is strengthening military ties with russia so what can russia sell china? what is the possibilities, this is the main theme here of a strengthened chinese military through new connections with the russian military and how should the u.s. respond to that? >> i think what we'll do is just work down the row and answer your questions and any concluding thoughts. folks may have. i'll begin with one thought on u.s. military spending. i don't want to peg things to a certain percentage looking out indefinitely to the future. even if sequestration occurs, i'm hopeful that the dynamics of the presidential race will change the calculus of the united states, so it wouldn't last more than two years, i would hope. i think there is a case for modest, real increases in the u.s. defense budget and here's a very, i hope, stark way to put it. that i hope is compelling. a paying part of the rebalance

strategy, the pivot, the military girding of that is largely the u.s. navy and the central that makes much sense if the navy is stable in size or growing because otherwise you have 60% of a smaller force that may be less than 50% of the old force and if you do the math, sequestration is roughly at the crossover point. in other words, it would force a reduced fleet size if it was to stay over long-term, which would be in the range of let's say 240, 250 ships, maybe less and 60% of that is no improvement. relative to 50% of where we are today. which is about 285 ships. it's more or less a watch. if you are trying to send a signal, you have taken the ability away by sequestration. that's a clear way and a reason

i'm against sequestration. i don't think we need a build up, but a nice, steady, real increase would be, to me, a good thing. over to you. >> thank you. if i had a real good answer for the question, i'd probably call the secretary of defense this afternoon and let him know, but it's a very important question. it has to do with the entire military industrial complex in this country. by the time the latest aircraft carrier is deployed, it's probably going to be a $20 million machine. if you count the air crew that's on board. i don't know that even the united states is going to be able to afford that in the long range. that's h-e-r serks y --heresy as you know.

the foreign presence point mike has just addressed is really critical. it goes to much more important long-term, the rest of century or mid century, strategic question for the united states. are we going to be able to afford or should we maintain the presence that all of us have talked about a little bit here? do we need in the case for instance, trying to look ahead to see the status of japan, korea, whether unified or not, china and so forth, is it going to be necessary or worthwhile for the u.s. to maintain a military presence in northeast asia? just one example. i think one could argue it's not. it would not be necessary. your final point though i think goes back to something, several, maybe almost 20 years worth, trying to engage more active participation by our allies to maintain the foreign presence that we believe to be necessary today. i think he was one of the navy, for instance, the idea being we rely on our allies. that's more than relying on the

japanese maritime defense force on or the republic of south korea. which obviously and understandably is very focused to the north. once, should the peninsula be unified, i don't believe the rationale believing that seoul would want to extend military participation much beyond the peninsula. as far as southeast asia is concerned, i think once again, geography counts very much and at the first sign, should it become apparent that the u.s. forward prens is going to become a declining ford presence, i think we're going to see a shift in foreign policy by those nations. final thoughts. >> i just want to emphasize again that our economy is starting to grow. in the short run to grow about 3% in real terms. so we have the capacity to spend administer money. just because we have the capacity, doesn't mean we should do it. as the economy expands, it makes

sense there's more infrastructure needs, education and potentially, more national security needs. i'm not the person qualified to talk about that, but as the economist in the group, there's certainly the potential to spend more resources and in many of these areas i know, like infrastructure and education, if you don't spend money, the what's going to happen is the economy is going to slow down and you've basically shot yourself in the foot. so i hope we don't get stuck in in a moment in history where we feel we have to hold spending or constant in terms when in fact our economy is at a a sustainable level and our economy's growing well, so we have the potential to meet needs that will continue to make our economy grow well. >> so, let me take the prerogative of the chair to thank you all for being here. to ask you as i've been told, if you're going to stay at brookings, enjoy our cafeteria across the hallway. we are asked to leave this room fairly quickly because they have to get ready for susan rice.

to wish my mom a happy 80th birthday, but to ask you to join me in thank youing the panel for an excellent presentation. [ applause ] >> the supreme court is set to hear the oral arguments in king versus burrwell, a case challenging the subsidies on the

affordable care act. then more about the affordable care act and subsidies with mary agnes carrey of washington health news. washington journal is live at 7 a.m. eastern on c span. you can join the conversation with your comments and phone calls. the c span cities tour takes american history tv on the road, traveling to u.s. cities to learn about their history and literary life. we've partnered with comcast for a visit to galveston, texas. >> people throng to the beach, the rising tide drew them. they watched in amazement as both of these factors battered the beach structures. at that time, we had wooden bath

houses ought over the gulf of mexico. we had piers and we have a huge pavilion. as the storm increased in intensity, these beach structures literally were turned into match sticks ♪ the 1900 storm struck galveston saturday, september 8th, 1900. the storm began toward noon, increased in dramatic intensity, and then finally tapered off toward midnight that evening. this hurricane was and still is the deadliest recorded natural event in the history of the united states. >> watch all of our events from galveston, saturday at noon eastern on c span 2 book tv and sunday afternoon at 2:00 on american history tv on c span 3.

up next, british prime minister david cameron takes questions from a parliamentary committee. from london, this runs 50 minutes. welcome, prime minister, this session will have two parts to it. one on foreign affairs. which we'll deal with countries affected by islamic extremism and ukraine and in the second part of the session, we'll be dealing with the capacity and flexibility of the civil service and the machinery of government. >> afternoon.

can we return to the subject of sanctions against russia which you touched on to your statement yesterday afternoon. it's very important that the eu speaks with one voice towards -- on policy towards russia especially on sanctions. the sanctions are due to expire at the end of july and i believe you are trying to get an earlier agreement. but there are a number of different positions inside europe. people like germany and ourselves are taking quite a hard line. some are in the middle and some are actually rather hostile to it, like greece and hungary. how are we going to approach this in order to try to get u.n. unanimity? >> it is going to be difficult because when these sanctions expire you need unanimity to renew them. there is one set that have to be renewed in july and another set s renewed in september. there is a case, as i said yesterday in the commons, to bring forward the renewal particularly if there is further action by russian separatists on the ground.

there is an argument to bring them forward in order to make a very strong statement, bring it forward. the way to achieve unamity is to point people to the facts. we gathered at the european council last time after angela merkel, francois hollande came from that meeting to greet the foreign counsel. what happened after that was the horrors of veltsvagrade. i think we need to use all our diplomatic and other skills and efforts to convince those that have been more skeptical about sanctions that it's only a firm stand that will be taken notice of in the kremlin. that's what we should do. we've got some time to do it. britain has quite an important role to play in all of that. we have been, as i put it, the sort of strong pole in the tent in terms of sanctions. we should continue to play that role. >> are you optimistic that they will be extended?

>> i think -- i'm always optimistic. i think some of it will depend on what happens on the ground. i think that if, miraculously, heavy weapons are withdrawn, cease-fires are held, elections start, all the elements are put in place, i think you will see people wanting to lighten the sanctions load. but if we don't see that, you'll get a different view. but as i said, britain's role is to be at the tougher end of the spectrum to try to keep the european union and united states together. i think we should be clear about this pattern of behavior we've seen from putin now over many years. that's the argument -- when i'm at the european council table, that's the argument i make. >> do you think you will simply extend them or deepen them to make them tougher? >> i think the extension should happen in any event, even if not very much changes on the ground. they should be deepened if further steps of destabilization are taken.

i think particularly people will be looking at mariopol as the next potential flash point. personally i think the argument for further action would be overwhelming and i think that would be the view of countries like poland, the baltic states and many others and i think we'd have to argue very strongly that -- if you stand back from all this, what is the argument we are making? of course there is short-term pain when you put sanctions on a country. there is short-term pain to your own economies but the point i would make is in the medium to long term, countries of europe depends on a rules-based system where people obey the rules and the instability we will yield if we don't stand up to russia in the long term will be deeply damaging to all of us because you'll see further destabilization. next it will be moldova or one of the baltic states. that sort of instability and uncertainty will be dreadful for our economies, dreadful for our

stability. and that's why britain takes such a clear view. >> the foreign secretary said the other day that russia can no longer be considered a strategic partner to the eu. doesn't this cause us a few problems, because as a permanent member of the security council, russia, they're involved in a number of global issues. in particular, iran, syria, afghanistan. how do we square this circle? >> i think that's a very good question. i don't think russia is behaving like a strategic partner to the european union. that's absolutely right so we should be very tough on this issue. look, where we are working together, as we are with the approach to iran, we should continue to work together. it is very important that iran doesn't get a nuclear weapon. it is very important we keep a long timeline between wherever they are now and a nuclear weapon. russia has the same interest as us in that. so it is perfectly possible to have a very tough approach over sanctions is, over the overall relationship, while when it

comes to iran continuing to work in this format of the five permanent members of the security council plus germany. >> can we move to the baltics and the use of article 5? if the russians start to destablize the region through media disinformation, proxy warfare, does article 5 offer them any protection? >> i think the protection they are offered in those circumstances is that we are friends, we're allies, we're colleagues. already we've sent british planes to do the baltic air policing. we work very closely with their intelligence and security services, very fruitfully, too, on things like cyber. we'll work with them and help them strengthen their defenses. so they know and maybe we need to do more to emphasize this.

