canadian border. certainly and remarked, it is our biggest trading partner. i know you are aware of the situation along the port of entry, the regular family farms. it is in the province of quebec. those visitors are very small, a small traditional crossing were people used to go back and forth visiting relatives and going shopping and so on. .

with preserving powers -- preserving the integrity of our own state . i ask you in february if you could arrange a public meeting with the department and the port of entry. i have heard from many concerned members that they want more information. can you commit to arranging a public meeting with the local community on this issue? a public meeting in or along the border with can get?

>> absolutely. this is one of those things where we are trying to work with the owners to get down to the footprints. i believe it has been addressed from 5 acres to 1.5 acres in in terms of what they had determined they needed to do the kind of improvement there. unless you do it, you might as well not do it at all. we will absolutely have more community meetings. we have been working to try and minimize the amount of acreage. >> i understand the situation has some pent up concerns. it is not going to be the way it was. i was a youngster and you

drive up to canada and back in a day. many of us had family members in canada i realize it is not quite as easy to go back and forth. this is a friendly country. there may be people that come into the country. it is a balancing act that we have to do. i know that the new customs and border protections commissioner has been seeing things firsthand. i will be having more and more -- i want to mitigate concerns about people getting stopped tens of miles away from the border. they get stopped in have to prove their citizenship, people that have been driving on that road for decades. it is creating the animosity

between our residents and the federal government that we do not need to have. i know the men and women that are very dedicated and professional. i want to find ways to -- they are very law-abiding. >> indeed. i appreciate any suggestions you have on that score. we will continue to work with your office and work together. as i said earlier, we would be happy to conduct another public hearing or have another meeting with the community. >> thank you. let me move across the country to a new law in arizona. they make it a crime to carry the immigration papers. they have reason to believe it

is undocumented. i believe that the states can pass whatever laws they choose. why is that consistent with the constitution? this'll be challenged on constitutional grounds. the president says it violates the basic notion of americans. you twice vetoed bills of this time when you were governor of arizona. what do you do now? i want to give you the easy questions first. >> first of all, the justice department is reviewing the arizona law. it is not take effect until 90 days until the close of the arizona legislative session. it is not in affect and arizona, which permit time for the justice department to really look at what the law says.

from a dhs standpoint, we have some concerns with the law from a law enforcement perspective. we believe it will detract from resources that we need to focus on those that are in the country illegally, those that are committing the most serious crimes in addition to violating our nation's immigration laws. we have focused on felonies, felons, felony fugitives, g ang members. that is where we have a symbol of our task forces. we have concerns that at some point we will be responsible to enforce our use our immigration

resources to get anyone that would go to arizona pursuant to this law. >> it goes to the obvious question of comprehensive emigration. that is something that many of us worked with former president bush on. there is a strong feeling that we need a comprehensive immigration legislation just because it would reflect the realities of where we are today. can we move forward on such legislation with the problems that are along the borders, the killings, the drug cartels in mexico especially? i realize a lot of other immigration issues involving a whole lot of other countries besides mexico. can we do both things? >> yes. >> secure our border and have a

conflict with legislation? >> yes. in a way, this get to something that senator session's opening statement at the implications of -- what is the relationship between securing the border and the comprehensive immigration reform? in my judgment, we need to continue to could strong resources at the border and sustain them at the border. they need to be done in a strategic way. it is a combination of infrastructure, technology, and troops on the ground. from a numbers perspective, the numbers at the border have never been better there have been some outrageous crimes. the overall numbers border wide have never been better. we need to keep working those efforts and sustaining those efforts. at the same time, comprehensive

immigration reform should be in our site. >> thank you. >> i do believe that what we do and say here, often what we do is more important than what we say. it sends a message around the world. too long the message was as long as there was a willing employer, we did not care how people came into the country. it was in clear violation of the law. this kind of confused message gets us into a real problem. this is why we have the problem today. what we have to do first and foremost, and what you need to do to be the homeland security officer that i would like to see, is to make sure that the world knows that the border is no longer open.

it is not open. if you come here, even if you get by, if you get caught you will not be able to be employed. if you are apprehended, you will be deported. it is a lose/lose game for you. the way to come to america is to apply and come legally. this is so fundamental to me. with regard to the comprehensive play, it means regular station in some form or fashion cannot be done until the american people feel and congress feels that we capture ended the open border. i think they have to be separate. i really do. i think senator mccain saying the american people have spoken. they want border security first.

i think that is true. i think that is the policy. i have the heartfelt belief that we can do that. you can make this border in lawful border. you have to continue to improve on the progress that he made and continue to drive the numbers down. as the numbers go down, you have more officers condemn -- officers. >> you have an opportunity to make some more on this. tell me about operations streamline. it seems to result in a substantial reduction.

do you believe that has proven to be effective? why haven't you expanded it? >> it does provide for a short period apart incarceration prior to deportation. we have continued where it was. even a short detention, and now your implicating the court system and the marshals the detention system, our facilities along the border. it has to be ordination by the department -- a ordination by the department of justice. it is my understanding they are

looking from their resource prospectus. >> it has the same concerns. they were raised initially. the illegal entries went down substantially. i do not think that is a particularly good solution. you worked to expand it. would you like to see it at all border sectors? do you think it has proven to be an effective policy? there have been additions in other areas. there are other things that have been deployed. let me say this. i believe the streamline should be in our toolbox of things that we use.

there needs to be a variety of things that we use at the border to get the most effective enforcement strategy. it is a resource issue more than anything else. >> it is a policy decision. if you make a decision to expand it, you could ask for the resources necessary to expand it. the data tends to show that this kind of coordinated effort results in a substantial reduction of illegal entry. if you can stretch that across the entire border, i think we have another progressive step. >> if i might just interject. it is not just spreading across the entire border. it is being able to do more in the sector in which we have deployed it. we do not cannot cover the department of justice. the court system in that area of

the country cannot do 100% of the cases and streamline in these sectors in which we have already deployed it. it is not is going across all of these sectors. it is really looking at the court system and the marshall system in those southern district courts. i would just make the new ones. >> i do not doubt that. in areas where it is working, it has good results. i believe they justify the effort. i hope he will ask for the resources necessary. tell about our local law enforcement. it seems to me and local law enforcement officer has the authority -- and i believe court cases have established this -- that if they identify a person in legally in the country, and they have the power to detain them even though altman

deportation would be in federal court. do you agree with that? >> there is -- that is something that is being refused by the justice department now, whether there is inherent authority by any local law enforcement officer to detain. let me just say that in my judgment, what we need to be doing is working with local law enforcement so that you have combined a leverage federal resources with a local. the need to nuts -- that question is moot because you always have a federal law- enforcement officer involved. but the problem with that is and that there is not enough federal law enforcement officers. a police officer and a small town in texas or alabama or new york find someone that is a

legally here. you do not have a federal officer with them. we had three or four federal officers for the whole state of alabama. we have thousands of local law- enforcement officers who can arrest a senator if they violate things. i tried to the eighth. >> i was going to make a comment there. in some of those areas, this is really where, for example 287-g cannot be useful. we recently had a situation in southern missouri where that very issue arose involving a construction work site. the individuals were picked up by police who did not have a

287-g. as we reminded them after the fact, the missouri state police to have a 287-g. because they have that and have that appropriate coordination and oversight, they can deal with some of those situations. while leno 287-g has come under criticism, there are some appr opriate uses for it to leverage federal authorities will allow enforcement. >> i agree it provides a great opportunity. i do not think it is aggressively used or effectively used. that is my concern. thank you. >> thank you very much . madam secretary, i have been dueling your own statistics

while this discussion has been going on. what i find is really an amazing display of increased assets at the border when you get them. to raise border patrol agents by 10,000 to 20,000 in five years is pretty amazing. things are tripled. things are doubled. it is very impressive. where i look at this is in the criminal aspects of what is happening along the border. i wanted to ask you to comment about this. the number of arrests, the number of drugs involved, if you put out some of the numbers in your opening comments. the quintupling of border liaison officers from 10 to 50. yesterday i spent some time with the d a talking with them about this. what it appears to me is that

you haev increasing drugs and smuggling still along the border despite the fact that a lot of these statistics have moved in the right direction there is almost a disconnect. the signing of the bill is very perplexing i come from a sale of the largest number of immigrants. i do not support it. it is hard to understand. i suspect it rests around people's perceptions of increased violence. would you comment? >> let me, if i might. your question goes to the whole issue of the drug cartels in mexico and the critical importance to the country of our

continued efforts with mexico to break them up. they literally have fingertips that go into communities all over the nation prepar. because the fight is taken to them on both sides of the border, it is resulting in an environment in mexico and northern mexico in particular that is more violent. there is a concern among people who live just north of that, will that spill over? we have not seen generically -- generally across the border a wave of spillover violence. the criminals in the past go would suggest it is one of the safest cities in the united states. what we want to do is prevent cartel violence in that fashion from spilling over into the united states.

the problem in arizona is that they are an exception to that rule. in phoenix, there have been over the last two years, a record number of stash houses for illegal immigration and drugs and battles between the end distributors picked for these different cartels in phoenix. even though statistically arizona is better than it was several years ago, nonetheless it is a place where there is a perception that there is spillover violence. >> let me ask you a question. smuggling boats have become more

common off the coast of southern california. they smuggled both people and narcotics across the border and done to public beaches in the orange county and san diego. the san diego da saw more than sixfold increase in maritime drugs in the pacific waters extending to the southwest border in fiscal year 2009 compared with amount in fiscal year 2008. they tell us that despite robust efforts, only 25 is term to 30% of the vessels are being discovered by our authorities. it is our understanding that more maritime aircraft with sensors able to detect the vessels may be helpful. what do you know about this? what are you doing about it?

