just in the last couple of hours. we will learn more about it. the police take our security seriously, as they should. i am glad they caught him. we have had two different notices. one that he was caught and arrested. one that was more detailed that i read in the waiting room. they assured us that they have this under control, which is good. we did know -- did we know about in a ban -- in advance? no. >> is there anything else you can tell us? >> i do not know much about it. >> thank you for our time -- your time. we are back with our two reporters.

congress agrees to pass the payroll tax cut extension for one year. let's fast-forward to december 31, 2012. do they do it again? >> a lot of pressure to do it again. if you allow a tax cut to expire, it is a tax hike. that is what they said during the bush tax cut debate. that is what president obama said to pressure the republicans to pass this bill. >> and you heard from the chairman that perhaps nothing happens before december 31 because of the election. lame duck session after the election. it could be busy. is it politically feasible and realistic to think there could be an overhaul of the tax code in a lame duck? >> no. but there certainly might be some pressure to extend this period once they have extended it twice now, three times,

really. once the public gets used to having a 2% reduction in their payroll tax, there will be an appetite to keep that. unless the current limit rate really drops, a couple of points between now and november, -- a less the unemployment rate really got a couple of points between now and november -- >> what about the composition about the bush security trust fund? >> democrats fighting for tax cuts and republicans defending social security. from the start, it has been crazyland. you heard mr. upton tie himself in not. banner was opposed to it. -- boehner was opposed to it. then they thought, how do you

pay for its? -- for it? >> the real damage is to the debt. the trust fund will be paid. that will be fine. that is the real issue. do republicans want to go on record to grow in the debt. ? >> we will have this conversation again. thank you for being part of "newsmakers." >> i have a list of all the chemicals in cigarette smoke. i had a hunch one of them might be an addictive drug. i will ask one of them a simple question. >> i believe nicotine is not

addictive. >> cigarettes and nicotine do not meet the classic definition of addiction. >> i do not believe nicotine is addictive. >> they had a program in the 1970's when they were going to remove nicotine from cigarettes and replace it with a drug that would be equally addicted. they had all these molecules they indented, but they had no way to test them. that was my job. my job was to find a molecule that a rat's brain would say, i like its. . >> tonight on "q & a," a discussion of "addiction incorporated."

>> on tuesday the 2013 budget request was discussed. you can watch the entire hearing at our website at c- span.org. this portion is one hour, 40 minutes. >> the hearing will come to order. i want to welcome acting director back to the budget committee. you testified before the budget committee's task force on government performance in 2009 in a hearing chaired by senator warner. he was there in his role as the administration's chief performance officer. so we want to welcome you back. today, we will be examining the president's fiscal year 2013 budget proposal, which was sent to congress yesterday.

i believe the president's budget would continue to move the nation in the right direction. according to the administration, under the president's budget the deficit is a share of the economy, would fall from 8.5% of g.d.p. in 2012 to 2.8% in 2022. that represents real progress. it's important to remember the economic crisis that the president inherited. all of us remember back to 2008

and 2009 when we experienced the worst recession since the great depression. the economy actually contracted, it shrunk at a rate of almost 9% in the fourth quarter of 2008. we lost 800 private sector -- 800,000 private sector jobs in january of 2009 alone. and unemployment was surging. those are the conditions the president inherited. they were not of his making. he was asked to come in as the clean-up crew. he also faced a housing market that was in crisis, home building and sails plummeting and record foreclosures and we faced a market financial crisis as well that threatened to set off a global financial collapse. we have come a long way since then. the federal response to the crisis, including actions taken by the federal reserve and to be fair in the final days of the bush administration, they took important actions. the obama administration did as well. and congress participated. those actions successfully pulled us back from the brink. and president obama, i believe

deserves considerable credit for avoiding what could have been a second-grade depression. as i noticed earlier in the fourth quarter of 2008 the economy shrunk at a rate of almost 9%. positive economic growth returned in the third quarter of 2009 and we have now had 10 consecutive quarters of economic growth. we see a similar picture in the private sector jobs market. in january of 2009, the economy lost more than 800,000 private sector jobs. private sector job growth returned in march of 2010 and we now have had 23 consecutive months of growth with the last month over 250,000 jobs being created in this economy. i think all of us would like to see even stronger economic growth and more job creation, but although unemployment is

still too high, it has certainly come down substantially. the pace of this recovery is somewhat predictable because the best scientific evidence we have now is after a financial crisis, it takes longer to recover and weak unemployment continues for a longer period of time. looking forward, i believe we need to remember that we really face two critical problems in this economy. one, short-term and one, longer term. short term we are recovering from the worst recession since the great depression and that wasn't the result of policies of president obama. he inherited that condition. although the economy is improving, we still have relatively weak demand for goods and services, which is holding back even stronger economic growth.

longer term, we face a debt threat. job one is to improve economic growth with steps to strengthen demand. simultaneously, we need to enact a credible plan to bring down our debt. our republican colleagues, i believe, have completely overlooked the first problem of weak demand and would actively make that problem worse by imposing fiscal austerity right now. they have focused solely on the longer term debt threat. as a result, their policy proposals of imposing fiscal austerity would weaken demand and lower democratic growth, kill job creation and choke off the recovery. i just say to my colleagues, i believe they've got it half right. absolutely we have a long-term debt threat. we have to cope with that.

