>> on this question of where you get to that sweet spot in order to increase growth to the greatest degree possible and get as many american workers employed, i want to get your thoughts on the territorialcenti gazillion hours on this -- senator gregg and i spent a gazillion hours on this and this is not an exaggeration. or someone generate a profit over here and books a profit over there, and i came to the conclusion that competitive rates solve a whole lot of problems. maybe it should be something else and i am open to that and continuing to look at a

territorial system. but is it fair to say and that seems to be in line with your study, setting the effective marginal rate, that the competitive rate will solve a lot of problems here? >> my work on the 1986 tax cut was about the personal cuts rather than corporate. >> right. >> i was the coordinator of the president's economic recovery advisory board for president obama's tax steady. we spent a fair amount of time looking at and listening to witnesses and talking to treasury officials and others on this question. i refer to the section of the report in my written testimony. i was struck every time by the fact that the united states with one exception is the only oecd

country that does not have a territorial system. when i think how easy it is for a french company or a german company to do cross-border investing -- after all, they have all of their neighbors there -- and they find it favorable and they create manufacturing jobs in their own economies. i can see the pros and cons, i can see the complexity of it, and yet i am struck by the fact that all of these other countries have chosen to go the territorial routes. >> let me ask one other question if i might, and this one for you, mr. antar. this summer i was struck by how met -- mr. engler. i was struck by how many companies 1 certainty and

predictability -- want certainty and predictability and some measure of permanence. the "wall street journal" says the only thing permanent about the tax system is its in permanence. you have one fix, one temporary band-aid or another proposal -- is there not an urgent need if we're going to have significant economic growth to get some certainty and predictability that you can only get if you have real tax reform? >> i think so and many of our companies think that as well. i believe that certainty -- and i mention regulatory reform and others area -- it is across everything today. but you are completely correct in terms of the tax code. whatever we do, let's make it permanent.

complexity of scoring things, how long this is an effect or not, while we have done with at&t, if all that could go away. -- what we have done with amt, if all that could go away. we could go to a very good place over. out of time and that is another pigmentation on our discussion today. -- to a very good place over time and that is another permutation on our discussion today. it makes no sense to have a system -- a german company headquartered, an american company headquartered, but you -- and we both southern china. a german company sells and they

bring the money home. an american company sells and that leaves the money there because, they are paying and other attacks. why would they bring it back over here? to a permanentng tax reform change, it does make sense to have some sort of one- time repatriations so it is attractive for people to bring that about home. -- that amount home. as we did in 1986, and that is what i was alluding to, with respect urinalysis -- democrats who are plenty liberal and ronald reagan made a judgment that competitive rates and progressivity solve a lot of problems. you have confirmed my thinking that that still makes sense. and beyond that, i am open to working with your organization and others with respect to what

those rates ought to be. at 24%, senator coats and i have produced the only one that has been scored. it may not be the right one, and we're prepared to work with you, but picking up on what dr. feldstein found, the principle that has been proven to create jobs and proven to be a -- to create jobs in the united states, which is what mr. kleinbard has talked about. >> if i could just finish the thought and stretch the example further -- we used to have a deduct tax credit in this country and now what territorial, with the chinese money, that german money can buy something here and if we bring our money home and buy something here, we take a tax hit on that before we can make the purchase. that is why.

>> would you want is respond to that? >> this is a difficult issue and i have spent two years working on it. i agree with governor engler. we want the money to come home. we do not want a system that has $1.4 trillion trapped overseas as is the case today. the current system is silly in that respect. but there are two solutions. one is worldwide tax consolidation. so if you were to reduce tax rates to 24%, from memory and i may be wrong, china's tax rate is 25%. worldwide tax consolidation would add no burden to u.s.

firms doing business in china. the trouble with the territorial system is in the practice. when you start looking at what sophisticated territorial systems like germany have done, they impose all sorts of limitations on the deductibility of interest all over the world, and the member firms of the business roundtable would find distressing. a well-designed territorial system would raise revenue compared to current law in ways that would be viewed as troublesome to multinational firms. >> my time is up. i want it understood that my goal is to reconcile these two viewpoints. that would be necessary to pass the bill berry of i can recall a conversation with the ceo if they really liked the bill.

if you get that corporate rates down to 21%, we are on board. i thought, gosh, i am not in charge of this. the president of the united states is in charge. we will have to have a lot of negotiations to find that sweet spot to be competitive and create family-wage jobs in this country. i think singapore has a rate of 10% or something like that. >> something in that neighborhood. >> businesses know that they will not come down to 10% but we can walk out of this debate with a competitive rate and then get to where you just described, some level of certainty and predictability for your businesses around the country. that is what i found this summer -- getting away from this one- year or another kind of thing.

if we do not get that kind of cooperation that they were talking about, we will have a debate in the lame duck session of 2012 that is just along the line of the lame duck session of 2010. we'll be right back talking about extending a dysfunctional, broken system rather than getting the family-wage jobs that we would have. i look for to working with you on a bipartisan way. >> this is clearly a moment in time where we could get something done with a super committee. senator crapo. >> i appreciate you letting me go next and out of order. with this group of experts present, and cannot resist passing this last question. there have been -- asking this last question. we have to get our deficit under control. we may have some differences as

to what portion of the problem relates to overspending of versus the tax code or what have you. but we now have a special committee operating and it is working to get $1.2 trillion minimum of additional deficit reduction where we have already gone in this kahne -- this congress. i am one of those who believes that is not enough. i believe that because i served on the balls-simpson commission. its purpose -- bowles-simpson commission. the broader picture of how far we need to get is the question i am asking. if you took the $4.7 trillion figure and played it out for 10 years, assuming that congress did not get around it, we would barely have kept our head above water. our debt to gdp would be the

same as it is today, although it will not skyrocket like it would with no action. it seems to me that our nation in terms of setting a target needs to be looking at least in the $4 trillion of deficit reduction now in terms of our plan for the next decade. and i would like asked each member of the panel to quickly react to that. what are target -- what should our target be? how old should we get is we work on some of these proposals? >> i think the $4 trillion is a minimum. one of the reasons is that the current budget projections predict that current services projection of the deficits are two low. -- too.

when you look at history, there is that tendency on the part of anyone who does budget analysis in government to be optimistic. and the problem is that it does not work out that way all the time. and taking a second to comment on this issue of uncertainty, one of the measures that i find very ridding is the fact that currently, if you look at non- financial corporations in the united states, usually they will spend approximately what their cash flow is. today they are at the lowest levels of investment in long- term illiquid assets than they did time relative to cash flow since 1940. -- than at any time relative to cash flows since 1940. this is also reflected in the equity prices, and that the

equity premiums, the measure of the extent of those to issue stock, what they require in order to sell an issue, that equity premiums according to j.p. morgan is at the highest in 50 years. level of uncertainty is deep and it is probably related to the tax issue. you can argue that it is the impermanence of the tax code which creates degrees of uncertainty which makes investment and 20-year assets very difficult to do. before i was in government, i served on innumerable corporate boards in which i was involved in making projections of long- term capital investment. and i will tell you that the degree of stability of long-term tax expectations played a very important role, not in the

average expected rate of return in a particular investment, but its variants. when she put variants on a number of investments, the risk premium becomes prohibited. a focus of this committee and indeed the whole process has to be for once and for all let us get a structure of taxation which is not constantly subject to change and is not constantly subject to things such as tax expenditures which are funding every single thing you can think of, because it is more difficult to get it through the appropriations process. >> what should the target date? >> i thought it should be $6.2 relative to the president's first budget. if the select committee kids $ 1.2 trillion there should be

about $4 trillion left to do. i would suggest that for some of this dialogue, it should be transformed back into the discussion because these trillions over 10 years is too much for people to fathom. but the idea of holding our federal spending to the same level it was in 2007, 19.5% is something most people can understand. and it does add a measure of certainty. but there is a long way to go. on predictability and permanence, two years ago when the case was being made for temporary targeted timely tax cuts, there was a contingent in the budget committee did we needed permanent, predictable, pervasive tax cuts. it created a joke about alliteration but it is where we have come to.

your position is very important to remember. >> if the other three could quickly respond, i would appreciate it. >> the cbo numbers is that we are on a course now which would take us to about an 90% debt to gdp ratio. a reasonable goal would be to get it down to 60% and stabilize it there. it would be better to have it lower. but doing that requires taking out 30% of gdp over this period of time, and that means roughly $6 trillion of last debt that is currently projected. then in order to stabilize at 6%, to get 60%, you need to get the budget down on an annual basis. a if we're going to have 9.2% unemployment rate and the

dpp that cannot hardly get up, we cannot cut and not for tax enough to get ourselves out of the whole over the -- we cannot cut enough or tax enough to get ourselves out of the hole. >> and 2021, and deficits run run -- that is in the ballpark of where we need to be. the trouble is that in doing that, cbo assumed the expiration not just of the individual tax cuts, but also the business extenders. when you add that, cbo assumes $5.5 trillion more in taxes than we are assuming today. and this is something that chairman greenspan emphasized,

of the cbo assumes constant growth. if you want to build in a rainy fund -- everyday fund on top of that, you're talking about an enormous number in excess of $6 trillion. >> thank you. >> tucker feldstein, what you recommend that we do with the bush tax cuts? >> tell me what the economy is going to be light. i am afraid the economy will be very weak. therefore what i think about deficit reduction and reform, i think that we have to do the timing such that we do not take a weak economy and push it down even more. unfortunately, contrary to private and public official forecasts, i think there is a

50% or better chance that we are going to go into a new recession. i think consumers and businesses are not inclined to spend under current circumstances. i am afraid it that that is where we are, it would be a mistake to let those tax cuts collapse. -- lapse. >> anyone on the panel, how like you to opine on this. do you have any favorites among the tax expenditures that you would like to get rid of? that you particularly think are a drag on the economy, and where we can get the most effect in helping not only the deficit situation, but the overall

economy, by eliminating that particular tax expenditure? >> if you want me to just list one, the obvious one is ethanol. to an agricultural economist, it makes a good deal of sense. >> it strikes me fit we have an impossible problem of a sluggish economy and the need to get more revenues. i think we ought to keep in mind the study is made with respect to reducing the fiscal problems over the years. most to study this issue including the imf and a lot of academics have come to the conclusion that, yes, an increase in taxes as a possible solution does contract economic

activity. and cuts the spending is due, but nowhere near as much. -- in cuts to spending -- and cuts to spending do, but nowhere near as much. i think we have to recognize that raising taxes is a problem. if someone could say to me that we will cut spending by the amount of the bush tax cuts, i would say that is great. the issue of the bush tax cuts is not that they are sacrosanct in any respect, but if we go back to where we were before they were enacted, and their enactment in my judgment was mistaken because there was a

judgment there that the surpluses would continue indefinitely. in fact, they stopped in the third quarter of 2001. dealing with that sort of thing you realize that you have a very tough decision to make. if we could find a way to cut spending enough to allow the tax cuts to go up -- to prevent the tax cuts -- that is the best of all possible solutions. but in my judgment, as bad as the problems are, i think they would be worse if we find as a consequence of this very sluggish period, we end up with 110% jeted gdp -- debt to gdp, or something like that. this is possible when you're dealing with entitlements. you cannot cut them in the wake

you cut other spending. it will be a very tough roadw to how. -- row to hoe. allowing all the tax cuts collapse overnight is probably more than i would like to see the economy taking, but to put in place a phased in program at the same time, understanding that the purpose of taxation is to fund its spending. until you get spending down, to an appropriate level of taxation, that is irrelevant. >> anyone else with it favored tax expenditure? >> i would say what he was saying. the studies that show that cutting spending is less contractionary were not

contractionary at all relative to raising taxes, generally those tax increases are increases in marginal tax rates or increases in business taxes. very different from reducing tax expenditures. i have asked the authors to the status, do they have an answer? does that tax expenditure have a macroeconomics effect of a spending cut or ave -- or of a tax increase of the general sort? and they do not have the experience to add to that. my hunch is that eliminating tax expenditures does not have the same kind of adverse effect, because it does not her -- hurt. >> as a governor come -- as a

governor, we had some taxes in michigan that other states did not. one of the things that a study showed is that people are mobile and we were losing people. and other states, tax increases have resulted in a relocation. certain levels of income, it looked resulted in less revenue as they relocated to other states. on the tax expenditure side, we are presenting unprecedented testimony today. let's put them all on the table might use them to achieve what senator wyden mentioned, it getting that rates low. if you start losing these, and

we're counting on you to champion the poaching of these by other spenders or other interests around the contras -- around the congress, who have not studied the issue the way you have. you have to protect them to drive the rate down. if you you lose them, you cannot go as low with the rate. and then you get different distortions. and unequal effects. none of these tactics been ditchers got here by themselves. they were voted in because someone was persuaded they were a good policy decision at the time. now we are saying, let's all come to the table and put everything on the table and flat out get a more permanent, competitive structure. and that is an interesting conversation. >> it seems to me that there is a lot of agreement that the focus on reducing spending

growth should be the highest priority. chairman greenspan indicated you should not worry about going too far with that. but even the proposal that i laid out, which takes spending to 19.5% of gdp, spending keeps growing. the federal budget keeps growing. i do not think it is a problem -- it is not draconian austerity. it is something the american people want to happen pretty highest priority is to do what chairman greenspan would like to do and seemed skeptical about the possibility that we will get there. to which you can there and then worry about the extra revenue. >> at the same time, if you have had a tax code that people consider to be fair.

