offering them so many more attractive monetary rewards. >> you know, it's something, you know, initially, i shared the same concern, but when i went out to nsa and i, you know, and when i look at the people involved in that area, not only in pi past agency, but other agencies as well, i have to tell you, we are attracting some very bright capable young people to those jobs, and they are very interested, very capable, and i have -- if the investment we make in cyber, i'm absolutely convinced we'll attract the

talent to be able to make that work. >> i think our challenge as a nation -- excuse me, general dempsey, is to get enough young people engaged in those subjects so we're training the people we need >> i think the services have a view on this as well, and it's actually exacerbated by the fact, and we had this conversation, that only about one out of every four american men and women can qualify to get into the military based on education or physical issues or issues of making really stay tuned facebook posts in their youth or something, so whether we -- we're all competing. as you said, academia, corporate america, and government are all competing for the same 25% of the population. the answer has to be to get after education in the country as well seems to me. >> i totally agree. i was disappointed to hear you

say the giants -- >> my condolences. [laughter] >> thank you. >> in fairness, as a new england, i interpreted your remark as an expression of battlefield inspare ration rather than endorsement. you're still on fairground. i want to thank you, all, for your extraordinary effective and persuasive explanation and answering the questions so effectively, and i want to begin with the subject that the president emphasized which is undersee warfare capability and note the slipping, postponing, delaying, whatever the correct term is of submarine

construction from 2014 to 2018. i have heard from both within the navy about the cost savings that can be realized if we stay on schedule and build two submarines every year. i wonder if there is a possibility for considering, and perhaps hearing our views on that issue, secretary panetta. >> i think this is all about, obviously, having to reduce the budget by half a trillion dollars, we have to look really closely at affordability and cost efficiencies, and if anybody comes forward with a better idea as to how to save money, i'm more than open to listen to it. >> well, i think we may come forward if you'd be willing to consider it. >> absolutely. >> i would appreciate it. and let me go to what you have

really very really military's best asset which is people, and you moved it most inspiring talking about keeping faith and providing many of the men and women or war fighters who will be coming back from iraq and afghanistan with jobs and transition assistance, which has been expanded under the most recent legislation on veterans to be approved by this congress, an amendment that i authored in a sprit bill, and i want to focus on what can be done to aid those veterans before they leave the service, and more effectively transition into civilian employment because as they come back, if they enter the guard or national reserve, to have an employment rate which is vastly higher.

it is right now, in connecticut, double the general rate in connecticut, 15.5% compared to 8.2%, will simply be a profound deturnlt to anybody going into the armed services if that's the hurdle they face coming out of the service, it defeats your best efforts to recruit the brightest and most capable. >> it's a risk involved as we reduce the budget by this level is how to ensure how we take care of those who are returning. we already have a backlog, and we're going to be pumping anywhere from 12,000-14,000 a year as we go as we go through

draw downs, and it's extremely important to provide services as these men and women come back to really be able to console them, gather them, and make sure they are aware of the job opportunities and education opportunities, to ensure they are aware of funds available to help them transition, ensure the families are cared for as well as we make that transition. this has to be a packaged approach. each service now does it in their own way. they do it pretty effectively, but i think we've get to make very clear that nobody should fall through the cracks. >> right now the marine corp. does it more effectively. i talk -- >> they do a great job, yeah. >> is very, very effective work, and i wonder if, and you may already be doing it, whether some service-wide approach, building on the best models and best practices will be appropriate. >> we are looking at that. >> if i can add, senator, there

are more initiatives on the issue than we possibly have time to discuss, and as the secretary mentioned earlier, we're trying to team ever more closely with the veteran's administration to do this. we're starting to take a view that transition begins when you enter the service, not in the last six weeks before you leave. the other thing to mention here is this can be legislated or a matter of policy. it's an issue that will be best solved from the bottom up when corporate america reaches out to embrace the returning veterans, and by the way, a lot are. i can't tell you how many times i go to a conference or something and someone tells me they had a new initiative to hire 10,000 veterans, so i think it's a matter of kind of merging what can be done at the governmental level, but also what needs to be done at the grass roots level to help it out. >> well, i would agree with you, general dempsey, that corporate

america steps forward more often and more effectively, but i don't believe i'm telling you anything you haven't heard before in saying that there's sill -- still of a lot of employers who look at somebody in the national guard or reserve and say not explicitly, but think to themselves this person's going to be gone for a year or more if deployed and better to hire someone i know i can count on to be on the job without interruption, and that is a discrimination, ill cleel if prove -- illegal if proved, but has to be surmounted as a manner of practice implicit for some employers, and i believe that we need more effective measures or enforcement to counter that approach because it underminds your best effort, which i admire, to attract the best and most capable to the guard and reservement i'm not asking for

your comment, but i hope, perhaps, we can work together on the initiatives that we don't have time to discuss here. just one last question. the ieds that are all too often film war fighters, and i wonder if there's no initiatives there to discuss, if not here, at another point because i've been interested in it, and secretary carter's work in accelerating delivery of the biker swords and protective gear and work i hope is being done to discourage the pakistanis from permitting the fertilizer from crossing the border and going outside. >> yes, senator, and i know that your time is short on this

round, but i'll assure you, we are seized with this they are improving, but it's something we have to get at. >> thank you very much, i want to associate myself with remarks made by the senator and your remarks about the problem of the sexual assault in the military, but also the issue of suicides which we can follow on earlier. >> thank you. >> i commend you for your indulgence as you've been through it before and a lot of questions have been touched on that i wanted to ask, but i have to a few things if i may. first of all, the most defining moment of my short career is admiral mullen sitting there and the question was asked of him what is the greatest threat

america faces, and i thought i would hear a military response whether it's al-qaeda, north africa, china, and he didn't hesitate and said the deficit and debt of this nation is the greatest security. you realize it and take it serious, too, and we talked about it, secretary. i think in saying, and it's really i'm looking everywhere i can to cross over the aisle and i don't know of anybody in here, democrat or republican, that does not support a strong military, but everybody's afraid of political if they say one thing. i say this -- with the growth of the contractors in the military, looking at the period of time, maybe ten years, and the support of contractors, and i'm not talking about the manufacturing base of contracting and i wanted

to maybe mention, if you would, as i get with the question about how america can do more in america to ensure we are supporting the manufacturing base, but with that being said, i should -- in a simplistic way, we can strengthen the military or men and women in uniform by reducing the contractors who are doing the same, and i hear an awful lot of them that tell me i see them in the airports, and i ask every one of them, that are private contractors, going back to afghanistan, and i stop and talk to them and introduce myself, and most of you all previous military? yes. would you have stayed in the military if not for the large -- that you might be able to get from the contractors? yes, we would have if this option was not there, so i can't figure this one out, and then it dove tails into the whole thing i'll talk to, which i know everybody's talked about is how to best use our national guard? we'll all extremely proud, but i

have examples, but first of all, the purpose of contracting -- can't we cut the amount of contractors that we have that are doing the same jobs as military without facing political ramifications of you're cutting the military? i'm not going to vote to cut the military, but i will cut the contractors, sir? >> senator, this is an area that we're looking at and efficiencies we're looking at of $60 billion, and this is one of the areas we're looking at, contract services, contracts provided in order to determine where we can achieve savings, and any ideas you have, recommendations along these lines, we're more than happy to listen to. it's a big job going after $87 billion in savings, and i'm willing to look at any area necessary. >> well, and, secretary, i want to ensure this -- $12 million a day for the past ten years in

iraq and afghanistan has been wasted, spent, whatever, by contractors. i think that report was given to y'all too. there's many areas, but i'm just saying wherever a uniform person can do it, why -- i know we're cutting hundred thousand troop, and that concerns me. if anything, i'd rather cut 200,000 contractors and keep the uniforms and use the support of our national guard. i will say this, they touched on the veterans, all of us, i can't, i mean to me in the private sector, you do the best job providing the training for a military person, disciplined, they can do it. why is the unemployment so high, and what are we doing wrong? you know, we started a caucus, i started with senator kirk, and i have two vets in the office and looking for more good vets. we always do. how do we prepare to get back into that? i know senator from new york touched on that quick.