but in the short-term, what we have is we have weak demand and we also have to cope with that. the republican proposals for immediate fiscal austerity would fit a circumstance in which we saw rising interest rates, but we don't see rising interest rates. in fact, interest rates are at a record low. the problem we have right now is weak demand. here's how another leading economist, the chairman of macroeconomic advisors, described the problem in his testimony before this committee just weeks ago. he stated, the number one problem that small businesses say they have to deal with right now is lack of demand. they do not say access to capital. they do not say the burden of regulation. they say their order books are thin. that's what we hear in every corner, the chairman of the federal reserve has told us that, the head of c.b.o. has told

us that. and that's why companies are not hiring as fast as they might otherwise do. even though they have record profit levels and $2 trillion sitting on their balance sheets. but we need to address the second problem of rising debt and this is where i agree with my colleagues on both sides, who have made that a critical issue. and we should not wait to respond. but not by imposing fiscal austerity right now, but by adopting a plan that phases in fiscal discipline as the economy strengthens. we really need an economic two- step. first we need short-term strengthening of demand by investments in infrastructure. that would put people to work and make america more competitive. second and simultaneously, we should adopt a credible and serious plan that puts us back on a sounder, long-term fiscal course by fundamental tax reform, by reforming the

entitlements and by cutting wasteful spending. all of that is required. in his testimony before the senate budget committee last week federal reserve chairman bernanke addressed the need for this kind of two-step approach. he testified, and i quote, even as fiscal policy makers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery. fortunately, the two goals of achieving long-term fiscal sustainability and avoiding additional fiscal headwinds for the recovery are fully come pat i will and indeed they are mute tallly enforcing. the president's budget includes a number of proposals that include, one, extending the payroll tax cut and unemployment insurance benefits through 2012. i welcome the fact that we seem

to have a break-through at least on the payroll tax cut front. second, providing $50 billion in up-front investment infrastructure for the construction of roads, bridges rail and airport facilities. third, extending the 100% business depreciation deduction for new investments. i can just say as a small business participant myself, i can testify to the value of that. provide $30 billion for school modernization. provide $30 billion to help states and localities retain first responders and create jobs by restoring distressed economies and creating a tax credit for small businesses that increase jobs and wages. my own avaluation of this budget, it moves in the right direction.

cuting it by 2/3 over the budget period. it reduces discretionary spending -- let me put that slide up reduces discretionary spending to the lowest level of the share of our economy in 50 years -- actually in 60 years. you can see discretionary spending drops. previous high was 13.6%. this brings it down a 5% of our national income. that is a substantial change. this budget also indicates the need for additional steps but for additional steps to be taken, it will take all of us to find some way to come to gather. -- to get there.

i very much hope that even though this is an election year, we will come together on what -- the longer-term challenge that we confront. with that, we will turn to senator sessions for his remarks and then go to the testimony of our witness and then go to each of the members for their questions. >> thank you, mr. chairman, for their good leadership. we appreciate the opportunity to work together. thank you for appearing before the committee. we wish it were under better circumstances and we had more money. president in the united states, in my view has no higher duty, no greater responsibility, then to protect the american people from a clear and present danger. every expert, every witness that has testified before this committee has said we are on an unsustainable financial course that can lead to a major

deficit, a financial crisis. those appearing before our committee have often called for a minimum of $4 trillion in 10- year deficit reductions. many of us, including chairman conrad, would like to achieve savings beyond that. really what we are trying to do and should do is lay out a plan to balance this budget. 10 years would be a good goal in my opinion. we are not -- a mass of austerity program cannot be done. it is not realistic and it is not what i or republicans would propose. yet, in the face of an existential economic threat, president obama submitted a budget yesterday which makes no alterations in our debt course. on the president's budget plan, using the numbers from the white house, total federal debt will hit approximately $26 trillion an increase of 75% from 2011.

75% increase. interest costs will rise from $225 billion this year to $850 billion annually, and spending will increase. spending over all will not be cut, but will be increased by more than 60% by your own budget submission. this year's deficit will be the fourth consecutive deficit in excess of $1 trillion. meanwhile, medicare and social security, for which the president proposes no reforms will continue on the path to insolvency. if this were not bad enough, no serious solutions to serious problems, the white house has deliberately misrepresented their budget to the american people. the intent seems to be to will them into complacency. the president claims his proposal would achieve $4 trillion in deficit reduction

over the 10 years. i guess we should all relax. this is false, and i hope you will not repeat that number. under the president's proposal, we will accumulate $11.20 trillion in new debt. under the debt limit agreement that we achieve as part of the debate over the debt limit last august current law, that is the lot today, we will accumulate $11.50 trillion to the gross debt over 10 years. at most, there's $300 billion in deficit reduction, despite an almost $2 trillion in job- killing tax increases. i would like to put to death the argument that your predecessor made about avoiding short-term cuts in favor of long-term

savings. but there are no spending cuts short or long in this budget. the president's chief of staff met another policy claim this week saying the democratic senate is not doing a budget for the third straight year because it requires 60 senate votes. the law is clear. it only takes 51 votes to pass a budget, and of the republicans are given the honor by the american people to leave this chamber next year, we will pass a budget, and it will be an honest budget and it will change the debt course of america. by contrast, the president sadly uses accounting tricks to conceal his budgets -- budget's true cost. the white house repeals $1.20 trillion in the budget control act we may just last summer. he does not count that as new

spending, revealing because we agreed to buy a lot. your budget rightly stop the planned cuts to medicare providers, the doctor cut, but without any money to pay for it. the budget gives -- takes credit for discretionary caps, spending limits that are already in law not part of this budget. and the budget pretends that were spending will continue at higher levels so that -- planned reductions in borrowing magically produce three months that can be spent somewhere else. the war costs were not paid for by a dedicated stream of money. it was paid for by barring money. there is no money there the harvest. i hope that we can have a candid discussion today and hope that we can move past election-year rhetoric, convenient sound bites and talking points.