any other comment about half expenditures here? >> i would not eliminate the so- called tax expenditures for saving and investment that we talked about. similarly i would not eliminated for charitable contributions. -- eliminate it for charitable contributions toward the president's proposal to eliminate to 28% marginal tax rates, i did a calculation based on the state's research done on how terrible war and giving responds, and the government would get additional revenue by putting a cap on, but basically every dollar that the government got came from the charity. the tax payers would not have to spend, because it would cut back their charitable giving by an equal

amount. that strikes me as a bad one. unlike other tech expenditures -- tax expenditures which distorts spending and a bad way, this is something that we as a country ought to be in favor of. >> thank you, senator. i would reiterate the point that dr. feldstein made in his earlier comment. not all tax increases are the same. some tax increases are spending cuts. that is the whole point of this tax expenditure discussing. yes, we need to cut spending, but through eliminating tax expenditures and as dr. feldstein said, just an accident of accounting that we call that a tax increase. the personal itemized deduction will not change the behavior in the same way that raising marginal rates will.

i keep coming back to the idea that for better and worse, and i am sympathetic to the charitable deduction, but they need to be eliminated as a way with doing the least amount of damage to economic incentives to raise their revenue sufficient to support the spending path that we are already embarked on. >> chairman greenspan. >> one issue needs to be addressed on the whole question of tax expenditures. following that 1986 tax legislation, it was very discouraging because i recall elaborate discussions with respect to bringing the marginal -- expand the base and bring marginal tax rates down. and that was achieved in the 1986 bill. the problem is that almost

immediately we began to erode that process. there is something inherent in our political process, which means that we need two things. one, i get rid of a lot of issues of tax expenditures and other such things. broaden the base. but fine the legislative vehicle which prevents it from eroding. if you have the same process as to date that existed post-1986, we may solve the problem and find that we are back in 10 or 15 years adding another take this problem. >> you recall at the outset, i mentioned how many new tax expenditures had been enacted since the 1986 -- >> as i recall, mr. chairman, it

did not take very many days for a number of those things to come back in place, merely because it was so easy to get them through the relatively small -- get them through. there were relatively small and no one recognize what they were. >> i very much share your view on the last point, dr. greenspan. no current congress can totally blind a future congress. but we confine some hoops -- can find some hoops that anyone who would want to unravel tax reform would have to pass through. there is been worked looking at those possibilities. any ideas that you or panel members would have would be appreciated. when you look at what has worked since 1986, some studies show that one change for every working day, you're in, you're

out, which gets us to it -- year in, year out, which gets to what you touched on, the impermanence of it all. had gone to as many tax reform hearings as anyone, and i appreciate that yours is one of the best. >> senator, we are at a moment in time that the body politic is pleased -- poised to allow us to get out of our individual selfish interests. and i do not use the word derogatory early. -- daraa editorial in -- derogatorily.

if this hearing serves to a dance that possibility this year, then it has been a worthwhile two hours. and to all of our panelists, we are deeply grateful to you for lending your expertise. thank you and the hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

[unintelligible]

oc >> they have a very affordable task and i wish them well. -- formidable task and i wish them well. [unintelligible] >> was there something new that you said about the tax cuts?

no? [unintelligible] [unintelligible] >> i understand it is said that under certain stock -- under the current circumstances, there should be at the there should not be a new round of tax cuts right now.

thank you.

>> any given night and america, more than 640,000 men, women, and children are without houses. >> if we have a problem, we have a family, and network, and network of friends or maybe a church or school, we have people who will hold us up if we fall down. on a homeless person has lost all of those contacts. >> the most common stereotype is people are homeless because they are not trying hard, that they

are lazy or victims of their own lack of initiative. >> should the federal government spend our tax money to help these people? >> there is an important role for the government to play in poverty and homelessness. some people feel that the government should stay out of this work. that churches should be doing it all, or people should be on their own and there should not be helped in any way. i really do not believe that. >> that is one the winners from last year's studentcam competition. you can see all of the winning videos online at studentcam.org. this year's competition is under way, the topic -- "the constitution in new." >> this weekend on american history 3, celebrate constitution day with actor richard dreyfuss from the byrd

center for legislative studies. some of think the union war effort was financed by california gold. from oral histories, recruiting women for high-level government jobs. look for the complete we can schedule at c-span.org/history. click the c-span alert button. >> last week, fbi agents searched the headquarters of the solar manufacturing companies solyndra after it filed for bankruptcy. there will be an oversight hearing on a energy department loan to the company, part of the 2009 stimulus package. live coverage of 9:30 a.m. eastern on c-span3. later in the day, a hearing to

refinance or restructure mortgage loans in trouble. david stevens is among those testifying. live coverage starts at 2:00 p.m. eastern from the senate subcommittee on housing. >> next they had the congressional budget office testifies before the joint deficit reduction committee. he talks about the history and challenges of the federal debt. he is introduced by senator patty murray. >> with that, we turn to our witness for today, dr. douglas elman door, the eighth director of the congressional budget office. before he came to cbo, he was the senior fellow in the economic study at brookings institution.

he has served as an assistant professor at harvard university, a principal alan analyst at the congressional budget office, a senior economist and a deputy -- assistant secretary for economic policy at the treasury department. in those positions he has gained a wide variety of expertise in forecasting and many other topics. i'm very glad that he has agreed to join our committee here today. dr. elmendorf, thank you for helping us get through this and we look forward to your testimony. >> thank you, senator murray, and all the members of the committee. i appreciate the invitation to

talk to you about the economic and budget outlook and the cbo analysis of the budget choices facing this committee in congress for the federal government is confronting significant and fundamental budgetary challenges. the current policies are continued in coming years, the aging of the population and rising costs for health care will push up federal spending cut as a measure of gdp well above the amount of revenue that the federal government has collected in the past. as a result, putting the federal budget on a sustainable path will require significant changes in spending policies, significant changes in tax policies, or both. addressing the formidable challenge is complicated by the current weakness of the economy and a large numbers of unemployed workers, empty houses, and underused factories and offices. changes that might be made to federal taxes and spending could have as a napkin and -- as a net

impact as well as on the nation's output in people's income over longer-term. i will talk briefly about the outlook for the economy in the budget and turned the key considerations on making fiscal policy. the financial crisis and recession have cast a long shadow on the u.s. economy. output's began to expand two years ago but the pace of recovery has been slow. the economy remains in a severe slump. cbo published his most recent forecast in august, initially completed in early july and updated only to incorporate the effects of the budget control act. in our view, incoming data and other development since early july suggest that the economic recovery will continue, but that a weaker pace than anticipated. cbo expects employment to

expand very slowly. it leaves the unemployment rate as depicted by the dots in the figure close to 9% through the end of the next year. all these figures are taken from the written testimony in nearly in that order. as a result, we think that a large portion of the economic and human costs of this downturn remained ahead of us. the difference between output and estimated how put shown by the gap in the lines between that figure has accumulated to $4.5 trillion. by the time this is realized, we expect that the cumulative shortfall will be twice as large as it is to now, or $5 trillion. not only of the costs associated with this shortfall in output immense, they are also born on

evenly, of falling disproportionately on people who lose their jobs, displaced from their homes, or own businesses that fail. i want to emphasize that the economic outlook is highly uncertain. many developments could cause it to differ substantially in one direction or the other than those we currently anticipate. if the recovery continues as expected, and that tax and spending policies fallout as expected in law, this ratio declines. about 6% ofll to gdp in 2012, about 3% in 2013, and smaller amounts for the rest of the decade. in that scenario, deficits over the decade total about $3.5 trillion. but those baseline projections understate the budgetary challenges. changes in policy that will take

effect under current law will produce a federal tax system and spending for some federal programs that differ sharply from the policies that many people have become accustomed to. the cbo projections include the following policy specified in current law -- certain provisions of the 2010 tax act, including extensions of lower rates and credits and deductions enacted in 2001, 2003, and 2009, all expiring at the end of next year. second, the two-year extension of the alternative minimum tax, unemployment compensation, and 01-year reduction in the payroll tax all expire if the end of this year. sharp reductions in medicare payment rates for doctors' services take effect at the end of this year. fourth, the funding for discretionary spending declines over time in real terms in accordance with that cap

established and to the budget control act. an additional deficit reduction of more than $1 trillion will be implemented as required under the act. change in provisions to current law to maintain major policies in effect now would produce markedly different budget outcomes. for example, and shown by the full bars and the figure, if most of the provisions of the 2010 tax act were extended, and if medicare payment rates for doctors' services were held constant, then deficits over the coming decade would total $8.5 trillion, rather than the $3.5 trillion in the current base line. by 2021, public debt would reach 82% of gdp, higher than in any year since 1948. next year -- we released figures based on the budget control act.

if no legislation or retreating from this committee is enacted, the following will occur over the next decade. reductions in the caps on discretionary appropriations for defense would cut out waste by $450 billion. reductions in the caps on discretionary appropriations for non-defense purposes would cut outlays by $300 billion. and reductions and mandatory spending would yield net savings of about $140 billion. the total reduction would be about $1.1 trillion. the estimated reductions in mandatory spending are comparatively smaller because it is exempted from the procedures for about 70% would come from this. to auld probably leavd reduction of military employees

and in the scale and scope of programs. beyond that, that fiscal outlook worsens as the aging population and the rising cost of health care puts increasing pressure on -- on the budget under law. the most recent outlook in june, debt held by the public was projected to reach 84% of gdp under current law. all the new long-term projections with different -- would defer, the amount of federal borrowing under current policy necessary would be clearly unsustainable. in sum, the federal budget is heading into territory unfamiliar to the united states and to most other developed countries as well. as this committee considers is charged regiment policies to read -- recommend policies, the

choices are in three broad categories permit how much deficit reduction should be a cop was, how quickly should it be implemented, and what form should it take. the me take up these questions briefly in turn. regarding the amount of deficit reduction, there is no commonly agreed upon level of federal debt sustainable for optimal. under cbo current baseline, the debt held by the public is projected to fall to 61% in 2021. however, stabilizing the debt at that level would still leave it larger than in any year between 1953 and 2009. lawmakers might determine that the debt should be reduced to amounts lower should then the baseline and closer to those experienced in the past. that would reduce the burden of debt on the economy, relieve some long-term pressures on the budget, diminish the risk of a

fiscal crisis, enhance the government's flexibility to respond to unanticipated developments. of course, it would require larger amounts of deficit reduction. furthermore lawmakers might decide that some of the current policy scheduled to expire under current law should be continued. in that case, achieving a particular level of debt could require much larger amounts of deficit reduction from other policies. for example, if most of the provisions of the 2010 tax act or extended, -- were extended, and others were held constant, then reducing debt in 2021 to the 60% of gdp required under current law would require reductions and other policies by a total of $6.2 trillion rather than the $1.2 trillion needed from this committee to avoid automatic budget cuts.

in 2021 alone, the gap between federal revenues and spending as if those policies were continued another -- and no other budgetary changes were chained are shown in the figure. it is projected to pay $-- 447% of gdp. -- 4.7% of gdp. it would require a reduction in the deficit of 2.5% of gdp or $600 billion in that year alone. your second set of choices and called the timing of deficit reduction, which involve difficult trade-offs. on one hand, cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about what of the longer-term deficit reductions would ultimately take effect. on the other hand, implementing spending cuts or tax increases

abruptly would give families, businesses, and state and local governments little time to plan and adjust. in addition, and particularly important given the current state of the economy, in meeting -- immediate spending cuts or tax increases would represent an added drag on the weak economic expansions. but credible steps to narrow over the longer term would support output and employment by holding down interest rates in reducing uncertainty, thereby enhancing confidence by businesses and consumers. the near term net -- effect would rely on the balance between the changes of taxes that take effect quickly in those that take effect slowly. credible policy changes that would substantially reduce deficits later in the coming decade and beyond would -- without immediate tax cuts and spending increases would support

the economic expansion and strengthen it the economy over the long term. moreover, there is no inherent contradiction between using fiscal policy to support the economy today while the unemployment rate is high and many factories and offices are under use, and imposing fiscal restraints several years from now with output and employment close to their potential. if policy makers wanted to achieve both a short-term economic boost and longer-term fiscal sustainability, the combination of policies most effective according to our analysis would be changes in taxes and spending that would widen the deficit today but narrow it later in the decade. that would work best it future policy changes were specific and enacted into law and widely supported said the observers believe that fiscal restraint wycherley take effect. your third set of choices and all the composition of deficit

reduction third this affects the total amount -- about deficit reduction. it affects people's well-being and a variety of ways. considering the challenge on a sustainable path, many observers has wondered whether it is possible to return to previous policies regarding federal spending and revenue. unfortunately the past, but as the policies cannot be repeated when it comes to the federal budget. the aging of the population and rising costs for health care have changed the backdrop for budget decisions any fundamental way. under current law, spending on social security, medicare, and other major health care programs, the darkest line in the figure, is projected to reach about 12% of gdp in 2021, compared to an average of 7% during the past 40 years. an increase of 5% of gdp, going

to people aged 65, a small share for blind and disabled people and for non-elderly able- bodied people. in stark contrast under current law, all spinning apart from social security and the major health care program and interest payments on the debt is projected to decline noticeably as a share of the economy. that broad collection of programs include defense, the largest single piece -- a supplemental nutrition assistance program, unemployment compensation, veterans benefits, federal civilian and military retirement benefits, transportation, research, education, training, and other programs. that whole collection of programs has incurred spending averaging a 11.5% of gdp of the past 40 years. but with the new caps on discretionary spending, it falls by 2021 to less than 8% of gdp,

the lowest share in more than 40 years. under current law and in our baseline projection. putting those pieces together and including interest payments, between 1971 and 2010, as shown by the left para bars, federal spending averaged as shown by t right pair of bars, c.b.o. projects it to grow to about 23% of g.d.p. the laws governing social security and major health care programs were unchanged and others operated in line with their average relationship to the size of the economy, federal spending would be much anywhere 2021, around 28% of g.d.p. that amount exceeds the 40-year average for revenues by about 10 percentage points. in conclusion, given the aging

of the population and rising costs for health care, attaining a sustainable federal budget will require the united states to deviate from the policies of the past 40 years in at least one of the following ways. raise federal revenues significantly above their average share of g.d.p., make major changes in the sorts of benefits provided for americans when they become older or substantially reduce the role of the rest of the federal government relative to the size of the economy. my colleagues and i at c.b.o. stand ready to provide analysis and information to help you in making these important choices. thank you and i'm happy to take your questions. >> thank you very much, dr. elemndorf. as we begin the work that has been outlined, i think it is helpful for us to have a clear understanding of the scope of the problem and you laid that out very clearly for us.