they know that in britain they have a got a very strong friend. i think if you talk to latvia, lithuania and estonia leaders, you will hear that very strongly. >> implementing article 5 is a political decision rather than a military one. what would it take to say the line in the sand's been drawn, if militia started operating just over the border in the baltic states. would that be considered a breach of article 5, and in which case what would our reaction be? >> i think that's a very good question. i don't want to give some unthought-through answer. but we are committed to their collective defense. where they are being destabled, we would intervene and help them with their stability. where they're being cyber attacked, we'd help them with their cyber defenses. i think we need to do more, frankly, in the area of information. one of the complaints you get from the baltic states that there's nothing to counter the deluge of sort of russian paid

and bad media spreading this information. we have to recognize one of the strengths we've got as a country, we have a very strong and impartial media. we have a wonderful brand in the bbc that's known for its impartial news and we should be supporting the bbc to provide news services and news channels where people otherwise are getting a diet of russian disinformation. >> going back to the question though, if militia activity did start over the border, would we consider that a breech of article 5? >> we would consider those sorts of threats to states, we would

consider that something that we would be helping them to defend against. >> how would you respond to russian incursions into airspace and territorial waters? do we shrug it off or do we treat it as more serious threat to our ability to respond? >> of course it's serious because we defend our airspace very carefully. and we have the resources, pilots, planes, the information systems to do just that. i think we should be careful that in our response we are clear, firm, calm. i'm sure the russians would like us to react in a more sort of volumeless way. i was checking on the figures. so far, last year we scrambled our planes twice. last year it was eight times. in 2007, it was 19 occasions. i think we should be strong, measured and clear but we should be absolutely confident that in our air force and in the typhoons and pilots that we have -- we have 125 typhoon now in service -- we are more than capable of protecting our airspace. >> the defense secretary had something to say about both of these points during his briefing to the "times" and "the telegraph." was he misunderstood or was he

spot-on when he said there was a real and present danger of russian activity in the baltic states, of the kind that have been referred to? >> i think he's right to highlight the fact that the baltic states feel this pressure very greatly. and they don't always feel the rest of europe understands them. from where they sit, they're having russian sanctions against some of their goods. on lithuanian cheese. they're having russian media blast them into their airspace. they often have cyber attacks. they are subject to a lot of destabilization and they want their nato partners, friends and allies to understand that. that's why they welcome us. as i said yesterday we have 4,000 british troops taking part in exercises in eastern europe. we have the baltic air patrol missions. we are doing a lot to re-assure them they are full members of nato. they get nato protection in

every way and we're with them whether they face these struggles. >> so real and present danger are the right words. >> look, i think he spoke very clearly, and as i say, he's right to talk about the threats they feel. >> not only incursions into our airspace, you said of the cold war -- in relation to that -- that it looks like it's warming up. is that spot-on? >> look, i've given you the figures. clearly, as i said the other day, i think the russians are trying to make some sort of point. not sure entirely what the point is. i believe reacting very calmly, reasonably. look, we should be confident of our strengths. our economy is going. the russian economy is shrinking. our economy is not wholly dependent on oil. the russian economy is wholly dependent on oil. our country has a robust free democratic political system with freedom of speech and all sorts of rights that people only dream of in russia. let's have the confidence. our economy is bigger than russia. even though the population is many times the size of ours. our economy is fully capable of

support the fifth largest defense forces in the world. they are highly capable. we don't have all sorts of legacy assets that don't work anymore. let's have confidence. when we look at the situation, terrible though it is in ukraine, let us not talk ourselves into some idea that this has been a fantastic success for russia. it hasn't been. the people of ukraine have voted to try to have a more open, democratic, less corrupt, trading and other relationship with the countries of the european union. we shouldn't talk -- a couple of russian planes fly around the channel. we shouldn't sort of talk ourselves into sort of a situation where we think somehow we can't defend ourselves. we absolutely can. >> wars between states tend to start when one side doesn't understand the position being taken by the other or indeed both. don't you think we have to have a pretty clear understanding of what russia's intentions are and

doesn't president beauty -- putin need to understand that nato will respond ziefle it -- desies ifly. >> yes. if a country of nato is attacked, it's an attack on one is an attack on all. that is nate troe doctrine. i sign up to it absolutely. we are a leading player in nato in terms of troops and everything else. what exactly -- as i say, if there's a cyber attack on a baltic state, as far as i'm concerned, yes, that does trigger all of us trying to help them with their cyber defenses. i'm being as clear as i possibly can. putin absolutely knows nato is rock solid. he knows if he attacks a nato country, we would have the response from the whole of nato.

article 5 would be triggered. he knows that. do we understand his strategic goals? i will argue that we've now seen a very clear pattern of behavior. we saw it in georgia with the creation. we've seen it in ukraine. that he would like, if countries respond weakly to try and restore russia n my view, this is not acceptable. these countries are democracies. she should be able to make a choice about their future. that's not to say we're insensitive to russian pride and russia's ambition to have a role in the world. of course, we're not, and i've tried to have a relationship with putin and show some understanding of that but what we can't do is i think some people would like us to do this is sort of say, let's have some sort of accommodation where we say to russia, of course, these countries are not really

countries, of course they are your domain, whatever they vote for, whatever they do, you can -- i think that would be writing off, 11, 12, 13 countries in the world, and i think that's not the way britain behaviors, and we made these mistakes in our history of talking about foreign countries of which we knew little and it's not a sensible thing to do. i'm not saying we should send huge numbers of british troops to ukraine or even we're at the stage of arming the ukrainians, but what we should do is make the weight of our economic power, europe and america, play against russia, if they continue to behave in this way. so they are very clear, so beautien knows that if he continues down this path, he's going to have a very different relationship with europe, britain, america, with the west, and if he wants to take the consequences of that, which is further economic dislocation, less economic growth, less prosperity for his people, if he

wants to take that path, then he can, but that will be the result. >> pertaining specifically to ukraine, last week i spent three days in kiev and saw prime minister who told me he regarded britain alongside america as ukraine's strongest ally. but he also said that his country has been invaded and that the ukrainian armed forces are confronting not just separatists but regular russian troops, tanks, and armor, which they are simply not equipped to resist. will britain assist ukraine with the equipment it requested? >> we're not at the stage of supplying lethal equipment. we have announced a whole series of nonlethal equipment, night

vision equipment, body armor which we have already said we would give tukraine. over the course of the next month, we're going to be deploying british service personn personnel to provide assistance with training and medical care. we're developing an infantry training program with the ukraine to improve the training of the forces. they will be well aware of the area of conflict. i think this is the sort of thing we should be helping with. i don't think we should rule out forever going any further. we've had national security council discussions. we've had very clear decisions that we should be in the space of providing the nonlethal support, the help, the advice, and i think you've heard from the ukrainians, they will say the same thing. they see as a very strong friend to them and i think that's where we should be. i think the reason for not going

further is we don't believe fundamentally there is some military solution to this issue. there needs to be a diplomatic solution which i think should be enable by stanctions and pressure and the economic weight of america. where we should help them with nonlethal equipment, we should. >> they are simply unable to resist the strength of russian aggression. unless they undoubtedly aid the we are giving them, it is not going to allow them to stop further russian aggression. will the government at least consider the possibility of supply of defensive weapons if this continues? >> you would say some of the things we are supplying are helping the ukraine yabs -- kranianses with their defense, i would approach the argument a slightly different way. i think we're probably in

agreement. what we're seeing is russian-backed aggression and often these are russian troops, they are russian tanks, they are russian ground missiles. as i said the other day, you can't buy these from ebay. they are coming from russia. there's no doubt about that. sometimes people don't want to see that, but that is the facts. i think what we should be putting into place is a sense if there is another beltsavay, there is a trigger of another sanctions. if you look at the effect of the sanctions, it is having an effect. it hasn't yet changed russia's behavior, but it's certainly beginning to change some of i think the advice and the thinking that putin will be getting because a lot of businesspeople in russia can see this is a dead-end. >> can i explore a little

further that point about sanctions? because you know the ukrainians believe that russia's am ambitions do not stop at donetsk. they see a real threat to maripol and another town. if that continues, would britain consider imposing stronger sanctions alongside, for instance, america, and in particular the possibility of at least temporary suspension of russia's membership in the swiss banking system? >> yes, we should not rule out those things. if there was major further incursion by russian-backed forces and effectively russian forces into ukraine, we should be clear about what that is. that is trying to dismember a democracy, a member of the united nations, a sovereign state on the continent of europe. it's not acceptable. i will hope that the european union collectively would respond

very robustly, really hitting the economy of russia, but were that not possible, then of course we shu look at other avenues as well. obviously, looking at the swift banking issues is a -- it's a big decision, but there is a logic for it, which is if russia is going to leave the rules-based system of the 21st century, then russia is going to have to start thinking about whether it's going to be in the 21st century when it comes to investment, banking, clearinghouses, when it comes to the other things that make our world work. you can't take one part -- leave one part of the world, the u.n. charter and not destabilize sovereign states and expect to be treated properly by the other parts of the world. there's a logic in what you say. >> the ukrainians have also suggested that the only way of maintaining this cease-fire is the deployment of some kind of international peacekeeping forces, both along the contact line and the ukrainian russia

