g.d. growth, -- gdp growth, but the recovery is so uneven, but almost no americans feel that. there is a small upper-echelon of wealthy americans who of recouped their wealth, and are spending, but the rest of america is still struggling to recruit many losses. host: martin feldstein who was a former harvard professor is on the board of the wall street journal editorial board. let me read to you part of what he says in his conclusion this morning in "the wall street journal." host: can elaborate on that point? guest: i agree. he is not necessarily say not

raising tax revenues. he says we need certainty out of washington, a long-term plan. this is something ben bernanke and many economists are unified on. if we need a long-term, deficit reduction plan that convinces financial markets will bring our fiscal house in order, which means dealing with promises for the bulk of america. on the other side, we need to deal with the cumbersome tax code we have. it is ridiculous we have such high marginal rates in both the corporate and personal arena, yet we have all of these loopholes that distort behavior. we can lower those rates and get rid of those deductions, which are actually tax expenditures. we are paying for that. why are we subsidizing million dollar-plus mortgages at this stage? if we could eliminate that.

it is controversial. i think it is important to be thinking about cleaning up the tax code, along with cleaning up our long-term fiscal plan, so we can be any more steady growth plan going forward. host: the president ways in with this headline -- "obama stands combat."onomic compact picku also, in a statement yesterday, with the german chancellor of angela merkel, he says he is not worried about a double-dip recession, but the pace of the recovery. >> i am not concerned about a double-dip recession -- i am concerned that the recovery we are on is not producing jobs as quickly as i wanted to happen.

prior to this month, we had seen three months of very robust job growth in the private sector. we were encouraged by that. this month, you still saw job growth in the private sector, but it's slowed down. we do not know if this is a one- month episode or a longer trend. host: diane swonk, how would you respond to those comments? guest: i am also not worried about a double-dip recession, but the fact we're talking about any probability of it two years into an expansion underscores the fragility of their retirement. ben bernanke points this out -- all long-term unemployment rate actually increased. we have 99 weeks running out on a point be sure -- insurance. many states are rolling back the eligibility for welfare and the length of time people can be on welfare. that means the safety nets are

disappearing. usually, we have a robust recovery, and it does not matter. we have an economy that is not generating jobs very rapidly, and not able to reemployed those people. to a million and struck -- construction workers lost their jobs. they have not been able to regain their jobs because there is not any housing market activity. those workers, the longer they stay out of the labor market, the harder it is for them to regain employment. this is something we were about as structural unemployment, with repeats of what europe went through in the 1980's and 1990's. we do not want to go down that path. we'll not get in the pace of enough to recoup the jobs lost during the -- we have not been able to get the pace up enough to recoup the jobs lost during the recession.

host: will get to your comments in a moment. our phone lines are open. let me go to the headline from "the financial times." the story points out that the fed might launch a third round of quantitative easing, known as qe 3. can you explain what that is about? guest: the fed has always held, going into the process of qe two, buying more treasury bonds, helping -- hoping that would stabilize conditions after we saw the economy lose ground again last summer. by the fall of last year, it looks like it needed an extra lift, said they engaged in this large scale purchase program of treasury bonds. that comes to a end in june. the fed has also said if they

sheet steady,dget that matters. the threat of doing additional purchases and unwinding that later, causing inflation, are too great giving the marginal -- given the marginal benefits of doing it today. anything short of another financial panic, their impact on the market is very limited. many question the efficacy of what they did originally of buying treasury bonds to expand their balance sheet. their balance sheet. they have almost $2.8 trillion on their balance sheet by the end of june. we're not going away anytime soon, but it is interesting that financial markets are saying we do not believe in qe two, but we want you to do it again. the fed keeps saying we cannot

come into a market blip, and they have to believe some of these things are transitory. they clearly are. the u.s. is suffering from the earthquake in japan. half of 1 million in vehicle production was lost due to interruptions from the japanese earthquake in north america in the second quarter. we will recoup that as the years goes on -- year goes on, but until we do that, we will have tight inventories. host: to you have a recommendation? with another round of qe 3 help the economy? guest: i think the marginal costs are too great at this stage. i do not think they have much they can do. the best thing the government can do is deal with the uncertainty issue. have some certainty about what our tax laws will be, what will be going forward the next 10 to

15 years with austerity measures. we need certainty in those areas to move forward. uncertainty is our enemy. that is what is holding a lot of these companies with tremendous these companies with tremendous cash on their balance sheet, which has not existed before. if we could put that certainty on clever off little bit. it's tough but me ask if there is certainty from your standpoint -- host: let me ask if there is certainty from your standpoint. overall, what do you see? guest: we are looking for the economy to reach accelerate, but not enough. where talking about a very uneven recovery, -- we are talking a body very uneven recovery with a 3.5% average in the second half of the year if we are lucky. so we have a lot of factors pushing growth into the second half as we recoups production

from its japan. if the consumer will continue to model, along. while prices have come off of the peak, but i do not expect them to add much to consumer budgets. when the shining lights out there has been what some are concerned as a tech model, the ipo's we have seen recently in the social networking steer. those have increased dramatically, and that is one of the greatest sources of new employment gains. the head winds, of course, our government -- the federal government will subtract from growth as the stimulus is abating. secondarily, we see transfers to states have disappeared, and headwinds from cuts to state and local governments will be strong in the second half of the year. in the second half of the year. in the month of may alone, 28,000 were costs, mostly teachers getting pink slips.

host: diane swonk joins us from chicago. she is a graduate of the university of michigan, and also the university of chicago. she worked at first chicago and is also the author of all, the passionate economist -- "the passionate economist." she is now at the mesirow financial firm in chicago. hiring joins us from a play that, maryland. -- irene joins us from la plata, maryland. caller: let me remind the young lady that of the eight years that george bush was in office, he did not create s many jobs as president obama created in two years -- he did not create as many jobs as president obama created in two years.

let's address that, as well with with someonetation with such a far the deal -- far right to view. host: we invite a broad range. we appreciate that. we will give the guest had a chance to respond. guest: i've never been accused of having a far right point of view. however. i do not like to get into the political side of things. i have been an adviser to several administrations, regardless of their political stripes. i do not intermix my politics and economics. i will correct her on that. i am not far right by any hint of the imagination, but that said, the bush administration had the second jobless recovery.

we had the mildest recession hit in 2001, and coming out of that, it as 23 months to recoup the jobs lost. i think that is important because that was the second time we had dealt with a jobless recovery. the first time was in 1992, which was so mild, the jobless recovery was even longer -- i'm sorry, in the blunt -- bush administration, it was 28 months. when the first bush was in office, we have a hard time coming out of it, and it was the first time we had an incumbent president death could not get reelected because we had growth, by not enough growth. now, we have a jobless recovery off of the worst recession in anyone's recent memory, the worst since the great depression, and it is likely to be of much worse given what we

have, of at the beginning of this decade. the real issue here, and i do not think this is right wing at all, is the ranks of how many people are still unemployed, and now falling off of the ranks of unemployment insurance. the conservative side would like to say that would force them to work, but in fact we have already seen older workers replacing younger workers. the highest unemployment rate is among 16-19 euros. among 16-19 euros. if the minimum wages -- 16-19- year-olds. the minimum wage is so high, they are electing to get more experienced workers. we do not have the safety nets for these people, the basic safety nets. you will see a lot more misery out there as the recovery

struggles to generate jobs, and that is something that is very, very difficult to deal with. in some cases, the thing that is just not true about this recovery -- many people argue the extension of unemployment benefits for people to be unemployed longer. that is been true in previous situations, but in this the titular 1 much of the research suggests that as -- particular one, much of the research suggests that is not the case at all. he is not the lack of want, but the lack of opportunity. host: brian joins us, portland, maine, thank you for your call. i have enjoyed what you head to say. i think a lot of the problems will be around the structural employment perhaps i have a master's degree. -- employment.

i'm master's degree. i think the problem is relying on the private sector to hire a long-term unemployed. i do not think it is realistic. if you go to a corporation, and you have a gap in your resume, it does not happen. on top of that, i noticed the federal government gives a lot of preference points to the military, or veteran, or whatever case. they have a lot of preference points, but there is none for the unemployed. that might be a preference they might want to look into if they are serious about reducing unemployment numbers. host: how long have you been out of work? caller: about two years i had a temporary work for about six months, but that temporary work did not match what the , which isnt was about to under $50 a week.

guest: i wish i could say the government sector could step in, and we could tie it up in a lovely doll. if there was a silver bullet, it would have been shot. you have to understand that the federal government will be downsizing, so they will not be a source of an plan generation. as the current -- on in pointed jet -- employment generation. as a previous caller pointed out, we did not generate many jobs in the previous eight years, and most were generated by the public sector, and the health-care industry. we have the extra jobs in construction and real-estate, so you did not of the diversity of job generation that you would want going forward because we need the private sector to pick up the baton. it is one of the reasons they haven't been stumbling on a little bit. if it is really -- de has been

stumbling all little bit. it really is structural. i feel badly for your viewer. as much as i got called a young lady, i went around all lot longer than she probably thinks, and growing up in detroit in the 1970's, and trying to get a job, i tried with 30 different applications in the summer of 1981 to get a job between my freshman and sophomore year at the university of michigan, and my father had gotten me a cushy job at general motors and i turned him down pat i thought i needed to prove myself. the best job -- turned him down carry i thought unused to prove myself. the best job i could get was a fast-food chain. it took me 30 applications and a week of looking continuously. i was relentless. i had 25% unemployment rate. i understand the misery that

comes with it. he really is difficult. on the other side, the government does not have the capacity to be the savior that we would like it to be, nor can it be effected. the private sector has potential there, and even in real estate we are seeing relief in to the renter area. there will be a whole new niche in terms of people being absentee landlords for people that want to move but cannot afford to sell their home. i think there will be some opportunities opening up. host: let me share with you where politics and finances merge. this is the editorial from "the financial times."

guest: this is something that really is personally and annoying to me because we would mix the fed up in these politics. the man is a noble laureate in economics. the head of the banking committee had the audacity to say he was not qualified to do say he was not qualified to do the job, given the -- his specialties are doing these very issues. it is leaving the staff -- the fed short-staffed because of the political gamesmanship on both sides of the aisle. it happened during the bush administration, and it happened during the obama administration. both sides are equally guilty on this. it is ridiculous when the fed is planning such a critical role in

stabilizing financial markets. why are asking them to be the lender of last resort, -- we are asking them to be the lender of last resort, and we are asking them to fill roles they never expected to play in the global and u.s. economy, and to not staffed them appropriately is reprehensible. if i do not understand the politics on both sides of the aisle that you would hold up such important appointments of people that were very qualified. under the bush administration, a good friend of mine from the university of chicago had to leave because he could not get reappointed. peter diamond, very influential, is ridiculous they would hold no no no appoint qualified people. -- hold that up, and not appoint qualified people. host: again, this is from "the financial times terror we are

talking to diane swonk, the senior find -- times turco we're talking to diane swonk. james joins us from new jersey spre. caller: there is a simple way to solve the deficit problem. [unintelligible] contact with my governor as well. if everybody to heads a group -- who has a green. , working papers, a social , working papers, a social security card, had paid state and federal taxes, we would be -- somewhere fromrefrom 2.8 trillion dollars.

everybody who has a job must pay into the system. what you think about that idea? gee, i am unsure about your numbers. i was an adviser -- guest: i am not sure about your numbers. if you are working legally, your pain taxes. every time you buy anything you're paying taxes. i do believe that some of the biggest issues on the deficit are the elephant in the room we are not dealing with, and that as entitlements spending, social security -- it blew my mind that the bipartisan committee came up and said in december, 2010, we would like to raise retirement age on 28-year-olds to 68 in 40 years, and give them 40 years to save more. by the way, those 28-year-olds will probably live to over 100,

and that was considered outrageous. nobody took account that we were allowing ample time and we all live longer. i think the deficit has much bigger issues in terms of entitlement spending. we have the entitlement spending rising because of the baby boom aging, and health-care costs. those are the major factors, and we have not committed revenues. if you could cut entitlement spending by 20% or 30% and not to deal with revenue problems. i do not think most americans would be happy with that. the larger issue about how we do our taxes -- the corporate tax code is very poorly-designed. to have more incentive for people to book profits in the u.s. rather than abroad, and hire people at home, those are things that are much more constructive.

there really are no when-offs when you look at the deficit. it will take a common ground and for us to roll up our sleeves and figure out where we agree. with a sound bite solution, i did not think we will get there, and those numbers deny or the next 20 to 50 years -- those numbers do not add up when you look at the next 20 to 15 years prepari. host: mabel. caller: does diane swonk think we need to revisit everify? every jobs they are doing jobs

-- they are doing things that we could do as americans. i do not understand why we are not looking to verify. guest: my own view on emigration is that this is a melting pot. many of those jobs, if they're not getting paid when americans are paid, and doing jobs what americans will not do, which it is in many in cases the case, that is not a relevant argument. on the flip side, what annoys me the most, and it is very difficult for an economist to except his we are such an incredible agitator at the higher -- except is we are such an incredible agitator, and we have a shortage of a supply of engineers and scientists. when they get educated here, we do not let them stay here. i want them to pay taxes here, in debate here, and keep america

on the cutting edge of innovation and technology. if the fact we have made it so difficult for that to happen, particularly since 9/11, an event i was in the world trade center for, i find that a real attachment to the long-term stability of the u.s. economy. stability of the u.s. economy. to blame immigrants for taking the jobs -- actually, many immigrants are going home. also, many are getting educated here and going back to their former countries because they do not feel they have an opportunity. the number of legal applications have fallen. to not have those people here starting new businesses and hiring the people we want and being part of this more dynamic economy, i think that is really outrageous. believe me, when you are talking about the few construction jobs that are being done right now, if they're being done by illegals, they're not been done

with the government reinvestment act. i think we assume a major shift in that. in chicago, we have seen a lot of people now longer able to send money back to mexico, and many people return and fear they cannot come back. host: were specifically where you on september 11? guest: i was in the world trade center. host: diane swonk joins us from chicago, the senior economist from mesirow financial. chopped joins us from fort collins, colorado. caller: i have a question. i look at paul ryan's policies, and it seems like by cutting spending and what they're really saying is they will cut federal jobs. they will go away. i was taught about the economic base multiplier. it is worth about the $70 --

about $1.70. it seems that cutting government spending, which will lay off teachers and firefighters is so counterproductive for the recovery. it seems like the keynesian policies of stimulating the economy, even qe 3, or whatever, would give that injection and the people of perception that it is coming back and we could move forward. the businesses will free up the money, and the banks are sitting on $3 trillion, and start spending some of that money and stimulating the economy. it seems cutting jobs, cutting back, it is counter-productive. thank you. host: thank you for the call. guest: certainly, ben bernanke_ the same sentiment yesterday --

we need long-term deficit reduction. paul ryan has unveiled points, although when he did his multipliers, there is a lot of criticism about what he actually forecast. my own view is depth we need to take both party -- my own view is that we need to take both parties and the the long-term reduction and not play around with the debt ceiling issue. would you call your mortgage company and say i may or may not pay my mortgage in august, but how do you feel about giving me a home equity line of credit? he did not play around with the solvency of the u.s. government. -- you do not play around with the solvency of the u.s. government. i think we face enough headwinds says there is. you do not want to add insult to injury. we can get on a longer-term stability program. there will be cuts and changes to the tax code.