i think we all agree this task is pretty enormous. we have to come together around a balanced approach that addresses our fiscal situation and focuses on making sure that we remain competitive and look at our long-term growth. i wanted to start by asking you to spend a little bit on what you were just talking about and talk to us about what we should consider in weighing the tradeoff between helping our economy in the short term in helping to create growth and not causing significant harm in the long term. >> in our judgment and this is consistent with the consensus of professional opinion, cuts in spending or increases in taxes at a moment when there are a lot of unused resources in the economy, unemployed workers, empty homes, unused factories and offices and when monetary policy is finding it difficult to provide further support for economic activity because the federal funds rate is already

close to zero, under those conditions, cuts in spending, increases in tax will toned slow the economic recovery. they will toned reduce levels of outputt -- tend to reduce the levels of outputt below that what they would otherwise be. over time, as our economy moves back toward potential output and those unused resources become used again, under those sorts of economic conditions, cuts in spending or reduction in taxes are good for the economy, both for output and income. it may seem like paradox but it isn't really. it is just reflecting the view that the effect of federal fiscal policy depends on economic conditions and not the abilities of monetary policy. that's why in our judgment, the analysis that we have done over

the past few years, to provide the greatest boost in economic activity now and in the medium run and long run, the combination of fiscal policy is likely to be most effective would be a policy that cut taxes or increased spending in the near term but over the medium and longer term, move the the opposite direction and cut spending or raise tax. >> ok. thank you. dr. elemndorf, as you know, several bipartisan groups have released reports in the last nine months with recommendation s of reigning in our spending. all of them came with a balanced approach. i'm concerned that congress has not yet included rev new year's entitlements as -- rev new year's entitlements. some made it clear they want

revenues off the table. unfortunately that leaves a small amount of discretionary spending that members so far have been willing to focus on. would you agree that while cuts within the budget control act can help somewhat with the long term, what we really need is a comprehensive approach that does address both revenue and mandatory programs? >> as a matter of arithmetic, there is not c.b.o.'s role to make determinations. the more large pieces of the puzzle one takes off the table, then the greater the changes will need to be in the remaining pieces. and you can see this very clearly in this thinker, sandy? -- in this picture, sandy?

for 2021. this picture shows under current law revenues being about 21% of g.d.p. if one instead wants to -- >> it is hard to see. >> i'm sorry. >> this is figure 14 in the rin testimony if, you have that in front of you. exhibit 14. figure 14 in the written testimony. the left hand set of bars shows the averages over the last 40 years. the far left bars revenues, revenues have averaged about 18% of g.d.p. then right hand bar shows the major pieces. the bottom chunk is social security and major health care programs.

to be provided to insurance exchanges. in the past that has averaged about 7% of g.d.p.. all other noninterest spending, mandatory spending, defense spending, nondefense discretionary spending, has averaged 11.5% over g.d.p. about 2.25% of g.d.p. for 2021, the current law -- revenue about 21% of g.d.p. for securities in the major health care programs would be 12%, and 5% of g.d.p. for the average of the past 40 years. that is the essence of the point

-- rising costs for health care have changed the back drops of the decisions that your colleagues make. those programs continue to operate in the way they operated in the past, they will be more expensive than they were in the cast. each person will be collecting more. that is a crucial driver of the future budget trajectory. the other category, noninterest spending, as you can see is much smaller under current law than it has been historically.

>> i want to turn it over to my secretary. >> thanks, ma'am. dr. elemndorf, is it possible to pull up your figure 12 from your testimony if somebody could help me with that? >> page 39 of your testimony. this chart is a chart of historic and projected growth on social security, medicare, other major health care perhaps. you would not happen to have this chart against growth and g.d.p. would you? >> these are shares of g.d.p.

spending on those programs as a percentage of g.d.p. >> historic average, post warmed war ii is what? roughly 3% in your economic growth? >> i think that is about right, congressman. i don't know for sure. >> social security and major health care programs have averaged 7.2% of g.d.p. current law going to 12.2% of g.d.p. in 10 years, so from 7.2 to 12.2 not quite double but certainly that can be described as growth can it not? >> as i'm looking at some of your c.b.o. data just for the last 10 years, apparently social security is an average of a 5.8%, medicare 9.1%.

medicaid 8.1% in the last decade. and again, we now have a revised g.d.p. growth outlook coming out of your august revision of your baseline so is it a fair assessment that we have social security and health care and other health care programs growing two to three times the rate of growth? >> it comes after the past and our projections continue to outpace economic growth. the exact amount is uncertain. the gap in the growth rates have been very large. >> talked about the current law and an important exercise and put us under a current law

baseline, medicare positions, a pay cut. correct? >> that's right. is c.b.o. -- i believe recently you testified they -- the impact of such a cut on health care. >> several concerns that -- much slower growth projections. medicare -- the private sector. the access to care. we do not have --

>> the tents of the praur on providers of care to beneficiaries may depend on the time horizon. when the actuaries make

projections to 75 years in the future, there are changes that are for the coming decades, might affect access to care or quality of the care, as i said, but would be much less severe than if those same policies were in place for the remainder to have 75-year period. beyond that, we just don't have a way of trying to quantify for you the extent of the impact of beneficiaries. >> apparently, the trustees and c.m.f.'s do so in an attempt to lead by example and following lead of my co-chair, i see my time is up. thank you dr. elemndorf. >> thank you. >> thank you very much for your testimony. you focused quite a bit of your time on what is coming up. which if we're not careful can

be pretty bad but we're dealing right now with a $14 trillion national debt plus $14 trillion $15 trillion national debt and we have been forced to come up with savings from these current and past deficits of at least $1.5 trillion. let me ask that -- the first chart is a chart of c.b.o.'s work done in 2001 that i would like to have raised. it is called changes in c.b.o.'s baseline projections of the surplus since january, 2001. whalede like to do -- what i would like to do on that chart if, we can get that up. what would be projected by your office back in 2001 and then analyze and i think all of my colleagues have cop yoifs -- copies of those charts with

them. for those who can make out the lines, the numbers on those charts, the very top line, the total surplus as projected. >> can you tell us what page that is on? >> it should be a separate handout. >> i think this is a table that c.b.o. has published on its website. >> i only will make a couple of points here since it is difficult to read all the numbers on the table. total surpluses, from 2001 to 2011 if, you totaled it up, we have surpluses of $6 $5 trillion deficit.

by 2002 there was a negative 158, which means a deficit of 158 billion dollars so that while the projections in 2001 were for record surpluses totaling over 10 or so years, 5.6 trillion, by the second year, by 2002, we were already beginning to run deficits. not surpluses. so we knew well in advance of 2011 that the federal government was beginning to run record deficits that could ultimately harm our economy. i have another chart that uses the data from the c.b.o. that we just discussed and tried to put it in a little easier form to analyze and the pugh center did this chart taking the data from the congressional budget office to try to segment out where that change from surplus to deficit went.

all those dollars that were spent, all the revenue that was lost, where did it go? obviously the biggest piece of the pie on the right, technical and economic, what you described earlier as shortfall and nation's output. all the things a caused us to have less output than we had expected, projected, the recession, constitutes the biggest poverings that. after that, the second biggest slice of the pie that drove our deficits, as you can see are the tax cuts in 2001 and 2002. the bush tax cuts. actually you can put together our defense costs, which are here in the very bottom, operations in iraq and afghanistan at 10% and other defense spending a little bit further up to the left at 5% and you have 15% of the pie due

defense spending and so on. interestingly enough, just on the interest that we owe on that national debt is one of the largest items as well. nothing productive comes in making those payments. i raise all of that because as we talk about where we should targets our solutions, we should know what has driven us most towards these large annual deficits that give us this now over $14 trillion national debt. the final chart i wanted to raise because it also points out the discretionary spending part of the pie which you spent some time on. not the tax expenditures. the tax code, which is the largest portion, but the allocations, the budgeting process, the appropriations process, hard to tell again unless you have a chart in your hands but the largest item shows the change in spending from 2001 to 2010.

the greatest percentage of that added spending in those 10 years was in the dovept defense because of the war in iraq and the war in afghanistan. 2/3 of the cost or the extra spending that was done from 2001 to 2010 has come in spending done in the department of defense. you can compare that to say, the veterans department, veterans affairs department. the new spending over that 10-year period was about 5%. education, you can see it further down list. the new spending was about 1%. that is important to sort of gauge that. as much as as i hope we have a chance to get into some of this and talk about where we have to go, i think it is important to know where we are coming from. i thank you for being here to help us gauge those response into the future. yield back.

>> thank you, rather than make a speech who would probably have the effect of dividing us if i responded to my colleague, i would like to focus on areas where we might have agreement going back to my opening statement. going again to the quotation of the president in march. it is estimated in proper payments cost taxpayers almost $100 billion least year alone. if we created a department of improper payments it would actually be one of the most large departments in our government. i think we're going to need c.b.o.'s help in order to do that. for 2010, g.a.o. estimates improper payments at over $125 billion. medicare and medicaid and unemployment insurance ranked one, two, and three in total improper payments. the bottom line is that if you had $100 billion it is a

president said in overpayments each year over a decade that is over a trillion dollars when you compound it. it is an area we need to address. i'm trying stay on areas where we can reach bipartisan consensus here. we're going to need help in scoring how the approach this. my first question i should ask is whether you agree with these specific numbers or not, with the president's contention or at least there is a significant amount of inappropriate payment for some of the programs that i mentioned. >> i agree that. i've got two quick comments. there is a difference between improper payments and fraud. fraud is a much nair -- nair ower category.

people should understand when they see some of these largest numbers for improper payments that is a much broader set of situations than the sort of thing that we -- regarding the the newspaper. second point the make of course is not just whether the improper -- the fraud is out there. but what policy the government has to go after that. they are not trying to encourage improper payments or fraud. there is action as far as the department of justice to crack down on fraud. you do see stories on prosecutions. the question that we can help the ke working on is what policies are available that can try bring some of that money out of the system. >> exactly so. that's where we need your advice. fraud is not the most significant part of these overpayments but it is important.

one question is would we benefit and n a cost-benefit analysis by devoting more resources to try root that out? we should deal with that. hiring additional people to check before the check goes out rather than audit after we find problem would be beneficial. the prompt payment requirements represent part of the challenge we have here as i understand it. is it true that c.b.o. has -- has c.b.o. itself done an analysis of these numbers? >> i don't have numbers comparable to the ones you quoted but we do spend a fair amount of time working with members of congress, working with the people at c.m.s. and so on to think about ways that policies could be changed that would try to reduce the level of those payments and as you know, the budget control act included provisions for raising the caps

in discretionary spending to cover some of those increased efforts that you described and we inincluded the effects of that, the savings that we thought we would have in terms of reduced payment ps reform will you work with us to try to help us identify the policy that could result in on a cost-benefit analysis significant savings if we were to implement it? >> yes, certainly with with l. can i caution, i'm not against working with you on any issue you want us to work with you on. there is no evidence to suggest that sort of effort can represent a large share of the $1.5 trillion as being the objective in savings for this community. >> if the g.a.o. report is right, if what the president said is right, if there is over $100 billion in just one year alone, even if we get 25% of that, it is a significant amount of money.

it is at least something i think on a bipartisan basis we can agree on because it doesn't involve fundamental reform in the program. there is a second area i want to raise here too. asset sales. there are a number of reports, c.r.s. said the government held well over 10,000 buildings this were unused spending money to maintain them. the president's budget assumed savings by selling property and so on. i know you scored president's proposal but that was proposal that relied on incentives to sell property. if we simply mandated the sale of property, i think we would need your advice how to structure that so that we would get the best return for the sales that we would want to accomplish. will you work with us on that potential area of -- that's ref knew rather than savings. it all amounts to the same thing.

