practice. this may be the last question. >> with the vote legal foundation, national security cases in the supreme court until 2008, and this is not the only case they took which is the clapper case in which they are going to reverse a lower-court decision. and why the court seems much more reluctant than they did previously. they have greater faith in the obama administration and push

this. >> i know that the log was reported in some detail on habeas litigation involving detainees and over a fair number of decor for various other judges. no willingness to wade into that. the clapper case, a peripheral question, to have standing of procedures, and an interesting case and a big-ticket case. base could infer from the fact the court has not waded into the detainee cases that the supreme

court is generally comfortable with the way the d.c. circuit has handled the issues. there is no indication of what they're comfortable with. [applause] >> please stay in your seats. flip-flops [inaudible conversations]

>> 5 one to welcome those of you who joined us -- i am roger, director of the cato center for constitutional studies which is post institution today and also welcome those in the c-span audience who may have just joined us for the lecture. the lectures named in honor of

kenneth simon, pittsburgh engineer who was devoted to furthering the thought of the american founders. practicing attorneys to the podium, enduring constitutional issues and the first simon lecture issues on constitutionalism given by douglas ginsburg, and since then the lectures have come from something ranging from property rights and progressivism and more including privacy. and the chief judge of the ninth circuit and the lead as a in the supreme court review which has come out for those on the c-span

audience, and going to cato.org. next year we will have this year's simon lecture leading issue. we include the second day of these lectures and distinguish the speaker, the hon. paul clement, and will appear regularly before the supreme court. he is currently partner in washington although taking him far and why the. he served forty-third solicitor general of the united states from june of 2005 until june of 2008. prior to the conversation of solicitor general he served as acting solicitor general for nearly a year, as deputy solicitor general for three years and seven years of service

is the longest period of continuous service, in the nineteenth century. he argued 16 cases before the supreme court including the case with which we began this conference today. mr clement received his bachelor's degree from shore -- storage town university service and master's degree in economics from cambridge university. he graduated from harvard law school as supreme court editor of harvard law review. following graduation, and the u.s. court of appeals. and he went on to serve seat chief counsel of the subcommittee on the constitution and property rights is subject

today is intriguing lead in title october term 2011, a constitutional moment. please welcome paul clement. [applause] >> thank you for the kind introduction. great to see the cato institute. is an honor to be here at the podium presenting some thoughts on october of 2011. constitutional moment. as roger alluded to i have the distinct pleasure of arguing the challenge to the affordable care act on behalf of 26 states, the fact that 26 states combined together in a challenge against the federal statute is a remarkable development and the case itself was remarkable in almost every respect. i want to talk principally about that case and the court's

decision. certainly i am under no illusions that there is anything left to be said about the health care case. it has been as analyze as any case in recent memory and that is consistent with this entire case. this case i have been incredibly privilege to be involved in. 6 the supreme court cases that i argue and others that i briefed and there is no case i can remember that captured public attention quite the way the health care case and health-care challenge did. i also think it is fair to say that the health care case had a rather unique arc. this is not a case. sometimes there is an act of congress passed and it is instantly identified as having a potential constitutional problem and brought up to the supreme court one can think for example of another case i was involved in in my time in government the constitutional challenge of the

mccain feingold act where the debate in congress was largely a constitutional debate about the first amendment and the opponents of the law of those it on first amendment grounds and probably made its way to the supreme court of the united states. icon trash the affordable care act there was certainly an incredibly healthy policy debate. anybody in washington remembers various procedural maneuvering in order to get the statute passed especially after scott brown was elected in massachusetts and seemingly the votes weren't there but they managed to find them. in a very rigorous debate about policy merits of the affordable care act there really was not a robust debate about its constitutionality. that is something that began in a waning days of the act and by litigation and when the litigation was first brought the

reaction in many quarters was not just that the legislation was a long shot for the litigation was intriguing but that it was frivolous and had no chance of success, and a commentator -- certainly somebody who looks at things very objectively and initially gave the challengers a 1% chance of success and compared to some things other people said that was generous and things really took a turn and that is why this case is so interesting. with the judge's hudson in richmond striking the act down and judge vincent's decision in florida striking the act down principally focusing and hudson's struck down the individual mandate and struck down the individual mandate and the center of the analysis struck down the balance of the

statutes. those decisions by the district court where certainly a turning point but it is fair to say at least in the popular press the narrative at that point went from this challenge is frivolous to this is a challenge only republican appointee to the judiciary could love and people pointed out correctly that there was the 1 for 1 correspondence appointing a district court judge and how it resolved and affordable care act challenge before them. a number of democratically appointed judges upheld the law and judge hudson -- republican appointees struck the individual mandate down. things get even more complicated and interesting at the court of appeals level because the court -- the judges with this easy narrative and the party of the

presidential -- the easy narrative broke down at the court of appeals level. much attention was given to the fact. and uphold the statute. judge silver'sman, and judge silver'sman, to uphold the law. in the eleventh circuit voted to strike down the law and appointed by president clinton. this familiar pattern people saw in the district court broke down in the court of appeals levelland seemingly what should have been the death knell of suggestions that this litigation was frivolous was the supreme court's action in taking the case. not only did they take the case voted to strike down and there was a circuit split but i don't think it surprised anybody they took the case for review.

what did surprise people is the way the court handled the case. divided the case into four separate arguments and dedicated a full week of supreme court arguments to this case and ultimately dedicated six hours of argument time to the case which turned out not to be quite enough because they kept advocates a little longer in discussing spending power issues on the last day. when all was said and done six hours of argument about this case which was unprecedented in the modern supreme court. and in the government, the maximum amount of time we could possibly ask the supreme court to dedicate to a single case and we came up with four hours as the most one could ask for.

and six hours of argument time. truly a remarkable case. my own involvement in this case, i was not present at the creation but was brought in at the appellate level. an interesting anecdotes i will pick on in a moment, i was asked about this case in a media interview. advancing what is then the dominant view. and the suit was frivolous. i had some basis for understanding the challenge the government faith because in my own time in the office i had an opportunity to defend acts of congress against the arguments in enumerated powers. what i said when asked about it is it will all come down to

whether there can be a limiting principal. if the government can articulate a limiting principle why they cannot do this and force people to buy insurance but not force people to buy anything they want then they will probably win. on the other hand the challenge for the government is to understand and be able to articulate if the government can do this doesn't mean judicially enforceable limits. without having dug into that, play the role of a government lawyer i knew the limiting principle would be important. and they divide into four arguments but in light of the opinion that the merge, there are six issues the supreme court dealt with. the least interesting was the issue of the anti injunction,

the fourth circuit in richmond had relied on the anti injunction act in order to the side whether they would reach the merits of the challenge. this was an argument about the court's jurisdiction they had to take seriously. they dedicated the first day of arguments to the question and decided unanimously they did in fact have jurisdiction. one thing about the court's reasoning on the anti injunction act is for purposes of the anti injunction act the fact that congress labels the individual mandate a penalty and not a tax was outcome determined. and congress at its word decollete task for the special rules of jurisdiction that if you want to challenge at tax you can't just go into court and pay

the tax for the refund process mounting challenge to the law so the court disposed of the anti injunction act issue unanimously. then we get to the court's argument schedule with one issue which is the constitutionality of the individual mandate. it is three separate issues. and justified with the proper power and whether or not and do the taxing power. and thinking of the burdens of the challengers and it is worth focusing on the fact that three issues and the government only needed to prevail. these are three arguments why the federal government has the statute, and if you think back

to the statement that there is a 1% chance of prevailing part of the challenge for those attacking the statute is they did have to run the table on the arguments. to make matters more difficult, and they did not turn out to be wrong that there were four votes on the court ready to do these. what that meant in practical terms the order to prevail the challengers really needed to run the table land on these three issues that 15 out of 15 available votes. the good news is the challenger manage the remarkable feat of getting 14 out of 15 votes. bad news is 14 out of 15 doesn't get you a majority opinion striking down the law on these grounds. i actually think and you might think this is hyperbole or

somebody who is trying to spin a litigation defeat but it is fair to say that the supreme court in its decision struck down the individual mandate that each and every individual purchase insurance, the supreme court struck that down as unconstitutional because it says congress whacks the power under the commerce power or necessary and proper power to impose a mandate to purchase insurance. of course it says the statute was valid under the taxing power but only did that by read characterizing the statute as not a mandate to purchase insurance but as a tax on the status of not having insurance so construed they upheld it as a valid exercise of taxing power. it is worth recognizing that that is a different statute from the statute congress passed and it has different practical effects. most law-abiding citizens if

told there is a constitutionally valid mandate to purchase insurance will purchase insurance. i think most people if told that they have to pay a tax if they don't purchase insurance will want to know how much is the tax and how much does the insurance cost and they will make a rational decision whether to purchase health insurance and some people will purchase insurance and some people will choose to pay the tax. the practical consequence i believe is that the number of individuals who will remain uninsured will be higher under a regime that taxes the status of being uninsured relative to an actual individual mandate that everyone must purchase, insurance. i am receptive to the charge that this is some spins so don't take my word for. take the chief justice's word for it. the taxing power lock that was approved here really is different fundamentally different from the individual

mandate. quoting from the chief justice's opinion he sets up his argument about the taxing power as follows, quote, the government's tax power argument asks us to view the statute differently than we did in considering its commerce power and in making the commerce clause argument the government defended the mandate as a regulation requiring individuals to purchase health care insurance. the government does not claim that the taxing power allows congress to issue such demands. instead government asks us to read the mandate not as ordering individuals to buy insurance but as imposing a tax on those who do not buy the product. to be more clear he continues later on the opinion, quote, under the tax-free the mandate is not in legal command to buy insurance. instead it is, quote, just a tax hike on certain taxpayers who do not have health insurance. many of the may think to

yourself ok, but that is certainly at a minimum of the most straightforward reading of the statute that congress passed. the chief justice agrees, quote, the most straightforward reading of the mandate is that it demands individuals to purchase insurance. the chief justice pointed the did not embrace for purposes of taxing power the most straightforward reading of the statutes. to the contrary heat made point of making clear that his reading of the taxing power version of the statute was not the most natural or straightforward reading of the statute in response to justice ginsburg because justice ginsburg wrote on the tickets a fair point. says to the chief justice if you are going to uphold the statues on the taxing power why have you issued an opinion that goes out of your way to say congress lacks the power in the necessary

and proper power? that is a power of judicial minimalism and cannot hold the statute on taxing power it ought to be the only issue you address. the statute reads more naturally as a command to buy insurance as a tax and i would uphold it as a command as a constitutional alley but chief justice held the constitution did not allow that. one final note of clarity here at the end of his opinion, makes a distinction as clear as one could. he writes, quote, the federal government does not have the power to order people to buy health insurance. two sentences later the federal government does have the power to impose a tax on those without health insurance. to emphasize this point of the

chief justice's bone analysis makes clear the statute that emerges is not the individual mandate. the supreme court despite what you read in the papers did not say it was constitutional to impose a mandate to purchase a product they would not otherwise want. the supreme court simply and only upheld the power of the federal government to propose a tax on those without health insurance. to underscore of different from the statute, the point of the health-care law was to get people who did not have insurance and enable them to get insurance. it was not an effort to tax those people who did not have health insurance that that ends of being the law that gets upheld by the court. if i can add one word of a note about taxing power this analysis that there is the power to levy a tax on those who do not have

insurance cannot be the end of the analysis. of course the constitution imposes limits on the ability of the federal congress to impose a direct tax on people without a portion among the states and you can think of that as a limitation on taxing power but it is also a federalism provision because the idea of the framers had was the power to impose a direct tax with a powerful authority to grant the federal government and it has potential to be done with favoritism among the states which of course was one of the principal concerns of the founding generations. people who went to the constitutional convention from individual states were very concerned not to give populous states the power to overwhelm the less populous states and the like and so the apportionment principle is important and