that is a fact of life. the sooner we deal with that, the less harsh pain we have to deal with up front. that is something ben bernanke was stressing yesterday saying qe 3, the tools we have conscious really are not effective anymore. he would like to see more of a keynesian side. that said, we are limited. at the moment we are benefiting because we look better than europe, and there as they fled to safety keeping interest rates down in the west. that is helping us today, but you think that we will never have to pay a premium for our debt because we are fiscally responsible is not realistic. we already had to pay that premium in the 1980's and 1990's. there was no extra risk premium because there was a concern about what we would be able to service our debt going forward. if we need to get away from the debt ceiling argument, which i

think is unproductive, and get more into the issue of what our long-term reduction plan is. the sooner we come up with a plan that can be phased in to not heard so much upfront, the better off we will be. host: let me follow up on a point from susan. what is mr. diamond's first name. he won a nobel peace prize. he won for his expertise in economics. ronald joins us. atlanta. good morning. caller: i think the unemployment rate can be solved by howard stern. host: will go to jeanne, in waldorf, maryland. caller: there is such a big deal made about the $14.83 trillion

debt. what is never discussed is the over-the-, or derivative market, which is largely not regulated, and the fact that when the crisis had us, there were two auditors at the sec, and the auditors at the sec, and the republican penchant for a be regulation and the auditors. if you cut staffing positions in the irs, and staffing positions , medicare, medicaid, the private companies on the stock exchange do have those auditors, you are putting the government at a disadvantage. host: will get a response. guest: actually, the terror of this market has been a key

focus. it can't reach the derivatives market has been a key focus. -- in the derivatives market has been a key focus. many are worried that the rules will be onerous. warren buffett was reduced to the market as weapons of mass destruction, particularly with the insurance issues aig got into. that said, he backed off because he realized his own companies were using derivatives to hedge important positions, and many industrial companies used it in an effective way. it was the financial services industry that got into dysfunctional you spread their trying to make that market more transparent -- dysfunctional used. they are trying to make that market more transparent. yesterday, i did not know how many people were watching, but jamie dimon questioned ben bernanke, and kick off a list of all of the things that are gone now because of regulation, and

there is no question that deregulation played a role, at one point in time regulation was too strong. it started during the ford administration. it. on an accelerated through the carter administration, -- it went on for the carter administration, and then we side pickup and get a boost in the clinton years. >> all of today's "washington journal" is available at c- span.org. the ticket to the white house for the briefing with jay carney. >> are like to begin with a readout of the video teleconference with president karzai of afghanistan. president obama spoke with

president karzai this morning for approximately one hour, discussing a number of topics, see including the impact of the death of osama bin laden on the fight against terrorism and regional dynamics, shared commitment to afghan reconciliation, hindering u.s.- afghan strategic partnerships, and security. the president expressed sorrow over tragic civilian casualties. both leaders noticed -- noted that the taliban are responsible for the great majority of civilian losses, and believe that every loss of civilian life is a tragedy and undermines our mission of protecting the population. they agreed to maintain close consultations going forward. i will take your questions. >> just to follow up, and discussions on the drawdown? >> if the two presidents discussed the process of

transition to afghan leader. they agreed to continue consultations. president obama will be in close touch with president karzai as we finalize the pace and scope of the reduction of u.s. troops. there was not a discussion of specific numbers. as you know, and remains the case, the president has not made a decision yet about the pace and scope. he will have discussions with his team about that matter and will make that decision soon, as he said the other day. >> if i could ask a couple of questions about libya -- there seems to be a drop in momentum for the john kerry, and john mccain resolution. given all of that, can the administration still say you are providing all of the answers congress is looking for on the

libya campaign? >> yes. i can say the president takes very seriously what he sees as his obligation to consult regularly with congress -- broadway, and with care program members of the appropriate committees, on matters like his policy in libya. those consultations have been extensive and constant. in fact, i want over the list of the engagements this administration has had -- i went over the list of engagements this administration has had with this congress, and did numbers 40 engagements of different types. we will continue those consultations. with regards to the resolution that the speaker of the house offered, we will answer the questions in that resolution in the spirit we have answered questions that members have had in the past, consistent with

that path. >> will you do it in the way the house has asked for, in a written, detailed report? >> i do not have a format, but we will endeavor to answers the questions -- to answer the questions. >> de think the core proposal is unnecessary? >> if it is similar to or precisely the same, our reaction to it would be the same. we have said from the beginning that we would support and appreciate expressions of support by congress for the mission. i think the goal that the president shares -- the goals that the president has, rather, with regards to libya, are widely-shared by members of congress, both parties, in both houses. that is to allow the libyan people to choose their own future. with regard to the nato mission to protect civilians, enforce a no-fly zone, and that arms and

cargo. >> -- embargo. john mccain called for anthony wiener to resign. what is the white house's position? >> we have no comment. >> i want to ask about the opec .eeting today to r have the u.s. and putting pressure on any members for an increase? >> the present, as you know, is very concerned -- the president, as in all, is very concerned about high energy prices, in particular at the gas pump. americans are struggling to make ends meet, and when prices go up at the pump, it effects everything they do it because of their reliance on cars and transportation, to and from work, and other places. you have heard him talk about this a lot. this is an issue that is very

much on his mind. he has taken a number of steps with regard to that, including directing the attorney general to create a task force to look at potential cases of fraud and manipulation of the markets that could have a negative impact on consumers. he is looking at a lot of options. sari, backing up your middle question -- -- sorry, backing up your middle question -- this administration has been in regular contact with the iea and oil-producing countries, and we believe we're in a situation where supply is not meeting demand for a variety of reasons, including disruption caused by the situation in libya, which has removed 1.5 million barrels a day from the market. we have had those conversations within that context. as for the strategic petroleum

reserve, the president considered that an option. he has not made a decision about that, but, as you know, the reserve is designed to deal with disruptions in oil supplies, and the president considers that an option going forward. >> on syria, looking for the white house's reaction to the military assault -- how was that compare -- how does that compare to the early days in libya? >> well, each country, of course, is different, so i would hesitate before making direct comparisons between libya and any other country experiencing unrest. we have condemned the syrian government's arrest of its own people.

we stand by the syrian people, who have shown tremendous courage in demanding dignity and a transition to democracy. president massad now has a choice. he can lead the transition, or he can get out of the way. >> high of two questions first of all, -- i have to a legal questions. -- two questions. the mckinsey report, noting the health care law will increase medical costs, noting in their survey that a significant percentage will definitely or probably drop coverage or pursue alternatives to employer-based insurance. i'm wondering what the white house responses? >> we saw that report, and i could say that is starkly at odds with the experts from the congressional budget office, the rand corp., the urban institute,

and with history. history has shown the reform has motivated in addition, such as the reform in massachusetts. the number of individuals in massachusetts has increased. we are confident the affordable care effort will strengthen our existing -- existing employer- based system going forward. we disagree with those conclusions. [laughter] >> let me continue with jake. >> de take issue that the requirements of the law will increase costs for companies? >> we believe it will reduce costs overall. it is one of the reasons the president pursued insurance

reform because he wanted to address the burden the cost of replacing the individuals and businesses. yes, we disagree with the conclusions of the report. >> is at a profit for president obama to -- is it appropriate for president obama honor the country? holdingu know, they're the rotating presidency of the u.n. security council. moreover, they have voted in ways we consider helpful in the ivory coast, libya, and iran. we think it is a profit for the president to meet with the

leader, and, we are concerned about human rights issues, and the president has made a number of reforms in his country. that country is increasingly playing a more important role as a regional and global leader on such issues as the ones i mentioned -- libya, the ivory coast, and iran. we think it is definitely worthwhile. >> there are a lot of people that looked at the president as seriously corrupt, and he will be able to use this visit at the white house with president obama as a way to build up popular support. >> look, i think the president of the united states is meeting as he does with other heads of states who have less than sterling records. first of all, the president of the bonn is making reform efforts. it has been an important partner

to some of the issues that are important to u.s. security issues regarding the ivory coast, libya, and other issues. it is very important for the presence to have this meeting for that reason. >> what is the president's reaction to this report from the said former -- committee democrats about inefficiency in afghanistan, and the threat of a severe economic depression? >> we welcome the report, even though we do not endorse all of the conclusions. it is important to note afghanistan has made significant progress, and the presumption that our assistance has contributed little, and that afghanistan has made no progress, it is simply wrong, and we disagree with that. as president obama noted earlier this week, we have broken the taliban's momentum. we are train afghan forces,

which the goal -- train afghan forces with the goal of turning over security lead to the .fghan forces - civilian assistance is important, but represents a small portion of the overall cost of our mission in afghanistan. it is an essential component of our strategy in afghanistan, and remember, if the goal is to transition more and more responsibility to the afghans, and the afghan security forces, it is important that the civilian assistance part of this be effected so that it builds capacity and allows us to do just that. on sustainability, we agree that is an issue, which is why so many of our efforts are focused on building institutions so that afghans can sustain the progress that has been made over these last several years. >> the president is concerned

there could be major economic repercussions? >> the president is very clear- eyed about the country, the challenges it faces, and that is why the assistance we provide is improving the chances that afghanistan can sustain itself as we begin to draw down our forces and transition the lead to afghan security. >> if the white house does not see eye-to-eye with all the findings of the report, which finances the disagreement on? the inefficiency? >> while we obviously agree with aspects of it, some of the challenges that afghanistan faces, we do not believe it is an assessment of the overall process that is the same as ours, or of the sustainability is the same as ours.

we welcome the report, we read with interest, and we are constantly adjusting at a tactical level how we engage in afghanistan in our civilian assistance programs, as well as our military programs, to maximize our success. >> what do these points mean as the president considers a drawdown? >> it is not news to anybody in this room, washington, or not to the president, that afghanistan faces economic and political challenges. we are aware of that. that was something the president focused a great deal on at the beginning of his presidency and the review of all policy in the region. >> in the conference call, did the president tell president karzai that the united states will continue to engage in

predator strikes? well, mark, i will not go into greater detail about their conversation. it was a good one for an hour and that covered a lot of topics. as i mentioned, the president spoke with, and expressed his shared concern about civilian casualties. but, as i have said in the past, and certainly others from the pentagon has said, our mission in the region -- our number one goal is to disrupt, dismantle, and ultimately defeat al-qaida. >> are you able to save president karzai asked the president not to stop all of the predator strikes? >> i am not able to characterize the conversation further. >> on libya, senator dick lugar in an op-ed piece of couple of days ago said consultations are

not enough. he said the president needs to ask congress to specifically to authorize u.s. military engagement in libya. what does the president say to that? >> the president says through may, and would have said yesterday it? this question, that he believes he is acting -- says through me, and would have said yesterday, if he was asked this question, that he believes he is acting in correspondence with the resolution. the goals are widely shared, we believe by republicans and democrats, house members, and senators. >> does that mean he will not seek specific congressional authorization? >> again, i think we have said we support and would welcome expressions of support from congress similar to the resolution put forward by

senators john mccain and john kerry, but, i do not have anything more to say beyond that. >> two more polls today showed thespread disapproval of president's handling of the economy. one poll yesterday indicated most people do not believe the economic recovery has begun. how do you explain this? >> i explain it by saying we are still struggling to emerge out of the worst recession since the great depression. a job total of 8 million -- a tremendous loss of jobs -- we have over the past 15 months created more than 2.1 private sector jobs. that is an enormous amount. it is not nearly enough, and the

president is aware of that. obviously, if you are an american dentist of struggling with the reality that was true -- and american that is still struggling with the reality that was true a decade prior to this presidency, where wages stagnated, even as upper incomes accelerated dramatically, you have been experiencing that squeeze for a long time. maybe you have a job, fortunately, but you are being hit by higher energy prices. you are worried about your mortgage. if you're worried about sending your child to college. you do not feel the economy is strong enough. you may not feel that read about the economy, even if you do have a job, which is obviously the most important thing. the president understands because he will not rest and will not be satisfied until every american who is looking for a job can get one. that is the number one priority

of his presidency, and he continues to be focused on it. that is why he was at the end he held today at northern virginia community college, -- held the offense -- which is why he held the event at northern virginia community college so that people can match up with the kind of jobs people are looking to sell. >> the debt is putting on the emergency brake. do you disagree? >> i think that we need to get our fiscal house in order. we need to reduce our deficits and our debt in a balanced way. we think the $10 trillion debt that he inherited is a drag on the economy, and is a significant portion of the debt that we have now, which was incurred, in part, by two

substantial tax cuts that went disproportionately to wealthy americans that were not paid for, two wars were put on a credit "the communicators -- card. you have to remember that when he came to office, where an economic free fall and had to take dramatic action to prevent the set -- in our recession from becoming the second great depression. we did that, and we have experienced positive economic growth for the last seven quarters, and significant private sector job growth for the last 15 months. we are heading in the right direction, and we need to continue to do things like to invest in those areas of the economy that have the greatest potential for growth and job creation. we need to get our fiscal house in order, and we need to do it in a balanced way, including, for example, that going back to the question about gas prices,

that the $4 trillion that we spend subsidizing the oil industry could be better spent elsewhere. >> did austan goolsbee leave? >> he left because he has to return to family. is a very close adviser to the president. he will continue to revise the president, and i'm sure will assist with the campaign. >> they vote -- david axelrod, robert gibbs, they are all here today. anita doug is here. >> i do not know beyond robert's presence, specifically what those means might be.

obviously, -- meetings might be. >> obviously there is ample reason. >> you are not involved? >> i was not involved. >> the president says he does not expect a double dip recession. the chairman of the federal reserve yesterday discouraged the notion of qe 3, or any other further monetary easing. there is a perception today that there is a stand pat attitude on the economy coming from washington. would you disagree with that? >> i would. again, whether it is free trade agreements, or making permanent the research and development tax credit the president supports, and then taking a serious support -- approached the president has taken toward deficit reduction in these

meetings been led by the vice- president which resumes tomorrow, there is a lot of activity driven by the desire to continue to grow the economy, and continue to create jobs. again, the president is focused on this as his highest priority. come tos and ability to an agreement on raising output, the president cites headwinds such as gasoline public concern is the lack of agreement? >> we are in regular consultation with iea and oil- producing states, and we believe supply is not aligned appropriately with the demand because of a number of factors, including the unrest in the middle east, and specifically the destruction caused by the removal of 1.5 million barrels a day by the market in libya.

