formidable economic challenges, but our ability tdeal with those challenges will be determined by our ability to restore fiscal stability. we spent the last decade piling on debt to pay for expensive tax cuts, a large prescription drug benefit, and the two wars. on top of that legacy, we had to clean up the worst financial crisis since the great depression. we face unsustainable a future deficits caused by the dramac rise in the number of american civil turn 65 in the next decade. combined with the fact that we now live longer and the cost of medical treatment is so much more expensive. today, we have to find a way to return to living within our means. our fiscal problems are so pressing that they threaten to undermine the foundations of our future economic strength, our ability to protect our national security interest, and

our capacity to sustain the commitments made by 13 president over 75 years to provide economic security to support -- economic security to the core and the elderly. our total federal debt burden will be almost as large as the entire output of the american economy within the next decade. we do not have the option of leaving this problem to another day, another congress, or anothepresiden it is true that we were able to fund these deficits at very low interest rates. these rates are a reflection of confidence that we will act, not a justification for inaction. they are unusually low today because of the relative lack of all other investment alternatives in a world still recovering from crisis.

there is no way of knowing how long the financial markets will give the american political system to get ahead othis problem. it makes no sense for us to wait until the force action upon us. as we salt in the 20081 confidence turns, it can turn with the brutal force and with a momentum that is very difficult to arrest. this is a threats we should preempt. if we do not, the economic damage will be much greater. confidence is much more expensive to restore tt is to keep. it's really are dead problems unaddressed, thosehat lend us the resources will eventually demand higher interest rates. higher borrowing costs for american household and businesses will discourage future private investment.

a dollar we cannot spend on more productive investments, like education. for all these reasons, the choice we face is not whether to get our fiscal house in order, but how we do it. to provide some context, consider the following facts. in the uted states of america today, 40% of children born each year are covered by medicaid. if you were born today in hard- pressed communities, like detroit, st. louis, or baltimore, you are more likely to die before your first birthday than if you were born in the tree line up for belarus.

in education, we're losing ground. only about half the kids graduate from high school. over the next 25 years, the number of americans eligible for medicare will double. the number of working age americans will increase oy by about 10%, putting new burdens on working americans. we still live in a dangerous world wi a young men and women fighting and dying to protect our freedom. we spent $700 billion a year on national security and this is only about two-thirds of what we spent during the cold war. the effect of income tax rates for the wealthiest americans is at its lowest level in 60 years. the effect of tax rates before the bidder rich has declined

much further. now it is around about 21%. we have some say -- we have some tough choices to make. to put us on a path, we have to bring these deficits down, gradually and dramatically. we neeto cut our annual deficit to the point where the overall debt burden begins to fall as a share of the economy. this requires that we achieve and maintain what economists call primary surplus, which means that we cut what we spen on everything except interest payments to less than we raise in revenues. for the united states, this means a deficit below 3% of gdp. achieving this goal is the essential test of fiscal sustainability. we cannot do this too quickly, though. it haso be a multi-year

process. it does not put at risk and onomy coming out of crisis. with interest rates now very low, we cannot count on the federal reserve to be able to offset the contraction their effect on economic growth. if we put our deficit on a path to get them down below 3% of gdp, and we hold them there, which performs that politicians, but to sustain to leave in place, the federal debt held by the public will peak in the range of about 70 or 80% of gdp and then start to fall. the economic and political question is not whether, but how to achieve. the debate we now confronted is how to cut these deficits while strengthening our ability to grow and compete in the future, protecting our national security

interests, and preserving health care and retirement security for the elderly and those with disabilities. but we describe how the president proposes to do this. the president proposes to reduce spending across the government. the president has proposed cutting spending on government functions outside the national security, the social security, byore than one trillion dollars over the next 12 years. thes cuts would bring non security discretionary spending to its lowest levels since eisenhower. this will require savings in mandatory programs that have a lot of political support, like agricultural subsidies. on top of this, the president proposes to cut $400 billion in securities while making sure we preserve the essential capacity to meet our national security responsibilities.