limits on the taxing power and the chief justice had to confront the question of whether or not this tax was a direct tax because it clearly was not a portion and my last quote from the chief justice's opinion he holds on this point that a tax going without health insurance does not fall within any recognized category of a direct tax. i have to say i think that is an issue where the supreme court benefited from more extensive reasons. if you go back to the commerce power argument in the commerce power argument the fact the congress had never done this before and for 200 years congress had every incentive to impose mandates on people to solve social problems but they never used that authority in 200 years was viewed as one of the challenge's most powerful arguments that when it comes to the taxing power of the fact

that this tax doesn't come with in any recognized category of direct tax or indirect tax is seen as the key to why it is not an impermissible direct tax. the other part of the analysis the chief justice focused on was the fact that in the framing generation there was a tax on carriages. on owning a carriage. that issue divided the framers. madison thought that was an impermissible direct tax. hamilton thought it was permissible in direct tax. the issue made it to the supreme court and the supreme court decided with hamilton. the problem is as the chief's analysis makes clear this isn't a tax on buying health insurance. this is a tax on not having health insurance. the analogy is not a tax on having a carriage by a tax on not having a carriage. it is hard to understand how the framers would have thought those two were the same thing. if you look at the court's

analysis they say the reason a tax on carriages was not a direct tax on you as an individual is because it is a tax on purchasing a carriage but the same reasoning suggests that a tax on not having something whether it is a carriage or health insurance is a direct tax that orates directly on the individual. i promise six issues. i only have four so far. let me talk about what i think of as in some respects the sleeper issue in the case which is the spending power issue. the supreme court here by 7-2 majority put a limit on the spending power of congress and indeed struck down part of the affordable care act as unconstitutional because it impermissibly coerced the states to purchase -- to participate in the medicaid program and did this specifically by telling the states that even though you could participate in medicaid

for 30 or 40 years and we give the reimbursement formulas for your past participation at past levels you need to take new money and cover vastly expanded university medicaid patients and if you don't agree to take the money not only will you not get the money for the new patient but we will take away the entire funding stream you always relied on for your past medicaid contributions and was that effort to leverage the state's past participation in the program and use it as a way to force states to accept new money even if they didn't want the new money, that attracted seven votes for the proposition that was an excess of spending power. the supreme court in doing so recognizes the importance of one of the key values of federalism which is accountability and the court says permitting the federal government to force states to implement a federal

program with french political accountability key to the federal system. the notion is if states are forced to take the money than one has no way of knowing who to complain to. you don't like the way the medicaid program is being administered and is administered by the states then you naturally complained to the states that they have no choice but to participate hat is a fundamental accountability problem and the court saw that. they also said focused on the key as being the link to the existing funding stream and use that as a basis for finding the statute unconstitutional. ..

but it is noteworthy that four justices stood ready not just distract down the individual mandate, not just ready to strike down the medicaid, but to strike down the statute in its entirety. and i mean that it is as they say quite remarkable that the challengers came within that one vote on that one issue to invalidating the statute as a whole. but i'm not here to talk about it, what a show death. i want to talk about whether we had a constitutional moment and also want to focus for a second on the practical consequences of the way the court decided this case because my own view is that this decision that emerges is

either practical matter or a theoretical matter, fungible with the decision that simply said that all of this is fine under both commerce power and spending power and there's nothing unconstitutional here at all. now one of the points i've are deluded to, which i do think as a practical matter of how many people will remain uninsured come in the difference between attacks in mandate is significant. time will tell. i don't have the empirical data as they stand here now, but i think more people and this is a law-abiding nation would've complied with the mandate then will now make with the chief justice tells them is their choice to make as to whether it's economically rational for them to decide not to purchase health insurance and pay the tax. and one less quote from the chief justice. he observed it may often be a reasonable financial decision to make the payment rather than purchase insurance. so he himself envisioned this difference could matter.

the other thing that matters than i think matters a great deal is the fact that states now have an opt-out right under the medicaid and based on article i saw this morning "the wall street journal," 60 havarti decided to opt-out of the medicaid expansion and others are considering following the same path. for more states that opt-out of the medicaid expansion, the more individuals congress intended to have covered both remain uncovered and the combined effect of those to a fax, the one being the difference between a tax in the mandate, the other being the uninsured and states that the climate medicaid expansion found home and there are substantially less people who were uninsured, who will be covered under the law that congress envisioned. and that fact alone may over time cause congress to have to revisit this issue. i think the more states that opt-out at the medicaid expansion, the more of a natural

constituency will be a congress to reconsider this expansion because the state said it decided not to participate have made a very difficult choice. they are taxpayers in their states will still be taxed to fund the medicaid expansion in other states. so that is a situation where they have made a tough decision and it would be natural constituency potentially should reconsider the health care law, whether that's wholesale or retail, that is a force that has to be back in the. i also think there's important consequences to the way the board decided this case. i know there's been a healthy debate about whether the class here is half-full or half-empty. i simply need to objectively say that i do think there are significant differences about the way they decided this case and the way they could've decided this case. i berti talked about the

practical consequences, but i want to talk about the jurisprudential consequences as well. start with the idea that the stakes in this case were so enormous, not because it was the president signature legislative achievements and the constitutionality of validity of the of an election year. i have no delusions that is what attracted a great deal of the media attention the case i'm lucky that almost collected its own. what makes the case so important is federalism is at the heart of our constitution. i will quote justice kennedy on this. he said quote federalism was a unique contribution of the framers to political science and political theory. here he quotes a great judge, henry friendly and a great historian, gordon would. then a continuous come in the service the idea may seem counterintuitive. it is the insight of the framers that freedom is enhanced by creation of two governments, not

one. the separation of powers is great, but we really do have that. we borrowed that from some other countries. federalism is the unique contribution and it's fair to say that it was a major theme and accomplishment for chief justice ranker spies to reignite the federally financing and limits on the federal government. but it's also fair to say that many people looked at the rehnquist court and is federalism cases and felt that a man the corpus kind of running out of steam, but the court decided lopez, morrison, but then some may blame me they decided the race case which argued on behalf of the federal government and the court said the prohibition mayor, the national prohibition on marijuana extended all the way to the possession of medical marijuana even though california had made a pickle. so there was a sense federals were very important those kind

of losing steam. it was also important to recognize that the two appointments at present george w. bush had very different backgrounds from the justices they replaced. based on those backgrounds, it was fair to question whether this justices would have the same innate dedication to federalism principles as the justices they replaced. justice o'connor most obviously, that chief justice rehnquist as well. they have substantial backgrounds practice seen in state courts are being off the state courts themselves. with respect to the chief justice and justice alito, although the wonderful backgrounds, background through the federal government, said there was reason to wonder when they were appointed to scheuer, based on their service in the executive branch they would probably understand separation of power principles instinctively. but it's hard to know where they would young federalism.

and perhaps because of that there were certainly some bold predictions in this case that this was not going to be a close case. i talked about sort of the arc of this case, but i think it's worth recognizing even on the eve of argument in the substantial body of opinion that suggested that this decision was going to be eight to one or 72 in favor of the statute against the challengers. and that wasn't just in the abstract. it was specific as to the commerce clause in particular. i will pick one example, but it is only one of many. linda greenhouse wrote his story -- a piece called never before and i'll give you one paragraph, which i think gives you a flavor for the peace. she argued, free of convention and the convention she refers to is trying to be evenhanded about the merits of two sides of the case and pressure reading the main brace, argued before the supreme court next week, i am here to tell you that the police

to sides are equally balanced here is simply wrong. the constitutional challenge to the loss requirement for people to buy health insurance, specifically the argument that mandate exceeds congress' power into the cause is powerful, but analytically so weak that it dissolves upon close inspection. indeed, in the run-up to the argument, there is even a rather strong body of opinion that precedes justice scalia's event based on constraints and the rate case. i point here is not to collect any of those who predicted the outcome in this case incorrectly. as far as i know, everybody predict the outcome in this case incorrectly. show me the person is that it was all going to come down to the chief justice's vote on the taxing power. i'd like to meet that person. my point that was not to pick up people and say you missed the

boat on this. my point is there was a responsible body of opinion, even on either of argument that the commerce power is certainly the spending power challenges were not just narrowly drawn or off, but were simply frivolous arguments. walter challenger, my friend made this point on the very eve of argument. he said, you know how they, the challengers of the lie -- you know how they say people were seen as frivolous and they're not saying that anymore? walter dollinger said in an interview, i am still seen as frivolous. after six hours of argument, but nonetheless that opinion was out there. it is a substantial body of opinion that said this is going to be in beta one, 72 landslide.

we really would see the debt of any meaningful effort to the supreme court to enforce the enumerated power limits on federal government and to enforce the basic federal balance. i think that really would have been quite remarkable because we have seen, certainly since the rehnquist court, but if jacob broadview throughout our constitutional history, there is bag a long effort come a long struggle to enforce limits on the commerce clause. everyone of the justices at some level will concede the commerce power is fairly broad. i also think all nine justices recognize they to be limited on the commerce power otherwise the whole point of enumerating the various powers of congress was entirely besides the point. they could have said the commerce power, were done. some of the justices made? world there is for the judiciary

to enforce, but what happened in this case is that five justices did not put his bed at least the dominant view since the lopez decision, which is that the court can simply not get out of the business of enforcing limits, federalism limits on the power of the federal government. and here too i will quote justice kennedy from his lopez concurrence. as he said then, federal balance is too essential a part of our constitutional structure in place to vital role in securing freedom for us to admit an inability to intervene when one or the other level of government has tipped the scales too far. and i think he also recognizes this is not an area where there are strong institutional incentives for congress to police itself in exercising its power. and so the court has to play will come even if the lines are sometimes difficult to articulate and seen as sometimes difficult to enforce and

practice. importantly, particularly at the cato institute it's important to recognize justice kennedy there, just as he did in the bond opinion two terms ago really underscored that federalism is there to protect the states. if there is a fundamental protect her of individual liberty, informed by the idea that the levels closer to the people are much more likely to be respected of the people's liberty. before i finish, i do have to in deference to the academic nature of this lecture, consider a constitutional moment simply averted. that is what about the tax cut? there is in the commerce power and on the necessary and proper power. there are ways so that the tax power is different enough from these other powers that it is still significant, decided what

it decided because of the necessary power. i didn't talk about the fact that when they different practical outcomes with an actual individual mandate that congress intended. it's also different on a more theoretical level. chief justice made this point. the power -- under the commerce power come if you have the power snatches you can impose penalty. it can do anything you want to enforce the mandate if it indeed was within the commerce power. the taxing power of the other hand is only the power to impose tax and achieve the chief justice anonymous way to at some point they would become too predictably high that would essentially amount to the same big as an impermissible commerce legislation. it is important for many taxpayers they had a real option to pay the tax instead of buying a premium. for every individual to premium

and tax for the same amount would raise the difficult question. but the last thing i think this is important as they are different structurally. as i just said, i don't really think there's much in the structure of congress and the way it gets elected for it to be a logical error or logical government switch on the congress power. they are the federal government and they have an instinct that if there is an outrage about something, it must be that there needs to be a federal law to address. that is their natural instinct. i think it's different with the taxing power. i think it is very difficult to raise new taxes for a reason. taxes are politically very unpopular and i think indeed it's fairly obvious for those that were around at the time that the health care past. it's very well but not as passed. there was no appetite for

increasing taxes and one of the attractive features of the individual mandate is it operated like a tax. attacks on relatively young individuals who were forced to buy something they didn't need, but could contribute to the risk pool. but it wasn't labeled a tax. the only way you can ascend to make an individual mandate if it is a tax will be much more difficult politically to pass an individual mandate or a tax that is similar to an individual mandate in the future. now it does prompt the question, why did congress essentially get one free pass in the affordable care act? and white in the considerations insist that if congress wasn't willing to call it a tax commission get the benefit of the tax power, but that's a question the court didn't directly answer. let me also say before sitting

down to the spending power think is also critical and should not be overlooked. i think it would've been hard enough for anyone to predict that the chief justice would be the deciding vote on tax power. i'm not sure anyone would've told you to states or can have seven votes on their spending power argument. but indeed they did. and i think it's very important for two reasons. one is there's a real difference between the spending power argument in the commerce power. at the federal government can't articulate a limit on the commerce power, then the government typically loses bid to challenge for the states in this case was to articulate a limit on spending power. you know, what is here to give a limit or at what point does the inducement of money become too coercive? there's an important difference, which is if the government can't articulate a limit on the commerce power, then it calls into question the whole process of enumeration and all the limits of the federal power.