the american people have a right to expect honesty transparency, and accountability from the elected people. they deserve a budget that takes them off the unsustainable debt course washington spenders have put them on. your budget does not do so. i look forward to discussion today, and perhaps we can reach some agreement, even this election year, that would at least moderate the course we are on. thank you, mr. chairman. >> thank you, senator sessions. proceed with your testimony, and we will open up for questions from the members. again, welcome to the committee and thank you for your service. this is a very tough job at a difficult time, and i for one think all members of the committee appreciate your service. >> i appreciate being here. i want to thank you and other members of the committee. before i joined omb three years

ago, i spent all of my time, about 20 years, in the private sector. one thing i found was it was often helpful to boil things down to a few key graphics so i'm going to use some graphics on the screen to walk through the highlights of the president's 2013 budget. i'm going to cover up for your topics. first, the current policy baseline. second, the key element of deficit reduction. then, an overview of our investment in the areas that are critical to our future competitiveness and growth. finally, the bottom line of the president's budget and how it puts us on a sustainable path. first, the baseline. we believe we have a baseline that accurately reflect current policy. in essence -- in business, we would think of this as business as usual. the baseline includes the extension of the 2001 and 2003 tax cuts.

we believe the presentation is more honest than taxing these year after year. in accounting for future disaster costs rather than ignoring them. the base line results in annual deficit at the end of the budget went up in 2022. this is where we start out before our policy takes effect. let me turn to our deficit reduction policies. last april, the president put forward a framework to achieve more than $4 trillion in deficit reduction. you can see it here. m going to take a minutes to walk -- a few minutes to walk through this. he maintain the $4 trillion

commitment in his proposal to the committee last september. this year's budget is very similar to the september proposal, with the addition of a year to the budget window. as you can see on the far right in the green bar the budget includes over $5 trillion of total deficit reduction with the addition of this extra year to the budget window. let me walk you through the critical elements. i'm going to go from left to right to build up to the $5 trillion. first, you will see on the far left $676 billion in savings from the appropriation bills enacted last year, including both the 2011 appropriations in april, and the savings in the 2012 appropriations. next over $1 trillion in reductions in discretionary spending consistent with the caps in the bca. there are $362 billion in reductions to medicare, medicaid, and other programs

that would make these programs more effective and more efficient. then $272 billion in savings from reforming non-health mandatory programs in areas such as agriculture, federal civilian work for retirement, the tbdc. these are net of the new cost of mandatory initiatives. the next category -- $1.50 trillion of revenue for deficit reduction, including the expiration of the 2001 and 2003 tax cuts for the highest earners, and the elimination of inefficient and unfair tax breaks. the $1.50 trillion number is a net number as we further cut taxes for the middle class and for small businesses. next $617 billion in net savings from investing in a six- year surface transportation reauthorization.

capping it importantly closes the back door on security spending. then there is another category, in net savings of $141 billion. it is a bit of a catch all including disaster adjustments program integrity, and the general fund transfers for transportation that are no longer necessary, given that we are paying for them in the previous bar. as a result of his proposals debt service costs decrease by a total of $800 billion. finally, in that small pink bar there are $176 billion of investments in short-term job initiatives that actually cut the other direction. these are investments. this is the remainder of the $354 billion of job initiatives that are not spent in 2012. i want to be clear that we do not count the sequester in our total deficit reduction. we believe the sequester is bad

policy, and we propose that it be replaced by this larger, more balanced package of deficit reduction. the bottom line is these efforts represent a total of more than $5 trillion in net deficit reduction. even as we achieve this deficit reduction, we continue to make key investments in priority areas. these include short-term measures for job growth totaling $354 billion, tax breaks for the middle class and small businesses amounting to $352 billion and continued investments in our long-term priorities. these include education and training for american workers innovation in r&d, clean energy, and infrastructure. we make these investments in a budget that abides by the very tight spending caps and makes hard trade-offs. let me pull this all together

now. on the left, as compared to the adjusted base line with discussed in the first slide with the results of the president's policies, as you can see in 2022, deficits from the president's policies are below 3% of gdp compared to 4.7% in the baseline. furthermore, debt as a percentage of gdp is stabilized from 2018 on. this is important for maintaining a strong investment environment. the president's budget replaces the sequester with a balanced approach to deficit reduction with $2.50 in spending cuts for every dollar of revenue increases. we have made tough choices, and we all need to work together to maintain this balanced approach. in closing as a business person

and now as acting at omb director, i believe the president's budget makes the right investments to make us even more competitive in the global marketplace and achieving declining deficits and stabilizing our debt are critical for investments. this is good for business, good for the middle >> i have seen the president criticized for not cutting the deficit in half in his first term. what was the deficit of the gdp inherited? >> it was over 9%. >> i believe the first year it was 10.1%. in 2013, what will the deficit be as sure of duty?

>> 526%. >> that is pretty close to being cut in half. what will be in 2014? >> it will achieve cutting in half. by 2014, we will have cut it in half. >> the second question i have is a question of revenues. under the president's plan, revenues will average what share of gdp over the budget? >> pullover -- a little below 20%. >> the fiscal commission, which has been lauded for reaching a bipartisan agreement had a level of 20.3% at the end of its budget. during the clinton years revenue of averaged about 19.4%. the level of revenue the president is calling for is completely in keeping with what

the bipartisan fiscal commission members recommended and what we saw during the clinton years which was the longest time of uninterrupted economic growth in the nation's history. let me ask a second question. a third question. the ranking member has said the president over the 11 years included in his calculation increase spending 62%. do you know how much president reagan increased spending in eight years of his administration? >> 69% across the eight years from 81 until 89. >> can you tell us how much president bush increased spending in his eight years? >> from 2001 until 2009, 89%.