the president has also made clear that we, and all of us in this room have been to the cycle where gas prices spike, politicians expressed great alarm and demand that action be taken, gas prices go back down, and nothing happens. this is a long-term problem that requires a long-term solution, and that is to approach the president has taken, which is why has taken measures to increase domestic oil production. that is why he has passed the significant our rules which will ensure the more fuel- efficient cars are rolling off of the assembly line and popular in the streets of our country. his wife he is sought to diversify our energy supply -- here is why he has sought to diversify our energy supply so we do not depend on the importation of foreign oil to the extent that we do now because it mixes highly reactive in the face of spikes in a

global energy market that we cannot control. >> yesterday, when former governor tim pawlenty unveiled his plan with 5% growth annually. he also wants to raise the social security retirement age. what is the president come position? >> i don't have any specifics for you. without slashing benefits -- and with regards to 5% growth, we can agree that that would be very beneficial to the economy. we think providing expense of that tax cuts to the wealthy, which we did in the last term that added tremendously to our debt and resulted in this president and eric massa the deficits and debt in 2009 -- this president inheriting massive and deficits and debt in 2009, probably not the best

approach. >> [inaudible] >> the bloomberg report -- this was of a name that candidate? i will not comment on media speculation on who may or may not be on a consideration. the president is looking at a broader array of potential candidates. relatively soon -- i don't have any more on that for you. >> the other thing is that the third agency rating on u.s. debt -- i'm wondering what your guys' responses to that -- >> as with the one prior, and makes clear the case we have been making, there is no alternative to raising the debt ceiling. this is about honoring the obligations that the united states government has made, and

the consequences of not raising the debt ceiling, as some of these ratings agencies have suggested, would be severe. the validators for that opinion are numerous, i come from a variety of political and non- political -- and to come from a variety of political and non- political backgrounds. congress will do it, because the date recognize the urgency and the significance of this vote -- because they recognize the urgency and significant of this about. >> does that make him feel like it is time to get closer to the negotiating table? >> the president appointed is a vice president, who, by the way, as some experience with these kinds of things, to call people to the table and participate in those negotiations, appointed by the leaders of congress, including the speaker of the house, senate minority leader, majority leader, house minority leader, have been making

progress. do we share the desire that those talks produce in a relatively short period of time a positive result? absolutely, and that is why the president with the vice president in charge. he engages with them daily, and i am sure he will engage with leaders and members as time progresses. but it is a demonstration of the seriousness with which he takes this issue that he asked the vice president to meet these negotiations. >> on afghanistan, the other day he said he had not received a recommendation. has that changed? >> no, it does not change, and he looks boarded to discussing with the general petraeus, secretary gates, his entire national security team, the options you will consider in terms of the pace of -- the data-and he will consider in terms of the pace of the slowdown. there is no formal

recommendations at this point. >> when will he do that? >> i will quote him in saying he plans to make a decision soon. >> in terms of the meeting -- >> i think is important, first of all, to step back and remember that as part of the strategy he put in place in 2009, he has been engaged in this issue at great depth, with the regular monthly meetings that he chairs on afghanistan and pakistan, the af-pak policy, weekly meetings with secretary clinton and secretary gates were afghanistan is a frequent topic of discussion. as you know, the national security staff did a comprehensive review in september of our policy, and obviously, we consult with allies. this is a process that is not going to begin tomorrow. it began a long time ago --

>> what did it bring to the table -- >> i don't have a format for you, but he will consult with the general petraeus, said terry gates, vice-president biden and others about this decision, and review the options he has and make a decision relatively soon, as he said the other day. >> on the economy, jay, what led him yesterday to warn against the pact and overreacting -- panic and overreacting? to what extent is he concerned that that is happening? >> the way i would answer that is to make a point at austin goolsbee made the other day, which is that when we had very strong and jobs reports, three straight months, in at least two of this case is much higher than expectations, we did not pop champagne corks or celebrate here. we also think that while the jobs report that came most

recently was under expectations and disappointing, it is important to look at the long- term trend. the long-term trend remains positive. the outside forecasters for economic growth in this is remainder of this year remain positive. there is a lot of reason to believe it, and ample evidence to suggest, that this economy is growing, will continue to grow and create jobs. never fast enough, not enough job creation, as far as t this president is concerned, until every american who is looking for adopting it went. the point he is making is that we need to look at the -- until every american who is looking for a job can get one a. the point he is making is that we need to look at the long-term trends. >> [inaudible] >> no, his point was the opposite. some of these were temporary,

like the tsunami an earthquake in japan and the impact that had on supply chains. but the fact is that we have continue to grow, we believe we will continue to grow, and we will continue to create jobs, private sector jobs, which is the engine of job creation. that is positive, and we need to remember that even as we acknowledge that much more work needs to be done. yes? >> with the unemployment rate expected to be above 8.5% for several months, what other tools is the president considering? >> well, look, there are a variety of things we need to remember about what is already happening in terms of the payroll tax cut, putting money in people's pockets and is helpful in terms of promoting economic growth. there are measures like the president talked about today in

terms of matching these private- public ventures that match vocational and educational goals with employers who are looking for specific types of employees to hire them. and then we need to -- the president talked a lot about the need to extend the r&d tax credit, because this is an area of the significant potential economic growth and job creation. the free trade agreements, three free trade agreements that could create or support 70,000 jobs. it is important that we continue to work on those and get those done. the president is focused on this constantly. the fact is, the policies that he has pursued and is pursuing have reversed the catastrophic economic decline we were in when we came in 2009 and have led to

seven straight period -- quarters of growth and 15 months of private sector job creation. we need to keep our nose to the grindstone and worked hard to continue that growth and job creation. >> is there something new on the table that he is looking at -- >> first of all, the things i mentioned -- they are new, not acted on any to be acted on. -- we believe an approach to art of is th -- our deficit in a balanced way could be a a big boost for economic growth and job creation, because of the confidence it could create. he is not approaching deficit and long-term debt reduction as an esoteric exercise. it is not a good in its own

right. the focus is on growth and job creation. >> president medvedev said that russia would help mediate and help with an exit strategy. as the president been in touch with the russians? >> the president met with him in france, the vice president met with the russians in italy. we are in constant contact with russian counterparts and partners and other allies and partners who are interested in a positive solution to libya so that the libyan people can decide their own future. i don't have anything specific on different proposals by different countries, except that we support the idea that muammar gaddafi is to step down so that the libyans can choose their own leaders. >> has there been any communication about -- >> not that i am aware of, again, without saying or suggesting that this was a focus

of their conversation, the vice president met with him and prime minister bruce ghani when he was in -- prime minister berlusconi when he was in rome. i don't have any trouble announcements to make -- travel announcements to make. >> what is the deadline for -- >> the drawdown will begin in july 2011. you heard it on the best source possible. the president said he would make a decision soon. >> does not -- doesn't he have a week before july to make -- >> soon is pretty soon a. you can expect that to be soon. >> he said yesterday that he planned for germany to take an active role in libya. >> i think it is part of wise

planning to consider the future that we hope to help bring about, with the very actions we've taken, but it diplomatically, economically, unilaterally, multilaterally, militarily through the net emission -- for the nato mission -- yes, we are in contact with our allies, consulting with and talking with the transitional council about libya's future. have theat, i don't specifics about how that will unfold once gaddafi leaves -- >> if he were to leave within the next 10 minutes, is there a whole list of things to put in place? >> i don't want to get ahead of myself and the administration here, but you are sure -- you can be sure that we are thinking about and planning for that contingency. >> the senate foreign relations

committee report is being read in some quarters as a fairly -- a very critical assessment of -- >> read it that way in one newspaper, i think. >> i wonder if it is raising new questions about the policy that was adopted back in 2009. i know you have said a number of times about what they are talking about now is not new policy. in the pace of drawdown, that is are we calibration of that policy -- a recalibration of that policy. when you get small, the last counterinsurgency you caget. is the white house reading it that way, at an indictment of counterinsurgency policy? >> no, and again, we welcome the report even though we disagree with some of its conclusions. second, you have a fallen back on a shorthand -- you and i have had this discussion offline in number of times -- that i don't

agree with, because i don't think it represents the consultations and the review that the president undertook with his af-pak policy, and it does not represent the outcome of this was never in representation between -- this was never pined every representation between counterterrorism and counterinsurgency. our goals -- disrupting, ultimately defeating al qaeda, stabilizing afghanistan sufficiently so so that afghanistan would not again become a harbor for international terrorists who seek to do america and our allies harm. those goals are very important because of what is included within them and what is not. the policy the president shows and has been implementing since december 2009 -- you cannot

describe it or thumbnail it by calling it counterinsurgency or counterterrorism. there are a lot of different elements that are part of it that were specifically decided on because of the president's belief that date would maximize the chance of success -- that they would maximize the chance of success. >> does the report -- the help those are doing right now for a faster drawdown -- >> let me just stop you there. we welcome the report. it has got a lot of information in it, it is certainly worth reading and reviewing. we spend a lot of time here on afghanistan and pakistan -- the national security staff, national security team, and obviously our personnel, civilian and military, in the region. we are, again, very clear-eyed about the challenges in afghanistan, about the progress

that has been made but also about the setbacks that we at various times -- that we have experienced at various times. i am not suggesting we know everything already and don't need outside in bud's. we obviously do and welcome them. but we are not limited great deal about the challenges we face in afghanistan he -- we are not learning a great deal about the challenges we face and afghanistan here. it was all part of how he viewed the process when he settled on the strategy that he is implementing. i would go back to what i said before -- beginning the drawdown is implementing the policy that he decided on in december 2009. it is not a change. it is exactly what he said he would do. there is a certain amount of consistency in terms of how this president operates. he said what he would do and he is doing what he said, very

deliberately, with his eye on a long-term goal here. that is what this process is about. >> on syria, there is a u.n. resolution the british and french are proposed condemning the regime for the crackdown. do we agree with the british and french bashar al-assad is now losing, present tense, his legitimacy? and for what is going on there with troops and tanks -- >> obviously, we are aware of all the reports, and depending on the region in the country, it can be hard to come by or verify. but it puts a pretty starkly -- the president can lead the transition that has to happen, or he can step aside. how we view this is pretty clearly stated in that sentence. i don't have a position to give you on the resolution that you mentioned. the fact that we have strongly condemned what the syrian regime has been doing, the murders and

arrest of its own people, speaks pretty clearly about our position. the actions we have taken in terms of the sanctions, including targeting president assad himself, are pretty clear. >> the pending humanitarian crisis in northern -- >> i don't know. perhaps the state department, you might ask them, but i don't want to speculate about that. >> secretary gates and afghanistan has called for troop composition that would rely on shooters, saying that if we are going to drop personnel from the support people, -- draw personnel from the support people, he called that a no- brainer. does the president agree with that assessment from his secretary? >> the president speaks with the defense secretary all the time, including the weekly

meetings i just mentioned. i am sure the president shares that opinion that the reductions we need to make, that he will make, the drawdown that will begin, will he ensure that -- will ensure that we can get the maximum success out of the mission, and part of the strategy is to begin this drawdown. as we transferred responsibility it over to the afghan national security forces. but added to the composition, a lot of troops that will begin to draw down, -- but in terms of composition, the block of troops that will begin at the drawdown, i don't have a comment, because the president is redeeming, or will review, his options and make a decision in the future. >> the folks coming home are reassigned, whether it they will become that people were support people -- the president will be getting --

>> in terms of and forced the size of which we have in afghanistan and what the breakdown is -- anybody who is in that zone in an american military uniform is combat- trained and fully capable of using weapons. i think there is a little bit of a misnomer -- we went through this when we were withdrawing troops from afghanistan that because we are ending the combat mission, somehow the troops that were made were not combat troops. obviously, every u.s. soldier or military personnel is highly skilled and trained in combat. the breakdown of how that works, the proportion of either support or logistical or analytical strength versus frontline combat strength, i just don't know, i think the pentagon is better suited to answer that question. >> does the president think that the criticism from more liberal economists and democrats on how he has -- they say he has

allowed the debate on the deficit and debt in the economy to be too much towards cutting government spending and he has given up ground on the need to push more stimulus measures -- can you react to that criticism that the president has gone too far in favor of republicans, where the debate is on their terms, especially in light of this jobs report? and second, because of the jobs report, it does he see a need to reevaluate his goals of cutting $4 trillion in spending over the next few years? is there it needed to change -- >> two points. one, going to the point of looking at trends here, not just want or several pieces of economic data -- the trend remains very positive. 2.1 million private sector jobs, in excess of 2.1 million private-sector jobs created over 15 months, sustained economic growth for seven quarters.

so in terms of measures that are helping fuel economic activity and growth, he fought very hard for an achieved as part of the tax-cut compromise in december extension of unemployment benefits, and obviously, the middle class tax cut, as well as the payroll tax holiday. that is, in terms of the discussions you are talking about, direct stimulus through a tax reduction, and the payroll tax cut, which we believe is much more efficient in terms of causing economic growth and than giving a very wealthy americans more tax cuts, because that money won't necessarily be pumped back into the economy. the president also believes -- and this is not like choosing between going more democratic or republican -- the president believes that balance deficit reduction is in the american

interest, the interest of the economy and job creation. he is not apologetic about that. he thinks we need to do it, and in a balanced way, in a way that protect important investments, that protect our seniors, and disabled children and others, and he thinks that if you do it in a balanced way, you can protect our core commitments, you can make the key investments we need to make, and you can bring down our deficit by $4 trillion over 10-12 years. >> the payroll tax cut will expire this year. is there any as part of the negotiations that are going on -- >> the president said in broad terms yesterday about what discussions might be in the future about. i am not going to go beyond what he said yesterday. >> [inaudible] >> i don't want to expand beyond what he said on that. >> you talked about syria policy before, but i wonder if

you can tell us specifically what it is about syria that meets the president not to call specifically for assad to step down. what is it about a country with a geopolitical situation there -- >> the president believes, as i just stated, that president assad needs to lead the transition or get out of the way. i think that is a pretty clear statement of where we stand. comparison games, specific countries with the specific circumstances, different things in terms of the expressions of dissatisfaction by people on the street and the reaction that the governments have had -- each country deserves a specific response, all geared toward our hope the best possible outcome. back in the condemning actions, putting pressure on leadership -- that can be condemning actions, putting pressure on leadership, offering different forms of support to the

opposition -- again, i am not talking about syria. i am talking about different options available to us, taking actions multilaterally through allies, unilaterally assert sanctions -- there is no one- size-fits-all response year. the area is very to verse, the nature of the countries is extremely varied, and we have to take that into account as we develop a policy with regard to each country. >> what i am trying to get out is what these eight about syria that leads to this specific policy -- what is it about syria that leads to this specific policy? >> we are leading a policy that we hope will lead to a positive outcome, which is either the current regime changing its behavior dramatically and engaging a political dialogue, seizing violence, a leading the transition, or that transition taking place under different circumstances.