the president is putting cut on government spending at the same time preserving the same -- to finance productive investments in things like education, infrastructure, clean energy, things that are critical. these investments in those areas, education, research and innovation, infrastructure, clean energy, they meet to keep tests. they have very high returns in terms of future economic growth and the private markets will not finance these investments at an adequate level without a catalyst of government. the president proposes to remake the corporate tax system so that it does a better job of promoting business investment in the united states. together, this list of reforms perplex the fundamental realities that the composition of spending cuts is

consequential to whether deficit reduction hurts or helps beeer economic growth. --elps future economic growth the president proposes substantial savings from medicare and medicaid. together, these programs are responsible for about one-fifth of our budget and because othe aging of the population, at the increase in life exptancy, they are the main source, the main drivers of our long-term deficit. for medicaid, the preside proposes at least $100 billion in savings over the next decade. he proposes for medicare, an additional $200 billion in savings over the next decade by harnessing the purchasing power of medicare to control spending. he would build on the fundamental reforms in the affordable care act.

requiring the independent payment advisory board to target cost growth and medicare to dp. a very tough standard for controlling cost growth. while social security is not the cause of our current deficit, the president said that republicans and democrats should come together to make cnges to the program now that will put it on a solid footing into the future. the president proposes changes to the individual tax cut that will reduce the deficit while moving toward a more fair and simple system. by restoring the tax rates on individuals earning more than to under $50,000 a year, to the level that prevailed during the clinton administration, returning the estate tax to 2009 rates and by scaling back tax expenditures, the plan would generate additional revenue without putting at risk future

incentives for economic growth. the reforms in must adopt have to be grounded in realistic assumptions about the path of future policies, the impact of legislation, and economic changes. neither congress the administration should be able to use on realistic assumptions about future growth or political corrector other forms of magical thinking to minimize the magnitude of the reforms that are necessary. these changes will be difficult, but in a balanced remarks like this, with the burden of adjustment shared broadly, and phased in over an appropriate period of time, the overall economic impact would manageable. to make this spring were credible, we need a mechanism that forces reform. the president has proposed that congress imposed on itself a debt cap that would lock in the necessary reductions and deficits over the next several

years. as a fail-safe, it would require all the cuts in spending if e targets are not met. this is very important. it is the fiscal policy equivalent of trying to take politics out of monetary policy. by making central banks independent with a mandate to keep inflation low. we need a debt cap so that politicians cannot choose to live with unsustainable deficits. it reduces the legitime area for political debate to how to achieve a sustainable fiscal position, not whether to achieve a sustainable fiscal position. you can tell from the debate in washington that there are big differences among republicans and democrats. the divisions are very substantial, most pronounced in three areas, how best to promote

economic growth, how to reform the tax code, and how to protect health care. given these differences,e believe the most realistic approach is to design a framework that force is necessary political agreements on reforms. to do this, we are trying to negotiate a multi-year plan mark of dead cats and targets with a substantial down payment -- cut of a dent caps and targets but substantial down payment. this down payment has to be substantial relative to the total amount of deficit reduction we need over the next decade. all of the fiscal plans on t table shows that there is broad agreement on the ultimate goal and timeframe. the components of the down payment have to touch all parts of the federal budget.

from defense to medicare and medicaid and they should be balanced by changes in revenue. it should include a mix of specific savings for mandatary programs and commitment to lower future discretiory spending. the more specific the reforms, the more believable and credible will be the framework. these sings would b complemented by an overall cap on future debt and deficits. a strong enforcement mechanism to force action that would deliver the remaining savings. at the beginning of 2013, and every year after that, we will assess the magnitude of additional deficit reduction requiring necessary to bring down the debts over the following fi years. congress would have roughly nine months to enact legislation

that would meet that target. if congress cannot agree, automatic cuts in spending would go into effect for the following year. but put us on a path to a meeting that fiscal target. the size would depend significantly on the future of the bush tax cuts. but they will expire at the end of 2012. the president has proposed to extend the tax cuts to benefit the middle class. aladdin is tax cuts to expir -- allowed in that tax cut to expire wld reduce the deficit by $1 trillion. taken together, our view is that this is a reasonable plan. it is a balance of short-term savings and long-term reforms that we do not just pushed all the tough decisions into the future.