>> we are seeing the expansion into maritime boats in the pacific and in the atlantic. with the coast guard as lead, we are looking at what our strategy should be. had we intercept these boats with aerial surveillance? we are seeing an increased use of submersibles to transport drugs. those are difficult. we are also seeing use of these very small aircraft to try to bring drugs across the border. during have the right equipment, the right resources? we need the flexibility to move resources around very quickly. there is evidence that

statistics are one thing. it is having an operational impact on the band. >> this i an area that i have a grievance. i hate to bring it up here. i wrote you a letter about a month ago and did not get an answer. i am going to bring it up here. in 2005 through 2006, the month awarded three grants from the university of california berkeley to complete hazardous feel reduction projects in the hills surrounding the temples. this is a potential fire-prone effort. despite the urgency of this project, fema has taken 58 months to reach the simple conclusion that it required an environmental review. i have met with the people. the university has come them. i think it is just dreadful.

you cannot move a small grant to university in a five years . what do you know about it? what is the problem? >> what i know about it is that i am unhappy it is taken this long. i have asked the lead to work with berkeley to resolve this. the substantive issue is the environmental issue. it involves how to handle the large eucalyptus trees that in the campus. -- are in the campus. i have asked fema to light a fire under its sell comic get together with the folks and see what we can do. >> would you follow up on it? it just falls between the cracks. >> got it. >> i appreciate that. >> got it. >> thank you. >> i appreciate you.

utah is the crossroads of the west. we appreciated the extra help that you have provided. as we talk about the 20 million illegal immigrants in the united states, i think if the immigrant community in my home state of utah. those who follow the law, waited their turn sometimes up to 20 years in order to legally come, it seems to me their efforts to be completely discounted by amnesty or "pat way to citizenship." do you believe amnesty for illegal aliens in the united states is the only way we can solve our illegal immigration problem? this is not go against the very principles for illegal citizens? >> i do not believe and this is

part of the solution. i do believe that it is being looked at in reviewed for those illegally in the country in terms of how they get right with the law is not amnesty. it is a series of sanctions that they would have to go through. i also believe that what is being examined would not lead cross them ahead of those who are already in line seated their citizenship. >> you feel there should have to get in line like anyone else. would they have to go back to their own country? but in my view, no. in my view, that would be a huge and mistreated task to have people have to go back to their -- administrative task to have people go back to their country.

what we need is a system where individuals pay a fine, register. we want to know who they are. we want to increase that capacity, learn english, pay their taxes. >> it a system is finally arrived at congressionally or otherwise, would you first asked whether they wanted to be citizens? my understanding is that there are a significant number that do not want that, and they just want a job. they just want to support their families. would you think of it as a part of a process and ask them whether they won citizenship?

>> that is something that is part of the dialogue we need to have with the congress. in my judgment, the goal is to have some mechanism by which those illegally in the country are required to come out of the shad is to register to give us their biometrics, to have a clean criminal tax record. there can be -- i could see different paths taken by those who wish to simply remain versus those who see citizenship. >> you have been governor of arizona.

if i view that legislation, they have to do it constitutionally. it basically says they have to have a reason to detain anybody. it should not be based upon ethnicity or gender. >> what is your opinion concerning the lot in arizona? what would you like to see done about it? >> as i said earlier, the law does not take effect until 90 days after close. i think the first thing that needs to be done is for the justice department to review whether the law is constitutional. under the law of the supremacy clause, that i think is really

the first thing that needs to be done. is a constitutional or not? >> do want to give your personal opinion? >> not at this hearing, sir. >> ok. 761 million have been authorized for the secure border initiative network. the actual cost is $625 million. it was such a failure that it no longer desert continuous funding. yet directed investment in commercially available technology to secure our border from illegal entrants. the failure is that the taxpayers -- is at the taxpayers' expense. had they yielded any benefit to the taxpayer? >> there are two blocks -- there

is one at the phase of operational testing. i am told that initial testing looks promising. i have had for the amount of money spent and given other types of technology that are off the shelf available, i have really p ut this thing to a serious analysis as to whether we s hould build out the rest of it. >> when combined with the pedestrian fence, how effective are functional persons of the virtual fence in stopping the flow of illegal immigrants from entering the united states? do you think we should build more physical fencing?

>> by double or triple fencing? >> yes. >> i've asked them to look at that very question and a related question of whether some of the existing fencing that a single layer should be double or triple. they promise to get back to me soon with their look at that. >> thank you. i appreciate your testimony here today. but thank you very much. >> thank you. thank you, madame secretary. i am going to turn to minnesota for a second. four years ago, i.c.e. carried out action in the meatpacking plant in minnesota and five other states. one second grader in minnesota came home that night to find is

to year-old brother alone and his mother and father missing. for the next week, the boy, a u.s. citizen, stayed at home caring for his brother while his grandmother travel to worthington by bus. currents i.c.e. guidelines allow a state social service agencies to interview new detainees to help identify if there are abandoned children. many detainees are afraid to tell i.c.e. officials they have children at home, afraid that they may be detained as well. these guidelines only cover enforcement at work sites and target 25 or more individuals. do you have any plans of

expanding these guidelines to other smaller enforcement actions? >> let me check with you. i believe informally, if not formally, that is the principal on which we act to mixture that any child -- and we have changed how we do work site enforcement -- that republic bring in some other questions. we change how we do enforcement actions. >> that has not occurred formally? >> let me check. >> get back to me. >> indeed. >> as you mentioned, your state of arizona passed a new law requiring law-enforcement officers to verify the immigration status of every individual they encounter if they think the person might be undocumented. if it does not matter it is a

victim of domestic violence come injured person, a traffic accident, no matter what. their status will be checked to do you spoke about the constitutionality of the law. can you tell me what impact you think this will have on the relationship between law enforcement and the communities that they serve? >> indeed, and let me be very clear. the constitutional analysis is a separate analysis from whether the law is misguided or not. the constitutional analysis being done -- i have already said these kinds of laws are not valued added law enforcement. there is a reason why most law

enforcement groups oppose them. your question relates to one of those reasons, which is the undue barrier it puts between crime victims, human trafficking victims -- it is a growing problem we are trying to deal with -- and a law enforcement. constitutional or not, there are some real reasons why a law like that are misguided. >> i am noticing both your written testimony and your testimony here today that you are using more canine patrol along the border to detect both currency and weapons. when i was at the minneapolis /st. paul airport a couple of months ago, it was not long

after the christmas incident, the issue in the public discussion with these body scanners. i talked to the director of the airport there. i asked him if the dogs might be more effective in protecting explosives. the director said that in fact he was excited that they were getting dogs. we was very happy for the reason that i had indicated. could you speak for a moment to the effectiveness of dogs in homeland security, both airports and along the borders and whether we are going to be scaling up their use? >> i've loved dogs. dogs can be trained -- >> me too. [inaudible]

>> we all love dogs. they can be trained to sniff cast, explosives, and all those ways. in airports and airport in st. along the land. -- in entries along the land. we are increasing the number of dogs as fast as we can. >> good. >> you mentioned human trafficking. a recent article found many undocumented victims of trafficking are being deported before they are screened before trafficking. i find this disturbing. these people are victims of horrible crimes. we are not even taken the time to figure that out and prosecute people who traffic them. how are you making sure that potential trafficking victims

are identified before undocumented individuals are deported? how does the department of homeland security promote cooperation between i.c.e., the doj, and the fbi to build trust and promote successful prosecutions of human traffickers? >> we have embarked on a very significant anti-human trafficking campaign. it is part of training law- enforcement and providing law enforcement training on how to distinguish or detect the symptoms of trafficking, find victims, and deal with victims. i just paid for carded a training video that will be used. demi moore will be in the video. we will probably get confused.

that is another question. >> you should just could aspepua super underneath. >> that is part of our program is still be offered at where we trained federal law-enforcement officers. they will be trained on some of these issues about human trafficking. we are going to embark in a public campaign and how to tell the difference. and how human trafficking victims can get access to law enforcement. >> thank you. >> thank you. >> welcome. let me just began. i will focus on the southwest border. i think he made an important point earlier when she made a note that we devoted a significant amount of resources to try to control the border and enforce the law.

yet it is troubling that the progress is somewhat uneven. i think we have made the victim progress. part of that is to keep the recession. will we get back to the need for more employment, what will happen? everyone is concerned about that. i suggest that the employment of the various things that you have mentioned here do work. the question is, have we done enough of it yet? i think we know what works. what i would love to do is focus on the three key elements. it is a combination of things, adequate resources. the border control, some degree of fencing, and detention of violators, operations streamline. i think we conclude this by a tale of two sectors. the human sector and the tucson sector. tucson sector is larger by some

number of miles. they both have proximity to highways. one of them has reduce illegal immigration to virtual nothing. the other, tucson, represent about half of all of the illegal immigration in the entire united states. what is the difference? in it beyumah -- yumah sector, we have double and triple fencing. they have an adequate number of workers. there is some concern is that they are short and other sectors, their concern that they will be transferred. operation streamline. over the course of time, anyone across the border will go to jail. at least 10% or 15% are

criminals. for those who won't work, they cannot make money when they are in jail. they tend to not want to make -- across the border in arizona that they will go to jail. the combination of those three things has worked to bring the illegal immigration down. the number was about 118,500 five years ago, it is now down to around 5000. that is tremendous progress. in the tucson sector, we still have about two to 41,000 apprehension so far this year. that is down from what it used to be. we know that we need additional fencing in the tucson sector. your agent like to replace -- would like to replace the old fencing with the things they can see. it is dangerous for them right now and not affected. we need additional personnel.

the operation streamline is nonexistent in the tucson sector. you are right the resources are a key issue. it is a matter of court resources. i think senator sessions was right. it is not just a matter of resources but of our will to make it work. congress is supposed to receive a steady on december 27 from the department of justice. it would detail what will be necessary in the way of resources. i have but three basic questions here. in the 2011 budget, there was going to be a cut of 187. you have asked and to amend that. in the 2010 conference report,

there is a requirement that the northern borderf increase the number of agents from 1520 5to 2212. you did you maintain a force a 17,000 along thsevensouthern bo. how can you increase it and keep the southern border the same with a budget that does not increase? >> going to your list -- >> i include technology in that. >> there is the mobile system. >> you bet. >> they are different. the answer is and we can provide to staff in the briefing later this week, moving people who are

in on-on the line positions into in the line positions. we are looking at how we move this. it is very difficult in the end when there is mandates that you have to headx here and y there. people move. the immigration moves. >> my understanding isdhs helped to write the law that requires the additional troops on the northern border. i think we need more border control. the budget has enough financing for 1 mile a physical sense. that is inadequate. the 2011 budget includes enough funding for 1 mile of physical fence. we need more than that, do we not?

