so thank you for again all you're doing and i agree, i'm very happy that you started your comments thanking the men in the american military who sacrifice so much, and people like yourself have sacrificed for that, too, and with that said, i'm going to give you the last word. 30 seconds. >> thank you very much. >> okay. with that said, i want to -- larry, i appreciate you being here. i appreciate the first witnesses and i think we had a really earnest dialogue today. if we dig through all of this, we're going to find some gems and with that said, i hold this hearing adjourned.

>> we take you to the national press club for a discussion on how to balance national security interests with the need to cut federal spending. senate armed services committee chair carl levin and general james cartwright will talk about the impact of sequestration and automatic cuts to defense agreed to by congress last summer as part of the deal to raise the debt limit. this is just getting under way at the press club. >> there's no question that the

u.s. departments of defense and homeland security as well as the intelligence community are facing tough decisions as they seek to balance national security needs with budget realities. today's panel of government, private sector and military experts will discuss evolving and unpredictable threats, how the defense industry can build more capable agile systems for less, and how the nation can balance budget requirements while ensuring national security. before we get to our guests' opening remarks, i would like to let you know that there will be time for questions and answers. it is a national press club tradition to give priority during the question and answer session to working journalists, so i ask that you allow those with deadlines to go first. if you would, please, identify yourself by both name and organization.

joining us today, representing his private sector perspective, is david langstaff, president and ceo of task. with reflections from his military perspective, general james cartwright, retired vice chairman of the joint chiefs of staff. welcome. and with some thoughts from the government point of view, senator carl levin, chairman of the senate armed service committee. thank you. david, let's start with you. homeland security on a shoestring, do we dare? >> thank you, patti. good morning, everyone. do we dare. i think the problem with the question is that it suggests we have no choices and i think that assumption is wrong. a number of months ago, admiral mullen observed that one of the greatest threats to national security is our national debt. it's stating the obvious to note that as a country, we've got to get our fiscal house in order.

doing so will require smart sacrifices and hard choices by everyone, including those in government and industry who are entrusted with our national security. what we are not hearing enough about from anyone is how we meet our national security goals and address our financial and budgetary crisis at the same time. we all have to change our behavior and we must embrace the change, not fight it. we must think and act at the national level, not at the parochial levels of interest groups, self-interest, where we seem to dwell. recently the secretary of defense informed congress that restoring funds to unnecessary programs will hurt national security by denying proper funding for the programs that are essential today and in the future. we must listen to him. the government by its own admission has not managed previous defense budget downturns well. past efforts have led to a

hollowing out of the armed forces and overall capabilities. in the past, we were fortunate to navigate these downturns in times of relative global stability. today, we're navigating a downturn in a time of relatively global volatility and simply put, we can't afford to get national security wrong. one prerequisite for embracing constructive change is to agree on a shared goal, and the goal is not to protect jobs in my district or maximize revenue growth next quarter for my company. a shared goal is america's national security. i would like to suggest three points that must be part of the necessary conversation of how to accomplish our shared goal of national security within an austere budget environment, and to try to get away from a discussion that is fast becoming nothing more than irresponsible grand-standing.

first, the government must stop racing to the lowest cost regardless of risk, capability or mission importance. remember the classic children's story of the three little pigs. each little pig chooses to build a house out of different materials with different consequences. we tell this story to our kids to make a point that it's important to do things right the first time and to beware of the consequences of taking shortcuts. today's race to the lowest cost makes sense on the surface. after all, why pay more than you seemingly have to. but in many instances, it's like building our national security house out of straw. by defining value as the lowest up-front cost without adequate regard for other factors, we risk building on the wrong foundation, bearing unnecessary risk and in time incurring a much higher cost through budget overruns, delivery delays, and

in the worst cases, failure. now, i'm not suggesting that the government shouldn't seek to buy at the best price and value, but the best value accounts for all the costs over time as well as the objectives of the mission. think what you do as an individual. it is one thing to buy the cheapest generic drug to treat a cold or headache. but when it comes to open heart surgery on your heart, you act differently. investing in our national security is our country's open heart surgery. we need to understand what is at stake before we buy or cut. which leads me to my second point. there is a growing tendency to think of only using the private sector to provide staff augmentation where government resources are insufficient. this, too, is a mistake. the private sector is far more

than a supply of temporary labor for at least two reasons. first, our country's institutional knowledge of national security programs and systems resides across government and the private sector. again, we're all in it together. second, innovation and the application of new technologies come from the private sector. treating the private sector as nothing more than a low cost provider of staff augmentation shuts out american experience and innovation. the government should articulate what it needs to accomplish, what it is prepared to pay for, and then let the private sector figure out how to deliver it. think of it this way. do you buy a car based on the cost of the steering wheel and the engine and the wages of the assembly line workers? of course not. you buy a car that performs to your criteria and which is at a price you consider fair and affordable.