if the courts can't articulate a meaningful limit on the spending power about when the spending power becomes coercive, the logical consequence of that is not that anything goes. the logical consequence of that is to reconsider the spending power even more fundamentally because you number under the spending power, congress can tell the states to do things or induce the state to do things that couldn't track them to do directly to the great example is the dole case the more congress gave states money in order to change their drinking age. of course after the prince case, there are lots of things the federal government can't simply order the state to do. they can't simply commandeer them to have an entire structure to administer the medicaid program. they have to have an inducement to do that. if there is no way to tell when

the line between inducement and coercion is enforceable, then the logical consequences to say that congress can't do things in the spending power unless it can also do it directly. so i think it was very important for the constitutional structure that the court articulated that. and the last way in which it is important is in the sense that there's now this precedent. i can tell you firsthand it's hard to argue spending power argument when the only thing you have to say is that i'm from dole. when you have an actual holding of the supreme court and certainly there's going to be much discussion about how it's distinguishable in the nature of medicaid will lend itself to arguments that distinguish it. but there is no precedent of the supreme court that says that a certain point and inducement to the state to participate in a program is simply too coercive to be constitutional and i think that is quite significant.

to sum up, i really don't think we be constitutional moment in october term 2011, but we almost did and certainly if those that have predicted an eight to one landslide for the government, then we would have had a very significant constitution. thank you. [applause] >> thank you very much, paul. we have time for a new quick question and quick answers before we have a reception. if you could raise your hand and identify yourself and the affiliation you may have, that would be good. let's start right here. the microphone is there. the mac mini cluster of the region foundation and individual rights foundation. paul, would you care to comment or speculate upon the question,

was very different voting conference that was switched by the chief justice and if so, what do you think went to that quiet >> mini, it is great to see you. i'll be happy to give a limited comment on mac, which is i have no special sources on the inside. i am a big believer that efforts to try to parse it as an opinion and figure out whether there's a reference was really a reference to a prior majority. it is really not time well spent. but i can say though is that it was not apparent from the argument that the taxing power was a chief focus of the chief justice are really any other justice. from the standpoint of an advocate, that is something that is unfortunate because there was much discussion of the commerce power. there is much discussion and

really maybe a minute or two on the taxing power. from that it is fair inference that the taxing power argument took on greater significance as the case went through it internal corporations than was the case at the time for argument. [inaudible] this morning i spoke about the medicaid issue in the first panel and i gave equal weight to the coercion argument in the clear now this argument. i noticed it is not part of your presentation, so so i just like to get your comments on that part of the case as well. >> i do think that both parts of the opinion are important. i guess what i would say is there is certainly probably an easier test to cite different

cases argued post with some clear notice performance before this case. so to me, what is the aspect of this decision that is the real game changer is the fact that we now have something when it comes to the coercion point. but i certainly don't mean to gainsay the significance of the court has made clear, that there is noticed remains a very important principle. and it's fair to say the noticed aspect of the case will be harder to distinguish. it's very important of a precedent to build on and i do think there are aspects of how they wrote the opinion only to medicaid. but the notice point is going to be litigated in virtually every power case.

and so to have another precedent, and is very helpful precedent on this point is quite significant. >> i have learned to, not affiliated. the question is, do you think there's anything you could have added somewhere along the line in the argument that would have been a robert said that would have come to have him come as a different decision. >> well, i guess what i would say what the benefit of this opinion, if only i started my argument that the taxing power. [laughter] but on the other hand, if i had done that, i think my clients would probably immediately fired me. i don't think people saw that. it's not the way the lower courts had upheld the law had not relied on that theory.

there was some briefing on it. so i guess that anything in answer to your question, in a perfect world, i think if the taxing power issue took on such additional significance after argument, there is a real argument suggested that what the court should have done is help the case over and asked for separate briefing on the taxing power question in the very important question about whether or not it's an impermissible direct tax. obviously something the court has done. i failed to briefs and it's incredibly important for the statute here but if i had to choose, i think i would have said the affordable care act was even more important. so if they were going to hold one over on a separate issue, if i could've voted in what is said by dashiki that one really get

to the bottom of this taxing power issue because it's a much more important issue than people give it credit for. again, it's very easy to think the taxing power is an enumerated power of congress. but if you really read the debates it becomes very clear that the apportionment requirement on the direct taxing power with a sensual provision and really was the idea that the federal government is not going to be able to essentially go around the state on direct taxes. they will have either the state stood where they will have to be apportioned among the states. and you know, whatever your views about the 16th amendment, which overcame a supreme court decision, limiting the federal government's ability to impose a direct tax on income. the 16th amendment has had a remarkable fact on the balance

between the federal government and state government. i say that just to illustrate how central the direct tax question is joy basic constitutional structure. [inaudible] how is that any different from saying there is no object to veil and it other than -- other than when it becomes coercive and there's no principle at all. >> if you could do the same thing under the taxing power that you can do or can't do, you still have essentially an unlimited power, you? >> if there's a weakness in my submission, the way i respond to

it, i think the response is there are differences and i think they're practical, theoretical and structural. [inaudible] >> and i will set, i will address it, but i do think what i would call the structural, which is the extent to which congress can actually be expected to play a role in limiting taxation. i think that's awfully significant. i don't want to just sort of passover that. because as i said, i think expecting congress to impose self-restraint with its commerce power is kind of like asking the proverbial fox to guard the henhouse. i think what taxing is different. the reason it is different is because nothing excites the populace more than the idea that

they're going to raise taxes. so i do think it away adobo i don't love that there will ever be a working majority in congress to exercise self-restraint with commerce power. we probably right now have a majority to not impose new taxes. certainly in the house. so i do think the difference is important. the theoretical difference is that once you have the commerce power, then you can do anything to enforce the mandate to purchase insurance. so you could make it a condition of entry, getting any federal license. you cannot fault insurance to be a condition for a student loan, anything like that. but they also could impose substantial penalties.

they could as the chief justice said, wants congress can legislate into the commerce power, it is not limited to just imposing tax actions, rendered the tax, that's it they get to do. and the limit is real. and his forceful. the one thing they couldn't do, which i think for some taxpayers they come close to doing is saying you have a choice. it's either buy health insurance or pay a tax and the amount of your premium. i think the chief justice continues to suggest that congress could not do that. but we may need a case to litigate. [laughter] >> right back there in the middle-of-the-road. >> hi, derek mcmahon. i just want to say i find very

persuasive all the things that you're saying, but i'd like to play devil's advocate against a single point and that is the intended impropriety in treating the affordable care act tax as an indirect impact by analogy. there is an economic rationale that says activities that create externality merits intervention. so i guess for example an 18th century carriage would do more damage than an average pedestrian. so you impose a tax that forces the owner to internalize the costs and raises revenue for the problem. i can see the repeal of treating the mandate more ads are more like a tax on people, but i think it's important to remember that not owning a carriage does not create externality and doesn't impose costs on society will not pay and insurance does. so i just want to know, what is

the fundamental difference between action and inaction? because it is just a limiting principle and devil's advocacy, i can imagine a contrary one. >> here's the thing. i took a year of economics before i went to law school. and i'm just not sure that i couldn't take issue with the premise that i think you could describe some externality to almost any inaction. and i think if people use their carriages to give people rights gratuitously in the framing era, do not have a carriage is kind of selfish and your imposing cost on other people in it all of a sudden looks an awful lot like having health insurance. by way of sort of wrestling with that objection is that i'm just not sure that first of all am not sure if there's a clean distinction. most action and must inaction have some externality is. i also think that it's not clear

to me that the inaction, action distinction isn't actually a pretty good proxy for the direct tax. i mean, whatever economic sense it may be, but the relevant question is whether it's a direct or indirect tax and i do think it's much easier to articulate a tax on a carriages being essentially not a tax on you. it is a tax on your person of carriage. it's much harder to make the argument for the tax on not having a carriage. here's the last point, which is you can quibble and heaven knows the government and others that i've debated about this for about the inaction action distinction. you know, personally i am not that fond of that way thinking about it because i think ultimately there is more of a textual argument that congress can regulate commerce and for someone to engage in congress is not the regulation of commerce.

but nonetheless, and i actually think that there is probably the action, inaction distinction maps are more closely to the direct, indirect tax framework than it does to the commerce power. but the last thing i have to say, if there is one person to embrace the action inaction distinction, it is the chief justice. and so, to embrace that distinction for purposes of commerce power, but then to turn around and basically say as he did in the critical passage, that attacks on not having insurance is no different from a tax on gasoline. i think it makes a very important job, which is wait a second, you just said that all those other commenters clause cases were different because congress is regulating action. i know a lot of taxes on gas is an excise taxes on all sorts of things. i just am not that familiar with being taxed for not doing

something. so i do think that ultimately come despite a very clear point as devil's advocate it is still a weakness in the taxing analysis that emerges as the majority. >> we are going to take one last question. [inaudible] >> thank you. paul, els was filed in this case which is still pending about the impropriety of using tax dollars because we are billed in this case of what originates in the house. i wondered if you could comment on that. >> in how come i haven't studied that issue so i don't want to comment on it because i don't want assertive cast any negative aspersions on an issue that i haven't studied. obviously, the constitution has a number of structural provisions that are designed to

protect the taxing pair, which chief justice marshall recognized from the get-go that the power to tax is the power to destroy one of those is the origination clause, which says essentially tax and legislation has to originate in the most populous house, i.e. house of representatives. there certainly is that when it on the taxing power. i just haven't studied. >> i have a question -- [inaudible] >> he still had a limiting principle. [laughter] >> the way the congress gets around it that originates in the house and then goes over to the senate. the senate strips everything from the bill except the age and fills in the content and then goes back to the house. >> of course the bill originated in the supreme court. blast mac

[laughter] all right, listen, we are now going to go get a drink, which is probably what we need. let's have a good round of applause. [applause] and please join us for our reception. [inaudible conversations] [inaudible conversations]