border. is that something which british government might support? >> i think that where we are now is supporting the osce observers and boosting them with extra money and resources and personnel. not only is the osce is something that is accepted by russia as an organization as well as by ukraine, i think in terms of peacekeepers, i think there are lots of problems there. is there a peace yet to keep? how would you get u.n.-backing when you've got russia as a permanent member of the security council? where would the troops be drawn from? what would the rules of engagement be? i think we're not at that stage yet. i think we should be focus gs open the diplomatic sanctions and other pressures to try to make minsk work and if only minsk doesn't work, we have to look at other things. >> if ukraine is to have a viable economic future it is going to need a huge amount of support as well as the imf package which is hopefully now

in place. what is your response to the suggestion that's been put forward by congressman george soros for some kind of marshall plan which will provide guarantees against political risk to encourage investment in ukraine? >> i think the imf program and the e.u. contributions are important. i would make one point and the ukrainians -- i say this to them, i don't mean saying it when they are not in the rule. they have got to deal with be issues of corruption and govern answer and you poor money without reforming the institutions it should disappear down a black hole. that's what it will do. ukraine has the right to decide its own future. we should be very tough about a reform program because a good reform program is worth billions of dollars of aid and one of the concerns i have is that while i

think there are some quite effective reformers in the government in the ukraine, there are quite a lot of different plans floating around and i think we need a unified plan to get behind which involves dealing with those things before giving more money. >> prime minister, i spent several days in latvia with the european committee and we kept on bunting into the -- bumping into another committee at the same time. >> a meeting of minds, i'm sure. >> i couldn't dwrae more. certainly on the fact that we had serious matters to look at and to discuss. yesterday, on your statement on the e.u., i asked you with the need for the united kingdom to stand up for u.k. interests as well as those for europe as we have so successfully in the past, if i may suggest over the last hundred years. you replied that we take a key and leading role on e.u. foreign policy. however, on the one voice issue,

which you've just been referring to in relation to the russian-ukraine-minsk discussions, the u.k. and you were excluded from such a role quite explicitly by the german-french normandy format? who devised that format? . it was stated this morning on the "today" program, we decided together to not you the put the european flag on the negotiating table but to make sure the efforts of german and france were european efforts. they can't -- they didn't say you. average gel la -- angela merckle

had her german flag when he was talking to obama. >> we don't need to be involved in every set of negotiations. there's no point of endlessly obsessing whether or not you are in the room. we've had a very clear role in the ukraine. they see us as the most reliable ally to standing up to russia firmly. the first to say russia should be chucked out of the g.a. the first to really voice our support to the ukrainians. the normandy format, if you rewind, how did it come about? it was when we were in normandy commemorating the heroes of d-day. >> and my father. >> indeed, my grandfather. president obama and i actually thought that this was not the

moment and the right time to have a sort of round table with russia and ukraine, so the discussions went ahead with france and germany and i would commend france and germany for their diplomatic efforts to try to put together a diplomatic package that the ukrainians and the russians can support. the key has always been getting ukrainians and russians in the room. it matters a bit less frankly who else is in there. the key is getting them in there. all credit for them doing in the work. i think what is being said, obviously they quite like to be the e.u. in the room as well, they are saying this is done on behalf of everyone in the european way. i suppose that's fair enough. the key thing is not just to hold these diplomatic discussions. the key thing is what happens when they don't -- when and if they don't work, and that is where britain -- what really matters can we persuade the rest

of europe to zboes -- scboes impose the sanctions. on that, britain is very much listened to. in the end, when it comes to it, we probably have as a good situation as anybody else. don't be precious about always being in the room. you are never precious. [ laughter ] >> in that case, i can move to mr. jenkins. prime minister, you say there's no military solution to the ukrainian crisis even though it's brought about by a dictator who clearly believes in military solutions.

what evidence is there that we can stop this russian aggression without a similar demonstration of western military rule and resolve? >> it's an interesting point. i would take a slightly different lesson from the georgia experience. i don't think russia necessarily believed that america was going to intervene militarily. what happened was that -- i think the lessons from the georgia experience is that no consequences followed from russia's effective dismembering of georgia in the creation of. what should have happened after a sovereign member of the e.u. goes -- u.n. goes through that experience, there should be permanent consequences and sanctions such like that are put in place so russia draws a lesson of what happened.

that didn't happen. >> the response was to a different question. the fact is the invasion was stopped because we were prepared to up the ante militarily? >> well, i would argue that it's -- the upping of the ante, the biggest effect we can have, i think is an economic effect and i think we should focus on that. of course, you can take -- you look at more military solutions and, of course, the americans are currently looking at should they provide more armaments to the ukrainian army and we're providing nonlethal equipment. that's obviously an avenue. it looks like america is thinking about that quite seriously. my argument is the greatest power we have in respect to this crisis is an economic power and that's what we should be leveraging. >> moving top syria. the opening up of the war to

degrade isil in syria does require a policy shift. do you accept that the collapse of the assad regime is not currently in the national interests? >> i'm not sure i would accept that. i mean, my view is that assad is one of the great recruiting sergeants of isil. two things helped to bring about isil, the brutality of assad against his own people in syria and the utter uselessness of the malaki government in iraq which was sectarian and that combined with islam extremism which is a problem the world over, britain includes, those combined to create the isil phenomenon that we see. is there a solution to isil in syria that involves assad staying in power? no, there isn't. he's part of the problem. if assad were to go and be

replaced, that would at least would open up the possibility of some sort of government in syria that could represent all of the people rather than some of the people. i come about it the slieg sli different way. >> the intelligence is assad does go away and isil fills the vacuum. >> i don't think that is realistic. at the end of the day, we're seeing in iraq, isil have lost 700 square kilometers of territory where you are beginning to see problems because they are unbelievably brutal and hideous in what they do. the is vast majority of syria don't want an isil type regime, they want a decent, inclusive government. all these problems come back to the same question is which is how can you build inclusive government with a rule of law that isn't corrupt, that's able to have armed forces that represent all of the country and

can provide security? that's what we're trying to get in iraq. i think we should back him. what we need in syria is the same thing because it takes longer because we've got assad in power. we need to build up the forces of moderate opposition and we need to bring about a transition where syria moves from assad to something better. that's going to take a long time. i don't think there are any short cuts. i don't think there are any other routes through this. >> who are our natural partners in syria now? who are we going to work with? is there any prospect that we'll turn to the syrian kurds? >> our natural partners in syria are the well majority of the syrian people who want a decent nonsectarian, inclusive government. that includes syrian kurds. it includes sunnis. were there to be a transition,

you need a figure or figures to take over from assad who could take some of the aloite population with them as well as appeal to the majority cities. >> can you update us on what's going on in the iraq in a moment both on air and on land and clarify our policy there? we seem to be focusing very much on the military side rather than the political, and -- >> what we're doing in iraq, i mean, there is a fully joined up strategy. people are frustrated just because these things take time it's a fully joined up strategy of supporting the iraqi government which is less sectarian and more inclusive. it's about helping to train up the security forces. we're playing our role particularly counter ied. it's also the air and recon i

sans strike capabilities we have. we're the second largest provider of strikes. we account for more than france and the next two countries i think combined, and as well as that, obviously, we've got voyager aircraft providing air-to-air refueling. we've got intelligence and surveillance aircraft. we've got ships that are involved too. there's a very large british military component playing its part in a international, including air rib countries. the military is one part of t i'm sure more can be done it's sort of a diplomatic and political surge to help the iraqi government do anything it could be doing. >> can we do help the kurds anymore? all the help we give them has to go through a rather tor to aous

route through baghdad and on up to erbil? >> we're happy to respond to requests. i think i don't have the numbers in front of me. perhaps it might be useful for the committee to provide a note bringing together all all of the things we're doing, both in iraqi, and elsewhere across the country. i've got 40 heavy machine guns. half a million tons of ammunition. 50 million tons of nonlethal support. and metal detectors we're using in afghanistan for counterspai ied. in terms of peshmerga fighters, we've got 30 training on counter ied. i can't give you a full list of all the ths being done. it's an enormous coalition effort for all these countries. try and work out where the

british contribution can be its most significant and helpful. so that's why i was pushed so hard for the vote in parliament to allow the strike work because actually if you look at the capabilities of the tornado aircraft with raptor bods and the missiles, those are as capable and more capable than the americans have. they really wanted us there. we have to try and work out where we can get the greatest effect and help with them. >> sticking with the kurds, they are our most reliable partners there. a lot of them have died there. yet, they were divided to the anti isil coalition. >> i suspect that if you have a conference which is a conference

of sovereign states, including obviously iraq and other neighboring sovereign states, then it is more difficult to have regions as well. i suspect that is the answer but perhaps i'll include that in my letter to you. >> fine. quickly turn to libya. libya is in chaos at the moment. there's vast quantities of arms, uncontrolled flows of refugees, migrants, and very clear signs that isis is moving in. in your statement yesterday, you mentioned jonathan powell's initiative out there in trying to establish a national unity dialog amongst the various groupings? what are the prospects of success of that? particularly as i gathered this morning, one of groups has actually rule out working within a dialog? >> it's an extremely difficult situation. there's no denying that. it's not just jonathan powell who is working out there. there is a u.n. special

representative, representative leon who is conducting talks on the 23rd and 24th of february in moroc morocco. the aim is to bring these parties into a unity government. it's very difficult in terms of which one is on the pale in support of terrorism and support for the underlying terrorism it's often difficult to get those countries most interested in libya to help whether it's egypt or one hand or qatar on the other hand. there is no short cut here. what happened, i would defend our action in libya, in that we responded to the potential of a genocide by ga dafi, that gave the people of libya a chance. it's a chance they haven't yet taken.