it is an achievable plant and it needs -- and it meets the critical test. it is better than the alternatives. a few points on the alternative strategies. some have suggested that we set a global cap in spending as a share of the economy at a level that prevailed in the decade before the crisis. the dominant suggestion suggest the target of spending at either 20.6% of gdp or something ke 18%. these targets have obvious appeal, but they have no practical value. we cannot talk or reverse the aging of the population. as the baby boom generation retires, the number of americans turning 65 will increase dramatically as a result, it to cap spending at historical levels, he would be forced to

make exceptionally deep cuts in benefits to seniors and the poor. spending caps did not prode the government with a flexibility you need to respond to future national security threats or future recessions. spending caps would not be sufficient to achieve this goal sustainability. spending measures alone would enable future congresses and presidents to try to live with higher deficits by cutting tax rates. we spend as much in special tax preferences in the tax code as they collect in federal income tax revenue. the house republicans have proposed a plan that has deep spending devotion -- reductions,

devotes savings to keep tax rates low at exceptionally low levels for the wealthy, not just for the middle class. this approach will not pass the congress now or in the future. this alternative proposal would require deep cuts and benefits for the elderly and the poor. it will reduce government spending to what it was before the modern era. more typical of a developing nation. the fundamental reality of our fiscal situation is that we will need to generate more revenue and we will need to reduce the rate of growth in spending on health care and retirement security. both are necessary, and either alone can carry the full burden. the essential value in the house budget is to show that if you

try to deliver fiscal stability, witno contribution from tax reform, you have to make dramatic drastic cuts to these critical government functions. according to the congressional budget office, these cuts would by 2020 to raise costs for an average medicare beneficiary by $6,500 a year. it would eventually reduce the total amount the government spendsnterest in social security. americans can do better. at one to make it clear that it is t president's plan on this country as a condition for raising the debt limit. they will own the responsibility for the first default in american history. yes toy we reached the debt limit. we were forced to deploy a

series of extraordinary measures. they will give us until august 2 before we can no longer be able to meet our obligations securely. as i have said before, congress needs to meet its responsibility to place a. it relates only to commitments we had in the past. it is whether we should pay our passed bills. rather than designing schemes. they are designed to allow us to make interest payments by breaking our commitments to seniors and veterans. we should be working together to narrow our differences on how to solve the causes of our future deficits. i want to say that if the fiscal reement is not reached, the

debt limit must be increased. it is not an option for congress to obey the basic responsibilities to protect creditworthiness. our responsibility is to seize this moment. when they agree that deficits matter. living within our means is not an option but a necessity. putting this office no longer possible. our objective is to build a bipartisan consensus. this will help restore confidence that washington is up to the many challenges we face. it still helps give businesses and investors what they need. it'll help preserve a strong economic foundation necessary for protecting our national security and give us the room we need to invest in the future. thank you. i will be happy to take your questions.

[applause] >> you have outlined an ambitious and optimistic scenario. you have been able to craete ,-- create confidence in the financial situation and to perfect -- personally. this will have to be sold to a very difficult audience. are you going to be taking the lead in this effort? and i know this is something

that you have stepped out forcefully and as an individual. but it is not just the debt ceiling. it is the economic future. this is something he will be taking a lead in? >> it is central to my role. this is the president's conviction. he has but the vice-president of the united states in charge of negotiating the solution. he has been leading the negotiations. i think they are the most talented team of people. they were the central architects of the best president we had.

i will tell you why we are optimistic this was a massively complicated endeavor. this is not as hard as that. it feels politically more difficult. it is not nearly as hard as that. if you listen to what american people say, they are much more confident. they put it near t top. you see republicans and democrats to join and embrace this. this is the critical moment.