>> in today's "washington journal," we hear from donna edwards. she discusses the house democrats legislative agendas heading into the torrent of elections. this is 40 minutes. >> host: and we are back with congresswoman donna edwards, democrat of the democratic national campaign committee. let's start with politics in the video that was released of governor bobby last night. i want your reaction. his explanation of what he had to say that private fundraiser. take a look. >> well, it's not eloquently stated. i'm speaking off the cuff in response to a question i'm sure i could see it more clearly and in a more effective way that i

did in a setting like that. and so, i'm sure i'll point that out as time goes on. but we don't have another question giving the snippet there, nor the full response in a person who has the video would put out the full material. but it's a message, which i am going to carry and continue to carry which is the president's approach is attractive to people who are not paying taxes because frankly my discussion about lowering taxes is and is attracted to them and therefore not likely to draw them into my campaign as effectively as those in the middle. this is really a discussion about the political process of winning the election. and of course, i want to help all americans -- all americans have a bright and prosperous future and i am convinced the president's approach has not done not and will not do that. >> host: congresswoman. >> guest: i have to tell you come the explanation doesn't make any sense. it clarifies frankly his

statement that he made on video. he didn't apologize for the statements, did retract the statements. he just said they were not eloquently stated. i think this is a real problem for mitt romney. it is a problem when you dismiss half of the nation and also you dismiss them and a way that they are irresponsible, that they don't meet their obligation and that they are freeloaders essentially. i think that is what mitt romney was sane and is very problematic we are talking about seniors who have worked all their lives and are retired and maybe a big carrot social security, talking about military personnel. many military personnel don't pay income taxes, but virtually all of the 47% pay payroll taxes, paid into medicare and social security. that's actually a mix tape and of the facts and it's insulting. >> host: is chairwoman of the red to blue program, will you use those comments and tie them

to house races down ballot? >> i think many of the house republicans who are being challenged right now, who are incumbent in fact describe to the romney rhine agenda, one that says people should basically be on their own and half the people are freeloaders. i think our candidates across the country will be running their individual races in their districts and i'll be pointing out how they would -- they would support an agenda that supports and promotes the middle class and does it the president is saying in terms of his own reelection nsaids were going to have this economy forward ever going to move america forward i invest in the middle class and making sure that the ones at the top of the top 1% in 2% to manage to find all kinds of ways that the tax code to avoid paying taxes. i think our candidate and virtually 75 across the country

will have an opportunity to take the house back. i feel really strongly that that is true and even more strongly today with the statements that mitt romney is made. post goes to that sounds like a gas? >> guest: yes. postcode could mitt romney's message appeal to some voters when you look at a poll put out by gallup yesterday, the majority of the united states still say government is doing too much. 34% continue to believe the government is doing too many things should be left to individuals and businesses. >> guest: what i think the president has said in terms of how we move the country forward and invest in an economy that is competitive for the 21st century is that there are things the government c do to actually encourage domestic hiring and encourage domestic manufacturing. make ensure that our gun people coming out of school are prepared to meet the challenges of the 21st century and into

this economy and those are the things that will allow people to contribute in the way they should, by paying taxes, working, meeting their obligations. most people in fact want to do those things. >> host: on house races come to feel confident about the democrats taking back the house. here is "politico." the problem is not. if they were to win 25 seats come it is likely they would need to see 10 to 15 more to make up for anticipated democratic losses. a tall order in an election in which neither party has been able to claim momentum. there is a matter of history. the last time they occupied the white house did with the 50 house seats in a presidential election instead of five decades ago. >> guest: the reality is that we are running can have it if candidates and 75 districts across this country. they are able to raise the money that they need. they certainly have the right message and frankly they are really good messengers as well. these are folks who have

everyday ordinary work experience. they have created small businesses, firefighters, astronauts come alive for officers. they are former military personnel. i mean, we have great candidates. and i actually think we are in an environment where the public really is saying, we don't want just career politicians running the game anymore. we have a lot of candidates who come from a lot of different areas of experience and expertise and this is an environment in which we can win. >> host: "politico" front page this morning, obama differ on taxes as senate majority whip dick durbin with a six-month with a six-month with a six-month acres of time to reach acres of time to reach a grand bargain deal in the next year. there mccaskill and other democrats open to a temporary extension of the top ability if the republicans agree to raise revenue and other parts of the tax code.

is this something you and other house democrats can support? >> guest: lusciously postelection there will be a lot of ideas put on the table, responsible ideas so they don't co-opt the fiscal cliff and so we meet obligations that we have two kids middle class and middle income taxpayers the kind of support that they need going into next year, knowing that things are still in flux. so there's going to be a lot of ideas. i don't want to speculate which ones are up-and-down. i haven't seen any indication that republicans are willing to go previn is on the table. revenues have to be on the table when you consider the substantial cuts that are planned as we go forward. >> host: are democrats want to put medicare cuts on the table? >> guest: the fact of what was done with medicare is starting

out of the affordable care at, make sure that the money out of the hands of insurance companies been overpaid and put those into strengthening benefits and protection for medicare recipients. as i have said, i think is to get to the end of the year in postelection, there's a lot of different ideas out there and i know that my ideas about ways that you can strengthen and protect medicare for future generations and strengthen and protect social security's that are not part of the deficit problem, strengthen and protect for future generations into that in a responsible way. but that also means revenues have to be on the table and they have to be on the table from the top 1% in 2% who i think are really not paying their fair share right now. >> host: go ahead, catherine. kolko good morning. i would like to ask the congressman, wendy wolcott and a

2008 -- can you hear me? they had all the blue dogs and what have you. why do not the democrats -- why don't you all fight for something, stand up for something? that is why blue dogs got kicked out on something that keith olbermann said. he said if you don't vote in the midterm camille get exactly what you want. so they've got all the republicans, governors in the house. and i don't understand, what can you do for what is in their best interest? this seems like republicans are so off the chain they are going into your bedroom. when are you all going to stand up and put someone in there? ewald didn't even go out to the back board. so we are pulling for you are. you don't have any back on, no

spark. >> guest: okay, catherine. catherine is speaking for a lot of people who know that the president and democrats are in the right path when it comes to strengthening the middle class. she wants to see us out there fighting for that. i think we've got great candidates all across the country who are standing up for middle-class values and say we ought to be able to have a system where we have access to pell grants and student loans so kids can go to college. for people who work all their lives and protection of medicare, contracts from one generation to the next generation. catherine wants to hear her say it more loudly and she wants to hear but frankly governor duval patrick sat at our convention, that we have things to be proud of and i think you're going to hear more about throughout the rest of the campaign season for the next 49 of nine days. catherine has a good point and i am a fighter, so i believe in

that. >> guest: >> host: jean and clement, california. >> caller: i am a taxpayer, not a parasite. even though i'm on social security, also be a taxpayer. you've got 47% of the country balked at. how is the democratic party going to get the other 4%? >> guest: that was mitt romney's assessment. he is just dismissing it doesn't have to pay any attention to them. and disney would need to worry about those people. in fact, as a democrat, i am concerned, like you are, people who pay into social security, but to make sure social security is available for you, for young people who want to go to school and make sure you're able to do that. you're a contributor. most people frankly do that.

we want to make sure we have an economy that works for them. and so i guess in my life experience, i don't see a lot of freeloaders. i see people who are working hard to take care of themselves and family. >> host: weighed in sumter, south carolina. >> caller: yes, i was wondering. she's very well-off in the city and i wanted to get free money. >> host: were you referring to stand a flute? what about her? >> caller: she decide she wants to freeload, too. she has money to go to college. how do they get to see those like that? >> guest: i think she's been a student in college and i think she was speaking up for women's health care, which i strongly

support. and you know, the fact is they think is democrats, one of the things i have recognized as a member of congress as we do have in fact attempted available there for women, available for african-american, latina and asian populations any caches available for future want for future want to work hard and play by the rules just want an an opportunity to succeed that they though that latter and stretched that letter to the next generation. >> host: how much work will be done in the lame-duck session? what will be done to avoid the fiscal cliff? >> guest: i hope so. as you know, republicans control the house of representatives and so they control what comes on the floor. i would hope that our leaders appealed to sit down now. i don't understand for example why this is the last week we are

in session when there is so much work to be done before the end of the year. we have a job to do you have republicans hold s. out to focus on campaigns. and those of us who are responsible and know what this, the tax cuts would expire, unemployment expires by the end of the year. the fiscal cliff coming at the end of the year. there is a lot of work to get done, so we just shouldn't hold it off to lame-duck session. we should be in fashion everyday to get this work done for the american people. another issue is the payroll tax holiday. the first colorize democrats to fight for something. but democrats insist that the payroll tax could be extended? >> guest: i certainly hope so for 90% of americans who make under $250,000. i think that make sense. and again, what has to be done by the end of the year so we don't go into next year with 98% of americans seeing taxes

actually go up, the ball is in the court of the republicans in house of representatives to control the gavel and can make a determination about whether we get these things done or not and who want to be on the contrary position of compromise that for 90% of americans making under $250,000 that they should be able to not see their taxes go up and instead, working on protecting the interest of those who make more than that just doesn't make sense. >> host: the payroll tax holiday is for everyone. democrats say we want it to go forward, but we don't want it to continue for those who make over 250,000. >> guest: absolutely right. i understand. all of these things are things we have to discuss, but i think in make spam a sense. we know the effect that an ss

continuing the tax cut for people who make under $250,000. you know what they do? they spent it in the economy. people make more money to not and they don't put it into the economy. so it makes sense at this time what will have been an economy that is recovering that we don't do something deliberately. this would be deliberate that would jeopardize the recovery. >> host: jam, democrat of kline, gainesville, florida. >> caller: the reason i wanted to college because i'm one of those people that governor romney spoke about. i worked for 18 years for a company and was amicably resolved when i left. and i had health care, but by republican legislature voted against me having health care because our group was supposedly too small. if the democrats would've been in, that would not have been.

i now work for another company. it is a large corporation and in order to get benefits you have to work 30 hours. but we are working 30 hours. a white male in my job complained by were not getting those benefits. there are punished i getting their hours cut. it ate through some of the bone in my arm and now i can work here but i was working there without the bone in my arms now i have to be on medicare. now i have to be on food stamps. my question to you as it seems like if mitt romney gets elected and this republicans get elected that we will be at the mercy of the corporations. i would like for you to please speak about what can be done so that we are not at the mercy of these corporations. thank you so much for taking my call. >> guest: the one thing people can do now is for the top of the ballot all the way down the ballot because elections do

matter and elections do have consequences than this one will have particular consequences. we don't have to actually get what mitt romney and paul ran to do if they were elected because it's been sold out and paul ryan's budget that cuts medicare, that turns into a voucher program, that cuts virtually every program that helps people like our call her everyday through no fault of their own bake at cancer, they get sick, they need medicare. they've paid into a system. this worked worked for 18 years been into medicare and social security. he stepped benefits of being able to take advantage of that when he needs it. it is the reason you and i work. and so, we don't have to get up at the consequences of the election would be. that means it should be incumbent upon all of us to do whatever it takes in whatever state, get whatever i.d. you meet and get to the polls and vote and express your opinion by doing not a man hold elected officials accountable.

i think that too often we have elections and the dislike the election happens it will just disappear. we cannot let that happen again because what's going on now, particularly in the house of representatives would be very, very devastating for middle-class people and poor people in this country. >> host: what are you referring to? >> guest: budget proposes that would take a meat ax to the budget instead of using a scalpel to go program by program and see what is the value of this and what are the consequences? that is actually not what is happening right now. none of us believe the government should do everything, that they were clearly some things that government is the most appropriate to do and to assist with and we have to make those decisions. >> host: negotiations over the so-called fiscal cliff, his sister? the house democrats purging part

from the left on budget of fiscal cliff mirrored. members of the congressional caucus are warning they will fight to kill any budget package will cut medicare coverage, social security benefits and safety net programs for the poor. all elements of the simpson bowles plan. >> guest: there's a number of us concerned as you cut those, but then there's parts of the budget that would be preserved by brown defense cuts, even when the pentagon says you need to cut programs, the members of congress particularly on the other side of the i want to restore those things at the expense of poor and middle-class people. i don't think that is sustainable. as i said, if somebody wants to sit down with all of us can figure out how it is that we avoid the fiscal cliff that deal with our budget problems in a responsible way, then we are all for doing now. but to simply say all of the

social safety net programs are on the table, but everything else is just not going to be acceptable. >> host: helland, louisville, kentucky. >> caller: at good morning and thank you for taking my call. i know that the house but she said does that compromise all. but 30 bills have been passed over to the senate, which nothing has been done in the senate to come back into conference so that the house and senate can pass a jobs bill. but, having the president who says he wants this jobs bill passed, it has jobs bill brought in front of the senate five

weeks after he did the joint houseand senate speech. and it was defeated in the senate was 47 republican votes. >> guest: i think we can see the inertia that happens in the senate because of the filibuster, but i want to see what goes on in the house because the caller mentioned the american jobs act that the president put forward, which would have created millions of jobs and i think almost a million and a half jobs in this economy would restore the need them. it's been in the house of representatives, not even seen the light of day. i think the president and american people certainly deserve better consideration. and then we modeled over passing

a transportation authorization, which is only done for a very short time. and that is the single biggest way we can create jobs in this economy and not miss another construction season by making sure we are rebuilding our infrastructure, roads, bridges, transit systems, water and sewer systems coming up that was modeled in the house so that we get a very small reauthorization and that means states are going to have to bear the burden or simply not do the infrastructure that needs to be met across the state. this is very problematic is again coming to put millions of people back to work alternate every sector in the economy if we just have a significant authorization for transportation and certainly surpassed the president's american jobs act, that would be another million plus jobs into the economy when we need them and republicans haven't even shown that the courtesy of putting it on the floor for a vote. that's a responsible.