similarly, the government acquisition process should move away from its current obsession with the cost of component inputs and shift its focus to desired outputs such as performance and affordability. by doing so, we reopen the door to private sector experience, innovation and ingenuity and allow companies to bring their institutional knowledge to bear rather than simply contribute their individual employees on a scheduled basis. taking this approach will enable us to get much more for less. third, it is increasingly recognized in both government and industry circles that we lack sufficient systems engineering. good systems engineering is the architect you hire before you build a house. the architect helps you make the trade-off so that you get what you need when you need it and within a budget you can afford. unfortunately, over the past

decade, we have built a few too many houses without architects. just consider the development of the f-35 lightning 2 as reported in "washington post" last week. the fighter is almost three years later and has run $8 billion over budget. systems engineering is usually associated with the construction of a program, a new program or system. in today's age of fiscal austerity, systems engineering can help us with deconstruction. that is, making the right trade-offs to scale back on existing programs and systems but without sacrificing mission readiness, mission sustainability and overall mission goals. so as a country, we face major challenges on multiple fronts. challenges which -- for which solutions will come in conflict with each other and which will test our collective willingness to execute our responsibilities as citizens in a democracy and

perhaps more pointedly, as government and business leaders. pulling it all together, doing more with less or doing more with no more, while not ignoring our national security responsibilities, requires knowledge, intelligence and courage. it is a time for us to embrace the changes that we know we need to make and put aside our self-serving parochial interests, and we must rethink how we engage the private sector in order to unleash the innovation and brain power that have defined our country for more than 200 years. thank you. >> thank you very much. general cartwright? >> good morning. i think first is to acknowledge the fact that this has been a nation wart for now going on 11 years. there's no real historical

precedent for that. as you look at the demographics, the activities that are going on around the world, there are still huge populations where people go to bed at night that can't afford their housing, can't afford their food, are well educated and really don't have much to lose but to go fight to get what they need to survive. that's not going away. that population's growing, not diminishing. so the likelihood that as a nation or as a globe and a global community, that conflict is on the wane is probably not realistic. the question for us is what's our role in that conflict, where do our interests intersect with that conflict and how do we expect that we are going to be a participant as we go forward. the first question that comes from that is what is it we want to be and what is it that we are and is there a difference between the two.

as a military force today, if you're in afghanistan, you get up in the morning, you get in an armored vehicle, you go on patrol and then you come back. you're heavily armored, you're heavily defensive. it's called an occupation force. is that what we want for our military? is that what we want for our national security in this time? it's a question that we ought to answer. it's a question that we ought to answer and debate because there's certainly more than one answer and more than one discussion that should be held on that. the second issue from my perspective is where's the leverage. where's the leverage as we go to the future for competitive advantage, okay. i'll use dave's analogy of your car. certainly when i grew up, the first thing i wanted to know about that car was how many horsepower, what kind of transmission, how fast could it go and what color was it, okay. today, there's a small company in phoenix, arizona that does work on cars. they build a few, they're not a car company.

they build a few and they crowd source building those cars and they're having a profound effect on places like detroit because today, when you buy a car, it's will my phone connect to it, will my computer connect to it, does it know i'm there, how big a gig hard drive does it have in it, how many phones can i connect simultaneously on the blue tooth. that's what we buy cars for. in other words, the car and the platform still has a significant role but the fact that we bring sensors and systems into it agnostic to the platform, that we port those sensors and systems to wherever we are, home, our business, et cetera, and they're instantly recognized and functional, those are the things of competitive advantage on the battlefield, too. those are the things that are important to us. we're starting to move away from platform centric toward the leverage that is gained by i.t. systems that allow us to gain advantage no matter what the platform is, and quite frankly,

i'll never forget standing down in savannah, georgia with secretary gates, we were looking at an army unit getting ready to deploy and they had some new systems. they had ipads and they had droids, and secretary turned to a sergeant that was standing by the door of the barracks and said what do you think of all this stuff. and he said i would sooner leave this barracks without my rifle than to leave without these things. the face of war, the face of how we do business is changing. i don't know that the systems that acquire those kinds of capabilities are changing as quickly. the competitive advantage on the battlefield is not found in years anymore and it's not found in the platforms. doesn't mean that we don't want the platforms. it means, though, that the competitive advantage on the battlefield today is pretty much driven by the improvised explosive device fight. that's about a 30 day cycle. someone invents a fuse, someone invents a counter, someone invents a new fuse. it's about a 30 day cycle to try to stay up with that fight.