we need their politicians to demonstrate and their militia leaders to demonstrate a will to form that government. >> you talked about the importance of creating effective institutions. you talked about your golden threads of government. you just said we have a disfunctional government in iraq and we have a now more unified government. can you indicate what you see of role of working with the parliament which is now actually an effective institution in iraq? >> in iraq? >> and actually working with m.p.s is part of the process, helping to build a inclusive iraq? do you agree with that? >> i agree with that. i do. a lot of common themes to all these countries, whether we're talking about yemen, iraq,

libya, syria, nigeria. all of problems you see islamic extremism bbling elections, buto you have the building blocks of democracy? do you have the rule of law? have you a proper place for the army in society? do you have an effective parliament? does your government just represent one bunch of people and extract money from the country for those people, or is it an inclusive government? these are the absolutely vital questions of improving the safety of our world and the prosperity of the people who live in this country. so par lliament in iraq, yes. >> we spend more money on supporting elections than we do on the people who have been elected. >> that's something i need to go and reflect on because my whole approach has been to say of course elections matter, but it's the building blocks of democracy that matter in many ways more. and so i have made sure that the westminster foundation for democracy does get properly funded because the work we do

with political parties is very important. >> you've also -- you looked at conflict prevention and indeed more and more focusing on post-conflict states. it's common knowledge that preventing a conflict saves you an awful lot more money than having to deal with one afterwards. do you think, therefore, that we're doing enough to actually prevent conflict or where we've managed to sort of get people working together to stop it escalating? and in that context, do you think the different funding should do more about that? you've set up the conflicts stability and security fund which will have a billion pounds next year and will be effectively having been reset by the national security council which you care. so can you give us an indication of how that money will be deployed in a way that's different to tackle conflict situations? >> well, what's different is that this funding is now properly discussed around the cabinet table with the members of the national security council

including the home secretary, thinking about domestic security, including the foreign sector, thinking about countries that are broken that need mending, including the defense secretary, thinking about how we can help these countries build up their security. it's a proper conversation, the risk they pose to us and what we can do to try and prevent conflict. i think it's an excellent thing. i can't tell you how the money will be spent because we've got to sit around and discuss where it goes, but it tends to go to those countries like somalia where early intervention can prevent breakdown. i mean, i think this goes to a bigger argument which is never mind just the conflict and prevention pool. there's an argument which is so much of what we're doing with development and aid is about security. there is no prosperity and development without security. and i think that's one of the ways to explain to people why we think meeting our aid target is so important because, you know, you take one example, somalia, that country has the capability of delivering to the world

drugs, terrorism, mass migration, violence, but on the other hand, if we can stabilize it and improve it, there have been some steps forward. i'm not saying it's like switzerland. of course it isn't. when i first became prime minister, there is a massive problem of piracy, because of our intervention and putting armed guards on ships and all the rest of it, that has been radically reduced. so working together, aid and defense and foreign policy in order to deliver security is very much a part of what my cabinet -- >> we're focusing on these post-conflict states which are very often dysfunctional, corrupt and difficult to deal with. and perhaps we turn to nigeria, for example. >> yes. >> we just talked about isis spreading itself across north africa and going into west africa. boko haram linking up in afghanistan. nigeria is the most populated country in africa, huge connections with this country, and if it breaks down, boko haram -- >> disastrous. >> this will finish up on our shores.

so how are we going to deal with that, if it happens, and how are we going to work with whatever agencies we have in nigeria to try and contain and reverse that situation? >> well, i would say this is a good example of where the national security council has made a real difference because we've had a number of sessions on nigeria. and so sitting around the table, you've got the development secretary who's got one of the largest development programs in nigeria of any developed country. you've got an excellent high commissioner in nigeria who comes back to explain what they think is going on on the ground. you've got the secretary state for defense whose pilots are flying over to try and find the shabaat whose military are training and assisting to the nig nigerian military, experts in counterterrorism and security are working with their counterparts in nigeria, and all of this is going discussed in one place with, as it were, effectively one budget, but maybe we could go even further to that to make sure that we

maximize the impact britain can have on nigeria and the political relationship that we have with the nigerian president. so if you're saying how's it all going, it's still extremely testing because nigeria has massive challenges in terms of corruption and all the rest of it. but i don't think -- if you look around europe, i think you'd be hard pressed to find a country that has got a more joined up, clear, thought-through approach to what nigeria needs in terms of help from us. >> margaret hodges' committee produced a report on the development group, which is generally speaking thought to be a good thing, but it actually says that it had concerns that funds were going to the looting of nigerian oil revenues. so how can we be sure that our money is actually delivering what it's intended to do rather than being diverted? >> i missed one person who's sitting around the table when we had the discussion which is the archbishop of canterbury.

he came to the meeting and brought his experience of what should be done next. look, you can never be certain that monies aren't -- misspending or corruption, and when you're dealing with countries that suffer from corruption, you have to be especially careful. all i'm saying is i think we are in terms of aid spending probably the most transparent country in the world. we now have an independent body that we've established to check how money is spent. but, you know, you've always got to -- there's no -- there's no perfect place you're going to meet to get to. you've just got to keep your eye on this. >> it's said that yemen is collapsing before our eyes and the world can't stand by and watch it happen. and as we know, the president has been -- he's now the houthis have taken control. there is a humanitarian crisis. and al qaeda in the south arabian peninsula is gaining ground. you and william hague have played a very important part in ensuring that yemen stayed on the path of democracy.

but now we have a real crisis, the possibility of the civil war. what on earth can we do to save yemen? >> this is -- i think in my experience of trying to work out how you can help countries and try to prevent what's happening from happening, this is thoroughly depressing. in fact, one of the most depressing cases because every normal tool kit from the foreign policy tool kit was applied. a contact group of like-minded countries and neighbors was established, intensive diplomatic advice and support, aid programs delivered and all the rest of it. and yet as you say, you've got a situation where the houthis have effectively taken over the north of the country. isn't there a president? our embassies had to leave. it is an extremely difficult situation. your question is what can we do next? i think the most important thing is to work with the most important neighbor, which is

saudi arabia, and to try to work with them to work out how to best provide some level of stability in yemen, but we're a long way from that because it is deeply unstable, deeply riven. i think the only thing i would say is if -- trying to draw a common theme across all these things. if there's a need for inclusive government with the rule of law that includes the whole country, yemen is yet another example because, of course, you know, while everyone was trying to get behind a better president than sarlay, it was still not an inclusive government that was representing all of the country. you've got the soupny/shia split as demonstrated. >> yesterday you made a statement about the three young london girls. >> yes. >> who have gone to fight in syria or to support isil. is there an estimate as to how many young people are being radicalized? british citizens who are going

on the 'net and therefore ending up in places like yemen and syria and iraq? >> i think there are estimates i can give you about the number of people who have traveled to syria. we've regularly published those figures. i think trying to give you a figure for how many people are looking at radicalized content on the internet, that's not a figure that i think we published or one that is very easy to estimate. >> or one we would find credible. >> you know, i've got a feeling -- i'll go away and think about that and i'll ask the experts, but i have a feeling it's one of those numbers that has to be quite concocted from estimates and so therefore doesn't tell us -- >> but it's a series. >> as i said yesterday, it's a hugely serious problem. and it goes to this whole point about trying to recognize first of all, everyone is in this battle against islamist extremism. we can't just say the board of force should have stopped them

or the police should have intervened. it would have been great if they had done, but the fact is we need the school to combat extremism. we need the community to be doing as much as it can. you know, that's the point about the whole duty, the prevention to putting on all these institutions is to say we're all in this together. we've all got to play a role. we also need social media organizations to do more in terms of help -- they are helping take down pages and pages of extremist material. but there is more they can do. coming up tonight on c-span3, a look at president obama's proposed 2016 treasury department budget. then white house press secretary josh earnest discusses former secretary of state hillary clinton's personal e-mail account at today's white house briefing. and later epa administrator gina mccarthy testifies on her agency's 2016 budget request. next, treasury secretary jack

lew and john koskinen testify on the 2016 budget request for the treasury department. they also discuss cybersecurity, tax fraud, taxpayer services, and small businesses. this runs just under two hours. >> the subcommittee on financial services and general government will come to order. good afternoon. the subcommittee, as i said, will come to order. today marks the first hearing of the financial services and general government subcommittee for the 114th congress. this is also my first hearing as subcommittee chairman. and i'm pleased to serve alongside the new ranking member, my good friend, senator

coons. i would also like to acknowledge senator langford and senator durbin. although our subcommittee is small, the number of agencies we fund is large. and their impact on our economy is significant. i'm confident that our members are up to the task before us. as we begin this important hearing to review the budget requests of the department of treasury and the internal revenue service, we welcome our witnesses. senator jack lew, commissioner john koskinen -- i bet i'm not the first one that struggled with that a little bit -- boozman, bozeman, and russell george. thank you for being here. as members of this committee, we have a tremendous responsibility to ensure the hard-earned tax dollars from millions of americans are spent appropriately. unfortunately, the president has put forth a budget that is out of touch with the needs and concerns of hardworking