>> look, part of the problem is the economy, the overall economy. kids coming back, go back home, and, you know, most of the local economies are having tough economic times, and, you know, you suddenly, you know, pour some of the young men and women back into the communities, and there's no jobs for the people there much less for the young people that are coming back, and we have had impressive efforts from the private sector because of the reasons you suggested. these are kids who are disciplined, usually have a capability, and a talent that is extraordinary and most of the private sector people i talked to really want to have the individuals as part of the work force, but more and more of the individuals are coming forward, and set up a website where we

list the jobs that are available in the private sector, more of the private sector individuals committing themselves to hire vets as they come back, but there is an important effort going forward, but a lot of it depends on an economy that has to recover as well. >> thank you all of you for working closely on the new caucus, hire a vet, and we want to expand on that with you. if we would know who is cycle out and what skill sets we can network better, we think there's ways we can improve on this and work together if -- so i appreciate that. we'll be close. general dempsey, final question to you. i talked about the national guard. in west virginia, blessed by having a highly rated national guard, best in the nation, and a loot of people get offers and good training, and i'm so proud of them. we saved the dod $27 million this year alone, and we did it in the small town facilities. we're fully tasked, dod could

save $250 million a year, and we're talking about things that basically like refurbishing generators, humvees, tire assemblies, these are things we've been able to do with tremendous cost savings and other guards are also. is there a way to network more of that to use our guard? we have proven the savings in just a couple little facilities is quite substantial. i don't know how we can expand on that. >> i don't either sitting here today with you, senator, but i certainly -- we all, and to include the service chiefs who really are the leaders of their particular guard. i mean, you'll have general -- not throwing him under the bus, but he'll be here later in the week, and i think he'd be eager to understand that and see if we can take advantage of it, and clearly, anything we can do to insource and active guard and

reserve is well spent. >> gives training to the person we are trying to get back in the private sector. there's a two-fold purpose. we have to give you what's needed to keep the country safe and free, but on the other hand, the responsibility and general mullen said the greatest threat is manage our own finances, so we're taking that serious. we need your help, and we think contracting, if we can downsize contracting, reenforce the military and people in uniform, you'll have us all on both sides. you might bridge the gap that we can't bridge. >> senator, if i can comment -- look, i think that the defense department has stepped up to the plate and what we proposed here is real. it's well thought out, we've done a strategy to back up the decisions, and that's contained in recommendations, but i really would urge you and others to

engage in the broader discussion ha has to take -- that has to take place with regards to how we reduce the deficit including a number of areas that unfortunately have not been on the table but have to be to confront the debt crisis that faces the country. this cannot just fall on the backs of defense. it's got to be other areas that have to be considered if we're going to be able to effectively reduce the deficit. >> group of us in the bipartisan effort are looking at ways we know it takes everything. getting money we're not, and mic sure we have fraud, waste, and abuse and run more efficiently so i think you'll find a number of us from both sides. look forward to meeting with you. thank you for the service. >> i hope all of us take a look at the proposals at the budget in front of us to raise

additional and it's in the budget that came yesterday, but it seems a lot of us are unaware of that. half of that is revenue increases, upper income tax increases, restoring the bracket, the millionaires' tax, the number of other revenue measures in this budget request, and i was surprised that so many colleagues here today talking about the need for deficit reduction and the importance of avoiding sequestration and i unaware of the fact because the administration is not focusing what's in the budget in terms of deficit reduction. it meets $1.2 trillion goal. >> mr. chairman, and i, you know, we've had the discussion, and i -- we can raise the

revenues without raising taxes and if the american people think we're putting fairness to the system, they are behind us 1,000%. >> they are. look at public opinion polls, they say we have to include revenues and deficit reductions without raising taxes on middle income americans. >> we can cut spending too, sir. >> spending too. the balance in this budget given to us yesterday is about 50% additional cuts and about and frankly, i don't think the administration in its rollout yesterday focused on the fact that this would have had sequestration. this budget avoids it because they are talking about additional revenues. now, they talked about it in the administration, but now it's in the budget, yet republican colleagues today talking about

avehicle coding sequestration, and when i -- avoiding sequestration, and when i point out the budget avoids sequestration because of the additional revenues, they said, well, they hope they could vote on it, and my answer is there has to be a republican alternative, if there is one, to see what the options are in that regard. we have had silence on the revenue side from the republican colleagues, and it's that silence that needs to be corrected by this and i hope there's revenues to help us avoid sequestration. we want to avoid sequestration. i think you all are interested in having a bite to eat. we thank you very, very much, thank your staffs, and we'll stand adjourned.

[inaudible conversations]

>> honest contention, spirit of

disagreement, and i believe considerable hot arguments, but don't let anybody be misled by that. you have given here in this hall a moving and dramatic boost of how americans who honestly differ move ranks and move forward tort nation's well-being shoulder to shoulder. >> as campaigning for president this year, looking back at 14 men who ran for the office and lost. go to c-span.org/thecontenders to see video of the con tenders who are a lasting impact on politics. >> how about you? are you out of debt? are you paying less for the things you buy or more. do you really things things can't be better? of course they can. working together, we can and will, make them better. >> c-span.org/thecontenders.

>> we must outsmart the liberals. outsmart the stupid people who are trying to ruin america. >> it's about one country united under god. we are not red americans. we are not blue americans. we are red, white, and blue and president obama, we are through with you. >> around the last table, they can get along and come at our throat as long as we're foolish enough to raise taxes and throw money in the table and then they get along like the scene in the movie after the bank robbery, one for you, one for you, and they are all happy. >> you can clip videos and share them at c-span.org/videolibrary. >> at the white house budget director, jeffrey sientz

defended president obama's budget request before the senate budget committee. republicans on the pam accused the white house of failing to acknowledge the spending in the plan. kent conrad of north dakota said the president struck the right balance between long term deficit reduction and long term investments. this is two hours. [inaudible conversations] >> hearing will come to order. i want to welcome acting director zientz back to the committee who testified for government preference in 2009 and hearing chaired by senator

warner. he was there in his role as the administration's chief performance officer, so we want to welcome you back. today, we'll be examining the president's fiscal year 2013 budget proposal which was sent to congress yesterday. ic the president's -- i believe the president's budget would continue to move the nation in the right direction. under the president's budget, the deficit is a share of the economy, fall from 8.5% of gdp in 2012 to 2.8% in 2022. that represents real progress. it's important to remember the economic crisis that the president inherited. i think all of us remember back. 2008 and 2009 when we experienced the worst recession since the great depression. the economy actually contracted,

it slunk at a rate of almost 9% in the fourth quarter of 2008. we lost 800,000 private sector jobs in january of 2009 alone. unemployment was surging. those are the conditions the president inherited. they were not of his making. he was asked to come in as the cleanup crew. he also faced a housing market that was in crisis with home building and home sales plummeting and record level of foreclosures, and we faced a financial market crisis as well that threatened to set off a global financial collapse. we have come a long way since then. the federal response to the crisis including actions taken by the federal reserve and to be

fair in the final days of the bush administration, they took important actions, the obama administration did as well, and congress participated. those actions successfully pulled us back from the brink. president obama, i believe, deserves considerable credit for avoiding what could have been a second great depression. in 2008, the economy shrunk by 30%. we've had ten consecutive quarters now of economic growth. we see a similar picture in the private sector jobs market. in january of 2009, the economy lost more than 800,000 private sector jobs. private sector job growth returned in march of 2010, and we now have had 23 consecutive

months of growth, with the last month over 250,000 jobs created in this economy. woement to see more -- we want to see more economic growth and job creation, and although unemployment is still too high, it's certainly come down substantially. the pace of this recovery is somewhat predictable because the best scientific evidence we have now is after a financial crisis that takes longer to recover and weak unemployment recovers for a longer period of time. looking forward, i believe we need to remember that we really face two problems. short term, we still are recovering from the great

depression, and that was not the result of the policies of president obama. he inherited that condition. although the economy's improving, we still have relatively weak demands for goods and services which is holding back stronger economic growth. longer term, we face a death threat. job one is to improve economic growth with steps to strengthen demand. simultaneously, we need to enact a credible plan to bring down the debt. our republican colleagues, i believe, have completely overlooked the first problem of weak demand and would actively make that problem worse by imposing fiscal austerity right now. they have focused solely on the longer term death threat. as a result, their policy proposals of imposing fiscal austerity now only weak pes demand that lowers economic growth, kill job creation, and

choke off the recovery. i just say to my colleagues i believe they've got it half right. absolutely we have a long term death threat. we have to cope with that. in the short term, what we have is weak demand, and we also have to cope with that. the republican proposal for immediate austerity fits a circumstance where we saw rising interest rates, but we don't see rising interest rates. in fact, interest rates are at a record low. the problem we have right now is weak demand. here's how another leading economist, the chairman of macroeconomic advisers described the problem in the testimony before the cheat just weeks ago. he stated the number one problem small businesses say they have to deal with right now is lack of demand. they do not say access to

capital, they do not see the burden of regulation. they say their order books are thin. that's what we hear in every corner. the head of ecing o told us that, and that's why companies are not hiring as fast as what they might do. they -- we do need to address the second problem of rising debt. this is where i agree with the colleagues on both sides who made that a critical issue. we should not wait to respond. not by imposing fiscal us austey right now, but by adopting a plan that phases in fiscal discipline as the economy strengthens. we really need an economic two-step. first, we need short term strengthening of demand and investments in infrastructure.