if you look at the cyberfight on the tactical battlefield today, it's somewhere between 9 and 14 days. so spending 20 years in development for a platform and then building the platform and then when we finally figure out what fight it's actually going to be in, going in and modifying the platform at great expense over a period of two or three years, seems somewhat irrelevant to the battlefield that we're on. being an occupational force heavily defended and staying in one place for a long period of time, is that really what we want. those are the questions that we need to start to think our way through as we move forward into the future in a time of fiscal austerity. i think the last point that i really feel probably is underappreciated is this military that we have built is an all volunteer force. this is the first time that we've gone through a physical downturn, fiscal downturn, with an all volunteer force. their expectations of service are substantially different than

a conscript force. they expect to come to work and have equipment that works. they expect to come to work and do training that is relevant to what they think is going to happen next so that they're ready. if we hollow that force out, their ability to vote with their feet is pretty significant. so the question becomes as we start to do this, what are the dangers of hollowing the force out. what are the dangers of not preparing for the realities of the downturn right now, we're in the $480 billion plus area that we're taking out of defense. that's about 11%, historically after a conflict we come down somewhere in the neighborhood of 20% to 25%. so are we halfway there? if we're halfway there, then what next are we taking out? we just going to continue to salami slice? those are important questions. those are important questions that we have to understand. what is it you want to be, where's the competitive advantage as you go to the future and then how do you retain the force that you have at the quality that you have as

you go into a fiscal downturn. thank you. >> senator levin? >> good morning, everybody. i don't want to be the only one up here who does not come up with a car analogy. coming from michigan, on the other hand, i can't quite figure out what that analogy is so maybe somebody could ask me a question which may trigger the right answer here. but the questions which have been asked so far are the right questions. how do we change our management, make it more effective, how is our acquisition system need to change. we have done a number of reforms but in terms of what we need to do, david's questions are surely the right ones. general cartwright's questions are clearly the right ones. but the answer to these questions is not the current budget process that we're in the middle of.

whatever the right answers are to those questions, and they clearly are the right questions, sequestration which is what is looming before us, is not the answer to these questions. i think probably my colleagues would agree with that, but i'll let them speak for themselves on that issue. these cuts that we're facing are automatic cuts in the defense budget. there are 3,000 accounts which would be automatically cut. the president has a little flexibility when it comes to pay but that's about it. so under what we're facing now, what's looming before us, what will happen in january in addition to the other parts of the train wreck, will be sequestration, automatic reductions, perhaps 8% to 10% in 3000 accounts. this is the kind of mindless budgeting which i think needs to

be avoided if we're going to have a chance to answer general cartwright's questions, and i hope we do, and i think we have begun to struggle with them. we struggled with these questions for a long time. one of the questions which the general kind of left us with is in the previous wars, our reductions afterwards were 15% or so but the real problem is that we're in the middle of a conflict, however we want to describe it, which is not going to end when our troops come out of afghanistan. or most of our combat troops come out of afghanistan in 2014. the general's questions are still relevant, what kind of capabilities do we need for the new threats, the new challenges, but it's not as though suddenly there's going to be a peace agreement signed in 2014 which is going to end the terrorism that we face around the world. i worry very much about sequestration. i want to talk about how we can

avoid it, because i think we must. most of my colleagues, not all, but most of my colleagues in both parties see sequestration as a mindless kind of threat to a sensible budgeting process, threaten not just important defense priorities, but to a lot of other priorities of our nation, including education, including health care, transportation, environment and many other critically important challenges that we must meet, we must face. there's already, for instance, on the domestic discretionary side, been a 15% reduction from 2010 to 2012, 15% reduction, and that is unacceptable as well as mindless nonprioritized cuts in the defense budget. so how do we get out of the mess that we face.