taxpayers in his budget for fiscal year 2016, the president proposes to create $2.1 trillion in new taxes, increase spending by 65%, and $8.5 trillion to the debt over the next ten years. while hardworking arkansans have been forced to cut spending in the last few years. the president has been unwilling to do the same in washington. our country is in serious need of budgeting. all too often washington loses sight of the fact that every dollar the government spends comes out of the pocket of the taxpayer and is one less dollar that a taxpayer can spend to provide for their family, grow their businesses, or help their neighbor. as members of this committee, we have a responsibility to ensure that decisions about federal funding are made with those taxpayers in mind. nowhere is the need for oversight more apparent than in the agencies before us today. when the irs takes actions that breach the trust of the american people, it undermines taxpayers'

faith and the impartiality of the agency. this self-inflicted damage harms the credibility that is essential for our voluntary compliance system to function. americans have lost faith in the institution, and you have a responsibility to regain their trust. we have all heard too often that investigations into these issues are distracting and that everyone should move on. unfortunately to taxpayers, these responses appear to reflect the continued lack of accountability and a lack of leadership. to repair that damage, there has to be fundamental change in the agency's culture, and that change must begin with a complete transparency and acceptance of responsibility. unfortunately, there's continued evidence of the culture that is simply out of touch with taxpayers. for example, hiring employees with past performance or conduct issues undermines the public trust in tax administration. additionally, it weakens the public's confidence in the irs's ability to safeguard taxpayers' rights and privacy.

making bonuses a priority does not help the irs regain the trust of taxpayers or raise confidence that the agency will enforce tax laws impartially without regard to an individual's exercise of their constitutional rights. as was the case in the previous fiscal year in 2015, one of the irs's first actions after the enactment of their appropriations bill was to announce they would pay out $67 million in awards to employees. once again, irs management seems to have forgotten that their most important customers aren't their own employees. they are the american people. it's disappointing to see that the irs budget request is again unrealistic. the president's request for the irs for fiscal year 2016 is almost $12.9 billion, a $2 billion increase. under the budget control act, the discretionary spending caps for fiscal year 2016 limit nondefense spending to $493 billion.

this represents an increase of $1.1 billion over the fiscal year 2015 level for nondefense departments and agencies. yet for fiscal year 2016, the irs has increased -- has requested, i'm sorry, yet for fiscal year 2016, the irs has requested a base increase that is higher than the total increase available for all nondefense discretionary spending. also a request for an additional $667 million above the limit on spending set by current law. treasury and the irs are fully aware that such cap adjustments were not included in the budget control act of 2011. no cap adjustment for the irs has been authorized since then. given this fact, submitting an unrealistic request simply sets unreasonable expectations. this is even more troubling when funding for critical work, for example, to protect taxpayers in

the future from the trauma of identity theft is left to be funded through a cap adjustment. the american people want a government that works for them, not against them. they want us to curb washington's wasteful spending habits, make the government more efficient, effective and accountable. and pursue policies that create economic opportunities for everyone. these are the priorities of the american people. they will be reflected in the critical oversight we conduct as we consider the fiscal year 2016 budget request for all of the agencies within our jurisdiction. and with that i yield back and turn to senator coons. >> thank you, mr. chairman. thank you for bringing us together today. and i look forward to working with you and i hope that with new blood, new energy and a new approach, we might build a strong partnership on this subcommittee. i'd like to welcome our witnesses, secretary lew, commissioner koskinen and inspector general george. i look forward to your testimony. you have important and difficult jobs under challenging scenarios, and i just want to

thank you for your service at the outset. a responsible stewardship of taxpayers' hard-earned money is one of the most important obligations we have. as members of the appropriations committee, it's important we work diligently and together to uphold the trust our constituents put in us. i recognize there will be areas where we disagree, but it is my sincere hope we can approach our work with the seriousness it deserves. today we consider the budget for the treasury department and agency central to our government's stability and our nation's fiscal health. i welcome the chance to examine treasury's budget request and have what i hope will be a frank discussion about what is required to fulfill your responsibilities. i'm eager to learn how treasury has adapted to budget constraints and how you will deal with resource competition and competing demands. much of treasury's budget goes to the irs, but there are a number of important bureaus and functions i look forward to hearing about. three in particular, i'm pleased the president requested strengthening the community development financial institutions fund, the bond guarantee program, and the state small business credit

initiative. i believe programs like these can provide access to capital for small businesses around the country and help them to grow jobs and to support affordable housing in developed communities. i look forward to talking pore about those. i do have concerns about the department's proposal to cut funding for the office of terrorism and financial intelligence given pressing issues in the sanctions enforcement against iran and russia. i look forward to hearing your thoughts on that topic. no government agency is more visible to the american people than the internal revenue service, collects the revenues that fund 95% of our federal government. and each year more than 80,000 public servants at the irs make hundreds of millions of contacts with taxpayers as the face of government to more americans than any other agency, it is my hope as the national taxpayer advocate has suggested that the irs could be best described as the accounts receivable department of our government and not by less positive monikers. for fiscal 2016, the president's budget requests an 18% funding increase for the irs.

on this point, i think it's valuable that we reflect on the fact that while there is, i think, a broad bipartisan dislike of paying taxes, we shouldn't cut off our nose to spite our face. the more we cut irs funding, the harder it becomes for the agency to respond to the needs of taxpayers to investigate tax, fraud or abuse. i hear from delawareans who are frustrated when their calls go unanswered or it takes a long time to connect and get responsible answers to questions. i'm sure many other senate offices have the same experience. every dollar cut from the irs budget resulted in seven fewer dollars revenue collected by one estimation by former irs commissioner douglas. that was a 2011 estimate. so we have a lot to discuss today. ways that we can improve the functioning and operation of the irs, its responsiveness and engagement, ways that we can prove the functioning of the treasury department. the fiscal 2016 forecast is not encouraging as budgetary

restraints remain in place. and i look forward to hearing secretary lew and commissioner koskinen's perspectives on delivering top-notch service to taxpayers. i look forward to working with you chairman boseman and having an open exchange as our hearings progress. thank you. >> thank you, senator coons. now we look forward to secretary lew's commission. >> thank you. it's a pleasure to be here to discuss the treasury's budget. as we meet here today, our economy and our country have made considerable progress that we can all take pride in. by almost every metric from job creation, economic growth and deficit reduction to manufacturing, exports and energy independence, america has come a long way. the fact is in 2014, we saw the best year of job growth since the 1990s. and over the past five years, america's businesses have created nearly 12 million new jobs. the longest stretch of sustained private sector job growth in our nation's history. our economy continues to expand

with healthy growth in 2014. and forecasts projecting above-trend growth for this year. we continue to outperform our trading partners, many of which are still struggling to recover from the global economic crisis. american exports set another record last year for goods and services sold overseas. and this record was largely driven by small businesses. our deficit, which has fallen by almost three-quarters, is forecast to decline even further in the next fiscal year. these achievements underscore america's enduring economic strength, and we can keep this progress going with the right policies and with bipartisan cooperation. the president's budget is a blueprint for washington to work together. and it not only lays out a path to find common ground, it puts forward sensible solutions to make sure every american who works hard has a chance to get ahead. this budget knocks down barriers for working families. so things like child care, mortgage payments and college education are more affordable. it modernizes our job training system, fuels research and development and repairs our

roads, bridges and ports so more companies will invest, locate and hire in the united states. and it reforms our tax system so we can eliminate special interest loopholes, strengthsen the middle class and laying the pl level the playing field. it allowed for higher investments in 2014 and 2015. but it did nothing to alleviate sequestration in 2016. sequestration imposed arbitrary spending cuts that are bad for our economy and for our security. these across-the-board cuts were never intended to go into effect. rather they were purposely unpalatable to create pressure to pass balanced, responsible deficit reduction. congress should act to provide acceptable funding to meet our domestic and national security requirements. as part of the president's approach, treasury's budget will allow the department to carry out its vast responsibilities efficiently and effectively. treasury is instrumental in helping shape and implement the president's economic policies,

and today's requests will allow the department to promote economic prosperity, fiscal responsibility and resilient financial system even as it addresses our national security objectives and bolsters stability at home and abroad. the treasury department touches the lives of virtually every american through our work to responsibly manage the government's finances, streamline and reform the tax system, fuel lending to small businesses, spur economic development in struggling communities, advance our strategic interests, make social security payments, and produce our nation's currency. since president obama took office, the treasury department has had to marshal its resources to confront deep domestic and global challenges. and we've consistently met our obligations efficiently and at the lowest cost to taxpayers. this budget request continues to achieve savings and fund vital programs alongside strategies that will make the department more effective. the primary area where we're requesting additional resources is in the internal revenue service. funding for the irs has been cut

dramatically over the past five years. these cuts amount to a total of $1.2 billion, or 10% of the agency's budget. as a result, taxpayers now face longer and unacceptable wait times on the phone, and it takes the irs longer to respond to taxpayer correspondence. a sustained deterioration in taxpayer service combined with reduced enforcement activity presents serious long-term risk for the u.s. tax system which is based on voluntary compliance. the treasury budget request restores funding to the irs so it can provide an acceptable level of customer service that the american taxpayers deserve as well as continued modernization to meet legislative mandates set by congress. these funds will help the irs to update antiquated computer systems and protect taxpayer information. in addition, we're seeking an adjustment of the program integrity cap to allow the irs to invest in enforcement initiatives, investments that will generate a sizeable return. to be specific, it will yield