that would put people to work and make america more competitive. second and simultaneously, we should adopt a credible and serious plan that puts us back on a sounder, long term fiscal course by tax reform, reforming entitlements, and by cutting wasteful spending. all of that is required. in his testimony before the senate budget committee last week, federal reserve chairman benanke testified to the two-step approach, and i quote, "even as fiscal policymakers address the urgent issue of fiscal stainability, they should take care not to unnecessarily impede the current economic recovery. fortunately, the two goals of achieving long term fiscal stainability and avoiding additional fiscal head winds for the current recovery are fully

compatible. indeed, they are mutually reenforcing." to address the lack of demand, the president's budget includes a number of proposals that include, one, extending payroll tax cuts and unemployment insurance benefits through 2012. i welcome the fact we seem to have breakthrough at least on the payroll tax cut front. second, providing $50 billion in up front infrastructure investment for the construction of roads, bridges, rail, and airport facilities. third, extending the 100% business depreciation reduction to new investments. as a small business participant myself, i can testify to the value of that. provide $30 billion for school modernization, provide $30 billion for states and localities to hire teachers, first responders, establish and

rebuild finally, creating a new tax credits that had jobs and increased wages. my own evaluation of the budget is that it moves in the right drx. it substantially reduces the deficit, the share of gdp, cutting it by two-thirds of the budget period. it reduces discretionary spending -- put that slide up when you can -- reduces discretionary spending to the lowest levels of the share of our economy in 50 years. actually, in 60 years. you can see discretionary spending drops it, the high was 13.6%, and this brings it down to 5% of the national income. that is a substantial change. this budget also indicates the

need for additional steps. for additional steps to be taken, it's going to take all of us to find some way to come together. i very much hope that even though this is an election year, we will come together on the longer term challenge that we confront. with that. turning to senator sessions for his remarks, and then we'll go to the testimony of our witness and then go to each of the members for their questions. >> thank you, mr. chairman, and for your good leadership and we appreciate the opportunity to work together. mr. ziens, thank you for appearing before the committee. i wish it was better circumstances and we had more money. the president of the united states in my view has no higher duty, no greater responsibility than to protect the american people from a clear and present

danger. every expert and witness testified before this committee have said we're on an unsustainable financial course that can lead to major deficits, a final crisis of the those appearing before the committee have often called for a minimum of $4 trillion in ten year deficit reduction, and many of us including senator conrad, would like to achieve savings beyond that period. really, what we're trying to do and should do is lay out a plan to balance this budget over a period of years, ten years would be a good goal in my opinion. we're not attempting to massive austerity program to balance the budget this year. that can't be done, not realistic, and not what i or republicans proposal. yet in the place of a existential economic threat, president obama submitted a budget yesterday which makes no alteration in our debt course.

on to the president's budget plan using the white house's own numbers, the debt hits approximately $26 trillion. it's an increase of 75% from 2011. 75% increase in total debt. interest costs, interest costs will rise from $225 billion this year to $850 billion annually, and the spending will increase spending overall will not be cut, but will be increased by more than 60% by your own budget submission. this year's deficit will be the fourth consecutive deficit in excess of $1 trillion. meanwhile, medicare and social security for which the president proposes no reforms will comet on the path of insolvency, and if this was not bad enough, no

serious solution to the serious problem, the white house dlitly misrepresented the budget to the american people. the intent seems to be to lull them into complacency and claims his budget achieves $4 trillion in deficit reduction over ten years. i guess we should all relax. ..

avoiding short-term cuts in favor of long-term savings so that is the mantra and the chairman mentioned it but there are no spending cuts, short or long in this budget. now the chief of staff me another false claim this weekend saying that the democratic senate is not doing a budget for the third straight year because it requires 60 senate votes. the law is clearly only takes 61 votes to pass the budget and if the republicans get the honor by the american people to leave this chamber next year we will pass a budget and will be an honest budget and will change the debt course of america.

bye contrast the president suddenly uses accounting tricks to conceal his budget's true cost. for instance the white house repeals 1.2 trillion the budget control act cuts we made just last summer doesn't count that as new spending. refilling the cuts we agreed to in bill all. they rightly -- the budget rightly stops the plan cuts to medicare provided as the doctor cuts, but without any money to pay for it. the budget takes credit for discretionary caps, spending limits that are already in the law, not a part of this budget and the budget pretends that war spending will continue at high year levels so that long a plan reductions in borrowing magically produce three money that can be spent somewhere else. the costs were not paid for by

the dedicated stream of money. it was paid for by the borrowed money. there is no money there to harvest. so i hope we can have a candid discussion today. i hope that we can move past the election rhetoric and the convenient sound bites and talking points. the american people have a right to expect honesty, transparency and accountability from the elected people. they deserve a budget that takes them off of the unsustainable debt course washington spenders have put them on. you're budget does not do so, and i look forward to the discussion today, and perhaps we can reach some agreements even in this election they were at least modestly alter the course we are on. thank you mr. chairman. >> thank you, senator sessions. director, proceed with your testimony, and then we will open up for questions from the members, and again, welcome to the committee and for your

service. this is a very tough job at a difficult time coming and all i for one think all members of the committee appreciate your servers. >> i appreciate being here and i want to speak to you mr. chairman and ranking member sessions and other members of the committee. before i joined omb three years ago i had spent all of my time about 20 years in the private sector, and one thing that i found is that was often helpful to baliles things down to a few key graphics. so i agree to use some graphics here on the screen to walk through the highlights of the president's 2013 budget. i agree to cover for topics. first, the current policy baseline second, the key elements of deficit-reduction, then an overview of our investments in the areas that are critical for the future competitiveness and growth, and finally, the bottom line of the president's budget and how it puts us on a sustainable path.

first the baseline. we believe we have a baseline that accurately reflects current policy in essence in business we would think of this as business as usual. the baseline includes the extension of the 2001, 2003 tax cuts, the state and gift taxes. the permanent extension of the amt and the sg are, the presentation we believe is more honest in year after year. enforcement of the caps in the joint committee sequester and accounting for the future disaster costs other than ignoring them. the baseline results in an annual deficit of 4.7% of gdp at the end of the budget window in 2022. this is where we start out before the policy takes effect. let me now turn to the deficit reduction policies.

last april the president put forth a framework to achieve more than 4 trillion of the deficit reduction. you can see it here. i we to take a few minutes to walk through this. he maintained the 4 trillion of our commitment in the proposals of the joint committee last saw timber and this year's budget is very similar to the september proposal with the addition of the year to the budget window. as you can see on the right on the green bar, the budget actually includes over $5 trillion of the total deficit reduction with the addition of the extra year to the budget window. let me walk you through the critical elements. i'm going to go from left to right to build up to the 5 trillion. first, you will see on the far left $676 billion of savings from the appropriation bills enacted last year including both of the 2011 appropriations in

april and the savings from the 2012 appropriations. next come over a trillion dollars in the reductions in discretionary spending consistent with the caps in the dca. there are $362 billion in the reduction from medicare and medicaid and other health programs that will make these programs more effective and more efficient than $272 billion in savings from reforming them on health mandatory programs in areas such as agriculture, federal civilian worker retirement, the pbgc. these costs are the net of the cost of the new mandatory initiatives. the next category, 1.5 trillion of revenue for deficit reduction including the expiration of the 01 and 03 tax cuts for the highest earners and the elimination of the inefficient and unfair tax breaks.