>> the fact is as republican presidents over shorter times increased spending much more than this president is proposing. i think those facts are important. president reagan, in just eight years, increased spending 69%. president bush george w. bush, increased spending 89% over eight years. this president is being criticized for increasing over 11 years, a longer time 62% less than either of the others. with respect to the question of the statement of the budget requiring 60 votes i assume he was referring to the budget control act we passed last year that did require 60 votes.

>> absolutely. >> that is different than a budget resolution. a budget resolution doesn't require a simple majority. but a budget majority never goes to the president for signature. last year, we passed a budget control act that is lot. that passed not only the house and senate and required 60 votes in the senate, but was signed by the president. when the ask one other questions if i could. the hard reality is will we do with this -- with fiscal policy is an expert -- inextricably linked to the economic outcomes of this country. if we look back at what this president walked into, is it true the economy is shrinking at a rate of almost 9% in the final

quarter of the previous administration? >> yes, it was. >> isn't it a fact that the economy is now growing at a rate of about 2.5%? >> yes. >> that is a turnaround that is quite remarkable, from the economy is shrinking the rate of 9%, to the economy growing parade of 2.5%. i believe the president deserves some credit for helping engineer that turnaround. the same is true with respect to jobs. isn't it true that in the first month, 2008 -- 2009, we lost 800,000 jobs in the private sector? >> unfortunately, yes. >> that was not a result of the president's policies. he did not take office until two-thirds of the way through that month. the most recent monthly report,

we gained 250,000 jobs in the private sector. isn't that the case? >> yes. >> it appears to me the president should be able to ask the american people to support a policy that has brought us back from the brink. i'm sure it is the intention with this budget to further the economic recovery and further create jobs in the private sector. >> you captured the well in your opening statement. it is two steps. to make sure we continue this recovery starting with making sure we extend the payroll tax holiday so that 160 million americans do not have a tax increase. doing the types of investment in infrastructure $30 billion to modernize schools.

and at the same time, putting ourselves on a path to deficit reduction that has that as a percentage of gdp stabilized by 2018. coming back to the figure of 2014, we're down to 3.9, which is not where we want to go but better than the 10.5% and the president inherited up front. >> we are going to do 5 minute rounds this morning. senator sessions may certainly consume the time i did. >> putting us on the past -- sometime in the future we will have deficit reduction is not achieving deficit reduction. the president spent the first two years of his time in office which determined did not refer

to when he talked about proposed growth -- it would be a lot more if you included the stimulus and 24% increase in discretionary non-defense spending. i would say that what he said on the program, you cannot pass a budget in the senate without 60 votes -- isn't it true that based -- the current law which included the budget control act passed as part of raising the debt limit, your budget spends more money that we propose congress proposed to spend through the budget control act over the next 10 years? >> [inaudible]

>> you propose to spend more money over the past 10 years democrat of a cause us to spend? >> we have a much more honest baseline. a bass line that has sgr and amt ---- you do not pay for it -- >> you do not pay for the sgr. >> does your plan spend more money than the agreement and the current lot we've reached just last august? >> what we have to focus on here is the bottom line. we're taking deficits down to 2.8% of gdp. >> you're not answering my question. you -- does your budget calls for spending more money >> our budget is a more honest budget

that looks at what is happening. each year -- >> will the witness not answer a simple question? >> it to more accurate reflection. >> will it spend more or less? >> it will actually spend less money because of the deficit reduction will have and a bass line reflects the current policy. >> because the deficit reduction that can only be assumed that is caused by increased taxes. let's go back to the question. your budget proposes eliminating the sequester, the 1.2 trillion dollars in spending cuts we agreed to last year of a difficult as it was -- that is a $1.2 trillion increase in spending is it not?

>> it is not. >> why is it not? you eliminate that and that means you intend to spend that, do you not? >> this is a very important point. the president is not proposing the sequestered away. the sequester is a very important forcing function for us to do deficit. the sequester will be replaced with a valid for postage to them as a reduction -- this sequester is bad policy on the defense side. >> we have looked at your numbers in your budget and your budget increases spending by $1.5 trillion more than the budget agreement last year and it is in a lot different places. you do make cuts in some places out there, but your net is to increase spending more than the current law.

that is not the path need to be out and the increase in taxes, almost $2 is it trillion is used to pay for that spending. >> there will be $2 trillion and we absolutely believe it leigh balanced approach. >> you are incorrect -- if you are incorrect in saying do not increase spending more than current law, would you consider resigning your office? we have looked at the numbers. are you that confidencet? >> i'm confident we have deficit reduction of more than $4 trillion and we do it in a balanced way. for every $2.50 of spending cuts, there's a dollar of revenue. did it -- that is a good,

balanced approach. >> there is no spending cuts in this budget. this budget increases pending. surely you know that. it increases taxes. to say you cut $2.50 in spending for every dollar in tax increase is beyond the pale. >> we have three and $60 billion cut from health care. we ought to honor the $70 billion in cuts from other mandatory programs. we of savings that the cbo scores in total of $2 and cents of spending cuts for every dollar revenue. but that is the approach we should have. >> mr. chairman, this budget taxes more and spends more. it does not alter that course of america and i am disappointed that we cannot get an honest response to these difficult questions at this important time in our history.