$60 billion in additional revenue at a cost of $19 billion. meaning it will reduce the deficit by $41 billion over the next ten years. this budget also includes additional funding so treasury can meet its obligations under the digital accountability and transparency act and provide americans with the most accurate information about government spending. on top of that, we're requesting a reauthorization of programs that have proven results. for instance, the budget proposes an extension of the community development financial institution fund's bond guarantee program which unlocks long-term financing for financial institutions in underserved communities. and it proposes a new investment in the state small business credit initiative which leverages private lending to strengthen small businesses nationwide. in closing, i want to thank the talented team of public servants at the treasury department. they're dedicated to the work of the department and committed to the american people. i'm proud to represent them here today. and on behalf of these hardworking men and women, i

want to say how much we appreciate the support of this committee. thank you and i look forward to answering any questions that you have. >> thank you very much, mr. secretary. at this time we will proceed to our question where each senator will have seven minutes per round, if there's sufficient interest for additional rounds of questioning, we will try to accommodate. i read your testimony and appreciate it. in there you mention the need for finding common ground. and i think you mentioned infrastructure, things like that, which again, i would agree on totally and very much support infrastructure. now, we have different viewpoints as to how you get the dollars to get that done, and that's a sticking point. but the other thing is -- and let me do this in the form of a question. it concerns our community bankers. i feel like the backbone of america is small business, but the backbone of small business is community banks. and a number of community

bankers and credit unions have expressed concerns about the cost of complying with what they feel like are onerous regulatory burdens. community banks are the backbone of small business, as i said. and again, the backbone of our community -- which are also the backbone of our communities. harvard university researchers released a report in february about the plight of community banks in the united states and how poor regulatory coordination and inappropriate designed regulations are stifling community banks. this is particularly a concern to states like arkansas where there are 96 towns with only one physical banking location. and two-thirds of these communities have less than 1,000 residents. what do you propose -- what is the administration doing to ease the burdens and compliance cost facing community banks? >> mr. chairman, we very much share with you the view that community banks play an important part in our communities but in the fabric of

our national economy. you know, i think if you look at the design of many of the laws and the rules, you'll see that there are standards that reflect the differences between smaller and larger financial institutions. there are exemptions in many cases for smaller institutions. and there are bars that are easier to clear for smaller institutions that don't present the same level of financial risk. i know the regulators, as they look at the discretion that they have, are always looking for whether there is flexibility and whether or not there's a risk that they need to be concerned about. and they've consistently made judgments to have the burden on smaller financial institutions reflect the, in general, lower level of risk. but i do think we have to be careful to remember the purposes of financial reform. the purpose of financial reform was to make sure we never again face the kind of economic crisis that we had in 2008.

and i think that the standards that we use have to be mindful of the fact that the architecture that was put in place was designed to prevent the taking of risks that could add up to a risk to the country. you know, the relatively easier standards for smaller institutions i think is appropriate, but i do think the oversight that we have now is more appropriate than where we were in 2008 when, frankly, we had a lapse in our ability to see risks developing and to respond in a way to protect the u.s. economy. so i think financial reform, both the legislation and the rules, have been quite effective at making our financial system safer and sounder. and we've tried to do it in a way that's mindful of the burdens on smaller banks and smaller communities. >> i guess my concern is is that when you get out and you visit and you go to various institutions like this, if you

go to these 96 towns, you know, small towns with one bank and then other towns with a few banks, again, it's universal. you know, they feel like that things have changed dramatically. and i would argue that these types of community banks just didn't have anything at all to do with the meltdown that we experienced, you know, several years ago. so i really wish that you would look at that. it's something that we're looking at. we're having kind of a one size fits all. and again, i think the idea, like i said, that these banks are somehow responsible for that, i simply don't agree with. recent cybersecurity reports revealed that a cyber criminal ring from russia, china, ukraine and other parts of europe has stolen $1 billion from up to 100 banks. an e-payment systems in our countries around the world including the united states since 2013. so cybersecurity is a huge thing

that we're very, very concerned about. in your opinion, is america's personal and financial information of banks safe from cyber attacks? >> senator, i think cybersecurity is an enormously important and difficult issue, and it's one that i know i worry about every day. and when i talk to ceos of financial institutions, retail businesses, they worry about every day. i think that we are doing an awful lot that is the right kind of defense against cyber attack. but the cyber criminals are always honing their attacks. and we can't think that we can get ahead of them. our challenge is going to be to keep up with them, to make sure that we have good practices in place to detect attacks so that we have the ability to respond when there are attacks, and to share information so that best practices can be available throughout the system. we have legislation pending that the president has proposed which

we think would go a long way towards providing the ability to share information which we think would make the system safer. i think the financial sector is probably in a better position now than other sectors are. but i don't think anyone can sit back and rest comfortably. mr. chairman, i can't help but notice that the ranking member of the committee came in while i've been responding to your question. i hope i can take just a moment to welcome her and thank her for her service and wish her well. >> i'll have more to say in a minute. i'm here for two years, jack, so we're going over these line items. i look forward to working with you, and even particularly with all of the issues. so we'll talk. >> thank you. very quickly and very shortly, i'm running over my time, but i'm encouraged by recent steps to reform the u.s./cuban

relationship, boosting our commercial ties would have significant benefits for both of our economies. my home state of arkansas exported nearly $34 million in goods to cuba in 2004 before payment restrictions were tightened in 2005. earlier this year, researchers at the university of arkansas estimate expanded trade and travel to cuba would bring an additional $50 million in economic gains to arkansas. what's being done to ease payment restrictions, and how will this impact u.s. agriculture exports to cuba? >> mr. chairman, the actions that the president announced just a few months ago regarding easing of some of our sanctions against cuba we think will help u.s. businesses. but mostly we think it will help advance the kind of positive change in cuba which could be positive in terms of making a difference where the old policies were not. you know, we have tried to make

it easier for the kinds of transactions that have been frustrating for american agriculture to go forward consistent with the legal restrictions that remain in place. i think that there are opportunities for americans in agriculture and other sectors to do business in cuba, but i think the bigger story in terms of u.s./cuba relations is it's a chance for cuba to be more exposed to u.s. values and u.s. ways of doing business and u.s. freedoms in a way that will be more effective at pushing back on the practices of cuba that still need to change than the old policies which were both not productive in terms of changing cuba and hurting u.s. interests. >> senator coons? >> thank you. thank you, chairman bozeman. thank you, secretary lew, for your testimony. on the theme that chairman bozeman started with about access to capital in small towns and how community banks can make a significant difference, just describe briefly, if you would,

how the community development financial institutions fund is used to help rebuild distressed neighborhoods and support small businesses and what the cdfi bond guarantee program, if it were to ramp up to a billion, might be able to do and how they might play a constructive role in providing access to capital in small communities, first. second, senator bozeman asked about the burden, the regulatory burden, on smaller banks. i've heard from a number of folks in the financial community who believe that once banks obtain more than $50 billion in assets, they suddenly become subject to all the regulatory oversight of the mega banks. and while i'm a strong supporter of the steps taken in dodd/frank to prevent future crises, i wonder if that's accurate or there's a series where you steadily ratchet up regulations in accordance with growing size. we would welcome your insights into that point as well. >> thank you, senator.

cdfi i think has been an enormously effective program both because of what it does directly and because of the institution-building role that it plays in the communities that it serves. in just looking at the raw numbers, in 2014, we made $146 million in awards. and it produced 50,000 new jobs, almost 10,000 businesses financed. and in the communities where they're present, there is a financial institution that local businesses can go to. so in places where community banks weren't able to have a foothold, it's created access to the benefits of what community banks offer. the cdfi bond guarantee program, you know, addresses one of the fundamental challenges in revitalizing communities. in many low and underserved -- low-income and underserved communities, access to long-term

fixed-rate financing is just hard to find or impossible to find. and the guarantee program to date has guaranteed $525 billion in bonds through the program to help cdfi's provide financing needs for the community. so i think it is a very well leveraged and successful program which is why we've proposed the reauthorization again. and senator, with regard to the threshold question that you asked about, i think you're totally correct. it's not a hard line where, you know, everything happens to an institution if they pass the $50 billion threshold. there are many requirements from which institutions remain exempt. there are other cases in which there are standards that are modified to reflect the lower level of risk. and i think with that said, and as i said to the chairman, we remain very much focused on what can we do to make that burden even less without creating risks to the kind of general

architecture of financial security. it's an area that i know all the regulators are focused on and we are focused on at treasury. >> good, because i share that concern, that we find ways to provide better access to capital, more lending at the community banking level without increasing risks to the financial system as a whole and without making basic changes to what i think are important safety and soundness protections. let me just briefly ask you about sanctions. i made reference in my opening statement. in a hearing in the last congress, senator mikulski was advocating for a significant increase to make sure that we've got the resources in the office of intelligence. i was struck, given the ongoing issues with russia and ukraine and syria and in particular with iran that the budget proposes a reduction. why does it propose to cut funds for this office, knowing there are these significant threats? do you believe it's