the $1.5 trillion number is a net number and as we further cut taxes for the middle class and for small businesses. next come 617 dillinger of the savings from the capping and investing in the six years surface transportation reauthorization. capping oco's importantly closes the back door on security spending. and then there are other categories. others the net savings of the 141 billion. it is a bit of a catch all. this includes the disaster adjustments program integrity and the general fund transfers for the transportation that are no longer necessary given that we are paying for them in the previous four. as a result of these proposals the debt service cost decreased by the total of $800 billion. finally, in that small are there are $176 billion of investments in short-term java initiatives that actually cut the other

direction. these are investments. this is the remainder of the 354 billion of the job initiatives that aren't spent in 2012. i want to be clear that we do not count the sequester the total deficit-reduction. we believe that these questions about policy and have proposed that it be replaced by this larger more balanced package of deficit reduction. the bottom line is these efforts represent a total of more than 5 trillion of that deficit reductions. even as we achieve this deficit reduction, and we continue to make the key investments in the priority areas. these include short-term measures for job growth, totaling $354 billion, tax breaks for the middle class small businesses amounting to $352 billion, and continued investments in our long-term rarities. these include education and

training for american workers, innovation in r&d, clean energy and infrastructure. we need these investments and a budget that abides by the very tight spending caps and makes hard trade-offs. let me pull this all together now. on the left of compared the baseline at the adjusted with the results of the president's policies. as you can see and 2022 deficits from the president's policies are below 3% of gdp compared to 4.7% in the baseline. furthermore, debt as a percentage of gdp is stabilized from 2018 and on. this is important for maintaining a strong investment environment. the president's budget replaces the sequestered with a balanced approach to the deficit

reduction with $2.50 in the spending cuts for every dollar of revenue increases. we've made tough choices and we all need to work together to maintain a balanced approach. in closing is a business person and now ask the acting omb director, i believe the president's budget makes the right investments to make us even more competitive in the global marketplace and achieving the declining deficits in stabilizing our debt are critical for business confidence and investments. this is good for business, good for the middle class, and good for america and i look forward to taking your questions. >> thank you, director, for that testimony. let me start out by saying i see the president criticized for not cutting the deficit in half in

his first term. was the deficit for the share of gdp that he had inherited; do you recall? >> was over 9%. >> i believe the first year was 10.1, 10.1%. in 2013 what will the deficit be as a share of gdp? >> 5.5%. >> that is pretty close to being cut in half. what will that be in 2014? >> it will achieve the cutting in half and the exact percentages can get for you but by 2014 we will have cut it in half. >> second question i would have is the question of revenue. under the president's plan, revenue will average what share of gdp over the budget period? >> a little below 20%. >> a little below 20%. >> i just see the fiscal commission which has been lauded for reaching the bipartisan

agreement with a 23% at the end of its budget period during the clinton years revenue averaged about 19.4%. so the level of revenue that the president is calling for is completely in keeping with the wide bipartisan fiscal commission members recommended and what we saw during the clinton years which was the longest period of uninterrupted economic growth in the nation's history. but me ask a second question, third question. the ranking member said the president over the 11 years that is included in his calculation increased spending 62%. do you know how much president reagan increased spending in the eight years of his administration? >> i believe that was 69% across

the eight years of 81 to 89. can you tell us how much president bush increased spending in his eight years? i'm talking about a bush 44 to this point from 2001 to 2009, 89%. >> so the fact is the republican presence over shorter periods of time increased spending much more than this president is proposing so these facts are important president ronald reagan in just eight years increased spending 69%. president bush, george w. bush increased spending 89% over eight years. this president is being criticized for increasing over 11 years the longer period if it

becomes 62% which is less than either of the others. with respect to the question of the statement of the budget requiring 60 votes, i assume he was referring to the budget control act that we passed last year the did require 60 votes. is that your understanding? >> absolutely. >> that is different than a budget resolution to a budget resolution does only require the simple majority. but a budget resolution never goes to the president for signature. last year we passed a budget control act that's a law. that passed not only the house and the senate and of course required 60 votes in the senate, but was signed by the president. so it's the law. let me ask one other question if i could because i am running out of time. the hard reality here is budgets and what we do with the fiscal policy is inextricably linked to

the economic outcomes that this country experiences, and if we look back out with this president walked into, isn't it true that the economy was shrinking at a rate of almost 9% in the final quarter of the previous administration? >> yes, it was. >> is it a fact the economy is now growing in the most recent quarter at the rate of about 2.5%? >> yes. >> said it is a turnaround. it's really quite remarkable from the economy shrinking at a rate of 9% to the economy growing at a rate of 2.5%. by believe the president deserves some credit for helping engineer that turnaround. the same is true with respect to jobs. isn't it true that in the first month 2008 and he, 2009 that we

lost 800,000 jobs in the private sector? >> unfortunately, yes. >> of course that wasn't a result of this president's policies. he didn't take office until two-thirds of the way through that coming and now the most recent report, the most recent monthly report we gained two a third 50,000 jobs in the private sector. isn't that the case? >> yes. so it appears to be the president should be able to ask the american people to support a policy that has brought us back from the brink. and i assume it is the intention with this president to try to further and help create jobs in the private sector. is that the underlying strategy? >> the capture of pullen your statement that it is a two-step. it is to make sure that we

continue this recovery may be sure we extend the payroll tax holidays 160 million americans don't have a tax increase, doing the types of investments the $50 billion that you mentioned in the infrastructure and to modernize the schools and at the same time put ourselves on the pact words deficit reduction, yet by 2018 as dead as a percent of gdp stabilized with the deficit's coming in each year to get coming back to the figure for 2014 down to 3.9 which is not where we want to go with a heckuva lot better than the ten and a half percent you mentioned with the president inherited up front. >> thank you. >> we are going to do five minute rounds and hopefully get to a second round. senator sessions may consume the time. islamic thank you, mr. chairman. putting us on the path to the deficit reduction sometime in

the future we will have a deficit reduction are not achieving deficit reduction and the president surged spending in the first two years in the time of office the chairman didn't refer to when he talked about how much proposed growth of the 62% would include would be a lot more if you included the surge of spending including the stimulus and the 24% increase in the two years in the discretionary, non-defense spending. but i would say that on the cnn program said you cannot pass a budget in the senate of the united states without 60 boats, and of quote. mr. zients, isn't it true that based on the current law which included the budget control act,

the legislation that passed as part of the raising of the debt limit that your budget spends more money than congress proposed to spend through the budget control act process over the next ten years. >> do you propose to spend more money of the next ten years than the budget control act the current law would cause us to spend? >> i think what we have is an honest baseline. a baseline that has sg our, amt patched year-over-year. >> you don't pay for the st are. that's not pay for. let's go back to the simple question i asked you. it does your plan spend more money over the next ten years. if we just reached last august.

>> the baseline -- >> no camano camano. it's been a clear focus on the bottom line to the deficits down to 2.8% to the estimate he will be answering my question. you're the director of the omb. do you call for spending more money -- >> a more honest budget that looks at what is happening in the business as usual basis. each year we are passing. >> i just asked a simple question. >> it is a more accurate reflection of what we are going to spend. >> will it spend more or less? >> it will actually spend less money because of the deficit reduction that we have come and a baseline and reflect of the current policy. >> because of the deficit reduction can only be assumed that caused by increased taxes. but let's go back to that question. you're budget proposes

eliminating the sequester than the $1.2 trillion of spending cuts we all agreed to last year difficult as it was that is a trillion dollar increase in spending is not? >> no, it's not. >> why is it not? we agreed that the current law is to cut and reduce the projected spending rate by $1.2 trillion you eliminate that and that means you intend to spend that, do you not? >> this is a very important point. the president is not proposing that it go away. it is a very important forcing function for us to do deficit reduction. so the car sequester would be replaced with a balanced approach to the deficit reduction. the sequestered itself is bad policy. the sequester is bad policy on the defense side. $500 billion. >> we have looked at the numbers in your budget.