>> i think the senator for his questions. >> thank you for your service to our country. we really appreciate it. budgets are about choices and priorities. they're about making investments in our workers and families and future. there are about making tough decisions about how we pay for those investments and reduce the debt and deficit. i spent a lot of time tackling those issues on the joint select committee on deficit reduction and did not get the results were hoping for. i think our work highlighted the deep divisions and sharp contrasts between the two parties on the path for. i feel very strongly that deficit reductions should not simply be put on the backs of the middle class. i believe the wealthiest americans and biggest corporations should contribute their fair share as we try to work our way out of this.

i believe we need to cut responsibly or recant and we need to remember we have a trillion dollars in the budget control act and every single group as tackle this has advocated for it. it is what all our constituents expect and reserve. as we work on the changes we can not add to the burdens of the middle class again. they have paid a lot. the only way to change this sacrifice is through the budget approach. that important balance i want to start off with today asking about the president's budget proposal -- how does your budget tackle this issue of balance and fairness for the middle-class what are your heard specific

approaches for tackling the goals of jobs in the future and deficit reduction? we're calling on everyone to share in the sacrifice and most honorable. >> a balanced approach has been central to everyone's recommendations here, and it is central to the president's budget. asking the wealthiest americans to pay their fair share, that $ 1.5 trillion comes from that. and necessary corporate tax expenditures like not taxing interest at carried and come -- asking everyone to pay their fair share raising revenue is a central part of that. at the same time, there'll be no tax cuts -- a family earning under $250,000 will have a tax

increase. there'll be tax cuts and the -- >> when we use these acronyms, people listening have no idea what you are saying. >> the market opportunity opera -- that offers making college affordable -- it is essential -- continuing pell grants at the higher level giving the tax credits i just scribed encouraging colleges and universities to stop year over year tuition increases, all important for the middle class. the president has done about $300 billion of tax cuts for the middle class. central to the budget is a balanced approach.

making sure the worst -- the wealthiest americans do their fair share and make sure we give the middle-class a fair shot. >> thank you. i naturally important for america today where so many families have been hit hard with jobs being cuts that they feel and have contributed to trying to get this economy back on track. i appreciate the president's emphasis on that value. i did want to ask on the issue of sequestration and cuts to spending -- i believe the va medical care spending is exempt from future cuts. i am concerned by not selling this issue now we're failing to provide our veterans with the clarity they deserve. when can we expect omb to talk

about that? >> we absolutely recognize the importance of our veterans. in terms of the sequester, it is bad policy all around. it would lead to cuts on the defense side that go across the board, they are indiscriminate, totaling $500 billion. we of similar cuts of a similar magnitude elsewhere which are not appropriate. overall, the sequester is bad policy. we're focused on balance deficit reduction. it is unfortunately you reach a point and we will address issues like the ones you raised, but we're focused on bad policy and it should be a replaced by balance deficit reduction. >> as soon as you can let us know on that, that would be good. >> thank you, mr. chairman.

it i want to go back to an issue that has been discussed here and in many places regularly. it is this notion that it is not time yet to start controlling the spending side of the equation. we still need to keep stimulating the economy and keeping government spending going so we can generate jobs. the two-step approach the chairman mentioned and you have confirmed is the approach taken by this government -- by this budget, i have a concern about that. i served on the president's commission and that report adopted the same approach. this was in december of 2010. we agreed we would delay the caps on spending and spending restraints for a year or two to allow for the stimulus of impact on the economy that was claimed

to be needed. the concern i have is it is now time to prepare a 2012 budget and we still hear it is not time yet to begin the austerity part of controlling spending at the federal level and we still have to engage in the spending side. my question is when will we ever get to step number two? the question i do want ask is about this budget. i've seen a lot of budgets in congress and analyze a lot of budgets. one of the biggest problems we overlook every year is that you have a budget, in this case a 10-year budget, that makes all kinds of proposals over 10 years. but it is only the first year of the budget that really counts and congress will operate from. it seems that in the first year

of almost every budget i have seen congress established, there is more taxing and spending, but the control of spending does not happen. it and that is happening again in this budget. two years ago, the president's budget claimed billions in savings by freezing savings in 2013 at $46 billion. one year ago, the president claimed additional savings in that same non discretionary spending category for the fiscal year 2013, saying we should get to an even lower level of $397 billion. now we're looking at 2013. it has arrived. the president proposes not the 446 that he said in his budget two years ago, not the 397 he

said but 501 if i read the numbers correctly the same dynamic i am describing has occurred again in this circumstance. in previous budgets, we say in the future we will fix things in here is that we will fix that. then we get to the future budgets and low and behold, the fix is gone and the spending is back in place. >> on the discretionary side, we are abiding by the caps which control discretionary spending. if you look at department of defense, they put together a budget that follows a new strategy and as a result, it results in a 1% decrease.