>> it includes the budget to complete what congress had originally before it. we can and should get what other areas could requirea fence. we also need to be looking at what areas need new kinds of events. >> of course. you testified that there were at least 30 or 50 miles of fencing yet to be completed under the original congressional intent. >> it was to match up with the dhs operational plan, 700 miles. expensing has gone in with other technology, the 700 miles has become 653.3. we are just about at that number. >> we know we need more fencing in the tucson sector. on operations streamlined, the whole point here is policy -- a

policy tshould be to extend. until that is done, we will have numbers like we do in the tucson sector. people realize we are not doing everything that we could do to extend illegal immigration. >> i appreciate that. streamline is a to a lot of things that need to be dumb. i am not sure i would equate streamline with the arizona law. i think there are a lot of other reasons for that. i will certainly get with the eternal the ge attorney -- attorney general to get back with you. >> just to recap, senator

schumer will be next. after that, senator grassley. after that, senator gramm. then senator carvin. senator schumer? >> thank you. i want to thank you, mr. chairman. you are doing a great job so far. i want to thank you. you have done an excellent job so far, as well. my first question relates to something that is bothering me. that is curing the city's program. securing the city is a federally funded effort to protect new york city from the threat of a makeshift nuclear device or

dirty bomb. every time you workers here about the threat of a potential terrorist attack from al qaeda or other groups, it sends chills down our spine. everyone remembers 9/11. the guy played basketball with who died or a firefighter who lived in my neighborhood who i worked with. this is really important. in new york has made extraordinary efforts on their own. -- to make sure that we are never attacked again. i know that is mostly in the federal responsibility. one of the things we have done is set at the securing city's program. it provides new yorkers that the reassurance that their government is working hard to protect them from a dirty bomb. it uses the available technology at all the bridges and major highways to prevent that. it is expensive .

we are ready shoulder far too much of the burden in protecting our city from terrorism. i live in brooklyn. we have station police of a sears 27 preeti 247 on the brooklyn bridge -- police officers of 24/7 on the brooklyn bridge. for the second year in the row, the president eliminated funding for securing the cities in his fiscal 2011 budget. it to be a tragedy. the program has reached a critical operational state. the new york police department has developed local protection programs and completed a substantial amount of work for radiological defense. without continued investment, the work would go down the

drain. this is obviously important. i do not understand what omb zeroed this out. i requested $30 million in appropriations for it. i would like to get your support for this program. you are the head of homeland security. the new the dangers of a 30 bomb. this idea of letting everyone apply does not work. we have to plan. this year to year existence is not allow long-term planning. i thought we had been through this fight last year. it hit a lot of work. what is going on here? what wouldomb the zero it out. what can we do to get it restored? can we have your support? >> if i could get myself into the head omb, i believe that

their reasoning is because there had been $50 million appropriated in fyo9 and $30 million of that was yet to be drawn down. i am speaking and asomb. >> i had long talks with peter orszag. the money is all accounted for. he cannot say you have to get down to zero before you get more money. you are negotiating contracts and figuring out what to do with it. that is stupidity. they know that is not good budgeting. they know they shall not let something go to zero and start over again. yet a program that takes several years to put together. >> i will be happy to read engage omb on this. there is another point to your question that i think is very important for the department as

a whole. that is being able to get the grants are done in a way that is more than year to year to year. you really have to look at it structurally. this is something that i have asked our folks. the current methodology may not be the best. i will be happy to ring gauge t -- to reach engage them. >> in a positive way? >> in a positive way. >> i consider that good enough. thank you. >> what else do you needed? >> i have a few other items here. northern border strategy . my friend senator kyl was

talking about the southern border. when we are sitting on the northern border, we think the southern border is getting most of the resources and attention. i understand the problem of drug addiction across the southern border israel. as you know, the numbers from canada are going way up. the number of arrests in new york for crack and cocaine that is coming in from canada is in large multiples. it is almost like1 to 18 compared to 3 years ago. we have said up the high intensity drug trafficking areas. we have several counties that are a part of this. what do you think of it? what can we do to further prevent drug addiction on the northern border? do you agree it is a growing problem? >> i would add met and that

means to that. i used to be the chair of the arizona hida. i believe when well done it can be an effective way of leveraging resources and federal state and local money is. mo-- monies. on the whole, i think they are very effective. >> there is one for the northern border. >> let me take a look. >> thank you. >> senator grassley. >> thank you. one thing i wanted to say and then went to speak about a bill i introduced, i just came back from the spring break would 24 town meetings to do when it the strong messages that came through was people irritated.

the field that the immigration laws are not being adequately enforced. i just wanted to bring the message back to you. the second point i would make in regard to the christmas day bomber, which highlighted the need to review our be set policies -- visa policies. you have been reported to revoke a visa to any individual who is a threat to this country? there is concern about that person. i introduce a bill that would treat replication similar to visa denials. the right to that person will no longer be affected. my bill applies the same standard to an individual on the

same soil. the christmas day bomber reminded us that despite our best efforts, terrorists can obtain visa. given this vulnerability, i hope that you would look and you judicial review that they should not have been here in the first place. mission not have had access to our courts.

>> well, thank you for your presence and thank you for your participation and will go forward. we're going to turn it to my good colleague, i can imagine the thrill that we had when joe biden called in january and said al, the president and i have a tremendous deal for you. [laughter] i said why did i answer the phone for joe. after 30 years, i do. this is serious business and the minute we hit it, the shriek went up, here they are, they are stalking horses for taxes. well, i can tell you we are stalking horses for her grandchildren and that's where i'm coming from. first is the administrator, i do the color. go ahead. [laughter]

>> i figured mother have a butter colored man. ben bernanke, thank you for joining us this morning. are delighted to have you come under two have you. and bring in our economy back to the brink and you certainly have some forward-looking statements about the fiscal crisis we are all expected if we don't make some pretty dramatic moves through the thank you for coming and we appreciate what you have to say. >> thank you hurt i appreciate this opportunity. i'm very pleased to be here for the first meeting of the national commission on fiscal responsibility and reform the president has assigned chairman bowles and chairman simpson and the substantial passive charting a path to fiscal sustainability for the united states. the deliberations of this commission are especially timely because some of the fundamental source of long-term fiscal imbalances are no longer distant forecasts, but instead are unfolding in the here and now. the task of in implementing

sustainable policies is daunting but meeting the challenge is absolutely essential. history may clear the failure to achieve fiscal sustainability will over time that the nations economic vitality, reduce their living standards and greatly increase the risk of economic and financial stability. our nation's fiscal position has deteriorated appreciatively since the onset of the financial crisis. the exceptional increase in the deficit has in large part reflected the effects of the weak economy and tax revenues and spending along with the cost of policy actions taken to ease the recession and study financial markets. as the economy financial markets continue to recover enough the action is taken to provide economic stimulus and promote financial stability are phased out, the budget deficit should narrow over the next few years. however, even after economic and financial decisions returned to normal come in the absence of further policy actions, the federal budget appears to remain on an unsustainable path.

a variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy show a structural budget gap that is both large, relative to the size of the economy and increasing over time. moreover, as debt and deficits grow, so will the associated interest payments and obligation that in turn further injures as that. unfortunately, we can't not go our way out of this problem. no credible forecasts suggest that future graduates of the economy will be a sufficient with about significant changes to our fiscal policies. among the primary force is putting upward pressure on the deficit are rapidly rising health care costs and the aging of the u.s. population. federal spending for medicare and medicaid is increased substantially as a share for natural income over the past several decades, spurred both by the rising number of beneficiaries in these programs

and by ongoing increases in spending per beneficiary. under policies in place, purged of recent enactment of the health care bill, budget projections show that spending for medicare and medicaid would roughly double as a share of national income over the next two decades and would continue to rise subsequently further and the years. at this point the recent legislation that health care spending over the long-term are uncertain and in part because they depend importantly upon implementation. ..

comprised roughly half the total outlays over the past couple of decades. these expenditures support national defense homeland security, education, transportation and income security programs along with many other activities. the commission will have a difficult job of waiting the

economic, social and other benefits of these programs and comparing the implications of the company's against other means of pushing the fiscal gap. truces record and medicare, social security and other programs cannot be made in a vacuum but must be combined with the systems, revenue the government will raise and how they will raise it noval is more bases than the law leverett mattocks. for the fiscal stability whenever level of spending is chosen revenues must be sufficient to sustain that spending in the long run. at the same time economic vitality is enhanced from taxes are not excessive and collected through a system that is economically efficient, equitable a transparent. it present a broad consensus exists that the u.s. tax code is not satisfied the criteria and is in need of reform. i suspect it is too much to ask the commission to review the tax code detail. but a picture of the budgetary dilemma will require the

attention to the strengths and weaknesses of the current system of raising revenue. the ultimate goal of the submissions efforts to be to put has passed a fiscal sustainability. one widely accepted criteria for sustainability is the ratio of federal debt held by the public to the national income we made the least stable or perhaps even decline in the longer term. this goal can be achieved by bringing spending exclusively of interest payments roughly into line with revenues. unfortunately most suggest we are far from this goal but without significant changes to the current policy the issue with federal debt to income will rise sharply. thus the reality that the congress, the administration and the american people will have to choose among making modifications to an anti-drug programs such as medicare and social security, restraining federal spending on everything else to accepting higher taxes or some combination thereof.

achieving long-term fiscal stability will be difficult of the cost of failing to do so is very high. increasing levels of government debt relative to the size of the economy would lead to higher interest rates and in had its capital formation and growth and by even the the current economic recovery at risk. to the extent higher debt increases are reliant and ever larger share of the future income would be devoted to interest payments on federal debt held abroad. moreover more things being equal increased federal debt and higher taxes in the future to cover the isasi interest costs. higher taxes that make disincentives to work, save, higher and invest. higher levels of that increase ability of policymakers to respond to future economic and financial shock and indeed loss of investor confidence of ability to the government to achieve the capability can itself be a source of economic

and financial instability as we have seen in a number of countries in recent decades. neither experience more economic theory indicates the threshold of which government debt begins to endanger prosperity and economic stability. but given the significant costs and risks associated with rapidly rising federal debt, the nation should soon put in place the credible plan for reducing deficits to sustainable levels over time. doing so earlier rather than later will not only help maintain the u.s. government credibility of financial markets have thereby holding down interest costs but it will also ultimately prove less disruptive by avoiding abrupt shifts in policy and by giving those affected by the budget changes more time to adapt. japan's fourth contains difficult trade-offs and choices. postponing the choices and failing to put the nation's finances on a sustainable long run trajectory ultimately do great damage to the economy.