>> of course we will work with you. we caution again. we have done a fair amount of work and given testimony on this topic. there is no amount of savings or extra revenue that can be reaped by the government could represent any substantial share of numbers that begin with t for trillion. the base closure realignment effort has not yielded significant amounts of money for the government in terms of selling the property. saved money in terms of operating some of these facilities but not much has been sold. if one sees these numbers of thousands of government properties not being used, manyor them are shacks in the middle of nowhere that don't have market value and the property that has the most value is rot in los angeles and the people who live -- property in los angeles and the people who live around it are fighting it

very hard. what happens is things that are most valuable is that the people who are there are using it or possibly using it and want the areas to stay that way and tend to push that very hard. very little money is actually reaped. we are certainly ready to work with you on policies in that direction. >> thank you. again, i want to follow senator kyl's questions. we should explore this much more vigorously than we have in the past. the version i have, page five, you're talking about the -- reduction. you state that according to your analysis, essentially, the credible policy changes -- later in the coming decade for the

long term, cuts in spending, we support economic expansion, come to longer term, the basic question is you give us some examples of how we can achieve both goals, namely, jobs and deficit reduction. that side really one of the key questions. how did we do it? there are probably several ways. you mentioned the debt reduction. that is probably the long-term credible. if you can't do something that is credible. it has to work. we have to find balance. i wonder if you can give us a couple of examples how we can accomplish that . >> there are a number of pobals, senator. i released a report in january, 2010. proposals for spurring job growth. we look at increased transfer payments. we looked at cuts in all

different types of taxes. we looked at other types of government spending increases and i don't want to be appearing to steer the committee in any particular direction among those choices. they involve not just the effects on the economy. we estimated the impact of output and employment and also what you want to government to do and what sorts of activities should be engaged in. the set of choices in making policy in addition to doing deficit reduction policy that are far beyond our technical role, i think the crucial points are that cuts in taxes or increases in spending in the near term will spur output and employment in the near term. but just by themselves, they will reduce output later on because of the extra debt

accumulated and improve to med misdemeanor -- the medium and long-term. reduce the deficit further relative to the policy. >> i appreciate that. i think i have your chart. your table. effects of policy omingsoms options on output and employment. i applaud you for it. you have highs and lows that you rate. you give us a sense -- for example, unemployed -- is pretty high in terms of the economic effects and helping people without jobs also -- the economy, the g.d.p. i appreciate that.

we need to try find ways to address that. i don't want to steal from my good friend. he can follow up more. it is sort of a baseline question. you say that we can get 61% of g.d.p. in 2021, under current law, but most of us here in this room don't think that current law is very realistic. there are going to be changes and you list some of the changes. namely, the tax cuts. the 2010 tax cuts. a.m.t. medicare payment rates. so forth. and if we were to assume that those provisions are going to be extended in something called the current policy, then i said at

one point, $2 trillion as to 51% of g.d.p. in 2021, the figure i have is about $6.2 trillion. >> yes, that's right. the cost amounts to about -- including the interest cost that would result amount to about $5 trillion over the coming decade. the choice of the congress about those policies is much larger in impact potentially than the dated target deficit reduction of this committee. >> let's say we wanted to reduce deficit by 6.252, 5.2? for example? >> ok. >> what would the composition of that deduction be if we reduce it somewhat parallel, with the portion to the causes -- i guess

it would just be -- >> well, most of the extra $5 trillion comes from a reduction in taxes, one would need to raise the tax revenue to some -- through some other channel. i think i understand the purpose for this hearing, talking about the history of debt and how we got here. i think you're extending that a bit to the future, thinking about what policy would get us to a certain place, but i think the fundamental question for you is not how we got here, but where you want the country to go. what role you and your colleagues the economy to play. if you want role that has benefit programs for older americans like we have had in the past, then more tax revenue is needed than under the current tax rates. on the other hand, if one wants those tax rates then one has to make significant changes in

spending programs for older americans. >> it is really the question. where do we want to go? do we want to have an a.f.t.? we want to have the business payment rate. we want to increase taxes for middle income american or upper income. these are basic questions we have to ask ourselves. there are consequences. in addition, we have the president. >> >> thank you, again, dr. elemndorf. i want to underscore what our friend mr. kyl said about fraud and abuse. there is nothing more irritating to any of us here and certainly our constituents any assistance you can help us on that would be

low-hanging proof in a major way to include as part of the package. let me ask just an early question as to timing of this whole event. to have a vote prior to november 23. what is the timing other than as soon as possible, what is the realistic date that truly we have to have our documentation submitted to you. i know sometimes a lot of our members are frustrated trying to get a c.b.o. score. i know there is not a higher priority for you all to do this, but what is really the date that you're going want the material so that we can complete work by the statute? >> as you know, congress flan your -- congressman for your work on the -- >> head of the ways and means.

the process which we see diversion of ideas and offering some preliminary feedback. if this committee tends to write legislation that would change entitlement programs in specific ways that, process usually takes weeks of drafting to make sure that the letters of the law that you are writing accomplish the policy objectives that you are set out to accomplish and as part of that drafting pros, it will take us at least a few weeks. i have a terrific set of colleagues who are incredibly talented and work unbelievablely hard, but we need to do our jobs right and that means not just pulling numbers out of the air. we said with some of the staff and committee, with all respect, your decisions really need to be mostly made by the beginning of november if you want to have real legislation and cost

definite from c.b.o. before you get to thanksgiving. >> i want to get a better understanding of some of the estimates to to the impact. as we know bill increased tax on some of our nation's most innovative job creators. reduced medicare spending significantly. the tax increases and medicare cuts were created to create three new entitlement programs. according to our staff projections, those new entitlement programs will cost the nation nearly $2 trillion over the next 10 jurors. -- 10 years. from 2014-2023. have yaw all -- you all estimated the full cost for the

14-23 period when they are fully implemented? >> no, congressman, we have not. >> do you anticipate doing that at all if >> no. we produced estimates for 10-year period that was under consideration when the wlaws being considered and then a rougher sense of what we thought would happen in the second decade from that point in time. ed a the time moves forward, we will ultimately end up with a two-year budget window. even then it is not obvious that we will have an estimate of the effects of that legislation by itself. some pieces have new -- that dependent exist before. those lines of our cost estimate will become a real source of money at some time. we will never know for sure what

money actually is flowing differently because of that piece of legislation. we'll see it for certain perps. -- purposes. the prescription drug benefit is one of the few pieces of legislation where we can look back at how we did. much of that legislation created a whole new -- of money that would have been zero otherwise. but we could see the difference. we can never really go back and tell at the risk -- one can never really go back and tell what happened. so the health care legislation will be like that at some point. >> well, is there a way that you would take the percentage of g.d.p. and try to match that up with the out years and look at nine, 10, 11, 12 years out. is that a thought that you might take up? >> we can talk with you further, congress mank.

-- congressman. we talked in our estimates at the time about some of the bigger pieces of the legislation, things that were growing rapidly or slowly or so on. that sort of calculation is not possible to do on the level of little specific provisions. it is just too -- too broad a brush we need to paint with. if there are other ways to look it a that would be helpful to you, we will do that. that legislation created significant new entitlements that raised federal outlays. it also made other productions and outlace and raised revenues. it will still reduce budget deficits but with that net effect of very large change and different signs, that increases

the uncertainties. >> thank you. >> thank you. >> thank you very much, madam chair. dr. elemndorf, since we have been sitting here we have received notice that the nation's poverty rate has increased to 15.1%. up almost a full percentage point. now back in i think it was september 2010, the testimony before the senate budget committee, you said this. regarding changes at the enof the housing boom and the recession, businesses, occupation rsst, industries and geographical areas, those

developments suggest that the gains in employment in the next several years will rely more than usual on the creation of new jobs, different businesses in different industries and locations and require workers with different skills. do you still feel that to be true? >> yes, we do, congressman. we think ma much of the unemployment we're seeing now is what is called a cyclical response to weakness in the demand for good and services. some of the extra unemployment we see now is more what economist call a structural problem which involves importantly the mismatches that we discussed in the past. also relates to unemployment insurance benefits. we made a rough attempt to quantify those pieceses in our august update.

we think an important piece of unemployment that relates to this sturl mismatch that makes it harder for those people to go back to work. because it is not so much going back as going on. to something else. >> then that means in your view, because there is not much that can be done in the short term to entice us? >> i would not quite say that. it is challenging. the cyclic alpart of unemployment, the part that responds to the weakness in demand for good and services can be addressed through aggregate policies. the people who are unemployed because of the certain things they knew how the do in the place they live isn't being done there or anywhere anymore. that is not amenable to a broad

macroeconomic policy. i think the prod brush summary of training programs is that it is hard to make them work, but not impossible. i don't want to suggest that. i think it is just a different sort of policy that needs to be considered in order to help some of these people find new jobs to help other people create the jobs that those people would be able to do. >> well, just let me say, to be certain, i am just as concerned as my good friend senator kyl is about fraud. i want to get that out of the system as well as we possibly can. the problem i've got, though, is with these kinds of numbers and what what you have just laid out, it means that those in need

are increasing rapidly. the question then becomes if you look at the median household income, declined 2.3%. that means that irrespective of what may be happening to people who may not be deserving of the assistance, there are increases occurring among the needy very rapidly and we have not done anything to absorb that challenge. >> you're certainly right, congressman about the number of people who are hurting. one thing i would say is that the federal budget automatically does some things for these people. food stamp participation is up. a lot more money is flowing out

that way. unemployment insurance will pay benefits to more people if more people are unemployed. some of the automatic features of the entitlement programs end up helping those people, but i don't want to suggest that that has inoculated them against overall problems that they face. >> that means the burden of doing smart -- is greater than what it may appear, just looking at the numbers. we really need to look into all of these programs and see exactly where our cuts ought to be made rather than just dealing with the numbers. thank you very much. i yield back. >> senator portman? >> thanks, madam chair. building on what my colleague, congressman clyburn just said

and what co-chair hensarling talked about earlier, dr. elemndorf, have you got a reaction to the study that shows 90% of gross debt, the impact on g.d.p., the kinds of issues that congressman clyburn talked about? >> i'm certainly familiar with that work. a member of our panel, we benefit from her expertise, i think the thing to note is they were looking at gross debt. those are larger numbers than the numbers you will see from me. we focus on debt held by the public. they divided the world into buckets in scenes of different levels of debt. that doesn't prove that there are some particular tipping points at 90%. it says that above -- above that level, the economy tends not to do well. we said in an issue about the

risk of a miscal crisis and other things that we have written, there is no doubt that as debt rises, risks of fiscal crisis rise. the federal government loses the flex to believe the respond to unexpected national developments or problems at home because of this looming debt. we are, as i said, moving into territory that is unfamiliar to most countries for most of the last half century. >> as you looked around the world and there was a recent report by harvard university, the reduction took place in countries that relied on austerity programs, spending cuts and nations that relied more on tax increases were less successful in reducing the defts and had slower economic growth. have you looked at some of these country s that aregoing sthruth same process that we're going

through now? what comment can you give us on what we can learn from the experience of those countries and maybe you know about the professor's study? >> i do know alberto's work. there have been a number of studies as you know looking at the international experience of countries that have faced fiscal crisis and have undertaken austerity programs. the i.m.f. looked a -- at a very set of data and came to a different conclusion. their conclusion was that in countries that set out to do fiscal austerity, it is a terrible situation to end up in. where one has to make drastic, abrupt changes in policy. but if you look at greece or ireland or the experience in the u.k., which has not been such a crisis but made it a very

determined pivot in this policy, those economies are not doing very well right now. i think the leaders in those countries felt they had no alternative given to where they had gotten to. they were at a point where people were not lending the government money anymore or were about to stop lending them money in the view of the government so they had to make drast changes. but that is not a situation that we would like to -- find ourselves in as country. >> it looks as if we are headed there if you look at the current policy baseline. if you look at your chart with regard to baselines, you say that we have about a $23.45 trillion increase turned -- $3.5 trillion increase. possibly yourp to about $9.3 trillion. the $1.5 trillion is a relatively small part of

problem. about 17.5%. i do think as we look at our work, we're going need your help on looking at more realistic baselines. we're making very difficult choices on alternative tax, ending the u.i. extension and in terms of what drives that, figure 14 is very instructive which talks about major health care programs. there were some comments about president obama's comments. assuming you agree with that, i assume you do. >> yes. >> what do you think ought to be the primary focus of this committee? >> again, senator, it is really not the place of me or c.b.o. to offer recommendations of how to proceed but there is no doubt that the aspect of the budget that is starkly different in the

future relative to what we have experienced in the past 40 years is spending on programs for older americans and spending on health care and the reason those programs are so much more expensive in the future is partly due policy over time but most importantly due to greatly increased number of older americans and the higher cost for health care. as a matter of arithmetic, it is possible to raise taxes or carve away at the rest of the government in a way that can support those programs in this form for sometime but there should be no illusion about the magnitude of the changes required in other policies to accommodate that. if one really leaves those programs in place, then, in fact, under current law, already, the rest of the government will be much smaller in 2021 than it has been historically and when we need to raise revenue substantially. this is a of g.d.p. increase.