>> host: and columbia, tennessee. >> caller: yes, good morning, c-span. i miss u.s.a. host on c-span. i hope you're doing better if you've been sick. i'm glad to see you back with us. >> host: thank you. >> caller: i want to ask ms. edwards a very important question. she's been sick a very nice person, a christian person. i want to ask her if she would remember president obama giving us a speech about accountability and transparency. now that we're going on the next four years, i hope that he will remember that speech in the future. i'm planning to vote for him because i think there's very importance to that speech. but this is a question i want her to ask. she's a very truthful and honest

person, would she be a consumer advocate? and if she would be, then i want to answer this other question. issue as a whistleblower, would she be anonymous person to tell the truth about what is going on in our government? because i see c-span doing that for us. at the other thing is if you go on youtube and just look under whistleblowers in our government , you would be shocked to find out what is really going on in america. there's so many problems in people trying to make our government accountable and they're being punished for it. >> caller: first of all, i do think this administration has imposed on it though more significant roles in transparency and openness of probably any president see an administration that seen. i think that's really important. i actually come out of consumer at the qc before us in congress i worked at public citizen is a

consumer advocate supporter of the public interest and strong supporter of whistleblower protection. i think transparency in government is really important. when you look at the numbers particularly by the house of representatives, it shows the public has very little regard frankly for our elected officials. i think it is important to have strong ethics, strong will survive transparency. we have to reform the campaign finance system, which contributes so negatively to the problems we're experiencing now and our inability frankly to deal with so many of these budget issues. and i think like will isolate and the breath for the rest of us. >> guest: from a tree to one want our viewers come out of congressional democrats gerrymandering? >> guest: jeanneau, i don't know that gerrymandering is necessarily democrat cause or

republican minus or vice versa because i think that both parties frankly is that process in political ways. i've been much more a proponent in this area of independent commissions and citizen groups to do retrying of lines that have to take place based on population concerns. i'm also a proponent of the voting rights act because it is important to protect the rights and interests in the voting rights of minority populations and african-american populations, latino populations that have been so affected by the way the lines are drawn. but i wouldn't give one party or the other a plus or minus some not because i think there's a lot of guilt to go around when it comes to reach agreements for political purpose. >> host: to share this line. big into double-dip the gop plan of attack. state republican party chairman adcock said the gop has a strong shot at defeating entrenched westchester need a lovely after

west of new york double-deckers. she's getting a $10,000 state pension. >> host: you know, pensions are earned and i think we have members of congress who either served as elected officials and received attention. we have members of congress who worked in other areas of government and have received attention. so i don't really have a problem with that quite frankly because they are in fact earned. i think what we really have to look at is the way we are protecting pension, protecting private sector pensions, which had been under great assault, where companies can declare bankruptcy and shut their pension obligations aside. states have been able to fully meet their pension obligations. those things from a policy standpoint and much more of a concern to me than going after people then who legitimately

under. >> guest: she's taking this $10,000 state pension. she's one of the wealthiest members of the new york congressional delegation for 14.3 million i said some of the richest members of congress. so is it still appropriate to take the pension? >> guest: it is the state pension shearon, so i don't have a problem with anyone having earned a pension from working, from taking a pension. if they do other things that supplement or write to their income, the more the better. this is where we really get it wrong and i think we want to have people who are elected officials that held many different kinds of jobs and take advantage of opportunities and that shouldn't be discouraged. what is really important frankly is that it is disclosed. there is no reason the people in her congressional district haven't done this all along.

she's had to disclose the financial forms as we all do. i mean, i have a great benefit, i only work for my salary in congress and asynchronous lists come out, i am usually at the bottom of the list are not at the top. but i don't begrudge anyone at the top of the list. >> host: >> caller: good morning. i've watched you for a while and i just have so much respect for you. you understand us regular folks and fight for us regular folks and i really appreciate that. as far as which you were just talking about with the congresswoman, you're going to to start talking about her, you might want to ask him at sean boehner, eric cantor, our beloved paul ryan, how much are they packing away?

i don't think you should really go there. anyway, i just feel so far sorry for you and what she's had to deal with that crowd, honor, cantor. i don't understand why we pay their salaries when they are not even there working. you know, why are we paying for them? >> guest: mitt romney, the snotty attitude, who do you think are in the order 7%? qualifiers, firsters binders, they would talk about bad government. they are in government. they are getting paid by their government paid people and they have done nothing but complain and whine about government. so romney has been a liar through this whole campaign. he's been lying through his teeth. i was going to try and spin his way out of this.

let's get something straight. he doesn't ever understand a regular person. he could care less about it. >> host: kathleen, gotcher point. we'll move on to make in greenwood, south carolina. >> caller: good morning. what romney said, it is sure. i make about $10 an hour. but if i sit at home, go on food stamps, welfare, i could stay at home and do better work won't have to worry about food and all of that. i could get that free. four dollars for gas, how much food costs. and just to say if you give me money, why should i go to work? >> guest: the fact is many people who received food stamps in fact get up and go to work every day. anon $10 an hour, our caller is probably paying a lot more in

terms of the rate he pays in taxes than the amount he pays in payroll taxes when compared with people at the highest income levels. so when you disparage 47% of the public, you disparage half of the working public. what you are saying is all of those folks are essentially freeloaders. they're getting away with something and they go back to work every day and had a substantial portion of their income into payroll taxes. so they are not freeloaders. they are just working and doing what working people do. i am there. i have been there. >> host: scottsdale, arizona. >> caller: well, i've been getting a lot of talk from both sides. i have two things i want to discuss. one is the economy and the other is israel. what i found over and over with president obama is the quotes about the rich people, the rich

people, the rich people. i am a notch burner and have my own business. and what i do know is wholesalers, distributors, all these companies -- private companies are hiring people and they are making their income of $250,000 to maybe $300,000. but in that income, they are investing in the economy by creating jobs, by producing income. >> host: let's get a response to that, congressman. >> guest: here are the facts though. 98% of americans are well below those in towns. even the ones who are small businesses. i spent the last couple of weeks going and visiting small businesses offer up my congressional district. people work really hard and higher three, four, five people

to help them with their business and their meeting their obligation. they are not wealthy people and i think when you look at the way our tax code is structured, it is really waded on to significantly operand come. even though the ryan budget as it is proposed, romney proposals would result in someone making a million dollars being able to essentially pocket the restructuring of the tax code a couple hundred thousand. that really is not fair. and it isn't fair to lump a lot of small businesses and real job creators in that category because that is not where they sit on the income scale. >> guest: >> host: george, democratic caller. >> caller: podiatrist representative -- how are y'all doing is turning? >> guest: fine, george.

i would take mitt romney himself said these words about 47% of us just don't know what to do with something. let's get away from politically correct. he is saying that we are lazy and don't want to do nothing. those were his words. now when president obama has to say something, it was a big uproar. what's up with that? one more comment. we need to start seeing what the president is doing. i don't see why these republicans are for mitt romney. he's talking about if you get rates, you have to have a baby. >> host: wended mitt romney make those comments? >> guest: if a woman gets

raped, she has to have the baby. >> guest: there are no exemptions for or for the life of the mother when it comes to her been able to seek an abortion. that is inaccurate pretrial of the republican policies. they don't want to apologize for that and that is fine, but i think it's important for the american people to know that. when i think of the women who are working, the idea that you should be paid equally for the works is you do that's comparable, the republicans by and large by their votes in the congress, including representative ryan, they note equal pay for equal work. these exceptions and exemptions for raped and when it comes to abortion. i am very strongly pro-choice. i don't egg anybody should be in the privacy of one doctor's office or home when it comes to making those decisions for a

woman. i think when the american public begins to examine the policy decision, the republican party and mitt romney and paul ryan are going to reject it because on economic front they should reject it because those policies result in real devastation for middle-class families that are struggling as it is in a very tough economy. >> host: daniel, republican of largo, florida. >> guest: >> caller: thank you for having me on the show. we have $16 trillion in debt in this country, $16 trillion. and they're saying, these democrats are trying to tell us that we are in better shape now and that we are going to get four more years is a stymie to me. okay, let's be honest.

there're many people were not going to find work. you know why? many of them are on drugs and can't get a job. that's all i have to say. >> guest: first of all, if you look where we are now aware of her four years ago, our economy was in free fall. when president obama came into office, we were losing 800,000 jobs a month. in fact, we have 3.5 million jobs in the first quarter of his presidency before we had a chance to get the stimulus and the fact and into all of our fiscal problems in terms of our financial crisis. the president has righted the ship and since then we have had 30 straight months of private-sector job growth in this country. that's over 4.6 million jobs created over the last 30 months. now, is that where we want to

be? even the president says that, but we are definitely in a better position that we were four years ago. people who had 401(k) programs can tell you that because they lost a third of their retirement plans when the economy was in free fall and when we had this financial crisis and the stock market has rebounded and those people who still have those plans have actually regained from where they were. and so, i think people have to take a real examination of that and look where the president want to take us forward. investment, research, development, manufacturing, making sure young people have the ability to go to college and community college and the apprenticeship programs and things that were given to participate in a technical and competitive global economy. i mean come the restructuring the auto industry, this is really huge. even in maryland, no one would

say a state that had anything to do at the ado industry. in fact we did. we had auto dealerships and suppliers as they are throughout the caller in states like michigan, ohio and indiana. these are real accomplishments to look at because we were definitely in a freefall and this president has righted the ship and began job creation. >> guest: one last phone call. ashland kentucky on the independent. >> caller: thank you for c-span. i've got a lot of issues with the democratic party and the republican. we've been repeatedly lied to and had our nation's wealth stolen when you're borrowing 40 cents on every dollar and then you're taking $117 billion out of medicare or obamacare.

and without health care ratio, it has a provision in it were obama can have his own private police force. these things are bizarre and the amount of people on welfare -- i'm a small business owner and i am at that. i worked 16 hours a day, six days a week. and when i see them out here and i've got to go to the store and pay exuberant food prices and then there is standing right behind me and they've got food stamp cards and you couldn't give them a job, come on. you know, i don't mind helping somebody, but this has gone way beyond that. >> host: again, thank you for your service. i think most people who are on food stamps in fact are going to work every single day and they

just did a little bit of a supplement to match their paycheck so they can go to work and pay their taxes. most people in this country or not working actually want to work and that is why it is important for us to focus on what will rebuild an economy and create jobs and opportunity for them to do so and for them to grow into the middle class. so i know that the public is frustrated. what i would ask people to do is examine for real, in their own households, where were we? where are we now and where are we going? i would say to meet that test, would be democrats and congressmen who will take us there and it's going to be the president of the united states and he is reelected going into next year. i am actually excited about the future because i look at my son and our family, i think there's a real opportunity. we have to make sure the opportunity is available for all american families. >> host: donna edwards, democratic.