overresourced? and given the real potential that we may return to enforcing sanctions against iran, do we have the resources that this office needs? >> senator, i think the work that our office of terrorism and financing does is enormously important. and the sanctions programs that we administer have added to this president and all future presidents arsenal of tools that are extraordinarily effective and powerful. and i must say that when i think of how much time i spend working in this area, it is a bit of a surprise to me how much of my time goes into this because of the world we live in today. as far as resources go, we requested the resource level as a floor, not as a ceiling, and we proposed putting it in the departmental offices so that we would have a little bit more flexibility. there were some one-time expenditures last year that may or may not recur. as far as the iran sanctions go,

we have not lessened our level of activity on iran sanctions. so we're fully funded on iran sanctions. and the russia sanctions were a new start this year. i don't think we missed a beat in terms of any of the other sanction programs we administer, and we came up to speed very quickly when there was a need for russia's sanctions, and i'm very proud of our team for having mastered the intricacies of both russia's financial institutions, its interconnection to the global financial system and how we could use targeted and really surgical sanctions to put the maximum pressure on the targets of the sanctions with the minimal spillover to europe and the rest of the world. so i think we have -- we have funded it at the right level, but it's a floor, not a ceiling. and, you know, we appreciate the support that this committee has given for this very important function. >> i think just speaking for myself, this is an area i intend to follow closely, and i want to be continually reassured you have more than adequate

resources for the fight. two quick questions, in closing, if i might. your i.t. investments which are significant relative to the total increase requested and data act implementation, i share the chairman's concerns about cybersecurity, these two strike mes aways you can strengthen your i.t. systems and the transparency of your budget. and then last i have a question about mlp. so if you would briefly about your i.t. >> i agree. i think the investment in the data act is extremely important. we worked with congress on the development of that legislation. we're eager to implement it well. i don't think we can implement it without resources. we can't implement it as well as we should without the resources to do it properly. i do think it helps to safeguard our systems to invest in cybersecurity by having better systems to begin with. and as you know, many of our systems are quite old. >> i was struck that the budget proposes eliminated master limited partnerships as a structure. as you know, i've long been an advocate on a bipartisan basis

for instead opening them to renewable energy. i think it is a technology-neutral politically feasible way to provide long-term financing support for renewable energy. i wondered if you had a comment. >> senator, it's an area that i'd be happy to follow up with you on. you know, our proposal -- obviously we have many proposals to promote renewable energy both in terms of financing and research and development. with regard to master limited partnerships, we've had concerns over the years, and i would look forward to discussing it with you. >> thank you, mr. chairman. >> the senator from kansas is recognized. >> mr. chairman, thank you very much. mr. secretary, welcome. before asking any questions, since i last saw the senator from maryland, she's announced her intentions not to seek re-election. and i just wanted to use this as an opportunity to thank her for her service. i've enjoyed your tenure as chairman of the appropriations committee. and i appreciate the tenacity with which you have tackled our

spending. and the continual attempt to get us in the appropriations process back to regular order. so thank you very much. i appreciate the way you've treated me for the last several years. mr. secretary, i think three relatively quick questions. as i was walking in, i was told that the chairman was questioning you about community banking regulations. i would add my voice to that issue. my understanding is that your response was something along the lines that community banks are better regulated today than they previously were. i would indicate that i don't think that's the case. i think community banks have been caught up in a broader regulatory scheme than they deserve to be in. the consequences are significant to the economy. in a state like mine in which community banks provide necessary capital to a growing business, to a start-up, the relationship banking is very important. and the example that i use that has become so annoying to me and so devastating is that many of

my community banks have made the decision no longer to make home loans -- home mortgage loans to individuals who want to buy a home in their hometown or the bank is located because of the significant regulatory environment in which they now operate in. i doubt that dodd/frank intended consequence was to reduce the availability of mortgage credit in a town of several thousand people, but that's been the end result. it's not only the regulatory environment but also the consequences that there's a failure by the bank to cross every "t" and dot every "i." and the reason that it's necessary for me to bring this kind of issue to you is that so many of the regulators are not subject to appropriations. therefore, in this setting, you're our one opportunity to express concern about things that are happening certainly within the treasury department but broader in the bank regulatory environment that those banks face. >> senator, i understand the concern about community banks and share the concerns. i agroo ee with all of you that

have expressed the view that community banks are an enormously important to the fabric of our economic system and our communities. i do think as we were discussing a moment ago, what happens at the cutoff points is not quite as dramatic as sometimes it's described because there are different rules for smaller institutions. with specific regard to the housing issue mentioned, i know that some of the regulators are reviewing some of the rules that have been of concern to community banks. i don't think the intention was to stop the lending that you described. it was intended to put burdens on lenders to know their clients better and to offer different kinds of products. but it was not to shut down the lending. i know that things like looking at putback risk, regulators have been trying to take some of that unknown out of the system by being clear, what would and wouldn't be considered an actionable kind of error. so i think the regulators are

attuned to it. obviously, mostly this is not directly in the jurisdiction of treasury, but i've very much concerned both as a chair of fsoc but also as someone who cares deeply about the health of our banking and financial system and will look forward to working with you. but i do think we have to be careful not to undo the architecture that has made our system so much safer than it was in 2008. >> is there anyone that answers to you at the treasury department that would be a good person for us to talk to about? >> yeah, we have an office of domestic finance, and we have people who work on these banking issues, and i'm happy to have them be in contact with your staff. >> i appreciate that, thank you. and part of the review that's under way is a gripra in which banking regulations are now being considered on a periodic review. and i would welcome a report back as to how that process is going and whether we're headed in a direction that would eliminate or modify existing rules and regulations as they

affect people. >> senator, i am very much focussed on that. when i was omb director, we did a lookback of rules across the federal government. and we didn't have the ability to reach into the independent regulatory agencies. so i'm now pleased to see this process under way. where independent regulatory agencies are doing the same thing. and i know from the conversations i've had that the heads of these agencies are very focused on it. they're participating in regional hearings. and i think it will be very interesting to see what they come back with. >> i'm pleased by your smile of the question, and i'm pleased by your interest in this topic, and the omb, i wasn't sure that you'd know about this process, but i guess you would know that hopefully as treasury secretary but also certainly as director of omb. let me ask a question -- this congress passed last year, last session, the tribal general welfare exclusion act. what was going on was irs activity on native american

lands involving their activities, that legislation requires that a tribal advisory committee be established to advise you on matters related to taxation of indians and establishing a training and educational system for the irs field agents. it seems to me that the treasury department is going out of its way to not have native americans on the advisory committee. would you dispel me of that belief? >> well, i'm not sure where that notion comes from. we filed the charter for the treasury, tribal advisory committee, and we've issued a call for nominations for the three members to be appointed by the treasury secretary. we've expressly contacted tribal leaders for their nominations, and the deadline for the applications is april 28th. so we're still very much in the process of reviewing candidates. >> do you have any belief that tribal leaders should or should

not be involved as members of that advisory committee? >> you know, i -- i don't start out with a preconceived notion. i think we should review the applicants that come in and look for the most qualified and strongest candidates. >> that's a good answer, and i would suggest that tribal leaders at least in part of that makeup of that advisory committee, tribal leaders would be a significant and important component in providing you and the treasury department and the irs advice. >> i must say i did have a meeting with tribal leaders several months ago, and it was a good exchange. the feedback i got was that they welcome the interaction with the treasury department, and we will continue to stay very much working with them. >> thank you. do you want me to stay on time? okay. >> the senator from maryland. >> thank you, mr. chairman. and my colleagues for your kind words. and secretary lew, i could thank you for your service. we've been together a really long, long time. >> a long time. >> yes.

back when we were discussing earmarks in the old v.a. hud bill. so, again, thank you for your words and also for your own service. i want to reiterate some questions about community banks that i see as a common theme here among all of our colleagues on both sides of the aisle. and perhaps, mr. chairman, it's going to maybe a meeting with this domestic finance, maybe not a hearing, but a conversation. so let me get to my questions. i'm concerned that when the shrinking number of community banks, and number two, i'm also concerned about the shrinking number of minority-owned community banks that have demonstrated solvency and stability. but i know since even the last year, we've gone from 47 to the number in their 20s. so i think these are issues we

need to really be looking at. we could talk about the merits of a community bank as compared to being, you know, a regional or a franchise banking in our community. well, let me get you to my question. one of which is where the very rules of government are interfering with banks being able to get back on their feet. a specific question that i have is that there's a community bank in maryland that needs the approval from the federal reserve bank of richmond in order to buy back what they had gotten in the t.a.r.p. program. they're told that they can't buy it back, but it could make a fun -- make it ripe for a hedge fund to come along and buy the bank. well, they've got the money to buy it back. they've been prudent, and i don't want to get into individual cases, but it's where the very rules of government

seem to be either tarpooning or derailing community banks to move out of the recession. and yet their own solvency, which we were absolutely committed to and so on. do you have any thoughts about what treasury is telling people about buying back preferred stock and the regulators? kind of my view on actions on this? >> senator, from a treasury perspective, we obviously have been working our way through the t.a.r.p. assets, trying to resolve them so that we can recover taxpayer investments fully, wherever possible. and we've worked with community institutions and have no objection when community institutions are able to do that. i'm not sure what the regulatory issue is that you're describing. but i'd be happy to look into it. we obviously don't have any

authority over the fed decisions. >> no, but one of the things is how the fed roy does have to coordinate with treasury. i'd like to get you a formal letter on this -- >> sure, i'd be happy to look into it. >> -- and be aware of it. two other points that are very specific to the maryland/d.c. area, just to bring to your attention and ask you to look into them and then i have a pretty big question. one of which is the retired d.c. firefighters have called my office, along with eleanor holmes norton that there is an accounting -- an old accounting error was discovered, and several retirees are getting notifications that their benefits might be reduced. these are the pensions that you're responsible for. so i'd like to get you a letter on that and a letter from eleanor holmes norton. you know, that's the last that they need. i'm not asking for a response there.