that is the approach we are taking. >> there are a lot of people who are skeptical -- he has just killed more than 100,000 of its own people -- that he can do that transition, that the white house thinks he can just suddenly change -- >> we will see. >> you said the president yesterday spoke broadly about the payroll taxes and manufacturing, but right after saying that, he also said he was interested in exploring continuation of some of these policies. >> i will let the president's words stand now i don't have anything to add to that. thanks, guys. oh, wait, chris. >> the department of homeland security issued a memorandum on a reporting widows and would

words of u.s. citizens. at the time, homeland security secretary janet napolitano said that immigration policy balances strong enforcement practices with common sense solutions. after a request by advocates on a moratorium -- [unintelligible] similar to the 2009 moratorium, you said the president can i just -- cannot just wave a wand and change the law. can you explain the difference? >> the president cannot just wave a wand and change the law. that was in response to a broader set of issues that people are asking for now, the president has called for comprehensive immigration reform for a reason, because he thinks we need to move in a comprehensive way to get there, and that a comprehensive approach as in the past enjoyed bipartisan support and he believes that if we talk about

it in the right way and push for a, and folks in the country push for it, we can return to a situation where they can be and bipartisan support for it in the future. thanks, guys. >> the white house likely keeping an eye on the vote in the senate, but because it could impact the 2010 financial regulatory bill. it would have a delayed new restrictions on credit card fees charged to merchants on debit card fees. that a vote just failed, the an amendment just fill in the senate by a vote of 54-45. you can follow the debate as it continues on c-span2. the white house also likely keeping and year on the oral document that can add up like that today. the 11th circuit court of appeals dealt with the argument with the health-care law last year. that case, brought by 26 states

who banded together in opposition of the law -- "the l.a. times" reporting on that, "a top administration lawyer ran into skeptical questions today - three federal judges, who suggested they may be ready to declare all or part of the law unconstitutional." we will give you a chance to hear the oral argument this evening at 8:00 p.m. eastern. it will also be on line and on radio beginning at 3:45 at this afternoon. booktv is alive today as well. he is a senior editor of "national wildlife," and his new book as a but theodore roosevelt, his life in the badlands of the dakota territory, after his wife died but before he became president. you could follow this discussion alive at 6:00 p.m. eastern, booktv.org. senate armed services will be hearing from t -- will be

having the confirmation hearing for leon panetta to become secretary of defense after the retirement of robert gates. that hearing gets underway at 9:30 eastern, right here on c- span. a hearing earlier today at the appropriations subcommittee looking at the irs budget for 2012. commissioner doug shulman testified. the house budget resolution would increase the federal budget deficit by decreasing revenue. this is earlier today on the 2012 budget for the irs. >> good morning. i am pleased to convene at this hearing to consider the fiscal year 2012 funding request for the internal revenue service, the largest single account within our subcommittee. our focus today is on the president's budget request for the irs, $13.6 billion in annual funding constitutes over half the total amount of

discretionary funding under our jurisdiction. i am pleased to share the dai with my friend ands distinguished ranking member, sen. moran, and others who will join us. joining us is the hon. douglas shulman, now on his fourth year of a five-year term as the 47th commissioner of the internal revenue service. thanks for your service, and for accepting the challenge to help lead to the irs from good to great. i welcome the opportunity to conduct a critical oversight of the irs and its programs through our discussion today. congress exercises its most effective oversight of agencies and programs through the appropriations process. it allows for an annual check and review of operations and spending, to complement congressional oversight, the irs' cadre of watchdogs and observers, the irs oversight

board, the government accountability of this, national treasury employees union -- lots of people are watching. i appreciate the work and constructive contributions of each of these entities to help us prepare for today's hearing the irs and ministers -- the irs administers tax laws, and each year, 95,000 employees of the irs make hundreds of millions of contacts with american taxpayers and businesses. the irs represents the face of government to more u.s. citizens than any other agency of u.s. government. on the budget, this is clear, a budget of 12.1 $5 billion, -- this fiscal year, a budget of $4.5 billion, the government collected 93.3% of all federal taxes. it processed 230 million tax returns, including 141 million individual returns, 7 million

corporate, 30 million employment tax returns. they issued 109.1 million refunds, and the list goes on. the fundingear '12, request represents an overall increase of $1.1 billion, about 9.4% above fiscal year '11 level. for the irs accounts, the fiscal year '11 bill maintains funding at the same level as the funding provided in fiscal year 2010. i recognize that such levels falls over $487 million short of what the president had requested for this year. there has been dealt-tightening all about and it has affected your agency. we will talk today about the budgetary challenges you face in the upcoming year, some of the policy challenges which drive the spending in your agency, and i look forward to hearing more about the challenges the irs faces in these difficult budgetary times. now i would like to turn the floor over to my colleague,

senator moran. >> chairman durbin, thanks for the hearing today, and welcome, commissioner shulman. the irs is tasked with enormous responsibilities. it administers our tax law is. -- laws. it takes voluntary compliance easier and ensures that everybody pays their fair share of taxes, all laudable. i believe we would all agree that we should make sure our tax code and the irs enforcement efforts don't make it harder for taxpayers and small businessmen and women to meet their tax obligations. as we know, the american economy is facing difficult times, and we need to get the economy moving again. americans are struggling and orderly burdensome regulations and reporting requirements harbor the ability of our nation's small businesses to grow and create jobs. i was very pleased to see congress address some of the uncertainty by passing legislation on the

unprecedented 1099 tax reporting mandate in the new health-care law. this marks a significant change in our health care law. that repeal the requirement is good news for small business and agriculture producers, who bear the largest burden of these provisions. i am interested in talking to you, commissioner, about the consequences of that repeal on your appropriations and budget request. i note that the request for fiscal year 2012 is almost $13.3 billion, an approximate $1.1 billion over the 2010 enact a level, and the fy2011 level, resulting in an 9% increase. almost half a billion of that increase is a request to begin implementation of the new health-care law, and given the current fiscal reality, i am interested to learn how the irs plans to privatize its goals and carry out its full responsibilities of enforcement

of taxpayer services and make progress on the important information technology projects. i appreciate the significance and complex response that the irs faces, given our government cost of fiscal constraints, and we must carefully review all agency budget requests to ensure the taxpayer dollars are receiving the best value for their dollars. so to make sure we address our country past economic problems in a fiscally responsible way, mr. chairman, i look forward to hearing the testimony and i look forward to working with you on the subject of this subcommittee's jurisdiction. >> mr. shulman, the floor is yours. >> thank you, chairman durbin, ranking member moran. i appreciate the opportunity to testify about our 20 told budget. this was crafted in a time of fiscal austerity and belt- tightening for the nation. it is incumbent upon all of us in the government to be as efficient as possible and spend taxpayer dollars wisely.

this means, in my mind, of finding savings where we can and continuing to invest in it strategic priorities that allow us to improve the service and voluntary compliance. the fiscal year 2012 budget includes almost $190 million in efficiency savings and reductions, and you have got my commitment to continue to look for ways to save the federal government money. against this backdrop, is also clear that the irs is vital to both of the function of the government and keeping our nation and economy strong. in fiscal year 2010, at the irs collected, the chairman noted, 2.35 trillion in gross revenues to fund the federal government, approximately 93% of all federal receipts. for every dollar spent on the irs, we collect approximately $200 of revenue. mr. chairman, one of our corporate duties, as you noted, is conducting the filing season,

despite tax law change, this season went relatively smoothly. as of the end of may, we had about 133 million individual returns. we should over 100 million refunds, totaling $285 billion. we also answered over 50 million taxpayer calls this year. the irs e-file program, lauded by many as one of the most successful modernization programs in all of government, continues to show growth. this year we reached two very major milestones. for the first time ever, we had over 100 million people electronically file. this year, we started th -- when we started that e-file program in 1986 -- we crossed the 100 billionth electronic filing of this year. it is a big deal for efficiency.

it costs us 17 cents to process an electronic return did it cost us $3.66 to process a a paper return. we have been reaping benefits and downsizing operations ever since e-file started. we continue to help taxpayers who are struggling to regain their footing after the recession. this year we started something called the fresh start program, which extends our offer and compromise programs. it makes lien withdrawals easier for taxpayers, makes it easier for small businesses to enter an installment plan, and it changed our lien criteria. in addition to the critical role we play in the economy, helping taxpayers file their taxes and also collecting the revenue, the president asked for a judicious investment in the irs for the 2012 budget. these investments reflect our balance approach to both

taxpayer service and compliance programs, and our commitment to administer the tax laws in a balanced and fair manner. it also includes funding to finish for the 2012 filing season our key core account database. if and when we have a fully operational and accounting data base, it will mean faster processing of returns, expedited refunds for all americans, better customer service, and enhanced data security. i also want to emphasize that because of our unique revenue collection function, all of the investments in an irs more than pay for themselves by generating much more revenue than at a cost. mr. chairman, i would be remiss if i did not mention the house budget resolution which provided the funding level for financial- services and in general government of approximately $2 billion below the fiscal year 2000 enacted level.

because, as you mentioned, we are the majority of the financial services bill, the cuts would be substantial and affect all irs operations, from answering questions on the phone to frontline compliance activities such as audit coverage. because the lost revenues from reduced tax law enforcement, cuts such as those in the house budget resolution, would increase the deficit by decreasing revenues. in addition, conspicuous drops in our enforcement activities could have an impact on a longer-term a voluntary compliance in the country. with that said, let me conclude by saying that i recognize that we are in a very challenging fiscal environment, and that there is going to be a lot of difficult choices that you and your colleagues are going to need to make. i look very much forward to constructive dialogue over the weeks and months ahead with this subcommittee, and very much appreciate the support that this subcommittee has given the irs. >> thank you very much.

as i mentioned in my opening statement, the irs deals with a huge volume, processing more than 230 million tax returns and issuing over 109 million refunds. is an indication of the challenge that you face and the people that you work with a face on a regular basis. and of course, there are going to be cases where people set out to defraud or cheat government, in terms of filing these tax returns. i would like to call your attention to one that has received attention over the last year or so. this is the providing of refunds to people who are serving in prisons across the united states. the treasury inspector general for tax administration reported that erroneous prisoner refund claims are on the rise. up to 44,944 or claiming refunds

of $295.1 million for the year 2009. even though the irs has been able to prevent large amounts of these new funds from being issued, 256 million projected in 2009, the amount of false refunds issued still hit a height of the $9.1 million. since 2004, when 18,103 false tax refunds were filed, nearly $123 million in fraudulent refunds have been issued to those serving in present. -- in prison. . now, i can think of a situation where a person is serving a prison would be eligible for refund, it could happen. but clearly in this case, we are dealing with those ineligible to receive refunds who are trying to defraud the government now, they are not satisfied by being punished sitting in prison. they are dreaming up new crimes to try to defraud the

government. let me ask you at the outset -- i understand you have spoken to the u.s. bureau of prisons, trying to make sure we cannot identification of those prisoners filing these returns -- we can have identification of the prisoners filing these returns. but when it comes to the state prison systems, your authority to have this information transferred will expire at the nico of the year. can you tell me what is being done to stop the false claims by prisoners and what more we can do to protect the taxpayers and treasury? >> mr. chairman, it is an issue we take very seriously. the bottom line is, when we have the name of a prisoner, we can stop the refund from going out, and we do. the problem is getting the data. with a federal prisons, we signed last year a memorandum of understanding, so we get the data and format we need so that we can put screens in place to block.

i put letter -- i sent letters out to governors of the states that have the highest prison populations and the biggest problems here. we have signed memorandums of understanding with the seven of those states to get the information. we are in discussions with 17 other states, so we have seen it done to progress with the state getting the information so that we can block it. we have a bigger problem counties and municipalities, because we need to get information from them at. they have budget constraints. we need to get it in a format in december so that we can load it into our systems at what blocks for the filing seasons. what i would tell you, and i think the inspector general recognizes in the last report, is that we are stopping more, we are detecting more, and we are screening more now -- >> are we prosecuting those who filed false returns? >> one of the issues is that the biggest hammer we have is

sending someone to jail. these people are already in jail. what we are doing in these memorandums with the state and federal government is that the authority you are talking about is allow us to share tax data act, which generally cannot under the tax laws, so that people can have things like punishment in prison, solitary confinement, things of that like. the people we generally block are people who are there for life. there are a lot of prisoners who are married, filing jointly, dud e a refund. i think we have made a lot of progress. this year have begun the process and done screenings for 100,000, and i've added to the unit that does the screening. as long as we get the information, we can properly block. >> in the infinite wisdom of

members of congress, we dream up new tax deductions and credits for perfectly valid reasons, at least in our opinion, and then it is up to you to try to make it work. one of them, related to tax credits for energy efficient windows and doors and geothermal heat pumps and solar water heaters -- i probably voted for it. it sounded like a good idea. for tax year 2009, taxpayers claimed more than $5.8 billion in energy credits, economic stimulus recovery. based on the statistically valid sample of tax returns, the treasury inspector general, tax administration, or unable to confirm homeownership for 30% of that sample, 45 of the taxpayers, required to claim the credit. there is at least a question mark going for it as to whether

it 30% of the people who claim this money were eligible for it. in addition, the inspector general identified 362 in eligible individuals who were allowed to run easily climb $404,578 in residential energy credits on their tax returns. these individuals included 262 prisoners -- here they are again, now claiming that they deserve a tax credit for energy efficient windows in their prison cells, i guess -- and 100 individuals under the age of 18, who were ineligible to file. how do we get to the bottom with this, once again with prisoners, and with those ineligible, to police the ranks and make sure that people are not filing an claiming credits that they are not entitled to? >> i think there is a couple of things. this is a worldwide phenomenon, where people who want to give incentives, and and there is a

major economic meltdown across the globe, people quickly used the tax system to push a lot of money out to help stabilize economies. the tax system is a patient, and there is already the annual interaction -- the tax system is efficient, and there is already the annual interaction that happens every year with americans. when we have time, we can properly set up filters and i think this through engage with the industry and find out where there is potential begich, find out what data we can get in and through on our electronically filed returns and set of screens and filters, and we do that. for instance, the report you referenced, we -- it happened very quickly, what we are trying to do some things -- we set up a set up filters. our inspector general, who provides the incredibly viable service, and we learned along the way, both of us as we go, we put more filters in place when we were having dialogue on that

report. some leakage occurred, and we would like to have is 0. there is going to be some leakage with any credits. but we do do follow-ups. when things happen very quickly, sometimes more refunds go out the door that are questionable, but then we have an audit program where we can go out, find out what is there, do the follow-up, and close. if we have more time with more developed credits, we can set up screens ahead of time. make no mistake, i think we are getting better at this, and we have a lot of the sophisticated filters, and stopped the vast majority of a fraudulent returns from going out. but if you are going to use the tax system, built on voluntary compliance, and we have to get this balance right on getting refunds to people, or rely on those to spend, and blocking the bad ones, there is going to be some leakage.