i'm confident about the economy. we need to get ahead of this. we want to take this opportunity to do it. >> are there any secretaries of the treasury stock we look to as models? that you admire for the job they do? quite so many of them. i will reayou a quote since you asked me. >> this is not stage. i promise. >> this is about the debt limit. i am going to read you to paribas. "i should stress that defaulting

on already outstanding, that'll hasotbligations greater effects when spending authority. such as when there is a delay in action. a failure to pay what is already do will cause serious harm to our credit. it is not remotely similar to a glassman authority to encourage new obligations. i cannot over emphasize the damage that would be dumb. it is unprecedented. market chaos in interest rates in the uncertainty would produce a global economic and financial

calamity. the chill generations have to pay dearly for the 200 year old trust. >> do you think the rhetoric is [unintelligible] isn't baloney? is it real? >> they made it clear that they will get this done. they will not take it too long. they will not play politics with

it. the real challenge is how to build a political consensus on the way to bring gravity. it is a moment. it is making progress. our expectation is that we can get something serious done. we have decade of the ideological divide. we have a lot of overlap and objectives. -- in objectives. >> do you intend to continue at least as long as president obama -- >> family server long-term fiscal problems? >> yes. -- can we serve our long-term fiscal problems? >> yes. we have a lot of challenges left. it has been a great privilege

for me to work with that group of people. >> is that yes or a maybe? >> that is an excellent and thoughtful question. am figuring out a lot of these days. >> do you expect that the legacy of timothy geithner and secretary of the treasury? >> we will be debating for a long amount of time. >> the reality of it will be that when you announced your plan right after you became secretary of treasury you were hammered by practically everyone. that tune has changed dratically. i think this is the way he presented it. >> i in the same person. >> i think that one of the questions has all along been is the obama administration able to make its case that is compelling but is not very

effectively made? >> can we do better with that? >> i'm not a political person. i did not spend my money -- i can make any simp problem sound complicated. i'm not the right person to ask that question too. >> i admire so much the legacy of walter. a huge part of making ecomic decisions is being able to explain why the options we proposed are better than the alternatives. my colleagues accuse me of saying that a plan to beat no plan.

-- a plan beats no plan. the hardest thing to do is explaiwhat the alternative does not work. it offers no promise and practice. the big challenge that i can say is to find a way to explain the choices we have to make so that people understand that you have to judge something by the alternative. what is clear is that it is easy to say to people that this is something we have to do. that is just the beginning. we have t invest in the difficulties. i think this is the challenge.

>> one thing they have been criticized for is by bill it too willing to compromise. do you have a sense of how far is too far? >> i tried to save this. i think there are things we cannot do. there things we will not sacrifice. " we cannot do -- what we cannot do is set up a dynamic. but we try to legislate a agenda. what is at stake is if you think

about the challenges we face. there is unacceptable damage. it is our capacity to invest in ouruture and invest in things to make it stronger. it is not possible to offer people the choice. it is not irresponsible alternative. we have to defend the necessary functions. we have to make sure we preserve that. that is why you need a more balaed by more. >> >> i like to invite those of you that are here to address a question to the secretary. i would ask if you wanted to do

that. identify yourself. >> hello. ank you very much. that is very interesting. you say you are not a political person. assuming a deal is reached on midnight august 1, give me a copy. >> if you leave people with any doubt, and we have to act in a way that protect them from the possibility that we do not act. that has the same basic dynamics. you cannot wait until then. >> what would you predicted the deal will look like? >> it to have a basic framework

that locks in a declining one. it is across the core government. it is a trigger. >> the bill one to lead to much of the plan on the target. >> given the short term, they are talking of detailed spending. we are going through.