door budget increases spending by $1.5 trillion more than the budget agreement last year and it is in a lot of different places. you do make cuts in some places out there, but the net is to increase spending more than the current wall and that is not the path we need to be on and the increase in the taxes you have proposed have almost $2 trillion is used to pay for that spending. >> let me be crystal clear we are complying by the dca the $2 trillion of the deficit reduction from the b.c. a and you've brought taxes a few times. we absolutely believe in the balanced approach. spec let me ask you this, if you are incorrect saying you do not increase spending in the current law, would you consider resigning your office? >> let me go back to the balance. >> have we looked at the numbers? are you that confident in your -- >> i am confident with our

baseline which accurately reflects current policy in the business as usual that we have a deficit-reduction of more than $4 trillion, and we did in a balanced way for every $2.50 of spending cuts there is a dollar of revenue. that is a good and a balanced approach. >> mr. zients, there is no spending cut in this budget. this budget increases spending. surely you know that. it increases taxes to reduce it to say you cut $2.50 in spending for every dollar in the tax increase is beyond. >> we have $360 billion of cuts from health care to believe to entered $70 billion of cuts for the mandatory programs, proceedings from oco that is scored in total is $2.50 of spending cuts for every dollar of revenue. that is a balanced approach, and that is the approach that we

should have. >> mr. chairman, this budget taxes more and it doesn't offer the debt course of america, and i am disappointed we cannot get an honest response to these difficult questions at this important time in history to this bixby through the senator for his questions you senator marie? >> yes, think you so much for your service to the country. we appreciate it in this difficult time. as we all know, budget or about twice is about priorities. they are about making investments in the workers and families and our future and they are about making some tough decisions about how we pay for those investments and reduce our debt and deficit. i spend a lot of time tackling those issues on the joint select committee on deficit reduction, didn't get the result that we were all hoping for, but i think our work really highlighted by deep divisions on this issue and the sharp contrast between the

two parties on the path forward. i feel very strongly deficit reductions shouldn't simply be put on the back of the middle class to be i believe that the wealthiest americans and the biggest corporations should contribute their fair share as well as we try to work our way all of this. i do believe that we need to cut responsibly where we can and i think we all need to remember that we have in putting a trillion dollars that we've cut in the budget control act. that can't be all pretty balanced approach is what every single bipartisan group that has tackled this has advocated for it is what all of our constituents expect and deserve few so as we were on the potential changes to the bipartisan sequestration process, i believe we cannot simply add to the burden of the middle class again. they paid a lot. the only fair way to change this process is through shared sacrifice and a balanced approach. so it's that important budget

value balance i want to start with today asking you about the president's budget proposal. so my question to you is how does your budget tackle this issue of balance and fairness for the middle class, and what are your specific proposals to make sure that as we attacked the tackle the goals of an investment in the future in the deficit reduction we are calling on everyone to share in the sacrifice not just the middle class and most laudable. >> to read the balanced approach has been central to everybody's recommendation here including the some symbols recommendation and its central to the president's budget and asking the wealthiest americans to pay their fair share that 1.5 trillion comes from that and comes from ending some corporate loopholes and and necessary corporate tax expenditures like not taxing the interest of

ordinary incomes, corporate jets etc. come asking everybody to pay their fair share of raising revenues is a central part of that and at the same time there will be no tax cuts for the middle class and no family earning under the to under $50,000 telephony tax increase. there will be tax cuts including the es otc and extending that. we also -- >> for those listening, you know, when we use these acronyms, people listen and have no idea. >> the american opportunity tax credit that allows families to get up to $10,000 of tax relief for college and making college affordable is essential emphasis in this year's budget continuing the pell grants at their a higher level making the tax -- giving the tax credits just described encouraging the colleges and universities to stopped the year-over-year

tuition increases all important for the middle class to be at the president has done about three and $50 billion of tax cuts for the middle class. so essential to this budget is balanced approach. i talked about the $2.50 of spending cuts for every dollar of revenue making sure that the wealthiest americans do their fair share making sure that we give the middle class a fair shot. >> thank you very much for that principle. i'd think it's important for america today where so many families have really been hit hard in the last two or three years with their house prices going down and their jobs being cut that they have contributed to trying to get this economy back on track we need to make sure we have a fair and balanced approach and i appreciate the president's emphasis on none value. i did put to rest of the issue of the sequestration and the cuts to spending i believe that the va medical care spending is exempt from the future cuts but there is some ambiguity between

the budget act and existing law, concerned that by not selling this issue now we are failing to provide evidence today with the clarity they deserve, so i wanted to ask you what can we expect, when can we expect to weigh in on that issue? >> first of all like to emphasize this year's budget absolutely recognizes the importance of our veterans. >> think you for that. in terms of the sequestered, it is bad policy. it's bad policy all around. it would lead to cuts on the defense side that go across the board in discriminant totaling $500 billion. we have similar cuts come similar magnitude on the discretionary side and elsewhere which are not appropriate. so overall it is that policy. right now we're focused on replacing the sequester with reduction. unfortunately we reach a point where we need to do more under the sequester we will address

issues like the ones you raised but right now we are very focused on this bad policy and should be replaced on the balanced deficit-reduction to this but i appreciate that but as soon as you can let us know what not. >> thank the center. senator crapo. >> i want to go back to an issue that has been discussed here and other places regularly and it is this notion that it's not time yet to start controlling these spending sides of the equation. we still need to keep stimulating the economy and keep the government spending going so that we can generate jobs. and the two-step approach to the chairman mentioned and that you have confirmed is the approach taken by this budget. i have a concern about that. as you know, i'm served on the president's commission on the simples bowles commission, and that adopted the same two-step

approach. this was in december of 2010, and we agreed in that commission report that we would delay the caps on spending in the spending restraints for a year or two to allow for the stimulative impact on the economy that was claimed to be needed. the concern i have that it's now time to prepare the budget, and we still hear it isn't time yet to begin the austerity part of controlling the spending of the federal level but we still have to engage in the spending side. we are not there yet. my question rhetorically, let us to answer this but my question rhetorically is when will we ever get to step number two? and the question i do want to ask about this budget. i've seen a lot of budgets in congress, and i've analyzed a lot of congressional budgets. and one of the biggest problems i think we have that we overlook

every year as we have a budget that makes all kinds of proposals over a ten year period of time but it's only the first year of the budget that really counts. is only the first year of the budget that congress will operate from in this year, and it seems that in the first year of almost every budget that i seen in the congress established there's more taxing and more spending but the control of the spending doesn't have had been and this is the question i want to refer to you. two years ago the president's budget claimed billions of savings by freezing them on security discussion are spending and fiscal year 2013 at $446 billion. one year ago the president in his budget proposal claimed even additional savings in that same loan security discretionary spending category for the year

2013 saying that in fiscal year 2013 we should get to an even lower level of the three injured $97 billion. now we are looking at the fiscal year 2013. it has arrived. and the president proposes not the 446 that he said in his budget two years ago, not the three injured 97 that he said in the budget one year ago, but 501. if i read the numbers correctly. the same dynamic has occurred again in the circumstance in the previous budget we see in the future we will fix things and here is how we will fix them and when we get to the future budgets and land behold the fix is gone and the spending is back in place. can you respond to that? >> i feel on the discretionary side, we are abiding by the caps which as you know controlled the

discretionary spending. if you look at the dod as an example, the fit together a budget that follows we do strategy, and the budget as a result of the strategy actually results in the 1% decrease in the dod spending, not counting oco. oco is down 5%. if you look across the agencies beyond dod, half of the agencies have flat or negative spending in 13 verses 12, so this is a budget that bible argue has a lot of spending control. and at the end of the day the bottom line as i mentioned earlier is we are down in 2013 to 5.5% of gdp, and then in 2014, 3.1% of gdp. we need to get the deficit soared and have the debt stable as a percent of gdp but we are on the right path in the budget. >> you adjust to the baseline which is what allows you to make

the claims you are making in a number of contexts. let's forget about the baseline, let's forget about the percentages and all of the arguments that have been made about how we are going to be deducing the percentages of spending. is it not activate to say the president proposes in this budget for 2013 more spending than he proposed for the same 2013 budget last year and the same 2013 budget the year before? >> if you have to go back and benchmark those numbers. i don't have them in front of me. why can tell you is this is a very tight budget and certainly a budget that abides by the bca caps which has a lot of trade-offs and i think the most powerful data point -- >> the sequestration -- >> sequestration i went to be very clear in the sequestration is not eliminated. the president believes it is a very important forcing function. in the fall the congress wasn't

able to come up with a proposal. islamic the kit you said your word was replaced. >> the 1.2 trillion that the sequestration would create through what we see is bad policy in the dod area the $500 billion across-the-board cut on top of the efficiency that we have already realized is bad policy and the discretionary -- >> so it will be replaced with the balanced deficit-reduction. we will have the 1.2 trillion. it's mutually assured destruction we've got to get it. no one wants the sequestered -- >> the $1.2 trillion tax increase are you not? >> the accommodation of the tax and the overall $2.50 for every dollar increase in revenue. >> i can tell you why do have the numbers and two years ago it was for 46 to one year ago it was 397. this year it is 501. the same is happening. the budget proposals go up in the year that we really are doing the budgeting.