i would like to sincerely thank the members of this commission for their willingness to search and urge them to demonstrate to the american people that serious and well intended citizens can come together to craft credible and sustainable solutions to the budgetary challenges. thank you, mr. chairman. >> thank you mr. chairman and we appreciate you taking the time out of what we know is a busy day to come by and give us your focus. thank you very much. thank you. >> we will now hear from peter orszag, the director of office of management and budget. he's the guy that lives in the town that likes to hear yes but he also has to say no. peter, think you for coming. >> thank you very much, chairman of the german simpson, members of the commission, thank you for inviting me to testify about the nation's fiscal trajectory and also for door service on this important commission. the president formed the commission because he believed the path to fiscal sustainability begins with

bipartisan cooperation. if we allow the policy positions that divide us to prevent us from taking action projected medium and long-term deficit will threaten the health of the economy and the living standards our people enjoy. sustaining growth and long-term deficits will increase our reliance on creditors from abroad, reed is investment and our labs, factories and businesses and weaken the confidence in the federal government credit worthiness. simply put, it me be easier to ignore long-term problems but it will pay severe price if we do so. with that in mind the tax before you as critical and considerable and the administration looks forward to working with you in seeking solutions. first, we need to address this very short term as economists from across the political spectrum have said when the economy is weak increases in government spending reductions in taxes are precisely what one needs to do to boost economic

growth and job creation. during an economic downturn, the key to economic growth is increasing the demand for goods and services at firms could produce with existing capacities and those moves that is additional spending and lower taxes help to fill in the so-called gdp gaps. that's why it was necessary to enact the recovery act at the beginning of last year a and additional measures since then to increase the short-term demand for the goods and services and encourage the job creation and it is clear from the data that the recovery act has played a critical role in rescuing the economy and pulling us back from the brink of a potential second great depression. as the economy recovers, however, that sets switch from being beneficial to harmful and the focus must therefore shifted to reduce the medium-term and long-term budget deficits. under the current policy is our projected deficits amount to about 5% of gdp in the second half of this decade, much higher

than would be prudent or sustainable. exacerbating the problem of a long-term trend that we face as the combination of rising health care costs and an aging population will live historical trends continue to drive up the cost of the federal government's three me in entitlement programs, medicare and medicaid and social security. what will happen if we fail to address the medium and long-term deficits? large deficits have some combination of two effects. first, they can elevate interest rates economy wide not only raising the rates on mortgages and credit cards but also discouraging private investment and thereby lobbying future workers of the productivity and enhancing capital that will make them better off. second, large deficits could require increased borrowing from abroad, which would mortgage the future in come to the foreign creditors. either way budget deficits

reduce future national income either because the nation does not have as much productivity enhancing capital future or because we'll larger liability to the foreign creditors. to put this in more tangible terms, if we take no action anyone needing access to credit from entrepreneurs seeking funds to invest in their businesses to families seeking to finance the purchase of a home will eventually have to beat with growing demand from the federal government for scarce capital and the nation as a whole will wind up 448. unsustainable budget deficits could also generate adverse effects from the economy that are both larger and more seven than the gradual crowding out of private capital and rising violence. although the interest rates on the government debt remain historically low substantial deficits projected for into the future could cause the market to rapidly lose confidence in the government credit worthiness producing a spike in interest rates and fundamentally

disrupting economic activity more broadly. the best way to minimize the probability of such crisis is to act ahead. recognizing the future fiscal challenge we face the administration has taken any action to address medium and long-term deficit. we work with congress to enact statutory pay as you go legislation to make sure we don't think the problem worse. the president's budget includes more deficit-reduction the proposed in the administration budget in more than a decade. by 2015 it would cut the projected deficits from 5% of gdp of the current policies continued to 4% of gdp or by about $230 billion in that year alone. furthermore, the comprehensive health insurance reform legislation that was just enacted represents the first serious effort to address the forces underlining the health care cost and it is projected to reduce future deficits by more than a trillion dollars over the next two decades.

in addition to those measures, the president could create this commission because the only way to solve the remainder of the fiscal challenge is to do so in a bipartisan fashion. as you know, the commission is charged with coming up with recommendations not only to address the long-term fiscal imbalance but also to reduce the projected deficit by 2015 to about 3% of the economy. that result would stabilize the debt to gdp ratio and an acceptable level as the economy recovers which is the key measure of the fiscal stability. achieving both of the medium-term and long-term goal would require significant changes in policy that build on what we have done already. the option to further reduce the deficit may not be popular but they are necessary. success would require a commitment from both parties to engage in constructive and honest dialogue, recognizing that there is no easy way forward except through bipartisan cooperation. in that spirit i look forward to working with you in the weeks

and months ahead and i along with the rest of the administration again thank you for your service. >> thank you, peter. we will now hear from two other people from rudy and bald to the former heads of congressional budget office. rudi was the head of the congressional budget office from 1983 to 1987 and baala directed ceo from 1989 to 1995. thank you both for coming. they will be available for questions after the meeting. >> thank you very much, chairman, german simpson. i would like to think you for the opportunity to testify. the commission faces a formidable task. the budget is on a ruinous have and getting off that path involves far more significant policy changes than the american people are used to.

the problem has been described to you, my version of it is the arithmetic is fairly simple. to have three programs, social security, medicare and medicaid and now the new health spending just so three programs are considerably more than 40% of the spending in a normal year and all of them are growing faster than the economy or tax revenues. the overall tax burden on the other hand has been remarkable constant and if you combine rapidly growing programs with taxes obviously you imply a growing deficit spending for other programs grow as in the past. and as the deficit increases the national debt grows faster and faster and interest becomes a budget problem in itself. the debt eventually explodes but the market would obviously

collapse long before the actual explosion occurs. because of the financial markets it is difficult to predict exactly when a crisis might hit united states. if one examines fiscal crises and other advanced countries, they've been set off a very different circumstances and different places. my prepared testimony briefly refers to the crises in sweden, australia, ireland and greece the overset often a variety of ways. similarly, it is difficult to appoint to a single fiscal indicator that signals a crisis is imminent. the crisis described occurred with a wide variety of statute ratios. i think that investors will get a wide variety of the variables to try to determine how serious the country is about fixing a fiscal problem. as i travel abroad and i am pleased to see that foreigners are also more optimistic than americans about our ability to

fix things up or to quote winston churchill, you can count on americans to do the right thing after they tried everything else. even if we avoid a crisis for a long time, the large deficits projected in the future would drain away domestic savings that could be better used to finance productive investments in the united states. now many groups and committees have warned of the possibility of a budget related crisis and describe the harm done to the economy by large deficit. but recently the university and by cochaired the committee on the fiscal future organized by the national academy of science and public administration. the members of the committee like this one spanned a wide range of ideologies. the committee report has the usual diagnosis of budget problems and aborning about the potential crisis if we cannot change the policy.

however writing the report is unique in that it obtains a range of policy options that can be used to retain fiscal stability. first we define fiscal stability just as the chairman bernanke just did as achieving a stable debt to gdp ratio. we go further and think it prudent ratio would be 60% of gdp. again, my prepared statement rationalizes that as we decide to go into more detail later if they like. quote policy options were grouped into four packages. in one the committee asks what spending restraint would be necessary to stabilize the debt to gdp ratio while avoiding significant tax increases. at the other extreme the committee estimated what tax increases would be necessary to finance currently on the social security and medicare benefits while other programs group has determined by the current law

and to mittal pass or delineate. sprick in the package that would expected increase in the tax burden of the rate of growth of social security benefits this held to the level that could be financed by current payroll taxes. that increases retirement age, indexing for the more affluent and switching to a different measure of the cpi that is expected to grow slowly in terms of making adjustments from a year to year. now when you look at options like that for social security, it's important to differentiate absolute reduction in the purchasing power of benefits compared to today's level some are reductions in the rate of growth of benefits. although the package was put forward in this option it would more than maintain the purchasing power of today's level of benefits for all but the most affluent. the rate of growth of health

spending and the low spending option had to be held to that caused only by the aging population. that is to say all other excess health growth have to be wiped out. a long list of health options appear is in the health chapter probably involve using every one of them to achieve the target. the brand new health plan of course ads to the federal health budget at the tax burden and changes the mix of medicare and medicaid spending from that used in the committee's baseline. it contains a uncertain cost containment options but not enough in my view to fundamentally alter the long run budget problem caused by growing health. indeed the significant health costs to the budget makes it even more urgent to adopt controls. my own view and not that of the committee is we will never

reliably control the cost of medicare and medicaid so long as they have open-ended license through the medicare law we define the eligible population as best treatments they can be given while excluding very few treatments. then the government pays for the cost of anyone who comes in the door. the total cost can only be controlled indirectly and it's difficult to forecast. in contrast, the universal coverage system of canada, the united kingdom were gone budgets in canada every hospital has a fixed budget and physicians are limited as to their gross income. the methods that go with the fixed budgets are anything but transparent. a different approach to the fixed budget i think one more meaningful to american practice is to a voucher system for medicare similar to one. the voucher would be used by the elderly and disabled to buy

insurance and the value would very tersely within come. it might or might not vary with geographic locations from age and other risks and could be combined with changes of insurance regulations. medicaid could be put on a fixed federal budget by shifting to a block grant. while the most spending packages also implies severely constraining defense and all other spending in the package that attempt to maintain current law benefits we consider three types of tax increases, radical tax reform would provide a growing revenues in the long run, value added or increasing rates in the current system. the last is least desirable and some efficient that it couldn't possibly finance the high spending path. the radically reformed income tax eliminates almost all deductions except those relating

to savings the health exclusion would be tasked and retaining various income tax credits. but we could end up with only two tax brackets, ten or 25%. and the way the thing is structured the results of growing revenue over time even before you consider the beneficial effect on economic growth. prior part of the reason is the capping of the exclusion becomes more valuable because of the rapid growth of health costs. the besides requiring large increases of income tax revenues behind spending scenario would necessitate the doubling of the medicare each night package and considerable increases in the social security payroll tax. by 2014 the tax increases required by the high spending option would raise federal tax burdens by 50% compared to the 17.7% existing in 2008 and it continues to rise after that.