if you look across agencies, half of our agencies have flat or negative spending so this is a budget with a lot of spending control. the bottom line is we're down in 2013 to 5.5% of gdp. >> it is not where we need to go to get those deficits lower and have debt stable as a percentage of gdp, but we are on the right path. >> you have adjusted the baseline which allows you to make the claim is your making in a number of context year. let's forget about the baseline and the percentages and the arguments that have been made about how we're going to be reducing percentages of spending. is it not accurate to say the

president proposes in this budget for 2013 more spending than he proposed for the same 2013 budget last year and the year before? >> i think you have to go back and benchmark those numbers. it's a budget that abides by the caps which has us making a lot of trade-offs. >> the sequestration is eliminated? >> it is not eliminated. the president believes it is a very important forcing function. congress was not able -- i think your word was replaced. >> the 1.2 trillion that it would create in the across-the- board cuts across the

efficiencies we have realized is bad policy, it would be replaced with balance deficit reduction. it is mutually assured destruction. no one wants the sequester. a combination of tax and spending cuts. >> i do have the numbers and two years ago, it was 446. that was 397, this year is 501. the same thing has happened. the budget proposals go up in the years we are really doing the budgeting. >> i have served on the fiscal commission and served in the group of 6 and spent hundreds of hours with him. he's a serious person. in the group of six, we devised

an enforcement mechanism that has never been used before, in part to get at the underlying issue that he raises. those of us to of served on the budget committee for many years it -- whatever the merits of the current budget or demerits, the underlying dynamic he is stressing here he stressed in many hours i can tell you on the fiscal commission and the group of six and he is right. enforcement mechanisms have always had loopholes in them. congress is genius at getting through loopholes. >> i appreciate your saying that. i wrote the gang of four enforcement on my note pad here because i would like to see the president endorse that. >> i would just say the strength of the proposals could enforcement but one of the things we know, if you pass a sequester that requires a

trillion dollar reduction and will send to congress opposed to this rated it does not give confidence that we will follow through with anything. you walked away from us cut and replaced with tax increases as the senator just said. >> are don't think we have seen a proposal and i think we could all agree that is bad policy. we are proposing to replace it with a balanced approach at the president's budget has more that 1.2 trillion of spending and revenue to replace the sequestered.

the president believes the sequester is very important as a forcing function to make sure we achieve at least that level of deficit reduction. >> we cannot add hoc this. >> i think we can learn from our past experience and that is the 1990's when we had a serious budget problems. we have a balanced approach to deal with it. we enhanced revenues and reduced spending and iran able to get our budget balanced and we sought economic expansion in this country and job growth and everyone benefited. i think the germans exchange with a director as to getting our budget and deficit manageable should be our goal. if we can reduce the deficit by

one half as a percentage of our economy, that is real progress. that will be reflected in the growth of our economy and i think that's an extremely important point and i appreciate the fact that you are trying to balance revenues and the spending over this time. i want to talk about the revenues for one moment. i anderson is going to be a lot of comment about it. if we were to use current law as it relates to revenues, the previous tax cuts, allowing the mall to expire and not extending the alternative minimum tax what would be the revenue impact verses which you have in your budget over the 10-year window? >> if we were to allow the middle tax -- a middle-class tax cut? >> if we were to allow current

law to take effect rather than continuing current policy as it relates to the revenue issues? >> i believe cdo has the network. we do not spend time on that because we believe no family was less than two minutes in the thousand dollars of income should have any tax increase. in fact, we believe there are opportunities for further tax cuts and we believe tax cuts should expire for the wealthiest 2%. that's central to having a balanced -- this balanced approach. >> i support you on that. the middle-class needs help as far as the amount of taxes they pay. they need help on college expenses and i support what the administration is trying to do hopefully expanding pell grants. college costs are becoming greater.

when we look at the revenue number, it's my understanding of revenues you are bringing in, if we allow current law to take affect we will allow more than what the president's budget is proposing. none of us want to see that happen. we need to come together to make sure our tax policies are sensible and we all like to see reform. the revenue part is less revenue coming into the treasury that if we were to allow current law to take effect. >> it returns us to the wealthiest 2% and brings us back to the '90s. tax rates would be very similar. i can tell you there are plenty of incentives to be an entrepreneur and growing business.

it is essential to the balanced approach were talking about inappropriate amount of revenue. i think it is good for america and good for the middle class. >> i would just add one more from the 1990's. we gave predictability to the private sector. they knew they had confidence in the budget would be there and government policy would be there. that would allow for the expansion of our economy. it is critically important that we act. i think the president has given us a balanced approach and learning from history if we allow that to take effect, we will see the type of progress and our economy everyone will benefit from. >> i think we need to achieve what this budget achieves, which is to stabilize debt as a

percentage of gdp. that will allow was to continue to be the place for american businesses and global companies to invest. >> there is much being said about a fair share it, that people need to pay their fair share when it comes to taxes. what is a fair share? can you put a number on that? >> i think rather than put a number of a, let's look at empirical data. >> let's put a number on it. >> president refer -- the president prefers to tax reform, but tax reform takes time. having the bush tax cuts expire. -- >> the president prefers to do something, why doesn't the president lead? people in this committee have

tried to lead and they got their brains beat out. why doesn't the president have a budget that lead on tax reform. >> the president has very specific proposals and his budget to answer questions which would take the top rates back to 39.6% which was a level that existed in the 1990's. >> is that a fair share? should it be higher than 39.6? >> i think the $1.5 trillion which was raised some with corporate taxes of represent a fair share. >> the president believes the number we should be shooting for is a 39.6 and not 35? >> -- >> if we have told everyone in america we have found a fair number 39.6, can i tell people we have solved the budget

problems? >> let me explain the tax reform piece. this budget has a very specific proposals. capping deductions for americans with more than to under $50,000 at 28%. the president has put forth principles for tax reform which would simplify the tax code, lower rates -- >> when we say a fair share, we need to reform the tax code to have a fiscal impact? when people tell me have to pay your fair share, we need to be saying is we to reform the tax code in a way that gets us to where the need to go as a nation. the 39.6 as opposed to 35 is not going to solve the nation's problems. >> the specific proposal has us return to where we were which