our goal is to get the balance right. >> sen. moran, just bear with me. i want to ask two questions just to close this line here. in the most egregious cases, when someone is claiming homeowner credits when they are not and they just misrepresented their eligibility. it is not a math error, it is clear misrepresentation. in those cases, when you detect them, is there a follow-up items of penalties, fines, prosecution? >> penalties, yes, fines, yes. prosecutions -- we have limited prosecutorial resources. we try to spend those resources on at the places that will create the most long-term deterrence. our criminal investigation is balancing things, money laundering, terrorist financing, preparer fraud, identity

theft and fraud, very specific tax fraud. we tried to allocate resources appropriately. the answer is yes, and a lot times you see a scheme where a person puts false claims in, files the return, comes back. the individual who claims the $100,000 credit for themselves fraudulently usually will be defined in much more of a civil context than a criminal context. but the bigger the crime, the more it happens, and as you know, it is a partnership with the jobs department and at local attorneys. >> last question here -- if you could take into the overall landscape, where do we find the most fraud, the most cheating going on, in terms of people claiming what they are not entitled to? >> the tax code is incredibly complex. there is a fair amount of non-

compliance. some of it is confusion, some of it is from. -- fraud. the place we focus is overseas and offshore tax evasion, people parking assets overseas. we have been focused on preparer fraud because it is a big point of leverage, if one preparer gets 1000 hectares and encourages them to do something fraudulent, a lot of times the taxpayers are unsuspecting. and refundable credits, places where you can get tax credit that is large, you find fraud. we did a lot of focus on first- time home buyers, where it was temporary, quick, the earned income tax credit, we did a lot of effort there, civil and criminal follow up, and the set

of credits that you talked about. is where we put a lot of effort. >> thank you, senator moran, for your patience. >> following that line of questioning, how often is it that the irs finds the fraud as compared to the inspector general's report with the gao report -- or the gao report requested by congress? how actively engaged and successful are you in ferreting out the problem without some other agency pointing out the fraud or the challenge? >> every tax return goes through a screen. is our fraud and filters, and it looks for -- it is our fraud filters, and looks for 100 returns that have the same address. not having the proper documentation attached, or information in the return. we set filters and tolerances

based on resources. a lot of these are the ones we need to follow on. we have a civil units that all employers and say, "is this person employed, it is the info accurate," and then it goes to criminal prosecutions. g. afo, an inspector general, congressional oversight -- gao, inspector general, congressional oversight, and helps us focus on place where there has been too much leakage. i don't think there has been an instance, since i've been there, where people have found more fraud in their investigation and then we actually blocked. our filters kick out between 1 million and a 3 million tax returns a year that we do follow up on it. we reject 2 million returns who have duplicate ssn's,

independence or individuals. sometimes it is a transcription error, but sometimes it is somebody trying to defraud the system. in eitc alone, we protect $4 billion annually through our enforcement efforts and blocking refunds that go out. we have an incredibly active program there. but then it is very helpful to have people overseeing the program and find out where there is too much leakage. it is a continual evolution, and the real fraudsters are always testing our tolerances, sending things into our system. we always have to be one step ahead. >> the examples that chairman durbin indicated, the prisoner example, is that something you would have known about before we read the paper? >> sure, we have had extensive conversations. it is counterintuitive to your average american that a prisoner could get tax refund, right?

it is going to be in the paper. the reality is that some prisoners can get tax refunds, so we can i just reject everyone. we need to use -- screening -- we cannot just reject everyone. we need to use screening. the reports show that we have been screening more and blocking more and identifying more. it is just that the volume has gone, buslow the growth of three funds is higher this year. the amount we caught and filter has grown exponentially. we were protecting a lot more money for the federal government, but as a fraction of more of this going out. >> you talked about e-filing and the savings from that successful program. first of all, how much more potential is there for savings? is there an opportunity for more e-filing expected? secondly, you talk about the 190 million in efficiency savings, reductions, and non-recurring

activities. what does that mean in the budget and appropriations process? >> sure. so e-file, just to tell you what we've done, we have shot down five of our 10 processing centers over the last six years. it has not been popular with the folks where the processing centers where, but we kept it very clearly creeping savings of -- we have been very clearly reaping the savings of e-filing. we plan to get to 80% from 75% with those shutdowns. we are at 75% of individuals e- filing host:. filing. 20 years from now, my guess that the irs will not take any paper. we're taking data security very seriously so that nobody is worried with the billion returns

that there is going to be any leakage. since i came here, for every budget for the last three years that i had submitted, we have always submitted substantial savings. i believe, as the head of a 100,000-person agency, that you can always find efficiencies. you have to be looking at core operations, stop operations that don't make sense, and position yourself for the future. this year, the 190 million is the savings from e-file. we are just cutting down our processing operations. reducing i.t. infrastructure. we and going through a process called capability maturity models, which is pretty standard practice in the private sector, where i came from -- i was involved in helping run stock markets and a computer systems -- where you bring in and standardize your processes across your whole i.t.

infrastructure. you are on standard ways of document in i.t., standard ways of developing requirements. there is a software engineering institute that will come in and do random audits to see where it is. we have been reaping for the last five years $75 million a year by just being more standardized. as long as i am here, we will keep doing savings in just core operations. increases made tough choices. we did not send out any 10-40 forms. and we said that in the past if you file it with a 10-40, we sent you a 10-40. we thought that was self-for failing, so we said if you really want your 10-40, we will send that to you.

we have cut contract. this is just a series of issues. to be honest, as the chairman said, we have been under a cr, because there is inflation in things like rent and other things. we have the effect of cost cutting this year beyond the things be listed in our 2011 budget. >> so, you would be requesting $129 million more in our budget request but for those savings? >> correct. >> what percentage of american individuals file their return with the assistance of a professional preparer? >> about 60% was last year. that number is going up. another 20% used pre-packaged software. 80% are using something in a professional from. >> if you use someone in the best professional rolm, is there

an automatic e-file, or our professionals still, -- filing paperwork? >> one of the things that drives me crazy is someone that clearly printed, developed their return on the computer, printed, and sent it to us, and at people typing it back in. there is 10% error. the veterans curtain errors. it is incredibly inefficient. -- there are errors. it is incredibly inefficient. we gave authority to any prepare who filed 10 returns, to e-file this year. the good thing about it, and i think we did this right over the years, is we only got to a mandate once we really had momentum, and almost everyone we

could convince the voluntarily to sentient had gone in voluntary. and now there is a mandate to assess if you're a professional preparer and you're using the software, you're going to meet a -- need an e-file. >> thank you, senator. we are in this debate about our deficit, and how we can come up with savings of $4 trillion over 10 years, where roughly $400 billion a year, either in cutting spending or raising revenue. that is kind of the standard we are using -- save $400 billion. it is estimated that $345 billion of federal taxes go not collected each year, a 9 compliance rate. this gross rate is an untapped

resource of federal revenue that could go a long way to dealing with our deficit. most of the gap, 82%, is attributable to under-reporting of tax liability. $197 billion of the -- of that. it can be under-stated income, and proper deductions, our over- stated expenses, were erroneously claimed credits. we went through an exercise on the affordable health care act and decided one way to capture some of these uncollected tax revenues when it came to small businesses was to have more reporting from them -- more 10- 99 reflecting their business activity. naturally, there was a huge push back from the business community saying "more paperwork, thank you washington. that is just what we need."

and we backed away from that, saying we will not tighten up the system at the expense of more paperwork. i want to ask you a question with an obvious answer, i am sure. is there a way to address the tax gap without more reporting, regulation, and more disclosure? >> our statistics basically show that when you have information reporting and withholding, so the average american's paycheck, when it is withheld, you have over 99% compliance. where you have some information reporting, mortgage interests, deductions, 10-99 reporting for interest on bank accounts, that kind of thing -- you have 95%, 96% compliance. where you have no information reporting -- cash economies,

think about cash businesses, and it is hard to do these compliance studies, because they are inaccurate by nature. what you do not get, you do not know. you get 50%, 60% compliance, 70% compliance. the real answer is no information reporting where there is leverage. we set up our tax system as a voluntary tax system where you're supposed to be fully forthcoming, report what you know, and we keep an eye on things th. to have broad coverage, we need a third party doing information reporting. because it effected a lot of people with the tax code, it becomes politically unpopular. that wouldn't help with the tax gap, but i fully understand -- that would have helped with the tax gap, but i fully understand

the reality around small businesses and what people are trying to do. it is very tough. there is an economist who said the thing to remember about the tax gap is that it is like a deep shale oil reserves. this is not just money sitting there that is easily tapped. we, in many ways, have tapped the easy money. we actually have a very high tax compliance rate in this country. there are only five countries that study the tax gap, and we are as high as any of them. the real way to go with the tax get a better information reporting, but it brings with it some burden. i think there is hope, though, as we get better information technology, as it becomes more ubiquitous, lower-cost, and easier for people to do reporting -- a great example is this year we are implementing the credit card reporting, we will get from processors and

people like paypal gross receipts that were paid into businesses. that is not a direct match, because some industries have high receipts, and some have lower, but we will attend those statistics and it will be another factor we use in our audit selection and our compliance election. what we try to do is spend time on noncompliant taxpayers and leave complied taxpayers alone. >> if other countries do it more effectively, and i think you said we are in the top five, so if there is an example that has figured out how to do this with grigory efficiency, in terms of collecting -- with greater efficiency, in terms of collecting taxes owed, and would appreciate you sharing that. as you alluded to, we sat -- started with the promise that -- premise that you start with a w-

d two, u mallet, and you -- -- two, you mail it, and somebody reads it. that information is becoming paperless. are we looking to a transformation in an information-gathering, as you just described that might compliance easier, where we might not burden local businesses so much with filing forms, but rather having some basic flow through all the information that tells us what we need to know to assert tax liability? >> i think there are a couple of possibilities. i have laid out that on a long- term vision, we are still a ways 10- from getting w-2's, 99's, loaded into our system

before filing. right now all of the vote reporting happens with those getting floated the in after people file. in some ways, it is back to this refundable credit. i laid out a concept that said we could follow the issue. we could work with the private sector and make this information available to people. rather than people scrambling around and sending it to their accountant, we could have a data base. when people filed, if there was a mismatch, we could corrected. we would have better compliance on the front end, and what have less hassle for taxpayers. right now, if you file and it is wrong, six months later you get a letter. he then have to scramble, called back to your accountant, and

then go through a second loop with us. that is one thing we could potentially do. second, i started an office reporting directly to me, which is looking at our data bases, and try to make sure we are really smart about the information we have, and we are a product -- apply inappropriate treatment streams. for instance, we're looking at things like rather than sending out the standard four letters, actually making a call to a taxpayer immediately when they have a tax liability to sort things out, much like a credit card company, and continue the -- continually looking at analytics. i think it would need full vetting with congress. as the 10-99 issue show, people are sensitive about burden, but also a sensitive about the voluntary nature of our tax system, and the government not knowing too much about people.

we want to get as much information as we can. we spend time with non- compliant, and did not spend time with compliant taxpayers. there is information that could move quicker, so there could be less-member to some ways to get that information. >> to you have the staff capability and information technology capability to develop what we have discussed -- a new generation of thinking about collecting and processing information that does not rely on the transfer of paper? >> we have had this conversation. i think we have the staff capability. my i.t. leadership team i would put up against anybody else. we brought in a chief technology officer who had been head of technology for boeing, and then the set international. he is -- visa international.

with that said, where i came from, building big technology and the benchmarks in financial services are you spend somewhere between 10 and 20% of your budget on capital investment in the future of technology because you are all about processing money, getting information, the serving people, which is a similar model two hours. our capital investment -- this president has asked to almost double it from above 1.5%, to just under 3%. my objective review is that this agency has been under-funded for 20 years in investing technology of the future, and we are just getting there, and we recognize the constraints that we are under. i will not come and make the request for a 10% increase in

our budget. i think the future of running the nation's tax system is all about dealing with information well, and we will need to keep investing. >> thank you. >> mr. chairman, to live. the irs 10-99 issue that chairman dick durbin just talked about, i'll understand your budget request included a three full-time employees contributed to the health care law provisions. in light of its repeal, the irs 's request is reduced by that 23.3 million, and a change in the 82 full-time employees? >> yes. that is dropped. >> good. >> that is the correct answer. >> we just saved some money. [laughter]

>> what chairman dick durbin was talking about cause me to want to inquire about security. he mentioned the voluntary nature and the concern about government having information about americans. house secure a system to we have in place that protect information -- house secure the system do we have in place that protect its information? >> it is very secure and walked down. i would tell everybody i was sworn in, i came back to the office, and the first briefing i have as irs commissioner was about protection of taxpayer data and data security. it is really built into the dna of the irs. if there are laws that prohibit any individual employees from sharing information about any individual taxpayer with anyone, and we prosecute aggressively when anything happens.

from the pure data security and the structure, we have extensive perimeter and the structure around the web, -- and the structure, we have extensive perimeter infrastructure are run out web. we coordinate with all of the agencies to make basher our infrastructure is protected. we have lost. one of the things that i committed when i came in was that any new technology put on line will have to 100% if block dog data security. you have to make choices -- 100% data security. we take this seriously. >> one of the reasons you would request more money and more personnel is the passage of the affordable care act. its constitutionality is being tested, and i assume ultimately will be decided by the united

states supreme court. in light of whatever the nine ensued of that uncertainty is, is the irs -- what ever the uncertainty of that is, is the irs operating assuming that it is constitutional? are you behave any differently because of the constitutional challenge? >> our job is to let the minister of the laws that are on the books, and there are -- our job is to administer the laws that are on the books. just to be clear, our responsibility regarding the affordable care act is to administer traditional tax laws, refundable credits, and collection of some of the revenues for that. we are implementing the law on the books. we are in the process of

implementing the affordable care act. obviously, if something happens and changes, we will move similar to the 10-99 issue that was in their courage we would have been prepared to implement that. we started to do a small amount of planning, it was repealed, we stopped. >> time for is -- time frame- wise, why happens incrementally between now and 2014, or its full employment asian? do you go through a series of additional -- so implementation. do you -- full implementation? do you go through a series of additional processes? >> connected with state exchanges, that is our biggest list between now and 2014. technology is 82% of the request

in the 2012 budget. it is building the infrastructure to help out with state exchanges, so that when people are registering, they can find out their eligibility for tax credits, sign up for tax credits, and then we have the information flows, the money flows, to be paying those i regular basis. then, there is some tax law in the affordable care at that we need to implement immediately. there are a lot of immediately- effective provisions, such as a tax on its hands a lot of. that was implemented, and right now we are doing outreach to them. we are doing outreach, education, and then we will have a compliance program. there is a credit for small businesses to help them buy insurance for their employees. there is a tax on branded

pharmaceuticals, which right now we send out the initial bills to the branded pharmaceutical companies for that, and there verify the data. it is based on government purchases. so, there is that kind of for, but that as a small amount. between now and 2014, there will be the immediately-implemented tax provisions, but the big lift is building the technology infrastructure to be able to interface with the state exchanges and the insurance companies around the $400 billion of refundable credits. >> that is required in 2014? >> yes. the open enrollment will happen sometime in 2013, and if you scope a systems build, and you basically need to lock down requirements, then do your build, then do your testing, so there is a huge lift in 2012 around requirements and build,

because by 2013 you should be testing the systems. >> mr. chairman, perhaps my last question is related to the national taxpayer advocate's testimony. she raised a couple of issues for me, talking about customer service, taxpayer service. for irs's fiscal year 2010 mention -- management, a collection related to enforcement activities totaled a 34% increase over 2004. by contrast, noted that the irs answered 74% of all calls of taxpayers seeking to speak with a taxpayer assistant. so, a decline of 13%. so, less access to the allied person on the phone is i think

what the point -- less access to the person on the phone i think is the point is being made, and then the sentence that the backlog of correspondence and tax adjustment inventory has jumped by 76%. the percentage of the uncontrolled respondents received, but not yet entered into the irs computer system, has increased by 134%, and the percentage of correspondence has increased by 135%. what does that mean? >> sure. as i mentioned at the beginning, i take very seriously at the best majority of americans are wrestling with a very complex tax code. their interaction with us is file a return, and get a refund. i think about it, and i talk about it internally. we need to answer the phones,