>> i think they are pretty realistic. not all of them are realistic. at think the leadership is realistic. >> identify yourself. >> she supported your plan is part of the revenue. >> i did not say i was optimistic. he pretends he used the revenue, then you are forced to live with cuts that are completely unacceptable. that is why you are not

optimistic. it is going to have to,. >> you did s that the republican leadership shows this. we will get this done. >> he was here recently. he made no bones about it. he said new revenue is up the table. how're you going to deal with it? >> it is a challenge. it is better for business confidence. it is better for them to know the precise shape. it would give them a plan to adjust. we cannot do for resolution without a comprehensive approach. we are going to be able to do less of from. what you have to do is lock in as much as you can. you have to leave open where

they are goi to come from. they will come from a mix of defense cuts. the mix of that is that cannot be resolved right now. it has to be forced by careful design of a trigger. i think that is the realistic framework. you cannot put the ball on process limits. it h to the things that people can feel and see for it to be believable and credible. that is the difficult balance. you are going to need it. >> how concerned are you about the leadership with e imf? do you know him personally? whether your thoughts?

>> she is not in the position to run it. >> they were formally put in place. a very capables person. >> you know him personally? >> i think it is important. there is a lot going on in the world. >> there have been other policy attempts to try to impose some kind of trigger? i would argue that the debt ceiling is one such tight policy. >> it has never proved a

valuable device? >> you are right to say they do not substitute political will. they undermined them in the past. in play here is a valuable role. just look at the pay-as-you-go rules. look at what happened when they were abandoned. if you do not have the money, and you have to find ways to spend more. you cannot cut taxes without finding a way to raise more revenue. it is a perfectly feasible discipline.

>> it seems like there have been other attempts to tie themselves to the mess paren >> politicians always seemingly find a way to either and do it for -- >> that is the rest. >> thereby a bunch of temporary factors. they are very high. it is different. there is more recognition across the political spectrum. you cannot pull all the burden on their parents he had to do as much up front to make it believable.

we are forced to figure out how it to stillrace th allow was to restore it to the fiscal position. that is why we are debating this. they can help constrain the loss of a virtue. >> hello. if the debt ceiling is not raised by august 2, what is the immediate consequence? >> i cannot prove on that.

i've written carefully about what i think would be the likely consequences. we are not going to experiment with it. we are not going to take that risk. you have to be kidding. coming out of this crisis? not a chance. >> bloomberg radio. nice to see you again. regarding corporate tax reform, what is going to be the basic driver for us? i have been speaking to someone at a big oil company. he is talking about energy policy. >> the central russian now should be to lower the rate.

they make it possible by dialing-introducing a range of tax expenditures that litters the corporate tax code. that is the sensible thing to do. it'll change the tax rates. it is the essential thing to do. why should we want to live with a tax code where every year people do not know what is good to be the tax preference for certain activities? why you want to live with a tax code that determines a key part of the economic steer business? it makes no sense? we argue that this is worth trying to do. we make it difficult to do. we do not like we e going to do. it is the sensible thing to do.

we are going to be divided on some big political issues. we want to find things that they can do together that are not inherently partisan. we have to find ways that we can do that. this is one of them. >> is anything they have like a flat tax? >> i do not think so. >> >> i have questions on corporate tax reform. are you going to se out an agreement on corporate tax reform as part of the platform? >> not in this next two months. weird when she tried to get this process moving. realistically, -- we are going

to try to get this process moving. realistically, i think this is going to dominate for the next couple of months we get through it. we have been doing a lot of work on how to figure out a sensible design. we would like to move forward. >> i think we would like to take a run at doing this. that means we have to start. we also need to get this fiscal stephanie better trajectory. -- fiscal stuff in a better trajectory. >> i want to talk about the administration. i get asked about this. i have no answer. during the primary season, barack obama took a lot of people from hillary clinton for saying that he admired the way ronald reagan managed to change the discourse. i think this was unfair.

yet, he has not really tried to do that. he is not try to move the yard line down the field so that the debate on economics would be conducted on democratic grounds. he has left itself vulnerable to republicans and conservative arguments. this is what he came into. i am wondering if there is a decision not to use the pulpit to try to move the discussion. >> i think i'm the wrong person to ask the question. >> you know where i am. i'm not a politician. >> if you look at what the president accomplish, there is in a normal political cross. in makes the most dramatic

changes, they care about. it has been attempted and achieved by the time. >> i am driven not by what he astride to achieve -- she has tried to achieve but the magnitude of the reforms. just remember how the spiels. -- this feels. everything was at risk. he did not sit there and say let's have a debate about what to be interesting to do. there has some political cover. he chose to do the tough things.

he betrayed enormous political coverage compared to one of his predecessors. that was the necessarynd decisive thing to do. there is no progress of cause that would have been possible without the progress he has bn putting out. we can have some capacity support things that democrats care about. i'm not giving him a political question. >> i know we discuss historical perspectives. since you live in the far east, i wanted to know if you have any models for adoption. if so, which ones?