>> let me just say that i have served with senator crapo of the commission with a group of six. i spent hundreds of hours with him. ki is a serious person, and side to in the group of six we devised an enforcement mechanism that's never been used before in part to get out the underlying issue that he raises which i think those of us that serve on the budget committee for many years whatever the merits of the current budget or the demerits, the underlying dynamics that he has stressed in many hours i can tell you in the fiscal commission and the group of six and he's right that enforcement mechanisms have almost always had loopholes, and i will tell you the congress is genius at getting through the loopholes. >> i appreciate your saying that, but i wrote the gang of

six enforcement mechanism on might have here because i would love to see the president endorse at least that much of the work we've done. >> i would just say the gang of six proposal the strength was good enforcement but one of the things we know if you pass a sequester the requires a 1 trillion-dollar reduction and you waltz into the congress less than a year later and propose to averitt it doesn't give confidence that anything we ever do would be followed through. i know what you are suggesting. >> but if i may -- >> you have other cuts and other tax increases, but you have walked away from those cuts and replaced them with fundamentally tax increases as the senator just said. >> i don't think that we've seen the specific proposal as to how to achieve the 1.2 trillion that is anything other than the sequestered itself, which is bad policy, and i think that we

could all agree that is bad policy. what we are proposing here is to replace it with a balanced approach in the president's budget has more than, could become 1.2 trillion to replace the sequestered like to be crystal clear the president believes the sequester is important is a forcing function of deficit reduction. islamic we cannot ad hoc this. >> senator cardin? >> thank you, mr. chairman. i think that we can learn from our past experience, mr. chairman, and that is in the 1990's we had a serious budget problems. we have a balanced approach to deal with, we enhanced revenue for the deficit reduction and reduced spending and we were able to get the budget not only under control but we got the budget balanced and salles

economic expansion in the country and job growth and everyone benefited from that. so, i think the chairman's exchange with the director has to getting our budget in the deficit manageable should be our goal and if we can reduce the deficit by one half as a percentage of our economy, that is progress being made reflected in our economy and we would benefit from it. so why did that is an extremely important point and i appreciate the fact hell you are balancing the revenues and spending over the period of time. i want to talk about the revenue for one moment because i you understand that there is going to be a lot of comment about it, but if we were to use the current law as it relates to the revenue, the previous tax cuts allowing them to expire and not expanding the extending of the alternative minimum tax, would

be the revenue that we would impact versus what you have in your budget over the tin your window? do you have those numbers? >> you are suggesting if we were to allow the middle class tax cut. >> i'm suggesting if we were to compare this to the current all rather than the current -- if we were to allow the current law to take effect rather than continue the current policy as it relates to the revenue issue. islamic i believe the cbo has done that work. we don't spend time on that because we believe that no family with less than 20 to $50,000 of income should have any tax increase. in fact we believe that there's an opportunity for the further tax cuts. we believe the tax cut should expire for the wealthiest 2%, but that is central to having a balanced approach. >> i support you on that, and i think the point is senator murray made about the middle class is extremely important.

the middle class needs help and they need help as far as the taxes they paid and they need all the college expenses, and i strongly support what the administration is trying to do and continue the grants. college costs are becoming greater. my point is when you look at the revenue number it is my understanding that the revenue that you are bringing in would allow the current law to take effect we would actually have more revenue coming into the treasury than what the president is proposing. >> absolutely. >> and i agree. none of us want to see that happen. but i think the point is this. we need to come together in order to make sure that our tax policies are sensible. we all like to see the reform. but the revenue part of what the president has in his budget is actually less revenue coming into the treasury than if we were to allow the current law to take effect. >> that's right. in the returns us to a point for that, for the wealthiest 2%,

that brings us back to that period of time you were talking about in the 90's, tax rates would be very similar. having been in the private sector in that period of time i can tell you there's plenty of incentive to be in the entrepreneur to grow e-business to make investments, and it is essential to this approach we are talking tough to the amount of revenue to 1.5 trillion allows a balanced approach is good for a minute - and the middle class. >> i would add one more lesson when we are able to get the budget under control and have a surplus. we gave the predictability to the private sector. the new that they had confidence that the budget would be there and the government policy would be there and again it allowed for the expansion of our economy to do think it is critically important that we act. we don't let the current law take effect because the impact it has on the middle-income families. but i think the president has given a balanced approach, and

learning from history i think that if we allow that to take effect, we will see the type of progress in our economy that everyone will benefit from coming and i think that is what we are all trying to do. >> we have to achieve with this launch it achieves which is to stabilize debt as a percentage of gdp. that will allow us to continue to be the place for american businesses and global companies to invest. 64 mr. sherman. >> senator gramm to expand thank you mr. chairman. there is much being said about a fair share people need to pay their fair share when it comes to taxes. what is the fair share? can you put a number on it? >> i think rather than putting in number on it let's look at the in critical data. >> my question is let's put in number on it. >> i think the number that the president has in the budget -- and again, the president prefers to do the tax reform.

the tax reform takes time, so having the bush tax cuts x higher -- >> the president prefers to do something that is -- why doesn't the president lead? you have people on this committee that have led, and the of their brains beat of and i admire them all on the gang of six. i don't buy the idea the president can't lead. why didn't the president have a reform? >> the president has specific proposals to answer your question in which we to could operate from the 35% back to 35% which was the level that existed the 1990's. >> should be higher than 39.6? >> i think that the 1.5 trillion which was raised here primarily through the individual taxes come some through the corporate taxes represents a fair share. the ratio the i talked about -- >> said the president believes in you believe that the number

that we should be shooting for is 39.6, not 35. >> that's right i think the president believes -- would is a deutsch to the long-term fiscal outlook if we told everybody in america that we now found a fair number, 49.6, can i go home and tell people the we have solved our budget problems? >> let me explain the tax reform peace. this budget is very specific proposals come 45 to 39.6 capping deductions for the americans is working to under $50,000 of income at 28%. at the same time, the president has put forward the principles for tax reform which would simplify the tax code, were the rates. >> so when we say a fair share, we really need to reform the tax code to have a fiscal impact to be hispanic that's right. >> so when people tell me you have to pay your fair share, really when you need to say is

no you need to reform the tax code in a way that gets us where we need to go as a nation and 39.6 versus 35 isn't going to solve the nation's problems. >> i think that 39 -- the specific proposal has us return to where we were which was a successful system. >> let's talk about this got into the trillions in the future. do you agree social security trust fund is going to be exhausted in 2036? >> according to the actress is all went through 2036 tikrit >> i'm not beating up on you because we have all failed in the area of the reform. i just trying to express what i think is the elephant in the room and the gang of six and the others, simples bowles did try to do something about this. is their anything in the president's budget that adjusts the age for retirement? is their anything in the budget that adjusts to the social security benefits? >> nope. the president doesn't believe --

the immediate problem in the social security at the same time the president has put forth the principles for social security reform and eight too needs to be done in a balanced way. >> if we do nothing with medicare and social security medicaid how much of the revenue stream in the future do those three programs consume? >> across this budget which is the next ten years with the president's budget achieves is a deficit below 3% and a stabilization of the gdp. >> to the president's budget do anything to save social security from going bankrupt? >> social security solvent through 2036, and i believe the president -- >> is he against personal accounts? >> the president looks forward to sitting down with congress and making fundamental social security reform. >> does a millionaire in this budget receive subsidies from

the government when it comes to the medicare premiums? >> the president has through the aca -- >> if you are receiving the the medicare benefits, you have a million dollars of income, do you receive subsidies from the federal government under this budget? >> you are entitled to medicare. >> to you get a subsidy to pay the premium? >> you pay a large portion -- >> is there any subsidy coming to the millionaires under this budget? from the medicare premiums from the general treasury? >> the medicare compact with seniors is maintained. >> so the compact is that we are going to let millionaires go to be subsidized forever, is that the contract we signed? >> that is the contact that we have to hire -- >> aarp -- i didn't sign that compact. i don't believe that. i think i should be paying the full premium.