>> guest: thank you >> the defense department plans to spend $15 billion to put an auditing system in place. the top financial management officials for the army, navy and air force testified about the issue before congress last week

along with the defense department comptroller. >> i called the oversight investigations subcommittee on the house summit committee to order. i want to welcome everybody to today's hearing and i appreciate eyewitnesses coming into town to us us more about those challenges as that work stores audit readiness and 2014 and 2017. would like to welcome our distinguished panelists this morning. mr. robert hale, comptroller of the u.s. department of defense. ms. elizabeth mcgrath, u.s. department of defense. the honorable gladys commons, financial management and comptroller u.s. department of devi.

dr. mary sally matiella, assistant secretary of the army financial management and comptroller u.s. department of the army. and ms. marilyn thomas, deputy assistant secretary of our comptroller u.s. permanent the air force. thank you for being here with us today and collectively you share responsibility for managing nearly $700 billion of net operating costs and accounting for nearly $2 trillion in assets. these are weighty responsibilities, particularly when you consider the importance of the emission terminations national security into our war fighters. i want to thank you for your service and the commitment you have demonstrated on this issue, achieving audit readiness is both complex and challenging and it is clear to me that you're making tangible progress forward. this hearing is meant as a follow-up to the defense financial management and reform panel, which was appointed by

chairman buck mckeon and recommend adam smith in july 2011 to carry out a comprehensive review of the departments financial management system. the purpose of the review was to oversee dod financial management system and its capacity for providing timely, reliable and useful information needed for making accurate decision making and reporting. i would like to thank mr. conaway who served as chairman of the panel and mr. anders who served as ranking member. because your diligent efforts and outstanding leadership, we have a much better understanding of the issues surrounding audit readiness and the path the lies ahead. readiness is an important aspect for many reasons. but for me it is most important because of what it means for national defense strategy, which put simply as every dollar we corral for a national defense budget matters, especially because of impending financial strains. the budget shapes not only our

discussions on structure and capability, but ultimately determine whether war fighters have the tools and equipment a need to do their jobs. this is the prism through which i view discussions about audit readiness and why i am pleased to be having this discussion today. before we get started with questions, the quick administrative honor to discuss. i anticipate members from other subcommittees will join us and i would like to ask unanimous consent they be allowed to participate. after objections to work or do not recognize these members at the appropriate times for ibanez after all oversight investigations subcommittee members have had an opportunity to question the witnesses. at this point, i will turn to her acting ranking member, mr. chris for any statement he may have. >> thank you, mr. chairman.

i do not have an opening statement other than saint thank you for being here and active information is critical to making the decisions i look forward to your and testimony. >> thank you mr. kurtz. return to panel members for opening statements and comments will be given to you. [inaudible] >> if i may, if it is okay with you, i would give an overview from the department standpoint. while that work for you? >> they'll be good for you. ms. mcgrath and i will do that jointly. >> very good. >> thank you for the opportunity to discuss financial operations at the department of defense not at readiness. ms. mcgrath and i started a statement for the record and i will summarize it briefly. that means they we remain fully committed to meeting articles that are reasonably confident that we will meet those goals in the time frames established by

as. so why is it important to achieve auditability, support the law. it also matters because as you said, mr. chairman, it will make it her use of taxpayer resources in my view, the most important reason we need to do this to receive financial statements. i don't think will ever convince the american public or the congress we are good stewards of funds unless we can pass an audit. i should notecome even the dod's financial statements are not audible, we know where we are spending taxpayer dollars and that's a very important point. prepare people and vendors on time and record transactions properly. if that weren't the case for me was the massive problems of missed payments and am pleased

to report none of that is happening our financial statements fail not because we don't know where the funds are being spent, but because we can't document the transactions properly and quickly. i believe we will fix these problems and achieve audible statements because first, we have a workable plan that focuses on information that we've got everybody pulling them the same direction. we have short-term goals and long-term goals, a supportive government structure dedicated to three to $400 million the year throughout the planning. and the accountability that begins for secretary panetta, was deeply committed to this effort. as a result, we see meaningful progress.

>> there's better definition of the target environment utilizing our business enterprise architecture and push hard on reengineering that addresses the system level, but the appropriate and end process to the system resides within. strategic planning and performance measurements continue to increase. finally, investment management process that addresses both i.t. modernization and sustainment

funding across the business enterprise. we're accomplishing this comprehensive investment management process through the legislation congress passed in section 901 of the 2012 national defense authorization agent. the department's implementation integrates a governance for the ports folio systems by a single investment review board; significant for us. the board reviews and certifies planning, design, acquisition, development, modernization, all aspects of a problem, and, again, how they fit into the broader business conversation, and in it for all systems and initiatives that are greater than $1 million across the setup which is virtually everything. this helps us make not only better investment decisions, but reenforces the relationship of the business environment to the specific system investments and the business outcomes we are trying to achieve like audit readiness. that accelerates the retirement legacy systems. for example, in 2012, we retired

120 legacy systems, and in -- sorry, 2011, and in 2012, the number's approaching 200, and we are projecting at least 150 for 20 # 13. our modernized systems environment include each of the departments enterprise resource planning, erps, to improve financial management and accounting operations and help with future audits. at present, each one of the systems in a different life cycle. many experienced challenges, certainly, from design to implementation leading to cost and schedule overruns, but we are proactively addressing each one of these challenges like data conversion, business process, reengineering, stabilization requirements, and certainly the culture challenges associated with implementing a new i.t. system. we are committed to the achieving and overcoming those challenges. it is important to also state that while we are experiencing challenges, we are also delivering capabilities.

shorter repair cycle times, better visibility of the assets, reduced interest penalties, and better scheduling of maintenance activities. new business systems will not only enable awe -- will not able audit by itself. however, it establishes a modern business environment we need to meet and sustain our goal of audit readiness. we recognize the amount of work lying ahead and committed to a successful execution. >> another critical -- systems are critical to this. another one is committed leadership, and we definitely have that starting with secretary panetta, issuing a memo on this, a videotape, i update him inspect morning staff meet, and despite the challenges he faces, he also shows interests and asks questions about this topic. we had a full support of the deputy secretary, the department's chief management officer. we have this support of the

service secretaries and chiefs of staffs. they have all met on this topic. i talked to them periodically. i think relevant members of our civilian ses leaders. in short, i think we have commitment in this department, military, and civilian to take action. less than candid is if i didn't mention problems and challenges with less time to solve them, but we are addressing them, and we have to build the skills of the people, a course based certification program, putting that in place to do that as well as specific audit training. we have to implement meaningful and consistent financial controls, which we don't always have, and we're taking a number of steps including getting the service audit agencies involved to try to do that. we have to sustain momentum in the upcoming changes in leadership which tend to occur regardless of what the outcome of presidential elections is. we are grateful for the support we've gotten from the congress

including the recommendation of the committees' financial improvement panel and other members. congressional attention is one effective means ensuring it is a high priority. there is another thing you can do to help. in recent years, we've encountered unprecedented budgetary uncertainty, incoming no fewer than short down drills which we planned in the long term continuing resolution in 2011, a generated time consuming and unproductive planning efforts. i spend most time planning for things i hope don't happen. now we face the prospect of sequestering, and yet another long term continuing resolution. dealing with these extraordinary actions is sapping the time we could be spending on other times like audit readiness. the single biggest thing you can do to help me is return to a more orderly budget process. we'll close by reiterating full commitment to the goals of the department of defense including audittability. i take this seriously.

i started in 1994 and still trying now as the comptroller. we owe it to you to do that, oh it to the troops, and we owe it to the american taxpayers. that is our joint opening statement, and i would suggest army, navy, air force, if that's okay with you? >> yes. yes. >> good morning. congressman whitman, members of the subcommittee, thank you for the opportunity to testify today regarding the army's work to achieve financial statement audit readiness. i want to convey to you that secretary mccue, general, and the under secretary wesphal, and i commit to improve financial management and becoming auditable. the army will assert audit readiness on financial statements by 2017. as required by ndaa for fiscal year 2010. the efforts to increase

financial accountability and achieve audit readiness go hand in hand with secretary mccue's call for a leaner, faster, and more adaptable army. a more agile army is only possible if we have timely, accurate, and reliable financial information to inform our resourcing decisions. we recently achieved a significant milestone that simultaneously supports our transformation objectives. on july 1, of this year, the army completed the scheduled deployments of the general fund enterprise business system, gfebs. this system is designed to deal with audit requirements. each day, more than 25,000 users use gfebs across 28 army commands, component commands, and direct reporting units. of course, in an organization as large as complex as the army, a

transformation that requires a change in the day-to-day business and a fundamental shift in our culture faces significant challenges. both houses of congress and the gao have been valuable partners in our transformation endeavors. the army's audit readiness strategy addresses each of these six concerns. leadership engagement, accountability, internal controls, competent work force, business architecture, and compliance. audit readiness is part of the army's campaign plan and aligns in the secretary's top ten priorities. top leadership communicated through memorandum and other means the critical nature of audit readiness across the enterprise and our intent to hold personnel accountable. military and civilian. for example, in april, the chief of staff sent in a message to

all general officers informing them of the importance of audit readiness. also, we have greatly increased accountability in oversight by embedding audit readiness criteria in the annual performance plan of all senior army executive service to civil civilians. in addition, we are engaging commanderrings, holding them accountable for implementing effective, internal controls. building a competent work force requires comprehensive communications and training efforts. in 2012 alone, we have trained more than 8,000 personnel across all business functions in audit readiness principles and implementing the internal controls in the army business processes. we are using the army learning management system and online systems to broaden or reach it in a coast effective manner, enabling users to assess the training content within 24 hours a day.

finally, i established the army financial management work force transmission working group to identify the required work force skills and staffing levels that will support our financial management transformation. we are strengthening internal controls through installation level process and control assessments. cresktive action, implementation, and control training. at the end of june, we reached two major milestones that demonstrates how far we have come in implementing internal controls. first, we asserted not -- audit readiness for nine processes at ten different installations for the statement of budgetary resources. an independent auditor will evaluate it leading up to the secretary of defense's 14sbr mandate. the first exam in 2011 resulted in a qualified audit opinion.

that was at three installations, that highlighted the vast standardization of business processes across locations is in place, which is a major achievement for the army. the second sbr exam evalwaits internal control environment. second, in june, the army asserted audit readiness for three missile programs: javelin, hell fire, and tow." that remits 16% -- represents 16% of the operating materials and supplies. the dod-ig will conduct exams to validate this assertion. for the remaining two challenges, we developed a well-defined business architecture, enabling the erp system to better support army audit readiness objectives. we are conducting assessments of the erps and material feeder systems using the gao financial information systems control audit manual that provides guide

lines an auditor follows when conducting an audit of a federal agency. i'm confident they will fully support the army's audit readiness goals as independents already confirmed gfebs to be substantially compliant with sfmia and the construction structure. gfebs is about 93% compliant. we have achieved some significant accomplishments in the last 12 months. we received a clean opinion on appropriations received. for exam one, we received a qualified opinion, and we fully deployed our new accounting system. i recognize the choices we face so there's a sound plan to achieve the mandate. the plan is sufficiently

resourced with a funnel support of the leadership and resulted in successful achieving several milestones to date. i'm committed to the effort, and look forward to talking with members of the subcommittee, gao, and the controller to ensure the continued improvement of the arianmy business' environment. thank you. >> thank you. >> good morning, mr. chairman, members of the committee, thank you for the opportunity to update you on the work we're doing to achieve audit readiness. we appreciate your engagement and focus in the area. the department of the navy remains fully committed to achieving audit readiness within the time frames established by the secretary of defense and the congress. we have a detailed plan, and we believe we are on track to accomplish goals necessary to achieve audit readiness.

our financial management community, business process owners, and service providers are working hand-in-hand to accomplish the task necessary to improve our business processes. in some cases, such as transportation of people, the business process owner at the senior executive level have taken the lead to examine the process and ensure the internal controls surrounding the business process are effective. they have demonstrated the functional ownership that we need by taking the initiative to implement the changes required for audit readiness, train the staff, and monitor sustainment efforts. the marine corp. continues under audit. we are learning from the lessons learned in their auditing experience over the last two years. where they implemented processes

and procedures that meet audit standards, we incorporated them in the plan for the entire department and shared them with other departments and defense agencies. this year, we are focused on current year activities, and i am hopeful that we will receive a positive report in the december-january time frame. over the past year, the department asserted that major defense acquisition program, the e2d advanced hawkeye program was audit ready. in july, a review by an independent public accounting firm validated that the financial transactions associated with this program were accurate and that reasonable intrernl controls were in place. they issued an unqualified opinion. we also received unqualified audit decisions on the existence

and completeness of the majority of the military equipment. we have assessed our civilian pay and processes, identified deficiencies in both the processes and the internal controls. we have remediated deefficiencies across the business enterprise, documented the process, and tested to ensure that changes have been made, and that they are working effectively. we are now awaiting review by the independent public accounting firm, which should begin with the next several weeks. we have examed all of our businesses processes and completed at least one round of testing to identify any deficiencies which would preclude audit readiness. we're in the process of making the necessary changes to remediate those deficiencies. we are also examining the

general application controls in our business systems to determine the systems changes requiredded to meet audit standards. we will complete this fall a thorough assessment of the navy erp. the internal controls using the gao established audit standards. the federal information systems control audit manual. i am pleased with the significant progress we have made. we have embraced audit readiness as an opportunity to improve our business processes, and to correct long standing issues that were not priorities in the past. however, achieving audit readiness is not without challenges. first, because our systems and processes were not designed to achieve the standards demanded by a financial audit, changes are required to sustain our efforts. it will take time to implement

all of the necessary changes, but we are identifying and prioritizing those changes. particularly, the systems changes in an effort to eliminate intensive manual work around. second, we know that are business process and intrernl controls -- internal controls need to be strengthened and enforced. we identified the key controls required in each business process. the challenge is to make sure the controls are implemented across the department, verify their effectiveness, and ensure through testing that they remain in place. third, we execute our resources across many organizations and activities. generating millions of transactions. we rely on thousands of methamphetamine inside the department of the navy and -- thousands of people inside the department of navy and outside the department of navy.