>> the cannot win elections on the claims that it could have been worse. it is very hard for most people to understand how perilous the moment was. even with the history of the great depression, that was incredible reality in that moment. even harder is why growth cannot be faster now. why does it look like we will be growing? that is because of course that this is a crisis born bill we are living beyond our means. people have taken on much more debt than they could then they can live.

it takes people time to bring down this and bring down the balance sheet and work off the investment. this confines year along with the limits. it is a tragic fate. this confines you to a slow rate of growth. the disappointment people have today is just a tragic consequence about what caused this basic crisis. it'll take years for us to work through this. i still believe that the basic strategy we embrace will be

judged as the most affected financial strategy in modern history. it compares favorable to any experience by developed or developing necountry. look at europe today relative to us and the consequences of developing and adopting a dramatically changing strategy. at the peak of this and ensure rescue, we had 2.8 trillion dollars of investment at risk in the system. we are likely to be well under $100 billion, a fraction of the gdp and a fraction the cost. we are bringing private capital in as quickly as we could.

recapitalize it much more aggressively and quickly. we do much more brutal restructuring. it is stronger than you have seen in many other economies. there e previous recoveries that were quicker. these are recoveries with a different kind of crisis. we do not have the option of trying to engineer something dramatically stronger than that basic path. tt is a tragic consequence. >> this is behind. >> my question is about dodd/frank and if it will actually be implemented and how much crumbling is going on.

>> we like to say that there a people even in this city who are working hard to slow it down and reduced the scope and power. the only tools they have are to start funding. if they choose to do that comment taking a slow things down a little bit. we are at the early stages of writing the rules in laying them out for comment. we have a long way to do. the core part of the reform will survive these efforts. i think people will not put up with a system that is this vulnerable.

>> there are bad public opinions about this. >> that cannot speak to those things specifically. we have a long way to go to earn back the basic confidence of the american's parent it requires a sustained response. i think we should have a lot of confidence in the basic confidence of our capacity. there are going to want to see the reforms take hold. it will provide better transparency for consumers. i think this is something that will come with time. it'll take time for them to judge.

>> we are seeing the instance where the dollar is rising. >> i am very careful not to comment on the markets beyond our caref standard phrase. that is a good practice. we want to remind people that this is an important thing we want to preserve and protect. at the worst moments of the crisis, and people started to get worried, we saw peacepeople want money for this. we need to reserve it.

it has the capacity to act. we want to acto bring back confidence over time. >> thank you v [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] [general chatter]

>> this morning on capitol hill, the senate will work on domestic oil drilling legislation. they will have a cloture or test vote at about 2:30 eastern to try to move the measure forward. the senate dabbles in at 10:00 eastern on c-span 2. the senate commerce subcommittee on science and space is holding a hearing this morning to discuss the nasa space program. we would hear from industry officials and from former nasa astronauts, frank culbertson. that is on c-span 3 at 10:30 eastern. >> we provide coverage of politics, public affairs and american history.

it is all available on television, radio, online, and on social media networking sites. find our content any time on our cspan video library. we also take cspan on the road, bringing our resources to your community. it is washington your way, the cspan networks available in more than 100 million homes, provided by cable and provided as a public service. "washington journal" is next. some spending hearings to tell you about today. this morning army secretary john mikki testifies about the army budget request for next year. this afternoon, energy secretary stephen she will be on capitol hill talking about his department's budget priorities for 2012. watch live coverage here on c- span. coming up in 45 minutes, we'll talk about the national rifle asat