was -- >> lets talk about what got us $15 trillion into debt. will the social security fund be exhausted in 2036? we have all failed in the area of retirement for -- entitlement reform. is there anything in the budget that it just the age for retirement? >> no. >> is there anything that adjust social security benefits? >> the president does not believe our immediate problems -- our immediate problem of social security. social security reform needs to be dead in a balanced way. >> if we do nothing with medicare, social security and medicaid, how much do those

three programs consume? >> across this budget window, which is the next 10 years the president's budget achieves a deficit below 3% and a stabilization of the gdp. >> it does the president's budget do anything to save social security from going bankrupt? >> social security is solvent through 2036. >> does he oppose personal investment accounts? >> the president looks forward to sitting down with congress -- >> it does the millionaire receive subsidies from the government when it comes to their medicare premiums? >> the president has -- >> if you are a minute -- billionaire receiving medicare benefits, do you receive

subsidies from the federal government under this budget? >> you are entitled to medicare. >> t get a subsidy to pay premiums? >> you pay large portion. >> are there any subsidies coming to millionaires and this budget for medicare premiums from the general treasury? >> your medicare compact with seniors is maintained. >> the compact is we're going to let millionaire's be subsidized forever? >> that is the compact that we have. >> i did not sign that compact. i don't believe that. i think i should be paying the full premiums. thanks for coming. >> senator warner. >> thank you.

i concur with my friend from south carolina that we need to take a comprehensive approach to the long-term deficit issue. i think a lot of the statistics are thrown around, but if there is a take away i come back to is the last couple of years we have seen spending close to 24% of gdp and have seen revenues in the 15% range. a 75-year low. if you look at the last 75 years, any time there has been anything close to balance it is one revenues and spending have been and a 19%-21% range. the feeling i have is that while it will require us to take on changes to the entitlement programs, it will looking at the revenue half of the ledger as

well. one of the things i want to take a moment on, and i understand the administration and president's reluctance and need to phase in appropriate long- term deficit reduction we have seen the uk being put on creditwatch because they may be moving too quickly on austerity only. one of the questions i would like your comments on is what would be the economic indicators in growth numbers, gdp jobs that will allow us to start phasing in more dramatic and comprehensive deficit reduction? i am understand and i think both sides of the aisle do that the

payroll tax cut at this point while quite popular has stimulus of affects. i am afraid that eliminating that would be viewed as a tax increase going forward. i would like to see if the economy continues to improve that it is automatically phased out. i am concerned that it looks like the house leadership after a great deal of talk of fiscal responsibility may decide to extend that without paying for it all and i think that is totally irresponsible and against the grain everything this committee, the chairman and ranking member have been about. i would be opposed to that. what i am asking is what should we look at on economic growth

that would allow us to take on deficit reduction with revenue side increases and the entitlement side reductions to get us back in a greater balance? >> on revenue you are talking about the 19% are 20% range that is where our budget is. we hit 20.1% and we are in that 19 range through the window. it is a historical range that has worked and we need to get back to. second, i want to emphasize the budget has declining deficits year over year and gets the point where we stabilize the debt as a percentage of gdp. on the payroll tax, we think it is central. you cannot have a tax increase on 160 million americans at this point in time. we're starting to recover and

unemployment is at 8.3%, which is better than a was but not where we need to go. absent any major shock to the system once extended through the end of the year, that is it. >> paid for? >> i think the most important thing that it be extended. i know there are conversations many of you are involved in and i think it is important we have unemployment extended and the sgr and that package did that as soon as possible. >> the other question i would have is what are the indicators of when we can either phase out or other economic metrics that would allow us -- >> and continued decrease in unemployment. if the president's policies are

enacted a year from now, it will be below 8%. then we can begin to pivot toward deficit reduction. >> thank you. senator portman is next. >> thank you. welcome. couple of quick questions. costs senator reed has said we don't need to bring a budget to the floor this year. do you agree? >> i think the most important thing is that congress act and we pass the president's policy. >> yes or no, should we take a budget to the senate floor? >> mechanics are not my area of expertise. i will take that as a no, which is consistent with what the white house has said. i find a pretty amazing.

second question. what is the most significant policy issue facing the country in terms of our fiscal policy? what is the single most important thing? >> i.t. is two things short-term and long-term. short-term is continuing the recovery. we need to make sure payroll tax and other initiatives like transportation schools -- the second is driving down the offices to a sustainable level. >> policy areas, what troubles you the most in terms of our fiscal posture? >> getting balanced approach. our revenue is much below where senator warner says and i would agree it's to be. we need to continue to bring down our spending.

>> i was hoping for something a little more specific. i ask that question of a lot of folks and the question is usually answered with one policy area, which is health care. i know you come from the management side and welcome to the budget committee. >> i do have some background in health care from the private sector. >> if you look at the budget, it is difficult not to see the budget side and that health care is our number one problem. we're borrowing 40 cents of every dollar spent and we have trillion dollar deficits last several years. we have had a downgrade we are looking at a fiscal crisis on our doorstep. we're spending more than we ever have in this country as a percentage of gdp, more than world were to.