this requires collaboration, close coordination, and monitoring to make sure we all remain in sync with the requirements for audit readiness. fourth, we operate in a decentralized manner. we gather the evidentiary documentation required to support the millions of financial transactions we execute and heading that documentation readily available for audit review is a substantial effort. while these challenges are significant, we have included in our detailed plan actions to address each of these challenges. in closing, i am encouraged by our forward moe momentum. the progress we made, the relationships we have forged with our business process owners and service providers, the support they are providing, and the experience and knowledge we have gained to date; thus, i'm

cautiously optimistic we will meet our goals. i will be pleased to any questions you might have at the appropriate time. >> very good. thanks, ms. commons. we'll go now to ms. thomas. >> thank you, mr. chairman, and the members of the panel, for the opportunity to testify today. first, i'll confirm the air force's continued support of secretary panetta's accelerated goal of achieving audit readiness in the sometime of budgetary resources by 2014 and for all financial statements by september 30th, 2017. the air force is faithfully committed to maintaining the public's trust in our stewardship of taxpayer dollars and developing a culture that values efficiency and resource stewardship. air force leaders have consistently emphasized the importance of all encompassing air force wide efforts, which as

secretary panetta puts it, an all hands effort to successfully reach audit readiness by established deadlines. due to the commitment of leadership into the dedicated professals across the air force, we have made significant progress to-date. however, due to the enormity and complexity of the task before us, we view reaching the 20 # 14 and 2017 goals as having moderate risk. before going into the challenges of reaching the goal, however, i want to share with this panel the progress the air force has made towards audit readiness goals. over the last year, we have received two independent opinions on previous assertions. in october, an independent accounting firm issued an unqualified opinion on the reason silluation process, a process recon reconciling 1.1 million transactions with an

accuracy rate of 99.96%, exceeding the 98% recommended. in june, the dod-ig issued an unqualified opinion on our aerial target drones and cruise missiles valued at approximately $86 billion, representing 41% and 14% of air force and dod critical assets respectively. we have also completed two assertions of audit readiness for uninstalled missile motors, whisper end gins, that together represent end items valued at approximately $11.5 billion. a dod-ig examination is underway for the effort, and we anticipate a time report in november. additionally, we submitted $4 billion space based infrared radar system selected acquisition report assertion two months ahead of schedule. we'll crflt contract with an

auditing firm this month to perform an independent examination and issue an opinion. in the process going forward, we made significant process on end to end processes and hiring additional contracts in organic resources with financial reporting and auditing expertise to allows to continue making headway on more assertions and reduce overall schedule risk. last august, for example, we earned an independent public accounting firm unquailed opinion on budget authority distribution to the major commands and are completing correction actions on funds distribution to base to assert audit readiness on that early next fall. we have also completed initial testing and corrective actions on reimbursable budget authority and civilian pay processes to allows to assert two areas as audit ready in 2013. later this fall, we'll kick off

initial testing for military pay and contracts. our preliminary assessments in both areas are very encouraging. despite the progress made today, we face many challenges, and most significant of which is the need to improve our legacy information systems in order to support the 2014sbr assertion. with over 160 different systems recording, tracking, and reporting information for financial statements, the challenge is to identify, prioritize, and implement cost effective improvements to support the statement of budgetary goals. the enterprise resource system, the defense enterprise account management system, known as deams, the next generation accounting system, and it is critical to full audit readiness by 2017, has had some development and deployment challenges. recently, the air force operational test and evaluation

center completed an operational assessment of deams highlighting concerns with consistency, software development and testing, and change management of the work force. we have corrective actions in place to address these issues, and we are doing some preliminary testing, and i can tell you that what we're hearing is very encouraging on that. in closing, the air force appreciates this panel's commitment and support to the air force audit readiness efforts, and we look forward to continuing to work with you and achieving auditable financial statements. again, thank you for holding this hearing allowing me to testify today. i look forwards to your questions. >> thank you. thank you, panel members, we appreciate your efforts here, and i want to welcome mr. cooper, and i ask if he has any opening comments? >> i have no opening comments. >> okay, okay. with that, we'll begin with the questions, and secretary hale, starting with you and others for

their perspective. the senate recently passed a bill, including a number of sanctions if a full scale clean audit is not achieved by september 2017, and one sanction required the moving of jurisdiction from the defense finance and accounting service to the treasury. i wanted to get your perspective on that if you believe that you avoid that or if you did get to that point, what the -- what's your perspective on the transfer of that from dfas to treasury. >> i think it would be a bad idea, the goal, oversight role for me because provide oversavings account over dfas. that increases the workload, i believings because they are day-to-daying thing firms. we need them working in the department of defense.

let me step back own comment on the pentagon act briefly and broadly. we support the goals in the agent, getting to audit readiness. you heard us say that. we think we have a system ofv8j÷ accountability. we are concerned about a number of the sanctions that are in there. you mentioned one, there's several others. i can go into that if they are of concern to us, and it's because there is some uncertainty here. some whether we'll make this, you know, we've over promised and under delivered for years. i want to be honest with you. i'm confident, but i can't be absolutely sure for two broad reasons. one, as we finish discovery efforts, there could be problems coming up that we didn't an anticipate and take longer than we think, and two, the uncertainty in the budgetary world. if we have sequestering, that drains away an enormous amount of time. >> excuse me for a minute, can you pull the microphone up a little bit closer. >> is that better? >> very good, yes, thank you.

>> bottom line, we support the goals of the pentagon act, but concerned about some of the means. >> thank you. i wanted, also, to get your perspective, you know, the dod-ig recently published a report to talk about some of the problems with enterprise planning systems, schedule delays, cost overruns. i want your perspective on what the root causes of those might be, what the plans are to overcome those to get things back on track. obviously, that's a critical element of long term success in meeting the 2014 and 2017 milestones. >> if i may, i want ms. mcgrath to answer those. she's got the oversight there. >> sure. >> i think the reports highlight many different areas that are the root causes if you will,rd wra -- regarding the delays. i mentioned in my opening, the

data conversion, the data management challenge, the training aspects, all of which we absolutely are taking action to ensure that, one, we understand very acutely what the root cause was, and then the steps we need to take to correct thosement i think that for each program there's a slightly different scenario, driving the schedule change, although, those are consistent, in particular the data con vefertion and the change management aspects. what we have really learned with the implementation of the erp solutions is that it can't just be thabilitying team with the financial management solution. it must be the entire operation understanding the role that the capability plays within their overall execution, and that, to be honest with you, has been one of the most challenging. you heard that mentioned in an opening, and, you know, how do we use the symptoms and

capabilities to execute our business, and that requires a change in how we, you know, what we do every day. we must move away from, frankly, the years of practices that we've had into the new environment, and there are a lot more controls in the new systems, and so it -- although a nice new modern system sounds a lot easier than sort of the legacy system, really, there's a lot more intrernl controls and complexities such that you've got data integrity and all of the other things that are so very important to achieving audittability and full accounting of the money.

previous there was a great amount of attention paid to making sure that payments got out in a timely way. apparently with the system, there's problems with that. i want to get your reflection on the challenge and the solutions are in the future. >> i am not really aware of any delay in payments within the democrat of the navy -- department of the navy. we will deploy our erp system fully on 1 october. we will go live on 1 october. i am not aware of any delay in payment. we are making our payments on time, and we are in fact moving

more toward electronic payments so that we take the hands' on and it becomes a more automated process. >> if you take that question fur the record. >> i'll be happy to look in to it sir. >> all right. thank you. mr. cooper? i thank my friend for yielding. and i apologize for being slightly late this morning. i'm happy to be with you. the chairman asked a question about the legislation the audit the pentagon act, and i appreciate the difference in approach that chairman conway and chairman subcommittee have taken on the issue because we believe rather than pass the act, we should audit the pentd gone. introduce all the bills you want. the hard work of this is you ladies and gentlemens are doing and have done. we appreciate it.

frankly on this committee, mr. conway's let'ser beam-like focus on this is the proximate cause for this. i want to get in to the progress we're making and the problems we found on the act of auditing the pentagon. the first has to do with a problem of a beginning balance. obviously to get a clean audit letter, you need to have an accurate beginning balance, than is a problem that you all inherited. did not create, but obviously if we have a history for no audits for century, at least decades, getting a good beginning balance is not an easy thing. what steps are being taken to deal with the inherited problem of the beginning balance? >> the problem i'm going to answer and ask my colleagues want to add to it. the problem is lack of our ability to document the transactions. the way we do trans-- go back

ten years or more. we have, for example, five years to obligate for money for shipbuilding and five years to expend the dplars. and we don't have the records we can't get them quickly enough that's another problem. and the auditor's expect reasonable time so they can produce their opinion in an timely manner. it caused us problems. it caused us to decide for this year and the marine corps. statement of budgetary of resources we will focus on the current resources. the plan will be build up better documentation gradually as we move toward an audit effort. that will cause us to retain the documentations a few years from now we will have much ready access to it and better documentation. but it will take awhile before that is . >> let me say i think you lean in the right destruction. it's important to know where the

money has been and it's important know where it is. i think by focusing on the where it is question before when it's been you've made the right judgment. we want the answers to both. it's not a historic review. it's meant to be a tool for the present and the future. the second question i want to ask about the problem of software, you know, that would give us access to usable data and that's the whole erp issue that the expecter general done recently as two months ago. doctor -- [inaudible] okay. i wanted to know what lessons we have learned about g february this far. it's only been since 1 july. >> it's been fully deployed. >> what have you learned in the period of time of full deployment. what's working? what isn't? what lesson should we take from that to make gfed a success.