5% of g.d.p. is a very big number and that's why i think many people believe that there should be changes in that part of the budget. >> so the 22.7% of g.d.p. is spending in that 2021 estimate under current law and current policy, the major driver is social security and major health care programs as compared to the historic average, about 20.8%. up to 20.9%. my understanding is even under current policy revenues go up above the 18% level. the $9.3 trillion is a more realistic estimate. is that correct? a slight increase? >> yes, a slight increase. i'm not sure exactly but yes, a slight increase.

one fact here. the number of americans over the age of 65 is going to rise by about 1/3 in the coming decade. 1/3 more beneficiaries of sornle security and medicare -- social security and medicare a decade from now roughly than there are today. on top of that with higher health care costs per person, one can see how these programs are becoming more expensive over time. >> senator kerry? >> thank you, madam chairman. dr. elemndorf, i want to try to move through a couple of things very quickly if we can. you said a moment ago that the aspect of the budget that is starkly different is, i think you said the number of older americans and the cost of health care. is that correct? >> yes, that is correct. >> those are the two things that you said are starkly different

about the budget today. >> and in the future, more so in the future. >> but isn't it accurate that we have balanced the budget, i think since warmed war ii five times. and that each time we have balanced the budget, revenues have been somewhere between 19 and 21-plus percent of g.d.p. is that accurate? >> that sounds right, senator. i have not checked exactly. >> assuming that is accurate, we are currently at 15%. 15.3, i think is your prediction for this year of revenues to g.d.p. correct? >> yes, that's right. >> southbound traffic isn't it fair to -- isn't it fair to say that in fact, there is starkly different which is the level of revenues relative to g.d.p.. it is starkly different, isn't it? >> yes, that's right, senator. >> and it is starkly different in that is that it is well lower than historical average of when

we balanced the budget or not balance the budget. >> yes, that's right. >> so let me ask you, you know, given that reality, given the reality that you and others, i think last year, the committee on fiscal future of the united states, which is a joint effort of the national academy of sciences and public administration developed four budget scenarios. they have one budget scenario where you had nothing but cuts. and another budget scenario where you had nothing but tax increase and then two in between. only the -- the only way they can keep the revenues at the historical average and keep the spending at these levels is basically with cuts. but that doesn't get you where you need to go in terms of so this historical average and not winding up with major, major cuts. in term t'wolves benefits of -- in terms of the benefits of

medicare or medicaid. if you want to avoid -- you made the statement a moment ago that we have to make a decision about what we want to do. most people have accepted that we don't want to have major reductions to -- reforms. we to v to do a better job making them more fiscally sound. i haven't heard anybody stand up and say there have to be huge cuts in benefits. if that is true, aren't we in a situation where we look near the historical norm with respect to the g.d.p. percentage? >> so if one wants to leave spending on social security and the major health care programs roughly in line with what would happen under current law, then one needs to either further carve away at other functions of the government or one needs

raise revenues above their historical average share of g.d.p. by a significant amount or one could do a combination of those. but there is no way to to simultaneously let social security and major health care programs grow the way they would under current policies or anything close to that and operate the rest of the federal government in line with its role in the economy over the past 40 years and keep revenues the same share of g.d.p. they have been on average in the past 40 years. recognizes the

gentleman from which is currently numbers,

mr. comoanl: madam president. the presiding officer: the republican leader. mr. mcconnell: last week president obama unveiled a stimulus bill he's calling a jobs plan and yesterday the

white house explained how they'd like to pay for it. the first thing to say about this plan is it's now obvious why the president left out the specifics last week. not only does it reveal the political nature of this bill, it also reinforces the growing perception that this administration isn't all that interested in economic policies that will actually work. but none of this is really news. over the past few days, press reports have made it perfectly clear that this legislation is more of a re-election plan than a jobs plan. it's an open secret which democrats all over washington have been acknowledging to reporters since the moment the president revealed it. they've said that despite the president's calls to pass this bill immediately, the real plan is to let it hang out there for a while so democrats can use it as an issue on the campaign trail. what's more, the president knew

as well as i did when he unveiled this plan that democrats in the senate had already scheduled a full slate of legislative business for the next few weeks. so unless the white house wants to admit that it has no regard for its own party's legislative business in congress, the eept call for immediate action was clearly little more than rhetorical flourish. but the speeches we good goth yesterday only reinforced the impression this was largely a political exercise. for one, they undermine the president's claim that it's a bipartisan proposal because much of what he's proposing has already been rejected on a bipartisan basis. the half a trillion-dollar tax hike the white house proposed yesterday will not only face a tough road in congress among republicans but from democrats, too. the central tax hike included in this bill capping deductions for individuals and small businesses was already dismissed by a

filibusterproof democratic-controlled senate in 2009. another idea floated by the white house yesterday, a tax on investment income has been vehemently opposed by the number three democrat in the senate, among others. and a proposal to raise taxes on the oil and gas industry was rejected as a job destroying tax hike by both democrats and republicans just a few months ago. and for good reason. since the nonpartisan congressional research service tells us it would only raise gas prices and it would also in addition to raising gas prices move jobs overseas. so claiming this bill is bipartisan may sound good if you're out there on the campaign trail, but surely the president could come up with some proposals that both sides had not already rejected. here's how one prominent left-leaning analyst put it

yesterday: "these aren't new policy ideas, he wrote, the obama administration has been looking to cap itemized deductions since the 2009 budget, nor are they bipartisan policy ideas. is the specifics we got yesterday were disappointing for another reason as well. not only have they failed to attract wide bipartisan support in the past, even if they did, enjoy bipartisan support, they wouldn't create any jobs. the president knows raising taxes is the last tinge you want to do to spur job creation. he said so himself. yet that's basically all he's proposing here, temporary stimulus to be paid for later by permanent tax hikes so that when the dust clears and the economy is no better off than it was after the first stimulus, folks find themselves with an even bigger tax bill than today. now, the president can call this bill whatever he wants.

but in reality, all he's doing is just proposing a hodgepodge of retread ideas aimed at convincing people a temporary fix is really permanent and that it will create permanent jobs and then daring republicans to vote against it. well, i think most people see through all of this. i think most americans are smarter than that. i think they know our economic challenges are more serious than this and that they roir serious long-term solutions. i think the american people realize we can do a lot better. i've talked with a lot of job creators over the past few weeks including many in eye own state. it's no secret what they need to create jobs. every one of them says the same thing and yet the president refuses to do any of it. if the president is truly interested, truly interested in growing the economy and putting americans back to work, then he'll leave the temporary proposals and the half measures and the tax hikes aside, he'll consult with both parties and

work with us on a plan that indicates he's learned something from the failures of the past two years. and which actually has a chance of attracting bipartisan support. he could start with a permanent reform of our broken tax system, reducing out-of-control federal regulations, and by passing the trade bills that have been sitting on his desk since inauguration day, 2009. all of this is doable. all of it should attract bipartisan support. and all of it would actually create jobs. now, that would be a jobs plan worthy of the seriousness of the moment. but make no mistake, what the president proposed so far is not serious. and it's not a jobs plan. after what we learned yesterday, that should be clear to everyone. to everyone.

down only 1% from the year before. the overall number of contractors 1 in the te of thousands. the numbers across intelligence,

defense, and homeland security is in the hundreds of thousands. we had an agreement in 2009 to reduce numbers by 5% a year, but it's clear progress has not been main taped and sufficient cuts are not being made. we have seen moderate progress in improving overall language capability in the past two years, but of the several thousand military and several positions requiring foreign language skill, only about a half of the ic's self-assessed requirements are being met by an individual with sufficient language proficiency. we must do better. through both of our committees' oversight work, we review sensitive programs across the ic to make sure we understand what is going on, that operations are carrifully carried out, and are legal and effective. i'm pleased to say that in

almost all cases, we are fully satisfieded. a note for the past two years -- the intelligence committee has conducted extensive oversight of certain, critical aspects of the country's counterterrorism efforts, especially alg the afghanistan-pakistan border. these efforts are notable for their precision, effectiveness, and the care taken to ensure that non-combatant casualties are kept to an absolute minimum. in sum, there's a number of areas where we have made progress since 9/11 to make the nation safer, but there's also issues that we need to continue to work on and hopefully we can do that cooperatively wit the intelligence community and the entire executive branch, so, yes gentlemen, my own view is a great deal of substantial, positive progress has been made,

and i thank you and all who work for your communities for that. i look forward to your testimony, and now let me turn to ranking member for his comments. >> first good morning. first i want to echo my colleagues in remembers those who lost their lves and family members ten years ago and the first responders who we have the image of them going up the steps to save people's live while other people were coming down. it's a day that changed our lives foreve i've been in the committee for the last nine year, and it's our responsibility to give intelligence professionals the resources, capabilities, needed to keep us safe. thank you for testifying here today. director clapper, you have expertise in many national security areas, and we can always depend on you to tell it like it is. director petraeus, you have a great reputation of service to your country, a unique

perspective, and your tremendous leadership in the mitary will bode us all very well in your new role. i'd also like to thank the senate intellince committee for agreeing to this joint hearing. my good friend came to the comttee, chairman rogers and i have met with senator feinstein, when you dwell the issues we deal with, it's important we communicate together and do the best we can to continue to have the best intelligence operation in the world. now, last week's passage of the intelligence act of fy2012 in the house represents true bipartis spirit and we have the responsibilities to the nation and intelligence community in the role of conducting effective oversight. the bill was the result of hours of research, hearings, and lon negotiations. it was a good bipartisan product, and there's a great staff working with us. when republicans and democrats find commonground, it's a big deal. i want 20 tell you a little

story. chairman and i did a lot of work this summer working on the bill. we were on the hill of the day of the earthquake, and 15 minutes before the earthquake, we agreed what was going to go in the budget, and when we came outside,everybody is coming out of the buildings, chairman rogers commented, you know, when a republican and a democrat can agree, the earth shakes. [laughter] we're here today to review for the american public the progress made since 9/11 and what to do to improve the future. i applaud the work that's been done and acknowledged here today in orcoming new challenges. intelligence sharing, working together as a team, and missions like the bib laden raidnd breaking apart stove pipes within the community. i also want to talk about the incredible work done to facilitate changes. advances in technology prgressed as an amazing rate in the last decade allowing the intelligence community to collect large amounts of information, but that also brings the challenge of analyzing it and finding the

needle in the larger hay stack. new software systems hem sort out the unimportant facts from the key piece of data to save lives. in addition, the intelligence community encountered roadblocks based on outdated legislation. it doesn't address the way information is sent today. congress needs to help the community get through them while protecting privacy and civil liberties. the last ten year taught usot to fall behind. fighting new threats in the explosion of new technology makes our community adapt and remain agile. we have to continue to strike the right balance between investments in research and development for the war of tomorrow while continuing to fight the wars of today. the area of great concern for me is cybersecurity. i'm pleased we are acknowledging the full impact of the threats to the cybernetworks, i believe more progress needs to be made protecting our critical infrastructure and our nation's

srets. our important property is stolen every day as we speak now. ideas end up in foreign products. we can also see the potential damage a cyberattack can cause ke just recently in south korea where the banking system was shut down. beside the nine depositors access to the money, critical investment data was lost. we have long warned an attack like this on the united states could have a devastating long term impact on our economy. i'mencouraged to see we are marking progress. we have a new cybercommand under the leadership of general alexander that leverages the brain power of the national security agency. we also have an ongoing pilot prram with the defense industrial base showing promise for collaborative defense. as the president said to congress and the nation last week, we continue to up -- invest in education, science, technology, engineers, math which will be the key to keeping

us on the cutting edge. today, i hope you'll comment on our progress against cyberthreats and the direction forward in the cyberarena. finally eric i'd like to hear about how you both are continuing the progress of reforms after 9/11 to dole with future threats we might not even contemplate today. as i've said, i believe we should have an agile community, to adapt and remain ahead of nation states and bad actors. have we learned enough? ten years later, do we think creatively? do we have enough investment in research and development to continue to remain th premier intelligence community in the world? our nation, united states of america, deserves nothing less. i yield back. >> thank you mr. ruppesberger. he's been a great partner and supporter of this. it's how it's supposed to be. vice chair of the intelligence committee in the senate.