the other is the treasury, i know, is merging financial management service with the bureau of public debt. the financial management services in hyattsville. i was able to negotiate a five-year delay with treasury in terms of this move, but we hear that there are employees at treasury so grouchy about what i did to protect those people so that we could sort this out that they're being demoted, intimidated and pushed out. could you take a look at that? >> i will take a look at it. it obviously would be unacceptable if that were true. i think the merger has been effective, but there should be no -- no kind of treatment like you've described. >> well, you know, they were looking for $8 an hour accountants in west virginia. i don't think any accountant is $8 an hour. but i'm not going to get into the legacies of bob bird. i can assure you i'm going to

have as many legacies of barbara mikulski as i can. the other is a larger question for my colleagues. you and i have lived through two appropriations together when i was the chair, now the vice chair. could you tell me the impact of crisis-driven appropriations. with last-minute agreements through an omnibus, very well organized. i have nothing but excellent words to say about my colleagues and, of course, congressman hal rogers. but it was a hell of a time, and i wonder, as you as the secretary of treasury, our domestic economy and our global economy, what is the impact of crisis-driven appropriations? just what i'd like to raise and just as colleague moran has raised about getting back to regular order? >> well, senator, i think that's an extraordinarily important question. and i commend you for the work you did last year to put

together an omnibus appropriation bill with funding levels that were designed to meet current needs which is so important in terms of having our system maintain its responsiveness and its agility. continuing resolutions don't have that ability. i think when you look at the deadline-driven, crisis-driven, funding decisions that have been made over the last number of years, it's caused substantial anxiety. not just in the united states but around the world. i think that when one looks at the business investment environment, it is psychology. psychology is about confidence. the sense of government is behaving in the way that a reasonable set of institutions should behave adds confidence. the sense that we're hurtling off a cliff destroys that sense of confidence. i detected considerable improvement in both the united states and internationally, and confidence in the u.s. as a system and its economy, since

we've seen a return to something that approaches regular order. i think maintaining regular order is extraordinarily important to keeping the recovery we have going and having the investment decisions that depend on people thinking will things be going in the right direction in a year, two years, three years? not just in a week, a month or maybe for part of this year. and i applaud the efforts that you went through to put an omnibus together and to -- if congress can meet the requirements to fund the government to make sure that our debt doesn't become an issue of anxiety again, that would be very important. >> mr. chairman, i know my time's up, but i've got more late-breaking news. this is good news. the senate version of the homeland security bill cleared the house. 257-167. it's on its way to the president. so that means that we on the

appropriations committee, we now have passed 12 bills, and we've completed now today our fiscal '15 work. >> congratulations. >> thank you, mr. secretary, for being here. we appreciate you coming and testifying. and i think that we got some really valuable information. we will follow up with additional questions for the record. that our members may have in the future. we would appreciate your time and responses as always. in order to move through the witnesses -- >> thank you, mr. chairman. >> thank you again for being here.

commissioner, i now invite you to present your testimony on behalf of the internal revenue service. >> chairman, ranking member and members of the subcommittee, thank you for the opportunity to discuss the irs budget and current operations. i remain deeply concerned that the significant reductions are undermining the agency's ability to continually deliver on its mission, both this funding season and in the future. the irs has been reduced $1.2 billion dropping to $10.9

billion for fiscal year '15. the irs has been given significant additional responsibleties, including itch leaptation of the foreign account tax compliance act and the affordable care act. the disconnect between our funding levels and our responsibleties is illustrated in some way that by the fact after just three days of cutting our budget, congress passed legislation requiring the irs to design and implement two new programs by july 1st. implementation of the aval act and the certification requirement for professional employees is in the middle of our most complicated filing season in years. i understand we have an obligation to be caref fufu fuf stewards. the irs has made significant efforts to find sufficient

season representatives. through printings and mailings, we're receiving over $200 million a year. we've also made significant progress over the past few years in moving millions of taxpayer inquiries from our call centers and walk-in sites to our significantly improve d web sit. we've had over 125 million hits on our where's our my refund site and more than 11 million copies of previously filed tax information have been paying online with our get transcript inspection.

i would also em fa siz that we have taken activities in the past by making necessary changes and improvements in our policies and procedures to ensure that these situations do not recur. we have cut conference spending by 80%. we have established review boards for training expenses. we have insured that those who willfully failed to meet their tax obligations are not eligible for performance rewards. we are reviewing our hiring process that former employees with serious prior conduct issues are not rehired. we now require that all contractors maintain the same high standards for tax compliance as our employees. and we've implemented the recommendations of the inspector general with regard to the serious management failures surrounding the review of applications by organizations seeking to achieve social welfare status. but there's only so much we can

do with cost effectiveness. this year, we've reached the point of critical performance straight offs. there's no way around the severity of the budget cuts without taking difficult steps which have had negative impacts on service, enforcement and information technology. the funding cuts have also limited our ability to work toward giving taxpayers a better online experience. the president's fiscal 2016 budget request would help the agency move ahead. we would be able to bring our phone level of service up from the current 43% to 80 pnt. we would also significantly increase enforcement and collection activities generating over $2 billion in increased

revenues every year and take more steps toward building a modern interface between the agency and paxzs. i understand and appreciate the concerns raised over the past few years about activities of the agency. but i took this job 15 months ago because i understand the critical role the irs plays there the taxpayers. i speak for the thou sands of professional, experienced and dedicated employees of the agency when i say that we are committed to working with you and the other members of congress to lead the agency effectively and appropriately into the future. but we need your help and support if we're going to be successful. this concludes my statement and i'd be happy to take your questions.

>> thank you again for being here today and i appreciate your testimony. the problem is is lack of confidence. i can go all through these things, but irs tar getting. hiring people that left -- re-hiring people that had left with bad records. some of them actually having marked on their file, don't hire, tax refunds for prisoners, 25% earned income tax credit fraud. the ig, no safeguards and not enough safeguards on sensitive information. one employee taking over a million dollars -- not a million dollars, a million records and the list goes on and on. cyber securities, bonuses to people for poor performance records, taking of bank accounts

from people with little evidence of wrong doing, still have tax entities for tax deducting for years and still no execution plan on how to itmplement the ica, that we've been aware of. so, again, the problem is accountability and getting some confidence back. in your budget request, you're asking for $12.9 billion for the irs. you're asking for a $1.3 billion increase. for comparison, total non-defense discretionary spending for the entire federal government will increase by only 1$1.1 billion. given current budget constrai s constraints, it is clear that this request favors hope over reality. are you -- the question is are

you developing contingency plans on how to carry out your mission based on a more realistic budget expectation? >> well, first i would note that the difference between the irs and the other agencies is if you give us money, we give you more money back. so in terms of deficit reduction, which is a critical i shall shoe going forward, in many ways, it's kind of counter productive that the more they get cut, the greater difficulty we have in collecting revenues. but i do take the point. and we are continuing to assume that one of options going into the future is that we will, in fact, stay at the flat level. that was our assumption going into 2015 when we ended up with a budget cut of $350 million. we're the only major agency in the government that was not restored to the pre-sequester level. so, combined, together, we've, in effect, had the impact of two

sequesters while everyone else is waiting to see what happens with the next sequester. so as i've said, we're two sequesters ahead of everybody else. so, to that extent, we've already had to deal with a did i have cudifficult reality, and - >> very good. thank you. >> so we are prepared. all i can tell you last year when i testified, i said if we did not get the increase in funding request for customer service, the customer service level is going to drop below 50%. and it's done that. to the extent that we do not get additional revenues for enforcemented, id request tell you that the enforcement levels are going to increase by 6 to 8 times more than the cut in the budget has been. but we are prepared. as i've always said, we'll play the hand you deal, that's dealt to us. whatever decisions you make, we will abide by them. but i will tell you, there are

great threats to taxpayer service, tax enforcement and information technology. cyber security is a critical issue for us. we get attacked 145 million times a year. there's no data base that's more attractive than our data base. yet, we are dealing with less and less support for our it system than we think is appropriate. we'll deal with whatever you give us, but i can tell you, we are csignificantly underfunded already. >> how much money did you waste in licenseture last year? >> in where? >> in licenseture? >> in terms of i.t.? >> yes. >> there's an i.t. that we have disagreement with in terms of entire use of licenses for software, as to whether in fact we had lost money by not using them and it was an issue of how you measured it. we have taken actions to make ,