>> it's about change management. from inauditble to what is auditable. and one of the ways that you approach change management is you train and train and train and so training becomes very important. i think one of the lessons we learned at the beginning that the deployment we didn't train enough. and this is what you may have heard some comments from -- they needed more training and pay report. we have certainly -- that was a big lesson for us. to be mindful of training. help that online tools providing a time training. all of those different things. >> what extent do you think the training providers by the venders of the products better or worse than the training provided in-house. i'm sure there's a mix two of the. >> the mix two of the . >> what is the quality of the training provided by the venders of the products. >> the training by the venders is very good.

we need to continually reinforce it and reinforce it. that's where the internal staff comes in, is that what we have these super users, those are the folk who's are reinforcing that god training that was given. it's just one of those -- it has to be continuous. >> thank you, mr. chairman. i also want to say that i've seen personally and upclose that secretary pa then that and mr. hail and this team have worked diligently on this. they are willing to overcome the obstacles. >> thank you. we'll go mr. conway. >> thank you. i walked in the room and a couple of movie occur to me is the blues brother" let get the band back together. and "groundhog day." over and over. >> let's hope it's no the the

titanic. >> i want to echo the compliments. so you have been forward leaning throughout the process particularly when leon panetta a year ago said let's get done unprecedently issued from the top. i have seen it trickle through many levels of the ocean. i hope, mr. hale, we have -- that one of the things i hope with can get the senate to focus on as well as house members and that is the new leadership making sure they're as commit to the making this work as you and your team of demonstrated over and over and over. they don't grow we are i are of doing good. this can get -- it is a daunting task and is taking so long. mister, what's -- i watched video yesterday the nay i are is a kind of publicity pitch to get audit ready.

it's impressive, and i hope to get more people to watch it. so we get -- good job on that. mr. thomas, one thing i perked up on your testimony was you have a challenge, you in the air force have a challenge, and it's a -- have you walked the fine line between continuing to maintain legacy systems in order to get audit ready. but at the same time a longer pitch to pivot to the permit systems that will be in place year after year after year to be able to audit it. can you give us some sense between balance getting ready to 2014 and resource ways in we don't need long-term -- they're not going there for the long-term. >> certainly. thank you. yes, up until april of this year, as you well aware, i'm sure, the air force strategy was to be audit ready in 2017, with

the full air force wide implementation or deployment. and when we received the challenge from secretary panetta to accelerate the statement of budgetary resources, we knew we weren't going have deems applied air force wide to meet the time line. we have gone back to look at the legacy systems to determine to do remediation on in order to achieve the secretary's goal of audit readiness in 2014. we have found the system themselves -- for the most part, with some small mosques modifications will support it in 2014. we have to do a lot of work. and we're continuing to work on the people and the processes because the controls really in order remediate the use of the legacy systems the controls in

many cases lie outside the systems itself. in addition to that, there's a lot of interfaces that we've had to closely monitor, document, and implement tighter process controls on. through a excision of the effort and training of people. there's another as we have learned and done distribution to base. sometimes it's an issue of understanding what it is we're trying to do ab obtain. we have done a number of things have pulled funds managers in and conducted training courses, showed them, this is a good audit product, this is a deficient one. they are carrying that information back to the basis installations in training the trainer. through a combination of training and process controls, some system remediation on the legacy, in addition we are continuing our forward progress on deems because we need deems achieve full audit readiness in

a way that is sustainable. >> bob, mr. mcgraph, you put it in place about this time last year and the senior executive staff requirements that they be certain cry criteria for the personal evaluations as well as some commanders. when will those evaluations begin to happen. when will you report to us, not on a personal basis where folks have exceeded expectations and/or not made progress that was set up for them and the impact of the success or failure has on the advance and -- why don't i start and ask my other colleagues want to add. >> we have performance goals in the ses plans. we believe across the department for those member of the senior executor service that have audit involvement. i'll say it's not the primary

goal and the primary goal is just logistics. it is a part of the subsidiary goals. and the performance evaluation process starting right now and within at few months we will have that. how much we're going able to save in the privacy rules. i'm not sure. >> i don't want to -- i understand. >> but we are watching it. we would like to decide this as closely as we can to assessments and bonuses so there's tangible rewards for success and some stigma, if that's the right word , or some change in behavior if we're not making success. i think we have peoples' attention. i'm a little less confident but beginning to believe they know what they have to do around the department. i think it's a major step forward. i'm humble about all the challenges we are going to pull off over the next couple of years. hence the reason that -- you've heard various word up here.

like i said, we have underpromised and underdelivered for a long time. i don't want to be a part that have. i want to make it as best we can and try to beat the goal. >>ly add the performance rate rating period and the performance period for the end of the year and the senior executive service and the vaimtion process starts. as mr. hale indicated it's probably a month and a half or so before it's finalized. >> thank you. >> mr. chairman? >> if i may? 250 of our 303 senior executive leaders have an audit readiness objective in their performance plan. with the corporation that i'm getting, i believe that they are performing and that they will continue to perform. i think we all see the benefit audit readiness. not just to produce a financial statement, but to improve our business processes across the

board so i'm getting very good cooperation within the department of the navy, and i think those senior executives, the fact that we have that audit readiness objective in their plan, they are taking it seriously. >> very good. thank you, mr. conway. thank you. i think i misheard. i want to clarify. you talked about the retirement of legacy systems. did you say 200 or 2,000 in 2011. >> i said 120 for 2011 and approaching 200 for 2012 and about 250 in 2013. >> '03. i must have zoned out at that point. these legacy systems. i would like to ask this to the represents, is part of the move to audit ability was the implementation of the enterprise

resource plan, erp, i know there's delays in that, although secretary hale mentioned you feel very confident you're going meet the time frame that will meet goals and the time frame allottedded. i'm trying to figure out, are we going have a mix of systems, and how does it play out? >> i will start with the service representative as additional detail. i think that's exactly right. there's a mix of i.t. solutions and capabilities that enable the audit readiness to happen. i believe both in 2014 and 2017. some of the strategies include the erp, the center piece, the army, for example, it's an erp-based strategy for the entire business. they are using for the lead. it's no the the same. with the department of the

marine corps. we heard with the air force with the scheduled they are -- and what 17 looks like. at the end of the day, it's a combination of the entire, you know, the business capabilities, the new or the -- legacy but some of the legacy is still pretty good i.t. capability. and the importance you have heard is not just the system piece. it's understanding how you do what you do and excuse of your business process and the i.t. enable that to happen. and its is extremely important. if you don't know how you do what you do, the process piece, the i.t. is not nearly as important or relevant. and really getting at the process piece and data flow. is extremely important and all of the military departments are focused on that as they implement whatever their i.t. solutions are. >> would your analysis be that most of the legacy systems were populated through the different

branches or was it more focused at the pentagon and in the overall management of it. >> definitely the former. it wasn't even necessarily at the military department, head of the department level, it was very much a bottom's up, met a local need. i had a function i needed to perform at my base installation. i did what i needed to do to execute my piece. ic the difference today, and i have seen in the last few years, we are taking an enterprise perspective and through a listing up and looking across the organization not only at the military level but at the dod enterprise what do i have and what is it helping to achieve the business outcomes we want talk today we're talking about the audit readiness. >> secretary, hale, moving on i had a question earlier and ipped we need to drive to this

audittability it will help us plan and work with you on future planning. but i also have a concern of as we drive to these reports the separation of items that have to remain at the secret and top secret level. and how these reports will impact sort of the crossing -- cross pollination, i guess you can say, or will we have to be that much more cautious when it comes to making sure that the data can't be mined to determine some of that secret information? >> this is a man bytes dog problem. we are getting better systems, we getting visibility of the data. but that's a problem. and we are actively looking. i want to be careful what i say. we are conscious of the problem and are looking for ways to solve it.

it may mean we have to have separate systems that are classified. or that proliferate systems to some extent. there may be other approaches. i'm being a little vague. >> no. i just -- it's a concern because . >> no. >> i i want to help. it is an issue and one we're addressing. >> thank you. thank you, mr. chairman. >> thank you. mr. kaufman? >> thank you, mr. chairman. thank you all for being here today and thank you for your service to our country. i think maybe i'll start with from hale. it would seem to me me that every branch of service is allowed to do its own contracting in terms of computer systems and it seems to me that we have the different systems. i understand you're trying to consolidate now, but are you -- are we moving to a single system where it comes to financial management? >> well, if you mean single system throughout the department

of defense, the answer is no. we have the departments have different business practices, and it would -- i believe it would be a bridge too far to get them on one system. and it would frighten me a bit it would be large in size itself sometimes a problem in terms of implementation. we're trying to move to minifewer systems. there probably won't be one for the department there won't be throughout the management. we're trying to retire the legacy system and reduce the numbers. do you want to add to that? >> i would attitude what mr. hill said. we are taking standard-based approach. i believe -- so instead of mandating a single solution, i.t. solution, we're mandating the implementation of standards each one of those solutions that at the end of the day, you canning a gray gait the data. and it's a both a standards process base and then the

implementation of standards. >> e where are we in the process again? >> with regard to the standard financial information structure, which is the main financial standard, all of the erp have the military department, actually all of them have implemented the -- what we call the standard information structure and we did validation for each of the erp on the implementation. i believe she mentioned 90 some percent of terms of compliant. each one of these is a complientd with the with the standards. it's not only the financial system.

obviously the majority right now are probably not. is there -- is there a list in dod of those major commands or programs that are auditable. >> yes. it's not commands. we have a couple of agencies that are auditable and some accounting service and contract audit agencies all have auditable statements. there have been information services agency. disa has partially achieved auditable statements. within the service it's pieces that are auditable. the one furthest along is the manner corp. close.ditable yet but we hope but as you heard all of my colleagues say, what the strategy we have taken is buy off pieces of this and get independent public accounts. they know how to do it.

we don't. as we bring them in, we learn a great deal. we learn a lot from the machine corp. pieces of each service have been done. do you want to add to that? >> i would like to add that the corp. corps. of engineers have been auditable for a few years now. we are using their audit approach and their lessons learned to guide us. they're a huge success. [inaudible] >> thank you, mr. chairman, for give us a further opportunity to explore this. i want to ask about the personnel training in a bit more detail. one thing that our work together has taught us is that we can have, you know, a really thought-out software systems and clean up some of the other problems. if the people are not properly trained to use the system, it doesn't work. what would each of you identify as our principle problem right

now in the personnel training area. what's our biggest deficiency or flaw, and what do you think we need do to fix it? what would be the number one problem you point to? >> i'll start by -- and again, it's an organized training equip issues. i would ask my colleagues those who want to comment. we don't have a framework in the defense financial community that allows us to require training across the board. we have a lot of courses and i think our training is generally pretty good but it's not -- as i said there's not a framework. one of the things we can't do easily is ensure that everybody gets appropriate trainings and appropriate to the needs. everybody doesn't need to be cpa. they can't and never will be and shouldn't be. everybody should have some familiarity with the importance of this and their general role. >> is that a collective bargaining issue or why can't we have . >> it's influenced by it. we have started the course-based

session we're copying essentially with the what the accusation community did a number of years ago. you give us legal authority to do it a couple of years back. we are beginning pilot programs. we'll establish a framework we'll set levels for each position and depending on the level they will need to complete certain courses and requirements in order to be certified at that level. and one of the things we'll do is create a 101 course we hope essentially everybody coming to our community will be required to take and part of that will have an audit module. it will move toward everybody unking where it is important and the general requirements of audit. for many people it will be what they need to know. we have done some special training for the financial improvement and audit readiness. we hired a contractor we call it fire 101 training that is

focused on audit. let me ask, marilyn, would you like to start? >> sure. thank you. one specific ample i can provide in an area we have learned a considerable amount here recently is with the implementation of deems. one of the things that the operational assessment pointed out was that we had some issues with change management particularly in the area of training. and as we pealed the onion back to find out what the core issue was, we talked to the work force that was using the system. and the key thing they provided us feedback on was, you know, you taught us how to use the software. you taught us about the soft area. you didn't teach us how to do our job with the new system. and so in response, with a we have done is we have developed training an mules manuals for each of the perspective jobs. each of the desks and they had

the training manual on their desk additionally. our plan going forward is we're going to forward-deploy people who have implementing the system before on location to help the people when they receive the new software, learn how to use it along with those training manuals. so i think sometimes our challenge is we're introducing something new and we think because we have been in the development proand the oversight process the people who receive it are going understand it's the way we do. >> this is the cultural change many of you mentioned in your testimony. part of it. >> yes, sir, exactly. >> any other takers? >> i would like to comment. we have done several things to make sure that our work force, their training and audit readiness. and certainly i would like to thank the fire team who came over and did several training sessions for our nonfinancial

managers to train them on what it meant to be audit ready. >> it does strike me that one hurled we have to get over, it's no the the financial and accounting people. it's all operational people. if they don't understand why they're collecting these documents, it doesn't work. >> absolutely. >> it's not the financial practice. >> absolutely. and we have what we call regular office hours. where we have people who can call in and we we can have discussions about things we need to do and audit red i -- readiness. i would like to say we have enterprising and energetic people that are working for us. what we have found is that they like to establish ways that they can get the job done quicker. however, they do not realize the impact that it is having on the overall organization when they