>> thank you very much, mr. chairman, and it's good to be back on this side of the capitol as a member of the last joint endeavor. very pleased to be here today with my good friend and chairman senator feinstein and show the cooperative spirit and attitude that we have. congressman ruppesberger is right. we are working closely together to make sure we do the parallel oversight that needs to be done within the intelligence community. i, too, want to thank our witnesses for being here today, both of whom i have known for a very, very long time at a different capacity when they both worn the uniform of the united states of america, and both true heros of our country and director petraeus, particularly to you since this is your first hearing as a

civilian to receive before this committee or this joint committee, we welcome you today, welcome you to the mmunity, although obviouslyou are certainly no stranger to any of us, but that's kind of unusual to see you sit there without a green uniform on, but we're very, very pleased to have you where you are. to both of you, i just say thanks for joining us and sharing assessments of the state of the intelligence community ten years after the 9/11 attacks. we also extend a special thanks to the law enforcement officers, first responders, the military, and the intelligence community who works so hard every day to keep the country safe. as the nation observes the annirsary of the darkest days in history, we're reminded of the lives lost and the sacrifices made by so many to protect and defend this country. we all share the resolve that these sacrifices will not be in vain. we have made significant progress since 9/11, and i

concur in the comments made by my chairman with respect to the progress that has been made. the operation against osama bin lad p was a great success especially in terms of cooperation teen our military and intelligence community. we have seen amazing improvements to go on the defensive against terrorists. our collectns have greatly improved and more information is being shared, especially between the cia and the fbi, which has made huge strides in transitioning to a full member of the intelligence community, but as we look back over the last ten years there have been failures as well, including the fort hood shooting, attempted christmas day bombing and the attempted bombing in times square. these attacks remind us that more work remns to be done, and that we must be vigilant and resist complacencies.

the stove pipes cannot build up again. congress created the national counterterrorism center 20 lead the fight against terrorism, but nctc still struggles to get information that could be used to identify terrorists. congress itself gave little up sight into the executive branch's counrterrorism strategy and spending, a lack of visibility is troubling given the variety of threats and the budget realities we face. we must make sure that our polies and laws promote the most effective counterterrorism operations, not those that are the most politically expend. administration remains intent on closing guantanamo bay, even as we remain without a facility for long term dention and questning of terrorists, and even as the recidivism rate continues to rise. given the concerns about the detainees, especially those within aqap, i was pleased the

senate intelligence committee's bill included provisions to improve detainee oversight requiring documents related to the transfer of guantanamo detainees. i think this provision should be a part of the final bill unless the administration moves quickly to work with the committee on a reasonable alternative accommodation. congress has worked to do as well. we must put end to the repeated sunsets and the u.s. patriot act and foreign and intelligence surveillance act. our collectors need certainty, not short term extensions that do little for oversight. each public debate about sensitive authorities raises the risk that our enmais will change methods to defeat surveillance. thars a gamble we should no longer take. gentlemen, i look forward to hearing your views, and i thank you both for your continued willingness to serve the country, and to the good friend

chaim rogers, thank you very much for you and chairman feinstein for convening this hearing today. >> thank you, senator, and thank you for helping in cooperation of the bill. with that, turning to directer clapper for an opening statement. director? >> thank you. chairman feinstein, rogers, ranking member ruppesberger, and members of both committees, thank you for convening this hearing today and for the essential oversight you provide to the intelligence community on behalf of all americans, and i must say certain semitry here for me because the last time there was a joint hearing, i was one of many witnesses in the 2002 time frame and in another capacity. i'm honored to appear before you and the american people and to do so with a new director of the cia, dave petraeus. in my view, this nation, the

intelligence community, certainly cia and myself are all extremely fortunate that a man of dave petraeus' capability, stature, leadership, and patriotism continues to serve and in this critical position, so i'm pleased and proud to be his teammate. this past week has seen many reflections on those terrible events ten years ago, reflections that have centered on the impact of the attacks on the state of the terrorist threat day. as you did here this morning in your statements. we remember the people who perished and the sacrifices made by the family and loved ones they left bind. for example, last friday, we remembered by name, or as many we could name, each of the 16116 intelligence -- 116 inllence community members, both military and civilian lost on 9/11 and in the

decade since. the attacks were the work of alqaeda. that organization is clearly not what it was a decade ago. the releaptless pressure we exerted on al-qaeda forced it to change, weakened its central character and capabilities, and caused it to seek other modes of operation. we vigorously attacked its leadership, striving to keep it off balance and cut those off who would direct activities. we worked to deny al-qaeda a sense of security, to complicate and disrupt its flow of resources and undermind its ability to plan. most notably, of course, as you eluded, we have sent bin laden to the fate he so richly deserved. these accomplishmen are substantial and real, and th stand a testimony to the dedication and skill of many intelligence officers and our operation elements.

most notably, of course, the operation forces and their extraordinary capabilities. the nation is safer because of their work and because of the many actions taken by the broad range of federal state and local elements concerned with our security. we've seen ten years of determined effort by all in the fight and the men and women of th intelligence community stood with our partners every day to ensure success. we have great reason to take pride, but it would be an error to conclude that we have reason to gloat, reason to soften our focus, or reason to relax our efforts. the stark fact is we remain threatened, and the information conveyed over the weekend is an exemplar of that. as terrorists still wish to do us harm, destroy our institutions, and kill americans without conscious.

in seeking to counterterrorm in all its forms, the success of the intelligence community, i'm convinced has been and will continue to be rooted in three critical factors. the most important is the dedication and skill of our people. the past ten years, we've developed an exceptional work force equipped with unique capabilities. it'll be imperative to preserve and enhance the expertise, remarkable talents, and high levels of income tense in the intelligence community. the other factors determining the success of the community and countering terrorism is the activities and the expansion of responsible information sharing. the intelligence community has made substantial progress integrating efforts since 9/11. we've taken steps to improve our counterterrorism posture including sharing of more counterterrorism information. r example, like t rest of

the community, a central intelligence agency has pleased emphasis on the prevention of anther attack on theomeland and the defeat of terrorists abroad. cia has a highly integrated partnership of analysts and operator who team with u.s. forces, other agencies, and foreign partners to preempt terrorists abroad. of course, director petraeus will speak in more detail about the cia. the fbi transformed from the concern of law enforcement to an intelligence driven organization effectively cooperating with intelligence community partners and state and local officials to identify and prevent terrorist threats to the homeland. this transformation includes the fbi led and inner agency joint task forces now based in 104 cities nationwide as chairman feinstein mentioned. the national security agency has

continued to devote significant resources against high priority threats. as terrorists operational security practices have become increasingly sophisticated, nsa is adapting to address use of the latest technologies while taking great care to protect the civil lib ireties of americans. the department of homeland security established a component and strengthened ties to state, local, and tribal authorities to ensure they can identify vulnerabilities and respond to threats. the defense intelligence agency established the joint task force combating terrorism to better protect the force protection requirements of the department of defense and the war fighting combat and commands. the national geospace intelligence agency worked to embed analysts and capabilities with its counterterrorism mission partners in the field and in the national community. i want particularly to note the role of the national

counterterrorism center, serving as the cter for integration of all counterterrorism intelligence except intelligence pertaining exclusively to domestic terrorism. 234 this role, they bring intelligence and homeland security elements together daily to exchange information and integrate actions as was done in the crent threat stream. all other intelligence community components are contributing to this comprehensive mission as well according to their unique capabilities. the treasury department's intelligence professionals, for for example, work closely with partners to identify terrorist financing sources and disresult them through -- disrupt them through official designatns. there's reporting from overseas. there is, of course, no better example of the importance and the power of intelligence integration than the operation against bin laden. as president obama stated at the time, the success of that missi, "marks the most

significant achievement to date in our nation's effort to defeat al-qaeda." such success was the direct result of the persistent collection and exhaustive analysis of all available information by intelligence community partners across a number of agencies and, of crse, the superb operation conducted by the u.s. navy seals. the progress achieved was made ssible by the support of the congress and by the work and interest of the intelligence and oversight committees. over the past ten years, the congress through legislation and oversight has worked to ensure the intelligence community elements function effectively and efficiently and have the tools we need. the intelligence reform and terrorism prevention act, for example, in addition to establishing the office of the director of national intelligence to lead the community provided a foundation to improve information sharing and e integration of intelligence ativities. the congress has also taken action to strengthen

capabilities most notably in the patriot act and amendments to th foreign act which will continue to be essential tools for the intelligence community. terrorism, e intelligence community is called on t provide critical support to protect the nation in many other contexts. proproliferation, regional crisis, reports from cyber, threats to space, and counterintelligence to name a few. i cite these not to detract from today's hearing, but put in to perspective what the intelligence community is called upon to do. to build on the progress made since the attacks of 9/11, i offer two suggestions. first -- the first is i think there's room to improve the management of the national intelligence program providing the resources for the communities' capabilities. specifically, managing this program is a coherent whole

improves ansparency and accountability. he second area will continue to seek improvement in intelligence integration and information sharing. sensible security and responsible sharing are th watch words here. efore closing, i emphasize we in the intelligence community recognize that in all of our work, we must exemplify america's values, carry out the missions in a manner that sustains the trust of the american people. the nature of our work and the trust placed in us demand we have the highest respect for the rue of law and the protection of civil liberties and privacy. finally, i believe the work of the intelligence community over the st ten years has criminal intented greatly -- contributed greatly to the safety of americans, but as you eluded, the very nature of terrorism makes it impossible to guarantee that every planned attack will be avoided and every

plot disrupted. we know that the character and the resilience of the united states as a people will prevail despite efforts of those who wish to instill fear in us and alter our way of life. this nation rose to every challenge in history, and we'll do so with this one. all of us are committed to protecting americans and defeating the scourge of terrorism. i assure you we will be relentless in that cause. thank you for your attention and for the opportunity to appear today, and ill now turn to director petraeus. >> thank you, director clapper. welcome, you look good in the suit. i make one suggestion, when i put my army uniform aside six months latr, it didn't fit. i don't know what that's about, but that's the only caution i give you, sir, director petras. >> well, thank you very much, chairman, vice chairman, ranking member, members of both committees, thank you for the opportunity to testify before this joint session of our

intelligence oversight committees, and on behalf of my agency and, indeed, of my predecessor, thank you for the strong bipartisan backing and effective oversight in significant part because of your pport, the intelligence agency is better able to protect our country a our citizens from al-qaeda and other terrorist groups. simply put,s agency is a stronger, more agile institution before 9/11 because of your assistance over the last decade that's critical in making that possible. i'd also li to recognize the enormous contributions of leon panetta, my predecessor. he's a principled, passionate leader overseeing the accomplishments of the great tasks in the agency, and now secretary panetta will be a close paner for the agency in the new role at the department of defense. i wanted to note as well i'm committed to continue along the bath director panetta embarked

with other members. this has been srengthened over the years, and i will endeavor as emphasized in the confirmation hearings and meetings with you since then to strengthen it further. it's a pleasure to be here with the director of national intelligence, good friend of years, jim clapper. he's a true intelligence professional and a great sur vaunt. we worked closely over the years in a number of posts, and i look forward to forge a better effective intelligence community. i welcome the opportunity to present the central intelligence agency's view the threat a decade later after the attacks. one week into the job, but over a decade in the fight against terror, i have expected to find the agency to be a true national asset comprised the selfless, committed, highly intelligent

americans demonstrating impressive knowledge, skill, i think newty, and initiative. i'm proud to lead the agency and represent the outstanding work force. i noteumbly in the eight days as director in the testimony i'm giving this morning represents the analysis of the outstanding work force. as a bottom line up front, the cia assesses that ten years after the 9/11 attacks, the united states continues to face a serious threat from al-qaeda and its worldwide network of affiliates and sympathizers. of significance, though, heavy losses to senior leadership appeared to create an important window of vulnerability for the core al-qaeda organization in afghanistan and pakistan. this requires a sustained focused effort. moreover, as al-qaeda's core is weakened, the initiative is shifting somewhat to the

affiliates and sympathizers outside south asia. our nation faces a serious threat from these groups, particularly from those based in yemen, home to al-qaeda in the arabian peninsula, and there's other affiliates presenting threats as well. in my statement, i'll describe the pressure on the core al-qaeda organization, then discuss the danger that al-qaeda and the affiliates pose, and outline keys to further progress against this enemy including some of the steps we take with our partners throughout the u.s. government and with our friends overseas. for more than a decade, al-qaeda's senior leadership and core organization inakistan and afghanistan have been capable of planning and executing dangerous plots targeting the west. today, as a result of sustained counterterrorism efforts, a substantial number with our partners in pakistan and afghistan, the core part of

al-qaeda's organization is much weaker and less capable than when it attacked us on 9/11. bin laden's death in may dealt a stunning blow to al-qaeda. bin laden was, of course, an iconic figure, the group's only leader since its founding. we know now he was deeply involved in the end while directing the strategy, re deeply involved, in fact, than many assessed before we, able to exploit materials found with him. his long time deputy ayman al-zawahiri succeeded him in jew, but they find him last compelling as a leader. we thus assess he'll have more difficulty than bin laden had in maintaining the group's collective motivation in the fe of continued pressure. the layer of top lieutenants under bin laden and ayman al-zawahiri, the group responsible for day-to-day management of al-qaeda in its operations sustained significant losses in recent years as well.