have websites that war, process paper, and do all of the things you need to do -- that works, have process paper, and do all the things you need to do to serve the american people. asked right now, we are operating with 1200 less people that we were at end of last year, because we are under cr, and our budget was reduced. we have allocations to enforcement, which has ring around them, because they have a direct, revenue-producing defect. the reality is our taxpayer services also having a revenue? all of those accounts help to get the two $0.30 trillion in revenue. we are trying to get a mix. the phone calls -- i think we

are actually doing ok. we need more people to answer more phone calls, and we did not get the request last year for 2011, and we put the request and again for 2012, which will bring up that level of service. we use this thing called the level of service. that is not in the taxpayer satisfied with the service. we have a 96% customer satisfaction rating and our phone calls. we have introduced a few things, which is drop the level of service, but increase the decrease wait time. if a taxpayer calls and hangs up, that is not in our percentage. our paper inventory has been growing because we have less people processing. the way we try to balance it is that between march and april we answer of the phone calls we can

until paper gets back up, and then we catch up. this request is for more customer service folks. in a people to process it, look it up, and make decisions about where things go. that has gone down to read i have always lenient and said -- i have always leaned in and said technology is the key, and we need to invest in technology. phones, paper, and the weather pep boys -- the web has to be invested in. frankly, the conversation that ends up happening is that there is always a tendency to put money into enforcement. i think you are pointing out, and the taxpayer advocate is pointing out that we need to keep our eye on a balanced program. i think the president's program is balanced, and will boost

those numbers, so we will be serving people better. in tough budget times, there will be longer wait times. >> are there more inquiries over time? >> it spikes based on different kinds of provisions. we had a huge spike in 2008 when we sent out the stimulus checks to every american. you had a phone call volume spike in, and our level of service plummeted. we have had kind of study -- if you look of the affordable care act request, technology, and service, and making sure people understand how the world's worked, is to the bulk of the request. >> thank you, mr. chairman. >> none of us ever been accused of being in a tanning booths, so i think you can go forward with your outreach without us being

effected. i want to ask -- the taxpayer advocate has estimated that it takes americans about 6 million men hours a year to comply with texas, which is about 3 million jobs just complying with federal law. when we look at how people then comply with this law, i get practical way, about 60% of the individuals are hiring someone outspread 29% and interactive software. it -- someone else. 29% are interacting with software. it is really a hidden tax on top of the tax they pay to comply with federal law. it seems to be unreasonable to take 3 million americans in a country of 300 million to comply

with federal law. have you talked about a way to develop metrics, and then through software get it down to 1 million americans, maybe just two billion hours to comply with taxes instead of 6 billion? this is an incredible drag on the economy. >> so, as you know, the congress has the prerogative of text -- passing the tax laws. our job is to administer whatever laws by bombers? and the president signs. >> but me interrupt you. there are two ways to handle complexity. the idea for me is a more flat, more fair tax, which the gang of six might come up with. we will see. the other way is to begin your hands. the american does not play -- pate turbo tax, but they log on to your website in a way that

the software is handling the complexity, and the amount of time spent complying drops like a rock. that is entirely in your purview. >> we were talking about my view that we have under- invested in high-risk technology over 20 years, not recent history. so, i will tell you frankly we need to build some things like our core account data base and get that off of the 30-year platform. we need to build some core infrastructure. we do have available forms that calculate that people can go in and file online directly with us. i think there is a big discussion about irs having software, and frankly, i think it is an administrative discussion, but it is political. >> your total budget is, each? >> our total budget is about $12

billion. >> i think americans would love not to pay turbo tax or somebody else, to develop a software package, my guess, would be $20 million or $30 million job and then put it up for free for americans? >> i do not think it is quite that simple. >> it might actually be even more simple because the software companies have to mix of four calls checking with deal, -- software calls where they're checking with you, where as you can actually own the laws. >> i have a lot of letters on both sides of these issues about whether we should be in the business about the set of tortoises in bed it -- of

choices in added in software. we have a full plate of technology that we need to get done that would build the infrastructure, and would welcome a full-ranging discussion appeared >> chairman, i think it might be something we could work together on. it should not be a theological discussion. permission should be to make it as easy as possible to comply with federal law. this argument should end in an hour, and then you say how we deploy software in a 21st century context of the american gets on, puts in their basic data, files, and does not pay anybody. we are making it as easy as possible to comply with federal law. thank you, mr. chairman. >> thank you. a call from h&r block. [laughter] >> i think that is a valid question.

>> i totally agree. >> if we cannot eliminate the middleman, the middlemen will hate it, but it may save taxpayers money. i'm looking for ease of filing. to put another idea on the table, which will never pass as in law, i may have mentioned to you that about 15 years ago my accountant died in springfield, and i said my text returned -- tax return is not that complicated. i struggled with it for hours because i did not have a computer program. i was using my wits. the point i am getting to is that the complexity needs to be continually reviewed so we can make it within the grasp of

ordinary americans to understand how the taxes are being calculated. there is a mystery associated with that, there is a sense of injustice i am pained, and he is not, that sort of notion. it is expensive to get these tax prepares to do some pretty basic returns. i do not think the senator is off base on this. i want to follow through and see what we can do per. thank you for coming. >> thank you very much. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute]

>> the 11th circuit court of appeals in atlanta heard oral arguments in the case dealing with the health care law passed last year, which was brought by florida and 25 other states have banded together to file a lawsuit. hit was heard this afternoon in atlanta. it will give you a chance to hear the oral argument about 10 minutes online and then on c- span radio, and then again hon c-span in prime time at 8:00 p.m.. tomorrow, our coverage will include the hearing for leon panetta to be the next secretary of defense. that hearing gets underway at 9:30 p.m. eastern. that will be live here, and

spent >> connect with c-span, and, with the latest schedules on twitter, continuing conversations on facebook, political places in washington and beyond, and program highlights our youtube channel. connect today. >> this weekend, the role of fannie mae and freddie mac in the 2008 financial collapse. on a call afterwards," henry kissinger. also, microsoft co-founder paul allen talks about his memoir, " ibm and." -- idea man." >> ryan crocker said today that progress in afghanistan has been

significant but the still fragile and reversible. he was nominated by president obama on april 28. the confirmation hearing was held earlier today.

>> the hearing will come to order. thank you very much. i apologize for being slightly tarty here. we welcome our friend, and our

colleague, senator john mccain. we are delighted to have him here for the purposes of making an introduction. obviously, we are here today to consider president obama conte nominee for ambassador to afghanistan, and i think we are very fortunate that the president has chosen one of america's most experienced and able diplomats to serve in kabul, and we are very fortunate that ambassador ryan crocker has agreed to serve. we are happy to welcome him again before the form relations committee. as everybody knows, in his distinguished career and he has served as ambassador to five countries including pakistan, iraq, and lebanon, and immediately after the taliban's ouster, he reopened our embassy for the first time since 1989. this is a man with experience in their region and experience in

these complicated and difficult tasks. i think he thought he had retired to a quiet life in academia, but the president had another idea, and i want to say how grateful we are ambassador crocker, that you, and your wife christine, were willing to agree to return to public service. obviously, you will live in this post at a pivotal moment in the conflict. we have a critical planning window in front of us right now. this is a critical moment. it is a moment where we have the ability to recalibrate, if that is what is needed, to be defined, and to do the things necessary in the wake of the successes we have had against al-qaida, which was the principal reason for being in afghanistan in the first place. so, in order to ensure a transition, i think there are a

number of things that need to be thought through. last month, we held five hearings on afghanistan and pakistan to examine all of the assumptions driving hours strategy in the region and to help chart a path forward. in two weeks, secretary of state clinton will testify on the administration's thinking and address concerns as the president decides how many troops to drawdown starting in july. he would be very helpful if this committee and the senate could move very rapidly and this confirmation. all just say very quickly -- i will just say very quickly that i think we ought to be guided by certain truths. while the united states as genuine national security interests in afghanistan, our current commitment as either proportional to our interests, and more sustainable in my judgment.

second, our military has made significant gains, clearing and holding in the south, but as the president has said, their french, and reversible -- there for agile and reversible. we have not yet made gains in the east, where threats from groups based in pakistan continues. i will continue to beat this from that the principle equation with respect to our capacity to resolve concerns in afghanistan still lies in pakistan, and will lie in our ability to adjust that relationship, and indeed to create a regional framework with respect to this conflict. i want to emphasize regional framework. third, only a political settlement will resolve this. every military leader has said that. there is no military solution.

reconciliation is not a silver bullet, but we will need to support the government of afghanistan as it tries to engage those willing to make some kind of acceptable agreement. finally, we need to reexamine the current plan with respect to the afghan national security forces, because there are serious questions about science, capability, sustainability, and i think we need to examine those very carefully. also today, the majority on the committee is releasing the report regarding assistance. this is a report meant to be constructive. it is not -- it is a report critical observations, but observations made in the spirit of joint, cooperative efforts, and we appreciate the administrator's responses and

assistance, and we appreciate the administration put the cooperation with us and efforts to address the concerns of we have to read the report argues. assistance need to meet three basic conditions before the money is dispensed. over the next few months, there is a lot on the table for the congress and for the president. ambassador crocker will have an essential role to play in making sure that we get it right. senator lugar? >> thank you, mr. chairman. ambassador ryan crocker returns from -- and retirement to again supply his unsurpassed experience in a dynamic conflict environment. i thank him for his commitment, and i know that he will bring insight and informed adjustment -- judgment to the role.

i should point out this is the sixth hearing the form relations committee has held related to a dentist and related -- in the last two months, exploring not just what does happen in afghanistan, whether our best expenditures represent a rational allocation of our military and financial assets. r g.o.-strategic interests are threatened, not just by terrorism, but by debt, economic competition, energy, food prices, proliferation of weapons of mass destruction, and other forces. solving these problems would be much more difficult if we give both to much resources to one country. the question the president must answer is whether we can achieve the most important national security goals in afghanistan, especially preventing the taliban from taking over the government and

preventing afghan territory from being used as a terrorist safe haven at far less expensive. ambassador crocker would be assuming his post with the obama's a administration review of the afghan policy, and has anticipated a result of some level of troop reduction. this opportunity should be used to do more than just withdraw an arbitrary number of troops. rather, the president should put forward a new plan that includes the definition of success in afghanistan, based on interest,tes' vital and a sober analysis of what is possible. such a plan should include an explanation of what metrics must be satisfied before the country is considered secure. it said also designate and eliminate those activities that are not intrinsic to our core

objectives. the administration's ambiguity on our goals must be eliminated in order to move effectively, and to address our national security interests, and vain to afghans the relationship -- conveying to afghans the relationship we will maintain. despite 10 years of investments and intends to better understand the culture and their regions actors, we remain in the cycle that pursuit -- produces relative progress. in afghanistan, measuring success according to relative progress has very little meaning. i doubt we will make even some process when we are spending more than 1 $90 billion a year in that country. the more important question is whether we have an efficient strategy for protecting our vital interests that does not involve a vital open-handed --

open-ended investments. i will appreciate hearing the nominee's 1 oppressions of the obama administration's strategic review, and how we can review -- improved afghanistan's capacity to defend and governance of derek i applaud and? -- governance. i applaud ambassador crocker's and look forward to his testimony. >> thank you. it is a privilege for the committed to welcome senator john mccain as the ranking member and chair of the armed services committee, there is now ready with more experience on these matters or who pays more attention to them in the senate. i appreciate his taking this time to be here to introduce an best aircraft. >> thank you, mr. chairman, and thank you for indulging me as

to introduce this great american. senator lugar, and members of the committee, it is an honor to introduce the president's nominee to the u.s. ambassador to afghanistan. ryan crocker, a man and stellar record of service to seize an and speaks for himself. i joined the committee and recognize two members of his family who are joining him today, his niece, catherine, and the dedicated woman that is then by his side ever since they were young officers working together in baghdad, ryan's wife christine. i understand the challenges of being a foreign service as koppell, and i know that ryan could not have enjoyed many successes atop the support of christine. they make the task of introducing ambassador crocker quite easy. the u.s. senate has had the wisdom to approve him to the post five times already in

lebanon, kuwait, syria, pakistan, and iraq, and this is only a fraction of ambassador crocker's story. when the u.s. embassy in beirut was bombed, ryan crocker was a young officer who helped pull colleagues from the rubble. when the united states needed to reopen our missing afghanistan after the taliban was driven from power, the secretary of state sent ryan crocker. a few years later, facing the same challenge in iraq, once again ryan crocker was the only man for the job. it is nearly impossible to find other american diplomats who can match his record. i had met ambassador crocker in his earlier post, but where i really came to know him and respected him most was during his amazing tour in baghdad. it is difficult to remember what he was getting himself into.

the violence in iraq was spiraling out of control. dozens of civilians were being killed every day. the ethnic and secretary and battle lines were being -- sect but terry and battle lines are being drawn, and america faced the possibility of being driven from the country and defeat. fortunately, president bush adopted a new policy, and of all of the consequences of decisions he made in 2007, the change of strategy, the surge of forces, the nomination of seven -- general david petraeus, one of the least appreciated was the nomination of ryan crocker. i am sure if you ask the ambassador crocker, he would just say he was doing his part to serve this country. heroes always say that. the truth is what ambassador crocker accomplished in iraq was nothing short of a miracle.