we've got to make hard choices and the only choice that really is an acceptable one, the correct one, one which is politically feasible, is to have a balanced solution. a solution which includes additional spending cuts but prioritized, prudent. no area can be exempt. general cartwright has spoken recently on one area in the defense budget which surely is ripe for cuts and that's the nuclear stockpile. we cannot exclude entitlements from the solution but i want to focus just for my remaining few minutes on the question of additional revenue, because that is the real challenge. that is where republicans who say they want to avoid sequestration and say they want to avoid cuts in defense, and i believe that most of them do, perhaps not the tea party types

who are now kind of dominating at least temporarily the republican party, i'm not sure they care about sequestration as much as most republicans and i think all democrats. so there's an agreement that we've got to avoid these across-the-board salami type cuts in all of our programs. now, we start with a fact. historically, revenue has been about 19% to 20% of our gross domestic product. today, it's closer to 15%. yet we have republican leadership drawing an absolute line in the sand against additional revenue. every president that has achieved significant deficit reduction has made revenue part of the equation. president reagan, president

bush, president clinton. first president bush. president clinton all have somewhere between 40% and 50% of deficit reduction represented by additional revenue. now, we got plenty of opportunities for additional revenue. our code is full of loopholes, full of giving in to offshore tax havens that we're able to close down. we can restore tens of billions of dollars each year in much-needed revenue. one example is facebook. very familiar to most of us. they get an estimated $16 billion tax deduction following the sale of that stock for $16 billion. the corporation gets a $16 billion tax deduction. even though it showed itself as being profitable on its books, when it comes to filing its income tax, because of this loophole, they get a tax refund

of taxes that they've actually paid. so they're profitable to the outside world, that's why people are buying their shares for $40 a share, maybe now $30 or whatever, but when it comes to their books, it shows that those options, hundreds of millions given to their executives, were worth about 20 cents a share. it's a loophole. we can close it. a huge amount of money in just one loophole. we got carried interest loopholes. we got tax haven loopholes. folks, this isn't the crowd and the place to go into more detail unless you're dying to know but not only should we restore that upper bracket tax rate at about 39% to what it was before president bush's tax cuts, which will go more than halfway in the deficit reduction that we need, but we also should close these loopholes and i believe eventually the republicans are going to have to choose. are they going to continue to

defend tax breaks, tax loopholes that mainly benefit our upper income folks and if you look at yesterday's figures about net worth, the only group in this country whose net worth has gone up is the wealthiest 10%. the rest of this country, median income has gone down in terms of net worth. so there is fairness here, there's a necessity that we have additional revenue. there's not only precedent, there's overwhelming precedent. with every president who's tried deficit reduction, that there be a significant component of additional revenue. so i think we are going to find a way out and the last thing i would mention, we are going to find a way out and avoid sequestration, in my judgment, because the overwhelming number of congressmen and women, senators, members of the house, want to avoid sequestration for

different reasons, perhaps. but they want to avoid sequestration. the big problem beside whether is when. i consider that to be frankly the greatest problem we face, because i'm confident that we will avoid sequestration, but if it comes in the lame duck or thereafter, it could come too late in order to avoid a severe weakening of the economy which results from the prospect of sequestration. business folks have got to plan. families have got to plan. you can't plan if you don't know whether or not there's going to be contracts coming in january or not, and that uncertainty which is created by the threat, the prospect, the specter of sequestration, i believe is a real threat to this economy. so not only must we avoid sequestration, in my judgment we will, but we must do it in time

to avoid a severe weakening to this economy. that's the greater challenge that we face to see if we can't possibly reach the kind of compromise which we know will be there at the end, but to do it in time to avoid this kind of mindless and very dangerous weakening in the economy. thanks. >> thank you, senator. we will open it up to questions and answers from the press first. again, if you would please identify yourself and your organization with your question, we would like to get started. yes. >> i wanted to ask mitt romney on the campaign trail talks about undoing the $487 billion in cuts that are already on the table and boosting defense spending. i wanted to know if you think it's realistic to view the course take defense spending is on, if that will change in the near term, that it will start going up in a romney white house and is anyone in industry or in the pentagon expecting that from

a romney white house? >> senator, would you like to start? >> no. i can't even contemplate a romney white house. that's the problem. you're asking me not a hypothetical but something which is difficult for me to hypothesize about. if he wants to add money to defense spending, he's going to have to do two things which he refuses to do. have a press conference and identify where is it you get the funds. that's number one. what cuts would he make. if he wants to talk about cuts, what additional cuts would he make in so-called domestic discretionary programs. and he ought to finally address the loophole question, the revenue question. did he take an oath, is he still bound by haley barbour's pledge that even though there's offshore tax havens that are soaking up tens of billions of dollars a year in revenue that belongs in