i want to go into detail about the past to say they are intermediate. although no one really believes the changes in the budget process can ensure that the congress makes the difficult choices necessary to obtain fiscal stability our committee felt there were some reforms that could help the congress the with the problem and to my prepared statement out lines. going to conclusions certainly not that of the committee that i co-chair but it does seem to me that a basic point screens out of the analysis and by german bernanke regardless of how big you want the government to be for the enormous advantages could be derived from our income tax system. we could increase fairness

however perceived you could increase economic efficiency by lowering marginal rates and thereby create an environment conducive to economic growth. moreover you can design a structure that produces the rapidly growing stream of revenue without imposing an ordnance pain. as for the proper size of the government, we all have our own view and i would like to think of myself as a fiscal conservative but i find it hard to imagine a vote that does everything on the spending side. on the other and even our second smallest government does involve substantial tax increases. in fact it would imply an overall tax burden somewhat less than 24 cents higher than what we've been used in the past. thank you very much. [applause]

>> members of the commission, i appreciate the opportunity to discuss with you the challenges you face as you craft a package of specific measures that will meet in the long term, goals laid on the president's executive order. i don't have to tell you how daunting the task is or explain the risks the nation faces if we don't put up federal budget on sustainable path. recently, the public is shown increasing concern for the lost of visits and growth of federal debt but it is clear fewer americans understand the seriousness of the problem and the consequences of inaction or the degree of sacrifice that is required to fix the problem. thus the commission's first task should be to make clear and convincing case of the public that first significant adjustments to the current spending and tax policies are unavoidable. second, that if we don't begin these adjustments soon, our

economy's vitality will gradually the sap and our understanding of the will well and world. the government's capacity to meet the crisis and address the emerging priorities will be constrained and dependence on foreign creditors and their influence on our policies will grow. the longer that we delayed the greater the risk of a catastrophic economic collapse. third, the magnitude of the required adjustments are so large spending cuts will have to affect programs we all care about and benefit from and revenue increases will have to come from a white swaths of americans and other words raising taxes on the rich are on proliferations holding entitlement programs harmless, closing loopholes, eliminating wasteful or low priority programs prohibiting the earmarks, things like that are not going to do enough to solve the problem. and fourth and finally, the

public needs to be informed that the sooner that we start addressing the problem the last wrenching the adjustments will have to be and the more control the as opposed to market forces or creditors or extreme circumstances international agencies like the imf will have over the timing, the size and the composition of these unavoidable adjustments. having analyzed the budget issues over the past four decades and participated in several efforts to reduce the budget deficit, let me offer four pieces of advice. first, don't waste time and looking for a silver bullet or new approaches to hold out the promise of paying with a sacrifice. there is known to be found. the congressional budget office, the general government accountability office, past presidential budgets and think tanks university researchers and interest groups have put forth hundreds of proposals for moderating spending growth and

enhancing revenues. used these selecting the specific measures that when combined into a single package meets the nation's economic social and political needs. second, don't take any category of spending any specific program or any revenue option off the table until you have finished crafting your complete proposal. a particular option that may look on appealing at the start of the deliberations could turn out to be a critical piece of the puzzle when your done. our past experience suggests that successful deficit reduction efforts are balanced and have extracted sacrifice from all of the major budgetary food groups, taxes, charges, entitlements and discretionary spending. third, don't assume budget process reforms, that is new procedures for making decisions about spending and revenues can substitute for or create

political will. the solution to the fiscal problems will not be found in the balanced budget amendment of the constitution line-item veto or reach that authority from the president joined rather than continent a joint lele run. this implies the spending programs and provisions of the tax code that rigorous objective

analysis has shown contribute significantly to the economy's long run growth potential showed if possible not be scaled back. of course this is easier said than done because many programs and tax breaks without much hard evidence their comparative effectiveness claims to be promoted. that is also true that many programs would wish there is evidence to the broad economic growth could be restructured in ways the would deliver a lot more bank for the buck. let me conclude with a couple of observations about tax burdens, entitlements, health care costs and the appropriate long run goal. many observers pointed out that revenues average roughly 80% of gdp over the post cold war to period. from this they've reduced the natural wall of american political budgeting and assumed that going forward the revenue have to say because the close to 18%.

but, and we then would naturally have to keep spending couple of percentage points above that at most, 21, 20%. since the mid-1970s getting the revenue at about 18% of gdp clearly has not been enough to keep the debt from growing faster than the economy. looking forward it is not likely the spending can be held at 20 or 21% of gdp unless we are willing to fundamentally rethink our entitlement commitments, downsize defense capabilities significantly or eliminate virtually all of the federal government's traditional nondefense activities. in short, to achieve fiscal sustainability we have to accept higher tax burdens than the past. getting to a sustainable budget have over the long run would also require measures to moderate the growth of entitlement spending. but such measures are not likely

to contribute significantly during the next five or ten years because most of the spending goes to the retirees and vulnerable individuals who have limited ability either to of sorb benefit reductions or compensate for any cut by working more therefore changes of entitlement benefits must be phased in gradually although over many years. there may be some short runs to producing the implicit disease enjoyed by upper-income entitlement beneficiaries the amount of deficit reduction that can be garnered this way is quite modest. as you know most of the fiscal imbalance projected in the future derives from the expectation that health expenditures will continue to rise more rapidly than the rate at which the economy will grow. it is natural to look at ways to curb the growth of the federal health care spending which is concentrated overwhelmingly on

the medicare and medicaid programs. however, this is going to be very difficult over the next decade for three reasons. first, under the recently passed health reform, medicaid costs will rise significantly because the program plays the primary role in expanding coverage for low-income americans. while the recent report concludes that significant savings were possible in this program realizing them would require adopting effective coordinated care for medicates radio to lead to regular population and community-based coordinated care for medicare -- medicaid's long term care beneficiaries. effective coordinated care of this sort is both on the popular and quite difficult to do well. second, under the health reform law medicare spending has already been reduced significantly so much so that the chief actuary of medicare has warned the beneficiaries may face access problems in the

future if the required reductions in payments updates or adhered to. while the act contains promising projects designed to test incentives and organizational changes that might slow spending growth there will be more than five years before the results will be informed policies. third, the growth rate of the cost of the government's health programs cannot be reduced for any significant period of time below that of the private-sector without creating access problems, inferior care for government beneficiaries or burdensome cost shifting onto the private sector. for this reason, system wide reforms and incentives are the only way to rein in the growth of medicare and medicaid costs over the long run. it would take time before we know which measures can effectively hold down systemwide costs.

finally, while the medium term missions spelled out in the president's executive order is specific, the long run mission is less clear. some may argue we should strive to balance the unified budget by some date certain. others would say as several independent groups including the one that rudy shares the goal should be to stabilize the debt to gdp ratio at some specific level like 60% or 70%. there is no need to strive for a balanced unified budget modest deficits are consistent with the gradual reduction in the debt to gdp ratio. this is what happens between 1946 and 1974 when we have reached deficits over half a percent of gdp and debt to gdp ratio fell from 109% down to 24%. stabilizing the debt to gdp ratio is an important goal but whether the target is 60%, 70%

or even 90% is less important than a credible package of policies that can achieve that goal. everything else equal to lower debt to gdp ratio are better than higher figures but setting a target that is too ambitious could prove counterproductive if the public regards the necessary spending cuts and increases to be too large and lawmakers respond by giving up the effort attaining fiscal sustainability is likely to acquire several major efforts over the next decade or two. nevertheless it is important that we start the journey now by enacting some significant deficit-reduction measures that will send financial markets a clear signal that no longer will we be if as if american exceptional some means of the fiscal front that the united states can avoid the unavoidable >> thank you.

we will now open for questions from the members of the committee. >> if you have sort of put your finger on the elephant in the room which is the unfunded liability of the government estimated to be about $66 billion the three major programs about city if that is medicare and the large percentage are the results of medicare. but as i understand you don't think because the health care health bill there is a whole lot of places to go in the health care area that will adjust those numbers. is that what you are saying? there is an opportunity -- >> if we leave medicare structured the way it is now, unmanaged fee-for-service care, it is unlikely you can bring

significant savings out of it without adopting measures that will slow down the growth of health care spending across the entire system namely across the private sector as well because there would be great disparity between payment levels in medicare versus the rest of the health sector and that would have undesirable consequences for medicare beneficiaries if access became a problem because physicians and other providers didn't want to serve medicare patients or if through government regulations you required access to be preserved but providers then shifted medicare losses on to the private sector.

>> something that -- to follow-up -- he started if the medicare system was maintained in its present structure. what is the alternative in your opinion? >> well, rudy lead out the same thing, alternative, which is restructuring it more all along the lines of premium support, a vulture system. i think it is not likely that we are going to find out that the desirable if what we're doing is saying folks under 65 tough 14 of insurance and delivery system and folks over 65 disabled are operating at a different system so that's why i am saying that i think where we have to go is more systemwide reform. one effort along those lines was

the tax fee on high premium plans this is included in the current reform measure but there are other ways of refining that. >> if i might add it is difficult to imagine another debate after the recent one was so intense and in did such a short time ago. donner really do we have to think radically on the health site and i mean the kind of reform that i'm talking about could be system might. but somehow or another we have got to get more control over the budget than we do in this open-ended system. >> senator bachus [inaudible]

>> i think we are belabored in the false assumption, and you said if the fee-for-service, that was the premise of your answer and the health care bill does not. the health care bill was premised upon moving off of the fee-for-service and moving more towards reimbursement of medicare based on the outcomes and the quality. we did mention the projects that might take some time but is true the basic underlying premise of health care reform is to decrease the cost and improve quality at the same time sounds somewhat paradoxical but it's true moving off of the fee-for-service moving it much more towards the reimbursement based on the quality and out comes. i just want to make that clear. >> i think i want to congratulate you and others who were instrumental in putting for from these changes and what you're doing is building the

foundation upon which that can be. we don't have the plans without the house of this point. >> that's correct. >> talking about systemwide reform, the driver of the increases in government spending has been put medicare and medicaid and like the veterans administration that those negotiations on prescription drugs and things like that and has more control for the cost is reliant on the private insurance that is based on that so clearly as you say if we were to cut medicare and medicaid, the disparity between what revenue are from the private sector would be so great people would

be denied access to care. so we have considered as senator baucus correctly pointed out ways that we can change the system but we have also built in something like 80%, 85% of every dollar must go to health care cost and the insurance company. if they don't reduce -- if the increase the cost too much they won't be eligible to go into the exchange's. but i'm wondering, don't you think there might be other ways? dianne feinstein and i have ways the would give the government some great making authority or control over dramatic increases in the private sector. we've seen 30, 40% increases

over time. don't need to get a handle on the private sector cost increases? >> we do but we don't know how to do that. we put controls on insurance companies and the amount spent on direct medical intervention on administration and profits but the fundamental problem is downstream. the rising cost of procedures that people are being given and are asking for which relates to technology behavior of individuals and behavior of

providers. >> but will we see greater than the cost of medical inflation certainly higher than the cost of the increases when we see those kind of increases shouldn't the -- what is your thought about the federal government on that? >> the question is half profit margins and insurance industries expanded more rapidly of over one or two years but over a decade than profit-margin is in the economy as a whole. i don't know the answer to that but i think the answer is not been great. i'm not here for the insurance companies but it goes much deeper than their behavior.