these losses have been especially severe among terrorist plotters, commanders, trainers, and bomb makers. recently, pakistan announced the capture with u.s. assistance of unis who planned attacks against the interest of the united states and other countries. last month, al-qaeda lost its second in command, senior operational coordinator. that followed the death in june of senior operational commander, and the organization is struggling to find qualified replacements. these set backs have shaken al-qaeda's sense of security in pakistan's tribal areas drivi the remaining leaders underground to various degrees and shifting a good bit of attention from terrorist plotting to security and survival. in fact, some mid level leaders and file meers seek safe haven across the border in afghanistan or decide to leave south asia. some other senior leaders may

assess it is riskier to move and remain in pakistan's tribal areas where trusted facilitators offer limited freedom of movement, but where their security will still be threatened. the upshot is it's more difficult for al-qaeda to atrack jew hads wanting -- jihads wanting to travelto pakistan. this gives a window of opportunity for us and our allies. we must maintain the pressure and exploit this opportunity. even with its core leadership having sustained significant losses, however, al-qaeda and its affiliates pose a real threat requiring energy, creativity, and dedication. al-qaeda's operatives are committed to attacks against u.s. citizens at home and overseas both in the wake of bin laden's death and continue the

pursuit of their goals, forcing the united states and a number of our allies to retreat from the world stage. the leaders continue to believe this would clear the way for overthrowing governments in the islamic world and the destruction of israel. moreover, despite being less able to coordinate large scale attacks, al-qaeda and the sympathizers comet to train and deploy operatives in small numbers for overseas plots. many 6 them have nationalities and backgrounds well suited for targeting the united states and europe. increasingly, in fact, we see signs of al-qaeda's efforts to carry out relatively small attacks that would nonetheless generate fear and create the need for costly security improvements. indeed, we should not forget that one of al-qaeda's goals 1 to force the u.s. and our alli to adopt additional expensive security safeguards that would further burden or economies. in short, though, we have made

real progress in the campaign 20 disrupt, dismantle, and defeat al-qaeda. we need to recognize the need to be in this for the long haul. as i mentioned earlier, the extremist initiative is to some degree smifting to al-qaeda's affiliates outside south asia. while linked, they have the structures, resource bases, and operational agendas operating aton mousily. working with our partners to cooperate against the affidavits is crucial to the success of our efforts to disresult, dismantle, and defeat the network. al-qaeda in the arabian peninsula emerged as the most dangerous regional note in the global jihad. since december 2009, the group attempted two attacks on the united states, one to blow up a u.s. airliner as it approached detroit in 2009, and an effort to send bombs hidden in computer printers on two carg aircraft

in 2010. they continue to plot strikes against the nation, u.s. interests worldwide, and our allies. since may, they launched an offensive against the many government parts of southern yemen expelling many government forces from the region and increasing aqap's freedom of movement. political unrest in yemen helped aqap co-op local tribe and extend its influence. despite this, counrterrorism cooperation with yemen has, in fact, improved in the past few months. that's very important as we clearly have to intensify the collaboration and deny aqap the safe haven it seeks to establish. state failure in the expansion of extremist networks over the past two decades have made southern somalia one of the world's most significant havens for terrorists. al-qaeda's affiliates there is large, well funded compared to

most groups and they have attracted and trained thousands of fighters including scores of americans and others from western countries. the suicide bombings in uganda last year demonstrated the group's ability to operate beyond somalia. sustained pressure on the relatively small fighters driving the terrorists' plotting and outreach to al-qaeda could persuade them to turn from global jihad. the top operative in east africa, were killed this year. his protege was killed two years early leaving them under pressure by afghan union troops. we have to continue the work to reduce capabilities. the aqim targeted wesrn

interests throughout northern and western africa while continuing to battle the security forces of nigeria. they conducted a double suicide bombing. we with working with the regional partnersin france to counter aqim and those efforts helped to prevent a significant attack by aqim on western interests since late 2007. in nigeria, the latest group conducted a car bombing in late august against the u.n. building marking the first known leal operation against westerners. they stepped up efforts against the group in the last several months. we work closely with the partners on this threat, and we'll seek to intensify our support. al-qaeda in iraq or aqi sustained significant losses since the surge in 2007, and it is much further than it was in

2007 from realizing its goalof overthrowing the government of baghdad or controlling some portion of iraq. nonetheless, aqi remaining capable of carrying out attacks ast showed in mid-august, and they will remain capable of inflicting casualties in government forces and others throughout the next few years. they share the desire to expand global jihad which could lead them to attempt attacks outside iraq. the number of al-qaeda operatives in southeast asia has been significantly reduced over the last decade thanks to aggressive counterterrorism measures by regional governments. the group responsible for the bali attacks in 2002 and 2005 has, for example, suffered major losses and largely focused now on rebuilding. the terrorist leaders in southeast asia are now dead such as one who planned the july 2009

hotel bombings or in jail, and the spiritual leer of extremism in southeast asia. the global campaig against al-qaeda and i felts requires offensive and defensive measures and need to be sustained over a long period in order to be effective. we target terrorist leaders, for example, to deny them the resources and breathing space needed to plot operations against us and our allies. we cooperate with the foreign partners wherever possible and often better to have them carry out operations than for us to do it. nonetheless, we do agent unilaterally when we must. ourofficers work hard to interpret operatives before they attack like they did to avoid smuggling explosives into transatlanticlight in 2006. in a similar fashion, we worked closely with friendly services

in the middle east to help stop aqap's printer bombs before they detonated. we owe the successes to trades craft of the fusion of intelligence disciplines to tight integration with others, to sharing intelligence with foreign partner, and to the committees' support. we assess that the agency in its elements are better at each of the actions now than we wre before 9/11, but al-qaeda and its affiliates are resilient. we must never underestimate our enemies and we have to continue to refind our tactics, techniques, and procedures. intelligence collectors, analysts, and experts forged closer relationships leading to now flows of vital information and more importantly new insights into how and where terrorists operate. that integration of analysis and operations each feeding the other has been at the heart of our most important successes.

in fact,ur relationships with others in the intelligence community and with law enforcement agencies are closer and more cooperative than ever. improvements in the watch listing program and other upper agency reporting meths allow us to quickly decimate actions with state and local agencies at the lower possible classification levels. we continue to work with the dni and national counterterrorism center to enhance this process and improve the application of community resources. the cia's close collaboration with the military and our intelligence community partners in taking down bin laden reflected advances our government made towards achieving a more unified counterterrorism effort. that was, indeed, as the dni noted, a success born of inner agency claboration and cooperation. our counterterrorism cooperation with governments in europe, the middle east, south asia, and

elsewhere around the world is also very strong. working with our allies and partners, we've disrupted dozens of plots and arrested key operatives and facilitators. all of this must and will continue. indeed the intelligence community has to continue to be a learning organization, and the cia will do all that it can to contribute to that effort. in sum, the ructures and processes put in place since the 9/11 attacks have made our government more capable and more effective in carrying out our critical counterterrorism mision and in protecting our fellow citizens. the key in the central intelligence agency has, of course, ben its people. the swings who at our -- individuals who at our head quarters, stations, and bases around the world have quietly, selflessly, and expertly defended americans from the constant threat of terrorism. they, our people, have been the

key. in so doing, they and their families have made great sacrifices, and we can never thank them enough for that. it is my privilege to serve with them, to be theirirector, and indeed to be their advocate. thank you very much. >> thank you, director petraeus, and for sharing the questions, senator feinstein. >> thank you very much,r. chairman. director petraeus, i think your remarks were a ten. thank you so much. i think you gave us an excellent and well-rounded view of what is happening. i wanted to talk to you about afghanistan. we were out in the waiting room, and we were speaking of the bombing that just took place at our embassy in kabul, and whether it was taliban or

chairman haqqani. t question that raises in my mind because 2014 suspect too far away is what would be the implications for the security of the west if the taliban with its connections to haqqani were to return to rule afghanistan, and in particular, what would it mean for women? >> well, thanks very much, madam chairman, and first of all, as i mentioned to you in the waiting room, i taked to ambassador moments ago, and he was my great diplomatic partner in bagad during the surge. he reported that all emerged embassy members aring thed for, no injuries to any embassy members. there were four afghan citizens who were injured when an rpg hit

the old chancery building and three of those very lightly -- one small girl -- they were all waiting for visas,eeded to go to the hospital across the road in the compound. apparently, the situation is handful of individuals, five or so, perhaps wearing suicide vests were able to move into a building that's under construction several hundred meters fromthe embassy and then to launch small arms and rpg's into the area of the embassy. at least one of those, as i said, hitting, but, again, no damage -no injuries to any of our embassy officials. ..

to take on a very very important mission, to an individual who has been under fire for a great deal who you will recall especially, with certain periods in baghdad. with respect to the situation where you mentioned were the taliban to take over afghanistan, as they did before, and indeed, to do so in some way with the network and perhaps some of the other movements that make up the syndicate as it is sometimes called, i think what we would see is a return to what we saw before. we have seen this before. tremendously limited under such a regime. the fact is under the taliban there were very few girls in school at all if any they were in hidden schools at great risk to them and to their teachers and there were less than a million students all told in

school. there are now over 8 million, the education minister estimated 8.2 or 8.3 overall and some percent of those are girls. i don't think that would continue to be the case were the taliban toreturn. beyond that of course the central issue for the western security in the whole reason that we were engaged in in this effort is to ensure afghnistan is never again a sanctuary for al qaeda or other transnational extremists as it was when the taliban did control the bulk of afghanistan prior to 9/11 and when the attacks were planned on the afghan soil. and again, the prospect remains real in any concern and is why we are working so hard to enable our afghan partners to be able to secure and govern themselves so that we can continue te orderly process of transitioning security tasks to them and i might note on that account that

even in kabul although there have been sensational attacks periodically generally the frequency of those has been reduced and in fact it is afghan forces who are completely in charge of serity in the capit and in talking about the entire province, not just the last one district the province of kabul as well as the municipality, and indeed it is afghan forces who are in the lead for even the ight raids and the targeted operations which we often enable but do not do for them and in fact it is the afghan forces who are this afternoon now this evening in afghanistan clearing the building from which the small arms and our pg attack took place. there are very good afghan forces that have demonstrated the ability to do this and they are indeed again doing it right now. >> my time is up. i would note the clocks are set for five minute rounds and i would hope we would keep them so

everybody has an opportunity. chairman rogers? >> thank you, madame chair. appreciate the opportunity to read to of your predecessors, admiral mcconnell and blair recommended a complement of the authorities and admiral villere was suggesting that some of the authorities moved to the white house. two-part question you also refer to some bureaucratic impediments that remain among them the 16 members tt prevent you from being as effective as you would like to be. can you talk about both of those cases here today? >> i'm not sure i understood the first part of your question about the previous director said. >> he said some of the authority has moved to the white house and that has been a bit of an impedime to function properly in the role of overseeing the intelligence agency. >> ihave notocused of us to be the case.

if you are specifically referring to the position that john brennan occupie, i think that he performs a crucial function in the white house and for the president as a residence coordinator for counter terrorism and intelligence and law enforcement, and john is a great colleague, somebody i've known and worked with for many years and so i have not found that to be the cas john if anyone is i think very sensitive and the differential to the authorities and responsibilities of the director of national intelligence are. i think the observation has been in the last 13 plus months that i've been in this job that this is 18 operation, there is intense interest and support for the white house particularly in the national security staff and national security adviser the

cia is an interpol part of that and i'm confident that is going to continue. so i have not found that to be an issue. ona diluted in my testimony to one area that i think could be improved which is how to manage the national intelligence program as an integral whole as opposed to the fragmented manner in which it is now managed. so that's one area. >> can you give an example of how you might do that? >> right now the national service program is spread across six cabinet departmes. 90% is an the department of the defense program, and the other five cabinet departments are reflected if i were king which i'm not and i would hasten the

this is neither not speaking on behalf of the administration and certainly not on behalf of the congress because tis would require me to get in into an area that is more hazardous than terrorism which is congressional jurisdiction, but i think that if it were managed as a unitary whole it would promote accountability come crème transparency, efficiency, agility and althose kind of things. i have not found -- >> you're suggesting the military intelligence program and the national intelligence program be merged in some way? >> i'm not sugesting that at all. military intelligence program is entirely separate. i was the person executive for the intelligence program for over three years. i do not believe that that should be a part of the national intelligence program particularly as the share of that 90% are those intelligence resources that have betted on each one of the services to include tactical intelligence

sources that are organic to the tactical operations. i believe that should continue to be the province of the secretary defense. the arrangement that we made, this was undersecretary gates and then myself and my prior capacity was to designate the under secretary defense for intelligence who was the manement for the military intelligence program as the director of the defense as a dni position. he's dual headed that way. so, increasingly we are working together to ensure coherence and cooperation and coordination between those programs. we recently completed a two yearlong effort to rationalize the rules of the road for what should be in the nit and as we approach the impending budget cuts, we have already begunto work closely together so thatwe are attentive to the dependencies so if we cut the one program we haven't done

unintended harm to the other. but i do ot think that it should be built in but i do think the mechanisms that we have developed for the appropriate oversight and insight into the military intelligence permanent conversely my successor at the u.s. dis and site to the national intelligence program. the other part of your question, i have to see that in my 13 plus months now in this job, and it feels like it's, i have not noted very much pushback from the intelligence community particularly on the thing i'm pushing on integration and collaboration. >> thank you very much, chairman rogers. vice chairman chambliss? >> gentlemen, there are still

several important provisions in the foreign intelligence surveillance act and the u.s. a patriot act subject to sunset even the director has testified about the need for the permanent authorities and there's absolutely no evidence that any abuse of these authorities i'm concerned each time we debate of these the intelligence community tells us that they can, "live with the suggested changes yet i never hear anyone say those changes will help you do your job better. first of all, how do you short-term extensions affect the ability to operate and second, when you are asked if you can live with certain changes will you commit to getting us the full story about how the changes may harm your collection to devotees as well? director clapper? >> thank you. it's disruptive i think whn we are constantly on the cusp of

having these very important tools expire on us. so particularly when we are dealing with commercial segments to help us do this it is disruptive and unsettling to them and in terms of their long-term commitment to committing to cooperate with us. and so i think from that standpoint, it's not healthy to have these constant short-term extensions. having said that though it is extremely important to us that obviously we must have the support of the congress representing the american people. and obviously the issue here that is of concern is civil liberties and privacy, and i assure you have been personal witness to this in the last 13 or so months that we go to