but anyway, thanks for coming. >> next, senator warner. -- before mr. chairman. i appreciate you being here. i do concur with my friend from south carolina that we do need to take on a comprehensive approach to the long-term deficit issue. i see one of the statistics are thrown around but if there is to take away i think constantly i come back to which is the last couple of years we have seen spending close to 24, 25% of the gdp and we've seen revenues in the 15% range, 75 year low. if you look any time over the last 75 years anything close to the balance has been when the revenue and spending have been

in that basic 1921% range and i guess the feeling i have is it will require us to take on the changes to the entitlement program and i do wish we would have seen more. it will also take us looking at the revenue half of the ledger as well. i guess one of the things i want to take a moment on, and i indus and the administration in the president's reluctance and the need to phase and appropriately long term deficit reduction. i think we've seen in the press today the u.k. potentially being put on the credit watch because they may be moving quickly on the path. one of the questions i would like your comment on is what should be the economic indicator and growth number, gdp number, jobs numbers, but have you that

would allow us to start phasing in the dramatic and comprehensive deficit-reduction one of the things i concerned with mr. truman is i.e. understand and probably both sides of the nabil do that the payroll tax cut at this point while quite popular does also have some current stimulus effect. i am afraid at times we need to be hoisted on our own language at some point and eliminating that would be viewed as a tax increase at some point in to this year going forward personally would like to see if the economy continues to improve that automatically phase out. i am concerned that as well it looks like the house leadership now after a great deal of talk about fiscal responsibility may try to extend that without paying for it of all people i think that is totally irresponsible and against the grain of everything that this

committee both the chairmen of the ranking member have been about. all i personally would be opposed to that. if we are going to do it on would pay for it. but i guess what i am asking is what should we look at as the metrics on economic growth that would allow us to take on the deficit reduction with the revenue side increases and the entitlement side reductions to get us back in the greater balance. secure reaction, senator warner, first we talked about the 19 to 20% range that is exactly where our budget is. so at the end of the budget window we had the 20.1% and the 19 range through the window, so that we agree is a historical range that has worked and one that we need to get back to. second i want to emphasize the budget has a declining deficit year over year to get below 40% in 2018 and to the point we

stabilize the debt as a percentage of gdp. on payroll tax we think it's essential. it can't have a tax increase on 160 million americans at this point in time. we are starting to recover. on an plan is 8.3 which is never wear it was but not where we need to go. i think we feel absent any major shock to the system once it is extended through the end of the year with. >> paid for? >> the most important thing is that it be extended and the conversations that many of you are involved in. think it's important we have on employment extended and the sgr. if it should be done and possible it isn't a time we should afford a delay. and look forward to signing the bill. >> i didn't hear the answer whether it would be paid for or

not. the other question i would have is what are the indicators of one week a phase that helped or other continue the deployment i think we believe that the president's policies are enacted a year from now would be below 8%. we look forward to the gdp growth, and at that point we can begin to pick it towards the deficit reduction. >> i thank the center. senator portman is next. a 64, mr. sherman, and welcome predictable quick questions for you. senator reed recently said we don't need to bring a budget to the floor this year. do you agree with that? >> i think the most important thing is that -- and it just yes or no pity >> the congress act and we pass the president's policy.

>> we should take a budget to the senate floor, yes or no? >> i think that the mechanics and the process are not my area of expertise. >> i will take that as a no which is consistent with the white house has said. i find it pretty amazing. >> as the chairman said -- >> second question. >> what do you think is the most significant policy issue facing the country in terms of the fiscal policy what is the single most important thing in terms of our fiscal posture? >> i think it is actually two things, the short term and the long term. short-term is continuing its recovery and we need to make sure the payroll taxes are talked about and other initiatives like transportation, schools. the second is driving down the deficit to the sustainable level, and i think that we need

-- >> on the policy areas what is the area that troubles you the most in terms of the fiscal posture? >> it is getting the balanced approach. if you look at the revenue right now the revenue is much below where senator warner says it needs to be and we need to continue to bring down our spending. >> okay. i was hoping for something a little more specific to revive asked that question of a lot of folks including the director sitting in your seat and the question with the one policy area which is health care and entitlement. i know you come from the management side, and welcome to the budget. >> i do have some background in health care from the private sector to be an estimate that it's important to to get the budget i think it's difficult not to see intimate side and the mandatory side. we are borrowing about 40 cents of every dollar spent on the federal level. we have a trillion dollar deficit in the last year and another this year. we have already had a downgrade.

as was mentioned earlier by senator warner we are looking at a fiscal crisis on the doorstep, 15 trillion-dollar debt historical levels we're spending more than we have in this country as a percentage of gdp spending more than we have since world war ii. so, i would just like to suggest having heard a lot of the conversation today that this doesn't seem to be the urgency that i would hope for particularly with regard to the mandatory spending side. the percentage of spending to gdp on the mandatory side this year is about 65% 1971 rose 42%. the end of your budget window tuna with the percentage of gdp will be on the entitlement spending mandatory spending, this includes social security, medicare, medicaid, and interest on the debt. 42% of 1971, about 65% now.

what would it be at the end of the tenure window? >> i don't have a figure in front of me. >> its 78%. think about the budget. i have some charts here and win you look at this this is as a percentage of the budget not just as gdp but as the budget, so the percentage of the budget we have gone from 42% to hit with in 1971 that included the great society programs and so once a there was a big expansion in the 60's and was in the 20's. then we get to the mid-60s now and we are going to 78% and when you look at it there is nothing as senator gramm indicated on social security, nothing even though we are in the cash deficit in social security and have the growth of medicare what is there on medicare on the benefit side and during the next term of whoever is president, so the next four or five years.

..

>> the present and that medicare exists, the forces that opposed medicare initially and that have resented it cents are still out there. there is enormous the new to the certain sectors in the private sector of turning medicare over to private control and giving people vouchers and sending them off into the private health insurance industry for instance would be a sycophant windfall i expect for the private health insurance industry. so, i think it's important that we recognize that political fact, and recognize that the debt and deficit problems that we have can be used to become a

leverage vehicle for this long standing opposition to resentment of medicare and the desire to try to disable or change the government program. we saw the helpful changes to propose and pass by the republican house of representatives i believe very

strongly that there is a efficiency problem, a quality problem, and information technology problem and and incentives problem that runs throughout our health care system. medicare is seeing its cost go up, but the defense budget, secretary gates just testified health care is eating his defense budget of life on the close the phrase he used to the private sector is getting clobbered with health care costs increases. the va is seeing its cost go up in health care. there is a systemic cost problem that doesn't just land in medicare, it touches on all of the different elements of our health care system. we weren't 18% of our gross domestic product as a country on

health care. the next least efficient industrialized country competitive of ours is at 12th. we are 50% more efficient at delivering health care than our most inefficient industrialized competitors. and when you put the commonwealth fund measures of how good the care is that we are getting, the outcomes are we are not better than they are. we are actually worse in some areas. so there is a huge opportunity i think that i believe the administration needs to seize. i think that a lot of good work has been done already, and we are working on the help committee to put more focus on the implementation of the reforms that need to be done. but here's my question to you. you are now in charge of the omb, and you are an important emmerson remember of this administration. i a understand perfectly well from the discussions over the years in the hearings i wouldn't be over many years that because of the nature of the reform that

is required, it's not something that is actually score a goal. it is hard to calculate a score for how this works. in certain very well-developed areas like the hospital readmissions being able to calculate narrow ten-point scores but as a general proposition, we are embarked in what they called an experiment, and innovation, and it is hard to see around the corners of innovation. the fact that you cannot calculate the score does not mean that you cannot set a goal, and i will continue to urge this administration to move beyond the standard that is set for itself of bending the health care cost curve which to me is a metric-free standard and try as the different elements of the affordable care act implemented as we learn more about this and

as success out of kaiser and luther and palmetto and private health organizations across the country prove this proposition with savings and improved care that he will push -- i know, as you said, i appreciate you can't calculate a score you can set a goal than bending the cost curve. ..

>> we need to have those productivity gains. >> thank you for being here. you have a tough job. we appreciate your time. the president has talked a

lot about fairness. in your judgment, in the interest of fairness, but percentage of the american people should pay no net income taxes at all? >> i think that is a hard thing to put a percentage on. we want to grow the middle class. >> but it is about half from a now and this budget increases that number. i can only infer the belief is that a fair system is which more than half of all americans pay no income tax? >> it is well in -- constituted and if you% and we ask for that top% to pay their fair share. >> is that consistent was what they paid? >> that is not all. >> do you agree with the white house chief of staff it takes 60 votes to pass the budget in the senate? >> it takes 60 votes.