general petraeus has received huge praise for the role he played in iraq, and he deserves every bit of it, but as general petraeus to be the first to a firm, our military shed aegean iraq would never have worked without ryan crocker -- our military shed aegean iraq would have never worked without ryan crocker. he established a seamless partnership with general petraeus and his military leaders, which set the standard for several military partnerships at every level of our effort across iraq. he also established a relationship of trust with prime region with the prime minister and his government, and then you -- with the prime minister and his government and unused that relationship to support the iraqis in saving their country. ryan crocker perform his duties with courage, poise under pressure, a unique ability to

marry strategic vision with tactical effectiveness, and a relentless work effort that literally almost killed him. i commend the present for recognizing there is no better man for the job of ambassador to afghanistan and ryan crocker. i also commend ambassador crocker for answering his country's call to service. in afghanistan today, a new generation of americans, both military personnel and civilians, is writing the inspiring next chapter to the history of our great nation. the challenge to all of us in our time of service is to strive to be equal to these fell americans. -- fellow americans. the president has chosen a man who was worthy. i hope all of you will reach a similar judgment and blow him out of committee quickly, so the full senate can -- vote him out

of committee quickly, so the full senate can affirm and as quickly as possible. we have had the great privilege of having someone else standing americans serving our diplomatic service. americans are probably not appreciative of the enormous sacrifices they make. there is no greater example of that kind of service than the man who is nomination -- whose nomination is before you today. i think the chairman, an apologist for the length of my opening statement. >> senator mccain, and no apology needed at all. i think it is an important statement, and i appreciate the white and the thought that went into it. i think it -- the length and the thought that went into it. it is helpful, and it is important for the record. it really states, and inarticulate, clear way, dss that ambassador crocker brings to this but -- the assets that ambassador crocker brings to

this desk. it is important that i've said those things and you have said those things so the message goes clear that this is a serious person that we all have confidence in bed, and brings a great deal of experience. i think your introduction was frankly superb, and really want. thank you. >> thank you. >> and bessemer crocker, you are flying alone how, -- ambassador crocker, you are flying alone now, but you have done that a lot. we are delighted to welcome your testimony in and you to the committee. you know how it works. you want to put your full record in the statement, it will be placed there, and if you want to summarize, we could have a good dialogue and look for to the questions. >> thank you, mr. chairman, senator lugar, members of the committee, i appear before you today as president obama's

nominee to become u.s. ambassador to the islamic republic of afghanistan. i am grateful to senator john mccain for his most generous introduction, and for his recognition of the foreign service of my colleagues over the years. they have labored hard on behalf of america's vital interests, and sometimes paid the ultimate price. i am also grateful to the president and to secretary clinton for placing their trust in me. if confirmed, i look forward to cooperating with you to advance america's interest in afghanistan. i had the privilege of opening the embassy in kabul in 2002, and as you noted, i worked closely with president carter early- karzai in those - days. if confirmed, i look forward to renewing the relationship, and working together toward that

vision. i also have the honor of serving as the u.s. ambassador in pakistan from 2004 to 2007, which developed my understanding of the region, and which, if confirmed, i hope will be a useful asset as we work with our regional and national partners. as we know, our core goal in afghanistan and pakistan is to disrupt, dismantle, and defeat al qaeda, and deny it safe haven in those countries. osama bin laden's death is an important step. much work remains to be done to ensure that al-qaida can never again threaten us from afghanistan with the taliban providing safe haven. our efforts to pursue this goal are focused on free military, civilian, and diplomatic services all aimed at stabilizing afghanistan so it

will not become a safe haven for terrorists began. military and civilian surge as the president obama announced in 2009 still momentum from the taliban-led insurgency. today, more and 1100's civilian experts are serving alongside our troops to help establish conditions for sustainable and irreversible security responsibility to the afghan government. if confirmed, it will be an enormous privilege to serve with this -- with these courageous and committed americans. working together with the government of afghanistan and our coalition partners, we have made significant progress, but as you and the present have noticed, this progress is still fragile and reversible. enormous challenges remain -- governance, rule of law, narcotics, sustainable economic

development, including the employment, increased revenues along with the capacity for the government to provide basic services such as education and health care -- fell year in some of these areas could mean the failure of the state, and a creation of an environment where strategic enemies can regroup. making progress on these issues has been hard, and it will go on been hard, but hard does not mean impossible. secretary of defense robert gates has noted that we walked away from afghanistan once in 1989 with disastrous consequences. we cannot afford to do so again. ultimately, all of this will be an afghan responsibility, realized through irresponsible transition. a key u.s. priority in afghanistan as supporting the afghan-led transition process that was agreed upon by the afghans and nato partners at the november, 2010, nato summit at lisbon.

this process will enable afghanistan to systematically assume full responsibility for their security across afghanistan by the end of 2014. the transition process will begin this july with a transfer of lead security responsibility to the afghan security forces in seven provinces and municipalities, which scientists can contain roughly one-quarter of the afghan population. -- which i understand, contain roughly one-quarter of the afghan population. i will continue the responsible transition. alongside this transition process, the afghan government has launched a peace efforts to reconcile insurgents. president karzai launched a high-piece council. the united states supports this effort. or the last two years, we both have laid out -- over the last

two years, we both played out our outlines -- renounce violence, abandoned alliance with al qaeda, and abide by the constitution of afghanistan and as protection for all afghans, including women. if former militants are willing to meet these red lines, they will be able to participate in the political life of the country. if confirmed, i will work closely with ambassador grossman and embassador -- ambassador munter to continue support for an afghan reconciliation process. i will continue to support reconstruction, economic development, and the strengthening of key institutions critical to ensuring the present transition is sustainable and irreversible.

we look forward to a long-term relationship with afghanistan, and have initiated negotiations on a strategic partnership declaration with the afghan government in march of this year. this political framework document will help normalize our relationship, and provide a road map for our political and security cooperation. we respect afghanistan's proud history of independence and do not seek a permanent military base in their country or a presence that would be a threat to any of their neighbors. in closing, i want to think this committee for the support it has provided and continues to provide for the vital europe -- vital work of the u.s. mission in afghanistan. as you know, mr. chairman, you have held a series of hearings over the past several months to examine our policy in afghanistan and pakistan.

if confirmed, i will listen to your guidance and continue a dialogue with congress on our progress. in that context, i would note i have just received a copy of the report you cite. if confirmed, i think i know where that dialogue is going to begin. i will also ensure that the precious u.s. taxpayer resources being used in afghanistan are applied effectively, transparently, and with an eye toward long-term sustainability of these efforts by the afghans. as the secretary said at the asia society, the united states is not walking away from the region. we will not repeat mistakes of the past. our commitment is real and enduring. as we approach the 10th anniversary of the horrible attacks of september 11, it is a time to remember those who died and honor the sacrifices so many

americans have made, military and civilian, to make sure afghanistan never again becomes a safe haven for terrorists from which they can attack america. thank you, mr. chairman, members of the committee. i look forward to your questions. >> thank you very much. that last sentence hit me and i want to come back to it in a minute. let me say first of all that i support and agree with the transition process that will begin this july, with the lead responsibility going to afghan security forces in seven provinces, representing 25% of the afghan population. clearly, the taliban are trying to disrupt that with increased violence in the last days, targeting governors and high- level officials.

i also am particularly supportive of the afghan- initiated peace process, the reconciliation president karzai has initiated last year, and the things coming out of it you mentioned. my concern is a little bit in pinning down our own definitions here. the breadth of some of what you have said, particularly this notion, "ensure afghanistan never becomes a safe haven for terrorists from which they can attack" -- i think we have to bear in on this question of what that really entails. what is a safe haven? how much guarantee is there? to the degree there is a safe haven, if that is what we are worried about, and we want to

spend dollars most efficiently, the safe haven is the western part of pakistan. we are spending $120 billion in a country where there is no safe haven, and $2.80 billion where there is a safe haven. today, there is a safe haven. there is a network. these folks are the problem. they are the ones responsible for most of the violence taking place in afghanistan. i think the question is how do we get this right. what i saw when i was there a few weeks ago convinced me that if all we do is the current paradigm, where attacks are launched out of western pakistan, we are not going to find a very successful road here. i would like you to comment on that.

>> thank you, mr. chairman. these are very important points. i have said in testimony before this committee, during that brief but have the interlude when i was out of the service -- you cannot really succeed in afghanistan without a fair measure of success in pakistan. that is why i think your legislation, the kerry-luger- berman legislation, a multi-year commitment, was so important. these are hard problems to solve. i have wrestled with them as ambassador to pakistan. i had numerous meetings, as you have had, with the pakistani leadership to press on niihau, network -- on the hakkani

network, clearly with limited results. i think that is why the administration has been right in talking about the two nations together, and having ambassador grossman succeed ambassador holbrooke so you have an approach that crosses the border. certainly, that is what the militants are doing. how to crack that conundrum -- sir, i know you have made huge efforts in recent weeks. we will have to see whether the pakistanis do take these efforts. i look forward to working with ambassador munter because we face a common problem. the last thing i would say is,

quite frankly, the reason most of the problem is in pakistan and not in afghanistan at this time is because we are in afghanistan. as we go through a responsible transition, it has to be, as the president and others have said, conditions based to ensure that as we draw down our forces -- and i am keenly aware from my consultations of the mood and both here on the hill and publicly. there has to be a transition. but at the end of the day, we have to be sure the safe haven does not then relocate from pakistan to afghanistan. >> i have said that. the question is does it take 150,000 troops to guarantee that does not happen.

>> mr. chairman, that is again a question that the president will speak to. i am not part of those deliberations. >> that is an unfair question. it is a question that is on the table, but i understand you are not part of those deliberations now and do not expect you to answer it today. in your testimony, you say enormous challenges remain, including corruption which undermines economic growth and credibility of the afghan state. there needs to be sustainable economic development, including employment capacity and the ability of the government to provide basic services. failure in some of these areas can mean failure of the state, and the creation of an environment in which our enemies can regroup. can you narrow that down for us?

in which of those areas would it bring failure of the state? what is essential to the accomplishment of our goal? >> i think clearly the issues of governance, rule of law, and corruption have to improve if afghanistan is to go forward as a stable state, charging its own destiny. >> are you saying this has to be part of our strategic goal? >> i think corruption -- i draw on my erotic experience. -- iraq experience. unchecked corruption becomes a second insurgency. it undermines confidence on the part of the people in their government.

it makes groups like the taliban look attractive. mr. chairman, we are not out to clearly create a shining city on a hill. that is not going to happen. that would apply to all the sectors i mentioned. but there needs to be progress. we went through the same thing in iraq. we chipped away at it. over time, we got them to take some measurable if partial steps on the issue of corruption. you have a situation in iraq today that is not, again, a city on a hill, but where they have a good chance of carrying forward without u.s. forces on the ground. it is the same kind of dynamic that i think we have to go through in afghanistan. >> do you think that billions of dollars coming from america that

are spent through contractors which do not have adequate oversight contributes to corruption? >> it is certainly something i will take a careful look at. i have met with the state department's inspector general's. they did a recent report. we have your staff report. i have spoken to colleagues in government. it is clear there is a need for more contracts and officer representatives. state and ade recognize this -- and a.i.d. recognize this. as the staff reports note note, there is an afghanistan initiative for transparency. there clearly have been

problems. equally clearly, there is a recognition that we have to be part of the solution, not part of the problem. i am encouraged by what i have heard of the steps that have been taken. >> ambassador crocker, we discussed, and you said in your opening statement, there was a possibility for passing over control of military and police functions in seven provinces, 25% of afghanistan. this is the first of such transitions in the coming years, hopefully occurring before 2014, i believe, in the current plan. i want to ask about the whole conduct of the afghan state, and how the budget of afghanistan is put together, how this is paid for.

in the case of the military and police, training has been paid for, largely if not completely, by the united states and its allies. the sustenance of all of that will be expensive. beyond that, i would like to know more about the commerce in afghanistan. that is, how do ordinary people make a living? what industries are there? what investment has been coming into the country or generated by profits or success in the country? the reason i ask the question is that many stories about afghanistan's economy indicate that the income coming into that government is pretty low, given the ambitions of afghans and the united states and its allies. on the military side, expense

has been accounted for. with regard to the civil side, the thought has come from president karzai himself in personal visits with congress that afghan has remarkable -- afghanistan has remarkable natural resources that might be found, exploited, and sold to others in due course, but that would require investment in the safety. -- in the safety of investors. some of them may not be friends of ours or may have typical -- different foreign policy views. as you survey the scene, how is afghanistan going to raise revenue? secondly, if afghanistan is not able to raise revenue, are you,

in preparation, working with our state department, our officials, on some estimates as to what obligations the united states may have for many years to come? not the military idea of 2014 or thereabout, but we have said as a matter of common sense our obligations will last for a long time, a decade or decades, as the case may be. this has to be an important part of our calculations as members of congress working on budget plans for the united states. this could be a major factor. if we do not get it right, it could have very grave consequences on afghanistan, or their expectations that american support might be forthcoming.

can you discuss this general area? >> thank you, senator. it is very important, and as you note, a very complex set of issues. again, at this point, i have, shall we say, an imperfect understanding of exactly how afghanistan works. i have not yet been confirmed and have not gotten out there. i did note employment and economic development, because i think these are critical factors. how does the economy work now? services are an important part. agriculture is an important part. i am told that the agricultural sector accounts for 80% of employment in afghanistan, which is why i think we have to continue to support its development in a reasonable way

that leads to, ultimately, and afghan capacity to carry forward. >> what part of that is drugs? >> i am talking about the part that is not drugs, primarily wheat. we would like to see them move into higher yield products, such as fruit and pomegranates, which afghanistan used to be famous for, and which provide a better return to the farmer, i am told, then poppies -- than poppies. based on what i know, i think the administration is right in dealing with the narcotics issue not to emphasize eradication, but economic alternatives that cause afghans themselves to turn away from

these kinds of things. i would make a couple of other brief points on the afghan economy. as you know, there are substantial mineral resources. over the longer term, these can be a significant benefit to the state. but this will take time to develop. as you point out, it will require security conditions. the development of a robust private sector is going to be important. i am pleased to learn that opec is significantly engaged in afghanistan, working on upwards of 50 projects. i would like to see u.s. private investment come into afghanistan. i worked hard on that in iraq, with some success. customs revenues have to pick

up. i know there is a major effort underway from our trainers. the department of homeland security are working with the afghan border police. corruption gets into this. they have to increase their revenues. the final point i would make is afghanistan is a country centrally located in an important region. i think the afghan-pakistan trade and transit agreement was important. i understand president karzai will be visiting islamabad in a few days, i think the day after tomorrow, which is good in and of itself. the leaders of the country's talk through their issues, but i understand one of the issues is

to lay out the implementation of this agreement, because afghanistan as a trade and transit center through pakistan into india, up into the former soviet republics to the north, with iran -- i think all of that can provide a major difference for the afghan economic future. >> my time is expired but i want to underline the remarkable fact you have presented. 80% of the employment in afghanistan is agriculture. that is huge. the success, obviously, of that is paramount. i get back to the fact that you are talking about the development of resources. most estimates made in graphs to congress -- it would appear the

revenues are a very small percentage of the obligations, from a security standpoint as well as a commercial standpoint. so i get back to my problem. how long a stream -- how long will a stream of income from the united states of america to afghanistan have to last? if the military collapses, we are back to square one, whatever the effort to provide that security. we know that as you get out there you will have more to say. >> thank you so much. i recognize senator kasey and pass the gavel because i have to go to another committee. ambassador crocker, i hope you will forgive me. i appreciate your testimony.

we are going to try to move your nomination as rapidly as we can and get the full senate to move on it. we look forward to getting you there. i think you again for being willing to come in and do this. >> and thank you very much and thank you for this hearing. ambassador crocker, it is good to see you again. we are grateful for your public service and your willingness to commit yourself to another very difficult assignment. i know you are not only prepared, but i have total confidence you will be confirmed and should be confirmed, because we need you there. we need you on the ground. i want to raise a couple of questions. i also commend the commitment your family makes when you take on a tough assignment like this. but i wanted to bring you back to a meeting that you and i had.

i have spoken about this a number of times. but i keep coming back to it because i think it has a lot of relevance to not just our policy in afghanistan, but where we are now, this year, this summer, making some difficult decisions , congress, the administration, and the american people. the setting was in iraq. it was a small group of people. you were there. it was august of 2007. i was complaining at the time, very bluntly, about the language used to describe progress in iraq -- victory and defeat, win or lose -- all language which i thought was inappropriate and sometimes misleading, i hope not deliberately so, at the time in washington.

i will not cast blame on hewitt -- on who used the language, but a lot of folks did. it was wrong then and is wrong now. i asked you at the time what language you think is appropriate to the mission. you said at the time, and you gave a very cogent answer, but what i remember most is you said two words -- sustainable stability, which has stayed with me ever since. i would ask you in light of this mission, which is frankly more complicated and difficult that iraq, with a different set of priorities and challenges in afghanistan. but i asked you in light of some of the real numbers that folks have estimated, comparable numbers around the country -- we

are at about 70 killed in action. 69 is the last number i saw, but it could now be 70. that is a third of where we were in iraq. we fell just short of 200 there. we are about a third of the killed in action in iraq in afghanistan. my my numbers in pennsylvania are again about a third of the number in iraq as it relates to the wounded. what the people want to know, taxpayers and the families that have loved and lost, or families that are contributing the time and sacrifice of their loved ones, is what is the mission and what is the goal. i ask you to comment on that, in

light of the discussion we had in 2007. >> thank you, mr. chairman. i do clearly recall that conversation. that was shortly before the september 2007 hearings that general petraeus and i took part in. as you may recall from that conversation, i was not among those who have ever used the words of winning or victory -- not then, not now, not in iraq, not in afghanistan. sustainable stability were words or a concept i stood by then and would stand by now in the case of iraq. another way to put it is "good

enough governments," governments that is good enough -- governance that is good enough to make sure the country does not degenerate back into a safe haven for al qaeda. that is what i was attempting to get at in my conversation with chairman kerry before you arrived. there is no intention i see in any of my consultations here -- i did not come with an intention to produce the perfect society. we cannot. but i think by judicious use of resources and conditions-based redeployments and transfers of responsibility, as we will begin this july, we can get to that sustainable stability. i have always been and always

will be frank and open with this committee. it is my responsibility as an official, if you choose to make me one again, but even as a citizen. past,ook at afghanistan's the 50 years of relative tranquility from 1928 to 1978, afghanistan did require outside assistance. we provided some very important contributions to their economic development that are still favorably remembered, through the program which later became usaid. i am not well informed enough to lay this out as a thoroughly considered view, but i would anticipate, and this gets a bit into what senator lugar was

touching on, that beyond 2014 there will be a requirement for outside assistance from the international community. i think part of our obligation is being sure that the international community continues to understand they have a great deal at stake. this is not an american problem only, or an american obligation. that is how i would do it. it is going to be incremental. it is going to be issue by issue, case by case, as to what sustainable stability and good enough governments -- governance >> thank you. i am over on my time, but i will ask in the second round about how we measure that. that's something a lot of the american people are concerned about.