extraordinary lengths to the repetitive checks and balances over the actual execution and administration of these authorities, which we all understand have the potential for rendering the civil liberties and privacy. as to the specifics of what we can live with i guess i would like to perhaps offline we can discuss what those provisions as u understand them are and then i could perhaps give you a more explicit answer on a case by case basis. >> certainly. >> and vice chairman, obviously these are domstic issues but nonetheless concern to us because we work with partners who employed the authorities that fees' provide to them as we all work together as we did for example this past weekend with

the credible but still unconfirmed threat. at the bottom line is the short term extensions meet the long term planning and program more difficult than the long term extensions. it's pretty simple and straightforward. beyond that i will commit to providing the full story again as there is something specific we would welcome the opportunity to provide reaction to that. >> you've both pressed concerns about t rising recidivism rate among the gitmo detainee's which is tighter than the last released figure of 25%. yet the administration is sticking with its policy to close guantanamo and refusedto send the newly captured terrorists. does it really makes sense to ferc was the option of bringing the terrorist when the prohibitions on bringing the gitmo detainee's to the united states and on transferring detainee's to yeme make it impossible to close gitmo any time in the near future and what

can the intelligence community be doing to stop the recidivism rate from going up? >> as you know, the administration policy and the executive order by president obama signed almost immediately after taking office was to close guantanamo not the least of which is the symbol guantanamo has become so that the administratiopolicy. i think what we try to do or the administration tried to do is to treat each case on a case by case basis depending on the circumstances to capture the importance of it and was there evidence for the prosecution, etc.. in the answer, this is really not in intelligence issue. i think our concern isand the

determination from these detainee's regardless whether they are incarcerated and regardless whether they are attended throop through a military commission or the civil courts system. so our interest, my interest and whether the art mirandized or not is getting the intelligence from them. rather than where they are incarcerated. you are right about the recidivism rate on the order of the 27%. there are i think some 161 that have been 599 detainee's that have been repatriated from guantano, some 61 of them either confirmed or suspected to be recidivists. i should point out many of them have been taken off the battlefield throughthe kinetic encounters if you will. so that is a concern as to what the intelligence community can

do to stem what of recidivist rate since one is one too many is to ensure that in the interagency deliberatio that are conducted to make judgments about whether or not to repatriate some one and whether to ensure that we have provided the maximum information on the potential threat posed by such repatriations. >> i would second of the director's comment on gitmo but i will note as well as the centcom commander even before the administration took office based on my sense of the situation in the area of responsibility dhaka called for the, quote, response of the support for the responsible closure of gitmo as you will in

previous days that is provi difficult to do that over time i know to the executive and legislative branches are seeking to come to grips with and with respect to their recidivism rate careful analysis has to be done on this attrition and the country to which detainee's might be returned and i can assure you the agency will provide a very forthright assessment of the situationand of the ability of the country to carry out the responsibilities to safely inhumanely keep these individuals behind bars if that's the requirement or to oversee their conduct if they happen to be released for some reason. >> vice-chairman? >> director clapper, i'm going to give you to issues to stay within the five minutes and my

first will be about space. the national security depends on the performance in space. we are the most powerful country in the world because in my opinion one of the main issues we have control 40 period of time and space deals with a lot of issues. unconcerned our nation lacks overreaching plans for space and launch. the problem associated with the cancellation of the consolation program have rivaled through the industry especially the indusial base and the good news the corporate sector has responded with competitive ideas. you've heard and i've said many times our current capabilities also extremely reliable are too expeive. i have big concerns about the program. one of the largest u.s. commercial satellite operators had a conversation they are not using u.s. services and the reason the sanibel of the increased cost secondly the program is not maintained a

reliable schedule i know personally the prram i followed for years that's important to the security of the country it took them one year after it was ready to go to the launch and that is unacceptable. the -- we need to stimulate the commercial industry and ensure there are no barriers to competition. the same mjor u.s. manufacturer , they used the launch program facilities with france, russia and india, not in the united states because of the schedule. so the first issue is when we are dealing with russia where we have to launch another country especially russia and i believe a lot of the countries including china going to the moon what are we going to ensure we have no barriers to the competition. the cost of the launch and the

system itself. the second thing i'm going to throw out and then i il stop coming people last in the intelligence committee we all know when the committee that we he things all over the ball rolled what keeps you up at night. the areas that concern me most of the weapons of mass destruction and where we are to protect the country from cyber attacks. basicallin my opinion people have a catastrophic cyberattack. the same thing happened in south tree with north korea attacking the system. we need to do more and it needs to start at the top and i feel we need what a person, the cyber sar we have an individual right now who's not doing a bad job, doesn't have the authority of the power were the stuff it's imrtant we create a whole system that includes education to the public on y cyberattack sar important and serious. nsa is doing their job and they're as good as anybody in the world with general like alexandre so that's the second, where do you feel we are with respect to cyber, what would you recommend in your role to make sure that we are stronger and we

have a better system to protect from cyberattack triet >> jury quickly, congressman, first, i agree about the importance of spaceand protecting and preserving and advancing the industrial base, having the alternative source of the launch is critical and as soon as we can get a second or an alternative launch capability we are confident that we can certify i am all for that from the intelligence perspective. is it ever crucial particularly as we look to some of the other threats that we confront the nation states the extensive denied areas to us. with respect to the second concern on the cyber, you and i

have many discussions about what keeps me but might the things we don't know and certainly the nexus the nexus of the wmd and terrorism is a huge concern. with respect to cyber i think the responsible the into the intelligence committee is to provide the threats to whomever needs it and of course the key among that but not exclusively is the national security agency as you alluded to the homeland security is an important role to play as the interlocutor with the civilian infrastructure engaging them, helping to educate tem and involving them in solutions and again i believe the intelligence committee responsibility is to ensure the data to include moving to a conversation i had before that was meeting with t chairman feinstein making as much of this available to an unclassified basis as we possibly can.

>> thak you very much. i think that mr. conaway and mr. conrad - we are alternating sides so the next one would be senator blunt, and then we will go to member schakowsky petraeus connect thank you chairman. i'm glad to be back in the room with my colleagues i've served with on the house and many of them on the house intelligence committee formy comments for the record, director corporate director petraeus i'm going to say that i think there's been a real progress that to me at least has appeared in the last year to be significant in terms of coordinating the committee. i will say that i wondered a number of times over the handful

of years between the time that we created the dni coming and you are taking this position the year-ago whether this was a system who is going to wo or not but it does seem to me that after lots of effort has come together and i listened carefully to the chairman rogers questions and comments about how we can make that happen, and even more significant ways certainly the coordination shows what can happen when the intelligence community and the defense department work together. the efforts of the national geospatial intelligence agency which has a big presence and the special forces have worked together and this community is becoming what we all hoped it would become to whenever the job was created one of the things i want to ask about and i think i will ask and have an answer on

this leader you, director clapper, is one of the things that the intelligence reform and terrorism act did was a lot of dni procurement authority for all enterprise architecture i.t. and it's a complicated issue but one line very interested and and if you can briefly respond to that and in more detail later are we looking at a unified location somewhere that would be a backup location outside of washington i know that was on the process for a long time but seems to be waning right now, and just a quick answer there and then i have one or two other questions. >> senator, thank you very much, and i appreciate the mention of the nba and the honor of serving as this director for five years

and the campus about to open up almost ompletely the next couple of weeks important contingent remains and the two locations in missouri. as we approach, i will just add a word on i.t.. as we approach the inevitability of the budget cuts in the intelligence community, i think this is the area of the greatest potential for the efficiencies and a reduction in the amount of the fnding that we now send on i.t.. and so, we are very deeply engaged the approach to the more unitary architecture across the intelligence community. and frankly, it's something that we talked about as in nevada for years but now we are running out of money so we must be in sync mode. i think that is serving as the stimulus if he will to do some

more creative thinking. and i think that this would do wonders in terms of saving efficiency and promoting integration. estimate i do, too and let's go to the topic and since you brought it up, sce we are talking about the budget cuts everywhere, i would ike you and the director petraeus to very quickly discuss how that's going to impact you and how you would prioritize those things and maybe you just gave part of the answer, mr. clapper, on the trying to do things that produce a better results with less money. but some of the things we can't do with less money and i would be pleased for both of you to respond to that topic. >> let me start and then i'm sure dr. petraeus will have some commentary, too. i was around in the early 90's to serve as the director of the defense intelligence agency when we were to reach a peace dividend. and so that causedus to go on a

seven year down slope in the intelligence resources. and of course which came to a screeching halt on 9/11 and then we went on a sudden up slope so now we are on a yle of rection. the first comme i would make, and this gets to the why the i. in the last ten years whether it was the bci or the dni, we had to do is presided over handing out more money and more people every year. and that in your period basically ecompassed the entire existence of the office of the director of national intelligence. now we are in a different mode, and i view this as a litmus test for this office to preside over these inevitable cuts that we are going to have to make but profit from the experience of the early 90's and not do some of the things we did then. everything we do in intelligence first of all is not of equal

marriage. some things are more valuable than others particularly as we look to the future. i think it's important to protect that most valuable resource we have, which is ou people. we must continue some way of hiring every year which we didn't do in many cases during that hiatus. we must try to sustain healthy r&d for the fture, and i think we have to be rather cold hearted and objective about the contribution of the systems so that's kind of the approach we are going to take and this has to be a corporate but i'm reasonably confident that we can come through this without a great deal of harm and i don't want to be under the mistaken impression the we are going to

stand capabilities we have today because we are not. >> leggitt r. dee also pleased to see you here today in this job. >> thanks verymuch, senator. first to pile on if you will your comment about the coordinion, the coordination is better within the agency itself and its better within the greater intelligence community. it is better within the government for its large with the milary and law enforcement agencies, and i think frankly that there is een a better approach in terms of sharing and supporting your efforts to provide the oversight is also an important function as well in all of this. with respect to the budget cuts the key is protecting the core capabilities to read in the center intelligence agency, we are working very hard to stay absolutely riveted on the counter terrorist fight but also to balance thatand not lose

sight of the global coverage mission. we have been able to reestablish a number of the different stages and bases in the coverage mission and we have to evaluate very carefully the future in that regard. we have as the director menoned had ten years of steady increases. now we have to tighten our belts. there are areas that we've identified which we think that we can achieve some efficiency and savings and so forth. but as the dni said, we cannot return to this kind of period that we had during the peace vidend days where we were not hiring or we were cutting, we have to protect our most important resources, our people. we need to continue to hire throughout this time as well so that there is a continued addition to the workforce and the use is continue to be brought in as it has been over the last ten years and we have to continue to invest and make our work meaningful and

importance of the best and brightest not only seek to join the agency but also to stay with it. thanks. >> think you very much, senator. so everyone will know, we are going to go n order of a rifle. it's t confusing the other way. so next will be conaway followed by schakowsky, sift, lobiondo and thompson. mr. conaway? >> thanks for coming this morning playing off of your comment about the two spheres of emphasis on the testimony you talked about the management of the intelligence community. part and parcel of all of that is senator blunt started down this a little bit is the management systems, information systems and internal controls day in and day out to give decisionmakers accurate and data this is gathered as efficiently as we can general clapper, what

is the expectation that he communicated to the 15 agencies yet to be able to obtain audited financial statements and by the way on the financial statements your office will not crss the border, give your thoughts on that and general petraeus, if you would a little early in the tenure but you have to give me your thoughts and hopefully commitment that are included among your top priorities and communicated to your team is the report of getti this system in place to talk about being audited, but that is just a catch phrase it's really about the day in and day of work that has to be done fr the data at the right time to read >> welcome a fst of all, sir, right now, our stated objective i think is to be a fully audited by 2016. what would really help us though would be we need legislation on

the treasuryfund balance provision which enables intelligence mponents to deal directly with the treasury, and then and thereby making us less reliant on the surgeon systems that are not audible and there is language right now in the house appropriations committee bill that would preclude that and their fear is that somehow that is a part of my conspiracy or plot to separate and they are separate and distinct endeavors with regards to how it is managed if we are going to achieve what ability and do it in a way that is expeditious and quickly is to have the treasury fund enacted into law. >> it is early in my time on this topic but my understanding is what i've been briefed on as

we are doing reasonably well and on the right trajectory and you certainly have my commitment to getting the systems in place. >> i appreciate that you know, on the department of defense side as well when leon panetta left to the department of defense which still maintain the same kind of emphasis over there that we have here, so i appreciate both of your commitment to do that can you help us understand asyou shrink resources and resources are less available that the resources needed to make this hapen and the follow on to general clapper to break the tie among those who love the legacy systems and or they would prefer a different architecture system, so can you put a team in place that does that, somebody has to break the tie you have that authority to say it goes this way, right, wrong or different? >> i do, sir. so far nobody is questioning it

so i act like i do. but i believe we have assembled the right group and prime among them is the cia and the nsa to lead the effort to come up with a more integrated enterprise architecture for across-the-board in the intelligence community. i think that the potential for the savings here are huge. >> i would just pylon and say that the agency perspective there is no question that the dni is in the lead on this that he has put together a good team and the cia has provided the isasi deputy director who's quite good in this area would be part of that effort to work together as a team. >> finishing up, one of my early hearings as the team brought over the charts these were like 10o