>> allow to clarify something you said earlier. you're not suggesting that we can't have a system that this prospective and grandfather in a current population into the current system as it has been known as people wuhan and prospectively adding a new system of health care entitlements to be under the 55 population. you did not say that we can't do something like that? >> in number of years ago, more time than i can remember, henry and aaron and i wrote an article in health affairs suggesting a premium support system for medicare that went down that path. >> r. dee, quickly, on designing a plan that looks a bit like what we came up with, do you

believe we can supply enough support for the bull run double in the society? can we adjust the system like baba said on premium support where you have enough support for people of modest means or high health costs and achieve fiscal sustainability of the health care side, do you think you can devise a system like that where we can do that and achieved what we need for the fiscal system the? >> i think you can certainly defies a system like that. you have to planas with care. there are a lot of proposals out there to the income test, social security to the medicare and various ways the income related premiums. as you pile of one of these income related plans on top of another you begin to accumulate some very large tax rates so you have to be very careful about

that. so you don't totally destroy the incentives to save and so forth but if you are asking if it's possible to do that way yes i do believe it is. >> we are going to run the question and answer pergola to about 11:30 and everyone will have five minutes of their own to make a statement. the people who in order or representative becerra, hensarling, senator bourbon, chairman spratt and chairman konrad are the ones i've noticed who want to speak and we will start now with representative the -- beccara. >> the problems in debt, we've talked a bit already about

health care and what is driving up the cost of government. give us some of the other fish taking up more room in the sea than they should when it comes to what the people of the country would want us to be doing and the second question would be when we talk of a systemwide reforms doesn't require us to examine more than just the items that you catalog with in the federal budget? we talked about medicare, about defense, we know about domestic programs but where in that would you put the aid of the 700 billion-dollar bailout of the financial service industry which president bush proposed back in 2008 which the taxpayers had to front load on a deficit basis through deficit spending for us to tackle the problems that we have as a government and

as a people, we have to look beyond just what we categorized as the federal budget, don't we, to get a grip systemwide of what ails the country economically. >> in terms of the other fish in the sea there is a great huge shark their and in the longer run it dominates everything. in the shorter run, social security will grow sufficiently to take up a growing proportion of the gdp. but when you get beyond that, the rest of the government have a long enough historical time from the rest of government really hasn't expanded that much real the -- relatively to the gdp. defense has gone up and down with the tension, the welfare

programs are very crudely speaking that allows the same proportion as they have been over the long haul. now that is different than saying that the solution to the problem should focus only on those things that are growing. there is a widespread political feeling that everybody has to get in the boat and so you have to talk about things like to agricultural subsidies and all sorts of corporate welfare and on and on through the system but we had in the report is very long list of programs that we thought were of dubious value or that could be handled better at the state and local level. >> what rudy there is one big

shark and lots of little sardines and the sardines are difficult to catch. they are zipping around and we can make lists of those and cbo and others have. but the have strong protectors and they don't have huge visibility among the public so it's difficult to catch them. we are, however, feeding another shark, and that shark is the interest on the national debt. and over time if we continue on this current path, you know, it's going to be an equal competitor to health care costs and the big problem of course is interest on the debt from the public's standpoint is in a

sense worthless. health spending, you are getting health care, you are getting something for it. interest on debt is payments that go out for goods and services but via public has enjoyed in the past but it gives them no benefit now and were we to run up huge debt and seek a balance of the budget people would be paying large amounts of taxes for which they saw no services in return because the services had been enjoyed by their parents and grandparents. >> thank you, mr. chairman. i think that one thing the witnesses agree on is that the status quo has been sustainable all the way think unsustainable in the challenge before us. if you took a good note that we

are a ruinous past i want to explore the cost of the tax side and on page nine of your testimony i want to make sure i understand it properly. you talk about i think if we attempt to maintain the current benefits under our three big entitlement programs at least under the one scenario the ten year budget window that tax rates would have the top bracket would have to go to 50% and a value-added tax would have to be imposed; is that correct? >> that is one of our scenarios, yes. >> when you sit to maintain the current benefits by 2014 roughly over the course of the next generation since early this morning when we talk about our children and grandchildren you would see that value-added tax reaching 7.7% and you also say i believe that is not prudent to consider a top rate above 50%

top marginal? >> given the inefficiencies in the current system. >> by any efficiency you mean? >> our system has become so complicated with so many incentives to do so many things but completely distorts the trace from what the real economic incentives would tell you to do with the before tax income would tell you to do so we put the different wages all over the economy between the before tax and after tax income and it creates enormous costs in terms of economic efficiency and economic growth. spec then i think you said by 2014 again over the course of the next race to maintain the status quo the overall federal tax burden would increase by 50% compared to 17.7% in 2008 so are

we talking relative to gdp? >> yes. >> i'm sorry you said we were going to 50% of gdp on the tax side or we are going to 27, 28% of gdp would for the math is? >> the 50% just reference to the top rate if you try to finance a high spending path only by increasing all the rates in the current system before. then we have the other scenario which is ever so much a desirable of raising the revenue through the fundamental tax reform. >> that last point now be finalized this portion of the testimony by saying the tax burden which is considerably below the oecd average would have to be higher than the average by the mid center within a few years after that we would be in the highest tax nation? >> that's including state and locals.

>> thank you mr. chairman. >> we now go to senator durbin. >> thank you, mr. chairman. it strikes me, stepping outside and looking in that social security and medicare's calculus the tax code is astrophysics or something and you just touched on it here because each year we go through a very public display in the appropriations process involving a very small amounts relative to the size of the federal budget yet when it comes to the tax expenditures which we are making each year there are very few sunsets and little and you will review about where we are going. i don't know if this qualifies as a starting or a short but the amount of money we spend on tax expenditures use it can distort business and economic decisions exceeds the amount that we

appropriate in domestic programs each year so would you say that among the things we should consider are not only the entitlement programs and the spending programs but also this tax code that is literally spending tax dollars or forgoing the tax dollars each year in the name of social policy and goals? >> absolutely, senator, as i sit in my testimony i think it just screams out that we have to do something about the tax code. there are different approaches. more extremely radical types that we had in our report as senator gregg and senator wyden's bipartisan approach that is maybe somewhat more realistic publicly. the problem on the tax side is that you also have some really big sharks and i guess on like

most they're very popular sharks. [laughter] so we are talking about things like the inflation, a huge amount of money. >> home mortgage. >> we have an incredible array of different things to try to encourage savings and they are so complicated i can't figure it out and it's the ones for college savings that blow the mind. so i very much agree with you but then after the sharks, think cbo lists about 70 or is at budget lists about 70 which are small compared to the savings.

islamic would like to ask a follow-up question. do you believe that in addition to the sustainable debt of the nation deficit and economic growth we should also take into consideration the growing income disparities in america? .. can you develop a budget while closing this deficit? as i said before, i think all you have to design your initiatives very carefully but century it can be done. i mean, the benefits we have now in social security and medicare go to everybody. whether you need them or not. i'm in the fortunate position to get almost $20,000 a year from social security. i like it but i find it very

hard to ration that. >> medicare -- social security also. we barely touched on social security. you wrote one of the best -- readable by almost anybody. how speed that problem? how urgent is that problem and what are some of the options available to us. come? >> well, looked at compared to some of the other contributors to growing deficits, social security may not look like a princess that, but as we look over the next half-century, as we showed, when we think about social security policy, it's

clear that some significant changes are going to have to be made. those changes can be quite modest if we begin doing them now. social security saucily program, which has not been changed in significant ways over there. since night and 35 notwithstanding the fact that the demographics of the country have changed, the patterns of marriage and work have changed and income levels have changed. and i think they're about to other steps that could be taken to modernize the program and make it better meet the needs and equitable fashion of today's

population in the future population while folding the longer solvency problems of the program will face. >> the options are modest. you describe the substance as modest. he said there some options that can be taken there quo vadis. could you touch upon those? [inaudible] [laughter] >> first of all, changes need not affect it. what we're talking about is those who begin to retire 10 years and beyond from now. as we suggested, there are ways of taking the benefit structure a bit more progressive. we should think about indexing

the program to longer life expectancies coming in now, we have a program, which when it started, there weren't large numbers of people going to college, people weren't with it as long. probably we should index the program to adult life expect and see and make modest changes and not one. we have seen a growing fraction of compensation paid in the form of non-taxed fringe benefit and help them if it's an vacation pay, things like that.

raising the threshold that which we tax make say think a lot of sense. you know, there is clearly a problem with respect to widows and individuals who live a very modest means for long periods and adjusting the benefit system for that would make sense. i could go on forever but i mean, just to maybe say something that's a bit more controversial. you know we have a spouse's benefits in the system now, which a spouse who doesn't work at all is given the equivalent task of his or her spouse's benefit.

another spouse could work at a low-wage for a long period of time contributing to the system the whole time and not get more than 50% of the primary workers benefit, which might have made sense, you know, in 1945, but it certainly doesn't make sense now when virtually all men and women are in the labor force. >> if i could just briefly make two points about social security. one, when you talk about modest changes, i mean, most of the changes that bob is talking about don't imply cutting the standard of living of the elderly compared to what we're talking about slowing down growth and benefit, the way the system is structured it promises the elderly ever-growing real

benefits. the other point that i make about social security, though it's not as important as the budget problem is help, it's ever so much more simple to understand. we know the effects of every option bob mentioned here do we know who would be affected, how much they save. we know about with considerable degree of confidence, whereas we do not know the same sort of things in the various health options were talking about. so to me, that really makes a strong argument that this commission show that area closely at social security, moreover if it made some suggestions for improving its financing, i think it would read very helpful in showing we are serious about the long-run problem and with us maybe make foreign investors more confidence in our discipline.