>> ambassador crocker, first of all, thank you very much for your service. you have served our nation with great distinction and thank you for that. i thank you for your willingness to come back into public service and i can think of no one who is more qualified than new. as everybody is suggesting, afghanistan needs to change. the u.s. role in afghanistan needs to change. we could talk about the military aspects and the fact we are looking for a redeployment of our combat troops starting in the next month or two. we expect we might be able to accelerate that, considering the current status of terrorist organizations operating in the region. having said that, want to

concentrate on the other part of our role. we have had a military presence, but we have also had an effort to provide economic development assistance to the people of afghanistan. i know you just recently got the report commissioned by this committee. but let me share with you some observations that it is critical of the long-term stability of our people in afghanistan and questions whether we are operating with a leadership team in afghanistan that can deliver the type of economic promise for the people. worse than that, we are creating an arbitrary economic activity in the country based upon an economy that will not be sustainable and we are in fact

creating an inflationary system in afghanistan that will cause a serious problem as we transition to a country that can take care of itself, admittedly with international assistance. i do not deny the long term need for humanitarian and economic assistance to the people of afghanistan. my question is one of how you see your role as ambassador to assist us in being able to evaluate how we can transition the u.s. role and be as helpful as we can so that the afghans can take care of their own people and we have a strategic ally in our war against terror. how do you see using the information you will learn more know from the region to assist in helping us, the united states senate, in transitioning to the

next phase in afghanistan? >> thank you. that is clearly an important question. i see my responsibilities at a number of levels. we areit's ensuring properly organized as a civilian mission and as an embassy to ensure if our assistance is accountable and effective. effective for me means it has to be about transition, building afghan capacity, helping the afghans carry forward without the assistance at this scale in the future. i know that the administrator

and the deputy secretary have provided some responses already to this report. i have not had the chance to go through it in depth. but i know it will be useful to me if i am confirmed, looking at how we are structured and deployed, looking at our programs and being sure they are effective. to the end of sustainable stability with the afghans increasingly taking the lead. obligation begins at home, within the embassy. the second thing i will be focusing on is developing a partnership with the afghan government. our programs have to support their vision and have to be sustainable by them.

i know that we already have in place several mechanisms, formal mechanisms that focus on transition. this is a major concern of president karzai. he has chosen a man i have come to know in my days in afghanistan precisely so we do not create the unsustainable wartime economy. i enter san usaid and other donors have already taken steps to ensure they are not inflating salaries. i think that would be very important. the worst thing we can do is be competing with the afghan government for talent. it needs all it can get an lot more to function as the government.

that would be another key part of it. it is their country. how it moves forward is ultimately their responsibility. i want to establish myself as a reliable partner, but keep the the emphasis on sustainable development and transition, which is what they themselves seek. third, i would say this consultation with ambassador grossman and others, we have a lot of international partners engaged in afghanistan. nato and non-nato, the united nations plays an important role, the special representative of the secretary general perform that role in iraq and i cooperated closely with him there and look forward to doing the same afghanistan. as i said earlier, afghanistan

is not a uniquely american problem. it is a threat to international peace and security and requires an ongoing international commitment. what role i play in that is still something to be sorted out. its something where i will have a role to play. >> thank you for your answer. is going to be a real challenge. we are not necessarily paying salaries are competing with the afghan government. we are paying salaries to look like we are giving cash bonuses well above reasonable salaries to make friends with afghans which ends up supporting a corrupt system. thank you. >> thank you, mr. chairman and mr. ambassador, i'm here at of respect for you as a person in the role you have played in much of our foreign policy.

we had an extensive conversation in our office. generalpetraeus has asked we support operations 3 this fighting season and generally speaking, people are willing to do that. certainly among members of people here, we are expecting pretty dramatic changes at the end of this fighting season and expect and no you will help guide those changes in to replace. all of us know the model we have in afghanistan is not sustainable. for multiple reasons we have talked about. i'm here to thank you today for your willingness to do this. i don't know why you would come back and do this other than your a great american and we thank

you again. i know there are numbers of questions we can ask you a you cannot answer yet, but i think not in know -- it's patients, but there's a great degree of us knowing what we are doing there is not sustainable. it is greatly changing the character of the country that your knowledge will help build a partnership that does not exist in a way that impacts pakistan as well. thank you for your willingness to do this. >> thank you. >> thank you, mr. chairman and, ambassador, let me pylon with everyone else. you are clearly a national treasure here and we are happy to see you going over into that part of the world. i think what my major concern is, and you and i, is how we

really define our strategic objectives in afghanistan and how that matches up with what we are able to actually accomplish in a cost-benefit way. i think that's one thing you are hearing from a lot of people right now. how much do we actually need to achieve in afghanistan with respect to our national interests? how much do people want to achieve that may be above what we need to? we're getting into this area of nation-building -- how much can we achieve and how much of that benefits are strategic objectives? that is what i've been struggling with for more than a year now. i don't know if you saw a column peggy noonan wrote recently for the "wall street journal" -- it

has been a few weeks and i do not have it in front of me -- she's not a radical. she was one of the bright lights of the reagan administration which i was proud to serve. one of the strong comments she was making was that if there is a nation in the world that needs nation-building right now, it's the united states of america. when we are putting hundreds of billions of dollars into infrastructure in another country, it should only be done if we can't articulate a vital national interest because we quite frankly to be doing a lot more of that here. time is short, but could you please articulate for us your view of the strategic interests in -- the strategic is surest of the essays in afghanistan and how -- strategic interests of at the united states in afghanistan and how we can achieve that strategic objective?

>> thank you. that is, of course, the essential question. as i said in my statement and as the president and others have said, our ultimate strategic objective is to disrupt, dismantle, and defeat al qaeda. in the afghan context, to ensure afghanistan never again becomes what it was before 9/11 -- an area where which al qaeda can reconstitute itself under protection of like-minded elements. >> but you can -- i watched your opening statement from my office and i do not disagree with the objective. you can pretty well fight international terrorism without remaking an entire societal structure. within to agree?

-- wouldn't you agree? you can end up in that region plagued wachtel -- playing the whack-a-mole. what is the ultimate objective with all these crown forces and infrastructure programs in terms of the long-term advantage? >> again, an important and multi-faceted issue. what we have seen with the additional forces and the effort to carry the fight into enemy strongholds is tangible progress in security on the ground in the south and the west. this has to transition and we are seeing a transition of seven

provinces and districts to afghan control to sustainable afghan control. you can already see what we're trying to do. province by province, district by district, establish conditions where the afghan government can take over and hold ground. you are absolutely right. you do not have to build a whole nation to achieve that. >> international terrorism and goal warfare in general is intrinsically mobil. i fought a guerrilla war in vietnam and i have written about this for a long time. securing one particular area does not -- i do not say this critically, i just say this out of concern or the policy is going. it does not guarantee you have reduced the capability of those

kinds of forces. they are mobile. they move. the reason they're international as they do not align themselves with a particular government structure. i want to lay that out as an area of continuing concern. i mentioned when you visited my office that we tend to speak of the conciliators in this region simply along the pakistan- afghanistan-india axis when i believe there is a role here that china could play if they would stepup to the mat and be a little more overt in their willingness to participate in these types of solution. they will clearly benefit if there is more stability in the region. what are your thoughts on that? >> that's a great point, senator. as we talk about the three

elements of our strategy, the third one is very much involved in regional engagement. i would join you in including china in that discussion. the chinese, as you are aware, have the copper concession in afghanistan. ok. that's great. you can only make that payoff for you if the conditions on the ground permit its extraction and transport. >> when we have a long relationship with pakistan. some people would say it's overstated. clearly, they do and in fact, when chairman kerry returned

from pakistan, the -- a stated china was pakistan's greatest friend. i wish you the best. i am grateful you are undertaking this. i look forward to visiting un perhaps continuing our discussion. >> thank you. >> thank you. ambassador crocker, i join my colleagues in thanking you for your willingness to continue to serve the country and i certainly stand ready, and i draw all of us do, to be helpful to you as you take on this new assignment. i know you have not had a chance to review the report was released this morning from the committee. but i think it does provide a renewed perspective on how difficult the challenges are in afghanistan. particularly the civilian challenges. much of that has been discussed

by others here. but the report certainly underscores the need for our reconstruction projects in afghanistan to be necessary, achievable, and sustainable. i know there have been some concerns about the project's undertaken. i certainly share concerns about how those dollars are distributed. i, like others, have called for a number of steps to address more accountability in afghanistan. i'm very pleased to see the overall of the special inspector general for afghanistan reconstruction. that's something i thought was long overdue. the appointment of the senior civilian representative to serve as a counterpart to the military commander there.

i know you have not gotten on the ground there, but i wonder if you can assess at this stage what difference that might be making in afghanistan and what you would expect your relationship as ambassador to be with those two civilians counterparts there? >> thank you, senator. i join you in a concern for accountability. i was ambassador in iraq, as you know, and i think we all learned a lot of hard lessons. i would hope to see those lessons being applied in afghanistan and i think they are. to the initiatives you note and others i mentioned earlier, the

usaid ford initiative, operation -- ford initiative, they run the betting mechanism for contractors, the accountable assistance for afghan initiative and so forth. one of my first consultations was with the state inspector general. i had a very close working relationship with ahead of [inaudible] in iraq, who have a lot of regard for. i am pleased that they seem to be moving forward with real capability and, if confirmed, i look forward to welcoming the general accountability office which i understand plans to set up a permanent staff in the fall.

all of these institutions, the state ig, , the gao, they'll have an important responsibility in assuring oversight and accountability. you know the phrase -- we are here to help. sometimes help can be painful but in my experience in iraq, i found that kind of oversight to be absolutely essential going forward and if confirmed, i will employ the same approach in afghanistan. >> are their experiences from your time in iraq that you think can be helpful in terms of coordinating all of these efforts? for those of us looking at what is going on on the ground, there are a lot of people they're trying to address oversight and

accountability, but how was all that being coordinated? we know we have general petraeus, but is there a similar structure on the civilian side and is a comparable? >> thank you that question. it is an important one. basically, there are two and only to u.s. commanders in afghanistan as there were in iraq. when military and one civilian. the civilian commander is the u.s. ambassador. i would like to say that as i have consulted, i think the ambassador has done an amazing job in the swift from but of the civilian presence in ensuring it has been done in an orderly and organized manner.

obviously, if confirmed, i will need to make my own assessments. but my sense is he has handled a huge challenge with great care, thoughtfulness, and ability. there are micro coordination issues and this might be what you are referring to. i have an obligation to see the entire u.s. mission is effectively carrying out its various roles. i also want to be sure that the accountability element of this, the different inspection agencies are themselves coordinated. we had to wrestle with this in iraq. we did not have different inspectors inspecting the same thing and not working in coordination. there is also a whole military

inspection apparatus that has to be woven into this. as i did may it -- as i did in iraq, have a responsibility to see the whole mission is operating effectively. i give you credit to ambassador i could marry. -- to the ambassador. to this specific issue the oversight mechanisms are working as a team and not in isolation or competition with each other. >> thank you. >> thank you. i will join the other members of this committee in thanking you and your family for a willingness to come out of retirement and take on another vital mission to the allied states. -- to the united states. i'm encouraged by your successful previous service in iraq in the difficult circumstances you negotiated there. i was concerned on why -- i was

concerned by one visit to afghanistan to hear repeatedly about our generational commitment to the stability and security of the nation of afghanistan. in your opening testimony, you cited secretary gates'comments that we walked away from afghanistan in '89 with disastrous comments. i think in the previous comments, a number of us are trying to get at the question if we're not going to walk away, how long are going to stay and at what level? there is a lot of focus on the immediate decision of a drawdown, but i am equally if not more interested in the post 2014 structure and what it looks like. i was surprised to hear in country assertions that we were committed to sustaining a more than 300,000 number afghan national security force, which meant paying for it and a sustained military presence for the foreseeable future, a decade or more.

you also made a comment that we are not seeking permanent military bases in afghanistan. i wonder, just as my first question, as you would comment on achieving a u.s. -- in iraq, you achieved a strategic agreement that allowed for long term stabilization. what importance is there in afghanistan to our having a long-term u.s. coalition military presence? where are we headed for attaining strategic regional abilities and how sustainable past 2014 is the assistance required to support 300,000 nsf really is. >> a few questions. >> nothing difficult at all. these are shared questions many of us are confronting. >> they are the mega questions

and they are important ones. they are ones that if confirmed i will be very much focused on since i would expect to be out there for a couple of years. i'm not ducking her by saying i just don't know the answer now. i do think we have an interest in ensuring the country does not backslide. that it does not become al qaeda safe haven. i think we all would share that. the trick is how do you do it and how much does it cost and how long does it take? these are questions my colleagues and i will have to work on. we are accountable to you as you ask them.

i think as we saw in iraq, by going in big, you can come out small. iraq has oil and it always helps to have oil, besides the corruption issue, they can pay for a lot of things the afghans cannot. i believe this strategic partnership declaration process is important as the strategic framework agreement was in iraq. let's both countries know where they want to move in the future. obviously, the spd is going to look different from the framework in iraq, but broadly speaking, it is intended to serve the same purpose. in ter