>> noverco the budget resolution. it is 51. the clear and unambiguous fact that democrats who said they could pass a budget if they chosen to exercise some leadership of pursuing a budget? >> there is a lot of leadership involved with the deficit reduction. >> i want to commend the chairmen who was marking up this committee that is the responsible thing to do but i will be extremely disappointed if the democratic majority goes another year without laying out the case to the american people how much money they think we should spend and in what categories and where it should come from. >> beyond profit the most important thing is the outcome to getting policy enacted law.

with the balanced deficit reduction we look forward to the president's policies to we put to into loss. >> part of the problem is we have not addressed the big policy issues that we ought to. when i look at just a few categories of federal spending, as social security, medicare, medicaid come interest on the debt coming due know how much they grow over the tenure idea? it is almost eight per cent per year compounded. i do know that to your own forecast for gdp given the very growth policies that you have in their the nominal gdp growth is nowhere near that level for about seven owe is even arithmetic tech -- possible to sustain growth of big government programs that is

consistently or always higher than the economy growth? >> taking piece by piece, with health care the president, congress passed in the affordable care act which the cbo scores at $100 billion of savings the first decade in this budget puts forth $360 billion of health care savings on the social security side not our immediate problem at the same time the budget stands ready to address social security and the root cause of the demographics, baby-boomers, and we view the budget as a very important milestone of real progress pratt the end of the day more needs to be done. to achieve this low of deficit reduction. >> this is an extremely

disappointing approach. what you ran through is not matching the numbers that i cite. in a matter what savings you attribute to what is proposed committees programs are still growing faster than anything that is sustainable. anybody who looks at this honestly or bipartisan commission comes to one conclusion. even the president acknowledged that mandatory health care spending is the problem in this president refuses to propose a solution. this is extremely irresponsible. what you are doing with the huge tax increases jeopardize is growth while not addressing the fundamental driver of the deficit. that is a huge absence of leadership. >> senator begich? >> thank you. somewhat entertaining today. thank you for surviving the first seven rounds of conversation.

first, more of the statement because people who watch this, and the assumptioassumptio n is magically if we had a budget we would vote for a budget then it goes to the floor in voted on in in theory the appropriators would follow the budget and the president goes fourth. that is fantasyland. the president's budget, talking to the people who are watching they think there is magic which is the budget process to lay out expenditures of the federal government. set aside we write to our own budget and the appropriators set it aside the we appropriate money and the president must spend. is that fair? it is great all of the show and tell but it is not reality. the people that are watching us believe we have a budget we will take it and amend its and vote on it.

that works. but it is appalling. i knew the chairmen says to follow its but just for the education of those coming it is great show and tell today but the fact is that the end of the day it is a whole different process but i want to make sure. thank you for that very decisive answer you gave on that. second, asking for a document if you could produce we have done one with it is interesting. the president's budget over the last several years when the president proposes day budget there is said deficit built in under the last and this administration than the cbo goes into a room to magically come up with another number than there is reality at the end of the year. i will give you an example.

2008, a 2.9 billion dollar budget proposed deficit $240 billion. cbo 226 is really the deficit and it was 459 billion. they were off 1/2 and the administration was off 1/2. then the following year 3.1 billion, 3.$1 trillion budget deficit request of 400 billion. cbo says it will go down 342. actually it went out 1.4 trillion. i want to make sure and get a chart with those lines to know exactly at the end of the day i want the members to be confirmed. >> we can get that. >> all the way through 2006 through today. what is interesting if you

see the surge in spending, looking at the actual budgets, 3.5 trillion were approximately 3.8 trillion or 3.7 trillion. it has actually slid out a little bit. i have seen a surge. if you have a tsunami it is like wiped out a slight increase and yes there was a big line because rewritten the worst recession in the country so if you could show me come in the american people need to understand lowered produce that it is very important and just to clarify your not repay cents a share placing the automatic budget cuts but if

they don't have been here is another suggestion. then they are happening? >> absolutely. >> the. >> but if we don't do something your budget would have to adjust in some ways you try to do that but if we don't act we're out of money, but we don't spend it. is that fair? >> yes. it would be a terrible outcome of that is how we did the spending cuts but the president is committed. >> i say automatic budget cuts because nobody understands the other words that we use. with its 2011 budget control and under section 255 the veterans administration was exempt from the automatic budget cuts but then it is a process to be reduced.

could you send clarity? are they part? finreg this question and came up earlier. >> i apologize. >> we're not at a point* where that matters but we will work on that. >> thank you for letting me go on mr. chairman. zero when the doing the assessment of analysis if there is a military bracket put into place the employment impact york defense could that come down with reality? >> thank you. >> senator john seven? >> i have a graph that will show you the surge of spending and to answer the senator sessions question. >> i will wait for the zero when the. no disrespect to make this comes right out of table s1 from the obama budget last

year and table s1 from the budget this year called total outlay over 10 years. in the nineties we spent $16 trillion. the last year's three spent 28 trillion. last year's budget so a spending of 46 trillion. it shows spending of 47 trillion. this budget's been smaller than the baseline. i have a question and you claim for a trillion dollars of deficit reduction but last year it shows total gross federal debt in the year 20201 am projecting 26 point* $3 trillion. this year's budget shows total gross federal debt at

$25 trillion. but that we have 900 billion in the first tranche that uses that up. verges the other 4 trillion come of deficit reduction? >> that is the sequester money which we believe comes through a balanced approach then there is $2 trillion. >> that is the segmented talking points but if you look at the growth one year vs. another last year at 23 point* six this year shows a the 25 billion. >> we have a baseline. >> we reduce the deficit by four jillian dollars because that debt level with the chilean mine is 900 digit -- 900 billion

you should be you above 24 trillion if we were really reducing deficit? to make we take into account what is truly business as usual including the baseline. >> what we are not doing is address chain said deficit and not even close. >> is being reduced for business as usual approach spare makes everybody in the stands we're not reducing the deficit by $4 trillion in this budget. it is not happening. and response to what is a fair share you quote a couple figures. you said it is a fair share and you are satisfied. democrats never come again saying the rich have to pay more. they're fair share. i did not come prepared to put this on a chart but paul

ryan has done the effective job with health care law marginal tax rates rising above 44 point* 5% that is above the fair share? >> so the prior question. >> i want to move on. use of the top marginal tax rate is the fair share? >> but with the health care law, we're at 44 point* 5%? that is above the fair share. >> we talk about ordinary income rate. the president suggests 35% which was enacted to go back up where it was. >> then some with obamacare not get out. then another way you said it is fair is if we went back

to the top 1% shared during the 90's clinton administration. the average is 32 point* 8% of the tax burden under bush's 36 .7%. 2007 the top 1% paid 40 .6% which is a larger share than the entire bottom 95%. you say that is not quite enough. >> the root cause is tremendous wealth accumulation by a few and the middle class. >> again, we have a very progressive tax rate. one of the reasons we have a recession we have such off revenue because it is so progressive but not fair enough that the top 1% paid more than 40% and more than the entire 95% bottom.

>> it is fair bns situation we need deficit reduction it should come in part from revenue the president produced -- recommends. >> i know that. >> that is a fair share the wealthiest 2 percent should pay their fair share with no tax cuts on family is earning under $250,000. >> senator? >> good morning. senator hutchison from texas and die have had quite around with the zero nb and the two of us having the responsibility for passing them massive bill back in 2010 then to go through the process to get it funded.

basically nasa had, and not until the head of the zero men became and met with us, and nasa basically had stonewalled that omb had stonewalled the budget. since you are now the acting director, i think of the constructive dialogue that we have with having met with the congress and continuing the discussion on nasa funding so that there were a certainty in the program, i would like to know what your attitude is about continuing those discussions? >> it is a difficult budget environment. even in this budget environment. what we have done is to

honor the 2010 discussions around the appropriations for the balance between things and the international space station and. of love to continue those dialogues. >> i believe that you have. i think the budget was basically a flat line budget and given the cutting edge agency of research and development that it is committed past have some certainty in those programs. but when there is a complete lack of dialogue with zero when become a that is what makes it difficult. i want to raise the issue that has been the case in the past in until it finally got to the point* that as the director, he understood we were going nowhere, we finally had a meeting of the

minds between omb, the white house and congress to make make sure we continue this dialogue is. >> very good. i want to ask you about housing. we tried a bunch of programs. we tried the home affordable modification program. we tried the home affordable refinance program. and then the hardest hit fund. what makes this most recent attempt to help homeowners different? >> obviously this is a hard problem with the housing market and it serves to stabilize period needs a lot of work. i think the settlement of last week is important that will get money out to approximately 2 billion homeowners that is much needed to