>> we're going to conclude the session with sessions from three people and then we'll go to the five-minute statements are the questions are from senator conrad, representative camp and from under crapo. >> thank you, mr. chairman. i just want to get both of your reactions to two concepts, one on the spending side, one on the revenue side. on the spending side, but it's always struck me is in medicare, 5% of the beneficiaries use 50% of the money. when i what to business school, they taught us to focus on that kind of statistic like a laser. so 5% is 50% of the chronically ill. they have multiple serious conditions. we do a very poor job of coordinating their care. and the one attempt to head to

better coordinate their care, at least has better cremation of care, they did a study with 20,000 patients who are in this category and they put a care coordinator on each of their cases. and the results they got were so striking, dramatic reduction in cost, significant improvement in health care outcomes because what they found is these people are getting duplicate test. they're taking prescription drugs that actually don't help them, but hurt them. so it seems to me there is a major opportunity in health care to revisit that issue. on the revenue side of the equation, again what's very striking to me is under the current system we only collect about 80% of what is out. if we collected all that is actually owed, we would dramatically reduce the structural deficit. about the same time, we've got a

tax system that doesn't help america's competitive position in the world because this tax system is written in the time we didn't have to worry about that. now we do. i just like your reactions on this two points. one on the spending side, one on the revenue. >> let me take the revenue side were feel much more confident. i think part of the difficulty in collecting taxes if it does in fact the complexity of the system. with all of the deductions even named, you can cheat a lot. i mean, the irs has limited capacity for auditing. while we could undoubtedly do a lot better in the collection, the problem on the other side, of course, is that there's a big cost and increasing collections, and money cost in terms of the budget of the irs, but i think much more important the kind of harassment cost. you know, you don't want an irs

agent following everyone of us around as we do our work, so you have to balance those two things. but having said that cumin is absolutely no doubt in my mind that right now we're striking the balance too far in the side of lending. >> with respect to coordinate a care, i think you're right on the money. and the question is, why did we do this? and there's two simple answers. one is that the structure of our delivery system is pernicious to coordinate a care. it's a fragmented system and operates to consolidate, have not been very successful. and secondly, there were very few incentives given to providers to courtney care. it's just the opposite

generally. so it can be done. you're right, but it involves some very significant structural changes in the way we organize health care. >> thank you. representative camp here at >> thank you, mr. chairman. there's a lot of care coordination going on called medicare advantage in either of you have mentioned that. it's correct, is not? >> there is some. there are many major advantage plans that have virtually no coordination in the authority of individuals are in those other people in medicare advantage are in those plans. it has potential him about the potential is far from being realized. >> mr. penner, at what rate would you have investment taxes under your proposal?

>> well, under the actual proposal, we rode down, they would be taxed at the same kind of traits that i mentioned. we just to back a 15% and 25%. one could worst compete moving the system much more to our consumption of non-taxing saving investment in all, but developing a set of rates on consumption that would duplicate roughly the same income distribution we have today. tonight i think you both mentioned this increase in health or expenditure is greater than the rate of growth of the economy and they think you both used pretty strong language to dominate actually the whole issue and you mentioned, mr. reischauer in your testimony that if the medicare reduction with a bill enacted, the medicare actuaries determine they never heard seniors access

to medicaid as you commented in your testimony. but what you both did mention was that the actuaries found is this new bill actually increases health are spending over the long-term. so the problem that you said is the biggest problem we're facing is actually exacerbated by this recently passed legislation. would you care to comment on that? >> well, i did say my prepared testimony, sir, that they think it just means that we have to give cost control higher priority. i think we really have to work on a much harder now that we've expanded the federal health budget. >> the actuaries memo was referring to national health expenditures overall throughout the economy, not to the government portion of those and given that some people without insurance are going to be required to be a part of their

own pockets, firms that offer inadequate insurance are going to have to raise the level of their insurance and many more people are going to be covered by health care, buy health insurance, you know, over the medium term anyway it would be very surprising if there wasn't an addition to national health expenditures from covering 35 million more people. but i think you're right. >> the expenditures are going to increase 50% more than were estimated initially under the bill. >> okay, we'll go to senator crapo. [inaudible] >> i was interested in one of your comments about budget process reforms. you indicated that you thought

that was not a very productive area for us to look at. i think in your words, it was the history is shown if lawmakers don't want to rein in spending or raise taxes to curb deficits, nor procedural reforms can meet them do it. and having served in congress right now i know which are talking about. i think all of us here have seen congress go into contortions at times to get around budget reform. >> i would noninclusion ministrations than this. [inaudible] >> would i want to limit it to just congress because that's correct or that being said however, actually blew the process reforms can be and should be pretty good part of the effort to try to make sure that we get it right and keep it right once we move forward. i have seen circumstances. in fact, infrequently in congress at least where process reforms have inhibited spending or other tax policy changes that

might otherwise have been undertaken. and so i guess i just wanted to raise that issue with you because although i totally understand the dynamics are talking about and i know that no congress can bind a future congress in any specific way, forcing some of these votes to move forward or forcing the be highlighted in specific ways or maybe there's some other process too, but that would be more effective i think is very helpful. in fact come the process i think a congressional leaders have agreed to which compared the recommendations of this committee will actually be beneficial in helping us to get a vote on them. so i just wanted to ask you to discuss that with you a little bit. i want to want to see them leave this topic off the table. >> if you're asking me to process reforms have some modest, can i have some modest impact on deficit growth? my answer would be yes.

i think they did damp down deficits a bit. i think even measures like the sgr and medicare in fact have moderated the growth of medicare spending, but what i was trying to point out is beside the silver bullets, you know, you're going to have to raise taxes. you're going to have to cut spending. it's going to have you heard and it can be reinforced through some process reforms, but don't count on them to do the heavy lifting. >> you know, if i cannot, i believe exactly the same thing and i think he described it very well as to what process can accomplish. but i do think there are major flaws in our current process and the number one flaw i would point to would be that i think it much too short to oriented.

i think one could do things, which would ring long run considerations into the yearly process that would be very helpful. and even just increasing the information, australia has this very interesting process, where they report every three years on what the budget does two different generations and that provokes an interesting debate, which i gather is somewhat influential. so i think that they're all kinds of things like that that can help a lot. >> thank you had >> thank you all very much. i was very helpful. i certainly learned a lot and i hope others do too. we appreciate it. when i go into a five-minute statements. were going to go in alphabetical order with the exception of senator simpson will go first and i will go last. in alphabetical order beginning with senator baucus down through

this fudge. [inaudible] >> well, i want to think or witnesses. it was very helpful, very provocative, showing us how tough a role he has. i want to thank and you've got to watch me closely because i have to set a glorious tone here are five minutes. >> will raise a red flag. >> my god, i didn't intend you to do that. a red flag at the table. okay quickly want to thank the president for his active participation here. it is absolute critical. i think we'll appreciated his presence this morning. we have been very supportive of bias and the columns when i knew i would involved with her skin had the deepest admiration and respect and regard for this man. i want to savor tema names came up, the shriek when i appear

they are. the horse for taxes and we said were stalking horses work and children. i have six, he has seven. the problem has been described as unsustainable. i say it is unconscionable. that's where we are. simply took the final share with you i've been called mr. toady of the republican faith, covering the president standing among that the come of their come of their other great adjectives, a tax or at all times for debtors prison because of my presence here. so as you get rained on you from those in the extremely met my party, i have never been their very favorite. i believe that abortion is a deeply intimate and personal decision. i know that's a sick idea, but i've worked with the date and committee and i realize that is a very extreme idea. i've been called a lot of things, but i never opened a

store to buy him. you're entitled to be called boop, i-india, and everything else in the skin, but never let them distort ewart as a person. furthermore, i never figured out too many ways to the other side or my colleagues. that is a thankless way to live. hatred corrodes the container it's carried in. furthermore, i love the aa he can't forgive a person it's like letting them loose in your head ran free. and the word tolerance is incised in the speaker's platform in the house right there, right in the front when you do the state of the union address. for me just give you one other example. i see max looking on is crippling. we came here together and he never could read my notes. [inaudible] >> it's mine.

>> a quick example, when i've been here two years, reagan takes over -- i'm the chairman. i become the chairman of immigration, nuclear regulation, veterans affairs country ranking members are all cranston out cranston, ted kennedy and gary hart. now i've been here two years and these fine gentlemen all three were running for president. as of now the guys, don't use this committee or the subcommittee for your quest and i won't use it in any way to embarrass you. we shook on that, never broke our word. i was bob dole's assistant leader for 10 years, one great american mayor annie sardi contacted me and is ready to help in any way. i've also had encouraging calls as risk and had the leadership of both houses of congress in both parties. here is my naïve vision, that

maybe just maybe we can all agree on where we are by more than a vote of 14 and 18 of us and i think we might get there by using honest figures and honest fax. we will use the actuaries of the social security system who are poised and ready to exist we will use the actuaries of the health care system and will be used cbo figures. to me, what would be a remarkable first step would be for us to say book, i don't know where we are going. i have no idea where we're going, but i will agree that those are the figures, that those at the figures, those are the things we face, those are the liabilities, the deficits, the unfunded liabilities, the works. and if we could possibly do that and then go from there to try mildly to suggest some options

and solutions for america. if one we may be able to get to that point, maybe cannot flip back to decide that we have just given up, not only given up, but decided to score more points to demagogue leek our work, then fine. i'll head back to cody and won't my thumb and i'll say i did my level best. the american people have always been smarter than their politicians. i mean that, you know that. they know that something is terribly, terribly wrong. the few people that elect good, both parties have done nothing to stem this unstoppable tide. i was in the senate for 18 years, the cry for me was always go break on the bacon. well, the pig has died.

[laughter] , confectionery store window will close. in an evil witch the boil of all those who will be servicing the candy counter. we are in it, this is it, there is no game for me or any of you. none of you will gain from this, none of us will gain from this. i wish you all to have skin in the game and that's our children and grandchildren in anything will be met by howls of anguish. not me, how could you? you uncaring slobs. get ready for it, the extreme right and the extreme left will salvage our final project. whatever it may be, forgetting that we are not democrats and republicans and zealots, first we are american citizens, so we have to establish and

reestablish trust. i think that's the key. we must do that in this commission. the coin of the realm and legislating this trust. i didn't agree with max. we came here together, but we trusted each other and never violated that trust. judd gregg was same thing, conrad, we trusted each other. so it's a tough order in the coin of the realm and legislating adheres trust, not more bs, but say, that's where we are. so i've only ask for your honest participation, your intelligence, your wisdom, your honesty, your goodwill and as corny as it sounds, your patriotism. no one will ever do this fitful exercise again because it seriously messes up what we, you and me, politicians were trained by our handlers to do and that is to get reelect ted at all

cost and whatever cost. there are no easy answers that we will be better served, we build a better served by our natures of each and every one of us knows deep down in our gut that this might eat the last best hope to write this listing ship state of ours. and i thank you, each and every one of you, for your willingness to pitch in to see if we can make a difference. i believe we can and i feel we must. thank you very much. >> you stated the obvious and i make a couple of suggestions. just again, why do we care about deficits? obviously, deficit a debt or to buy things can happen and both are bad or adverse deficits can drive up interest rates, this could cause recession, in the

long run this could reduce investment growth and that would reduce our standard of living. second, we could on more debt to foreigners here in the interest we pay on that deadwood ship ship taxpayer money overseas that would also lower our standard of living. the size of the foreign holdings of our debt also puts our country at risk. other nations decide at some point it's too risky to hold u.s. treasuries and searches on because life interest rate as an advocate read to recession. in short, letting deficits and debt grow too high puts america at risk. so we here have to work together. when previous commissions have succeeded, it breaks the party commissions. in 1983, greenspan social security mission succeeded. it was bipartisan. the budget so much of 1987, 1989, 1990, they were bipartisan

that was the budget agreement of 1997. so when our commission has completed its work am i hope that we can say the same. i have an idea for the first step to achieve bipartisan agreement. the first thing that this commission should do is to focus on what i call the three caps, the tax gap, the spending gap and the productivity gap. the tax gap is the night of taxes are legally owed to the federal government today, but not collected to the irs estimates that there is a $345 billion tax cut every year could the irs does not know the current tax gap. every year legally owed an unpaid. that's about half the total budget that currently projected for 2015, turkey or for the commission to reduce the deficits. earth resources of the $345 billion tax count.

80% is from understated income for overstated deductions and credits. 10% per month by less than 10% for taxpayers who fail to pay their taxes on time. if we can put a man on the man and we can think about landing a master not on mars on the weekend collect more taxes owed. and we should not cut one dime of federal benefits of his onetime federal taxes until we've done everything we can to collect taxes that are already owed. collecting these taxes will reduce our deficit without raising taxes on anyone. the spending gap is the amount of fraud, waste and errors in federal funding and what there's a lot of that. we all know that. take medicaid rate is estimated at $25 billion of medicare provider payments are made in error every year. once again, $25 billion every year there are lots of ways to get added to give you the same kind of systems for the credit card reporting companies use to identify outlier payment for

things to reduce that fraud waste him at least 25 billion. my guess is probably higher. there's a task force working on reducing fraud medicare and the department task force. i think our commission should meet with that task orders. third is the productivity gap. that's the amount of technology and efficiency is come a successfully employed the private sector tobi petit is use in the federal government. white house has just announced the creation of the president's management board, jeffrey science is god the deputy director of the office of management. other members for the error code efficiencies that occur in the attack could occur in the public yours as well. but the also make two points about social security. worse, changes to social security will do little

two-minute deficit target for 2015. authority been stated by some of our panels. it's just the nature sensible social security changes that they play out over the very long periods of time. second, some people think it's easy to address social security, but cutting social security benefits are recent social security payroll taxes is far from the sea. and that's why the first thing that we should do about social security is just like the first thing we should do for the deficit generally. we should look at the $50 billion annual tax gap is social security payroll. at least $50 billion tax gap and payroll taxes. and so by closing the tax gap let's address the spending gap and work together to reduce the deficit and improve america's standard of living for years to come. you bet your mr. chairman, thank you to the two of you for hosting this.

i say we're actually pretty good start. i hope you can continue to check our egos at the door and i honestly believe if we portray an honest picture of our nation's economic diet, americans won't be afraid to eat their vegetables and nuts where we should go. to me the principal question i want to see answered as we explore the economic condition is what kind of nation do we want to be? because we can balance our budget, but if we sacrificed educating your children, china would overtake us a lot faster than most people expect. we could balance the budget, but if we did to the sake of making spurred expenditures for national defense, we may not be around very long to see the fruits of that balanced budget. and so i hope what we do is answer the question of what kind of nation do we want to be. last year general elect eric

over $10 billion in pretax income for the vid up owing nothing to uncle sam. and the fact $1.1 billion back in a tax rebate. that's what happens when we are out of whack fiscally and economically as a country. today, some $120,000 will be spent on capitol hill by 25 of the top banks in america come most of which benefited directly or indirectly by the t.a.r.p. back financial bailout that they will spend about $120,000 today lobbying most cases against wall street reform. they've done that for the last several days. in fact, in the first quarter of this year, they have been spending at that clip $120,000 a day lobbying. day lobbying. to put more than two and half times what the average salary is of an american working for a full

year. to me, rebuilding the middle class will be paramount in discussing all of what we do over the course of the next several months. the best thing we can do for our fiscal future for future generations is to rebuild the america's middle class between them is decent jobs in a business climate to support our families, being able to send our kids to college and i say that as they first met my family to have an opportunity to get a bachelors, homeowners sure dignity and a portable quality health care. i think there with me the first big step with the passage of historic health care reform. they too often greedy get the game will people get the pain and i believe that it's time for us to recognize that during the height or the deaths of this economic recession, the net worth of american households shop more than $16 trillion, far

more than what it's going to take us to balance the deficit and balance the death of this country as we see them. and so, i hope over asking ourselves is what does it take to restore the quality of life for the middle class and how do we rebuild that american middle class. and to me, the largest deficit we face is a jobs deficit. if you put american stewart, america will work. yet, in the last two above the last of the 1.2 million manufacturing jobs. if we have an efficient and productive government, i think we can take a lesson from what true weston said. he said it time politicians stopped running forward or against government and started running it well. if we ensure that it are people are getting their moneys worth, from every dollar we spend as a federal government, americans will be for dennis, whether it's because we dealt with all the tax expenditures, which by the

way added to about a trillion dollars every year in spending, those tax loopholes or whether it's dealing with direct spending through government programs. a couple of quick examples, the department of defense not long ago, in the early two thousands bought an aircraft refrigerator. they ended up being twice as much as they had expect it. instead of paying panther thousand $825 for the aircraft refrigerator, maybe $32,642. cost overruns, the general accountability office has told this has caused the department of defense and taxpayers over $296 billion. that's larger than the amount that we are trying to find to cover the deficit for the 2015 budget to since i conclude by saying this, i hope we take a look under every rock there is and i hope we do it for the american public because at the end of the day, this would help

the middle-class believe that they can send their kids to college, if we make them believe that we are destroying the integrity to government, will benefit from it and will be rewarded. but rather than running for or against our government, overprepared to help make it run well and so mr. chairman and looking forward to working with everyone here and i appreciate the opportunity to serve. >> thank you very much. >> thank you, chairman. we've heard from a number of people from the federal reserve chairman, former ceo directors i know we're going to hear from many more in the months ahead in a tortilla. as many have stated, the problem is obvious. we simply can't sustain the level of taxing and american thought and we know it and while tax revenues have dipped, spending has skyrocketed to 25% of the gross domestic product in its forecasted to remain well

above historic averages even after the economy recovers as you heard this morning. this has created a record deficit of over 1.4 trillion the debt now totals $12.9 trillion, nearly $42,000 for every man, woman and child in the nation. and these problems have been decades many kids they have become both parties watch proportionally come the situation for maybe even more difficult to overcome, as we heard from the cbo director is because the congressional budget office and the medicare actuary has just confirmed what most americans already believe and that is that the health care but does not reduce health care costs, and increases them. and in a similar fashion, we have not seen the jobs created that americans were promised by the stimulus bill, begetter debt invested even worse. so i say these things not to create it or to send debate, the deployment we have not one deficit to close, but to. a budget deficit and a public trust deficit and we cannot solve the first without

addressing the second. the question before the commission remains clear. who would listen to the american people, will work together to get back on track. with on the table decided good fan and i were going to make the tough choices need to restore our budget, to past levels of spending and revenue that are consistent with robust economic growth. a message and have to answer to each of these questions yes. and i pledge to my fellow commissioners in my constituents in the american people that are ready to listen in to help find solutions towards any problems. on the coast with just one final five. the only member on this commission from michigan and for the last for years my home status of the nation in a very -- actually the worst possible way, the highest unemployment in the country heard in my district alone its five counties dangerously close to 20% unemployment. so while we're here to address our nation's fiscal responsibilities, we must wait and a solution against our

current and future economic conditions that another president has set up a separate task force with paul bucher on tax policy and mr. volker has hinted that adding a value-added tax to assist them, but given the national unemployment rows to almost 10% in the precarious position of american families and employers is difficult to imagine them to pay on top of everything else and when they can least afford it what amounts to national sales tax or he may banqueting food, medicine, clothing, housing him a washington as part of it from the american taxpayer and future generations. it can to prove we can responsibly manage the people's money by getting spending under control are the problem before us is daunting and not one that lends itself to a quick fix but i look for to working with all of you to try to find it pro-job, progrowth solutions. >> thank you. first i thank you all for taking

on the for president for aiming this commission. i think this is the right approach and the one that has the best prospect for success. it's going to be extraordinarily challenging. i think we all understand that. but we've heard here today is we are on an unsustainable course. i don't know if anything could be more clear. we are headed very quickly for a debt that will be 100% of the gross domestic auto to the united states. on the current timeline, cbo tells us we are going to have a debt that will be 400% of the gross domestic product of the united states. we've never had a typed anything like that in the history of the united states and we know will never get there because those who are lending us money to float this but would never prevented. already the chinese have warned us publicly and privately that they have