-- more than we have since world war two. having heard a lot of the conversation today, there does not seem to be the urgency i would hope for with regard to the mandatory spending side. the percentage of spending to gdp on the mandatory side this year is about 65%. in 1971, it was 42%. at the end of your budget window, do you know what the percentage of gdp will be -- this includes social security, medicare, and interest on the debt. what will it be at the end of the 10-year window? >> i do not have the figure in front of me. >> it is 78%. when you look at this -- this is

as a percentage of the budget, not percentage of gdp. we've gone from 42% in 1971. that includes the great society programs and there's a big expansion. in the mid-60's, going to 70%. yet in this budget, there's nothing. even though we are in cash deficit on social security we have this huge growth. what is there in medicare on the benefits side during the next term of whoever is president? >> let me start with health- care -- let me answer that question for you because i'm not going to get an answer. yeah of means testing, which i applaud you for. republicans want to get entitlements under control as has the chairman.

you have nothing. what you do is after the president's term. i appreciate your testimony today and look forward to talking to you on the management side or you have a lot of background and expertise. i would hope of these other issues that when somebody asks what the top issue is that it is not a balanced approach or more taxes, but we've got to get the mandatory spending under control and his budget is an interesting political document that does nothing to of the country for the most urgent issues facing our nation on the fiscal side. if we don't, i fear we are heading down the road of our southern european allies and a lot of negative impact on economy and jobs. thank you for coming in and look forward to talking to you more about these issues. >> in fairness to witnesses, if we ask a witness, we have to give the witness a chance to answer the question.

senator white house is next. >> we would ask the witness answer the question. >> let me just say we ask a question here, the witness deserves a chance to answer. that is the way this committee will be conducted. >> he should give a straight answer to the question. >> senator whitehouse is recognized. >> welcome. for as long as there has been discussion about medicare corporate -- discussion about

medicare, there has been opposition to medicare. the forces who have opposed medicare and the ones who have resisted cents are still out there. -- resisted since then are still out there. there are people interested in handing medicare to private control or giving people vouchers for private insurers which would be a windfall to the private insurance industry. it is important we recognize that political fact and recognize the debt and deficit problems we have can be used to become a vehicle for that a longstanding opposition and the desire to change that government program. we saw very unhelpful changes

passed by the house of representatives recently and i think the american people responded with a very negative point of view. the next thing that appeared out of the house was cut, cap, and balance. which was worse than what had been immediately rejected. the fact that people in rhode island are a year or two out from medicare and when they finally get to medicare, it is safe harbor at last after years of storm and uncertainty. the program remains under constant attack and we have to do our best to defend it. i believe very strongly that there is an efficiency problem

a quality problem and information technology problem and that incentives problem a runs throughout the health-care system. medicare is seeing its habits -- medicare is seeing its costs go up but secretary gates said it is eating the budget alive and the private sector is getting clobbered with health care cost increases. the va is seeing its costco up on health care. there is a systemic cost problem -- the va is seeing its costs go up on health care. we burn 18% of our gross domestic product on health care. the next least efficient industrialized country is at 12. we're 50% more inefficient at delivering health care than are most inefficient industrialized competitor. when you put commonwealth fund

measures of how good a care is we're getting and what the outcomes are, we are not better. we are actually worse in some areas. there's a huge opportunity here that i think the administration needs to seize. a lot of good work has been done already and i'm working to put more focus on the implementation that needs to be done. but you are now in charge of omb and you are important emissary and member of this administration. i understand perfectly well from discussions cbo for many years and hearings over many years that because of the nature of reforms required, it's not something actuarially score all. it is hard to calculate its core for how this works. in certain areas like hospital readmission, we've been able to calculate and pinpoints course,

but as a general proposition, we are embarked on what they called an experiment in innovation and hard to see around corners. the fact that you cannot calculate a score does not mean you cannot set a goal. i will continue to urge this administration to move beyond the standards it set for itself of bending the health-care cost curve, which is a metric-free standard pad and try it as the difference elements in the affordable health care act and private health organizations across the country prove this proposition was a real savings from improved care that you push -- i appreciate you cannot calculate a score.

could you talk about that? >> we do have a compact with their citizens on medicare and we have to live by that. the republican house bill would shift $6,400 to seniors as an additional expense is completely unacceptable to the president. there are inefficiencies and you have places where costs are higher and outcomes are lower so you do not have the correlation of cost and outcome. the productivity gains that have been made across the private sector 1.5% year over year productivity gains are cost decreases and quality increases happening at the same time.

technology is central to that. best practices and making sure we understand what is working at intermountain. there is a correlation between lower-cost for care and higher quality care that we need to find that intersection and stamp that out across the country. we to have the productivity gains in health care. >> thank you for the year -- for being here. you have a tough job and i appreciate your time. the president has talked a lot about fairness. in your judgment, in the interest of fairness, what percentage of the american people should pay no net income taxes at all? >> that is a hard thing to put a percentage on. we want to grow the middle class and as we grow the middle class -- >> it is about half right now.

this budget would increase that number. i can only infer that the belief is a fairer system is one in which more than half of all americans pay no income tax of all. >> we have a situation where wealth is very concentrated in a few percent of people. we're asking for the top 2 percent sign to pay their fair share. >> do you agree with the white house chief of staff that it takes 60 votes to pass a budget in the senate? the budget in the senate? >> it takes 60 votes to pass a budget like the bca. it is 51 votes. the democrats who control the senate could pass a budget without a single republican vote if they chose to exercise the leadership of pursuing the

budget. >> i would say there was a lot of leadership involved in passing the deficit reduction. >> i want to commend our chairman has indicated a willingness to market the budget. i would be extremely disappointed if the democratic majority chooses to go another year without laying out the case to the american people of how much money they think we should spend and where the revenue should come from. >> beyond process, the most important thing is getting policy enacted into law. there is an opportunity to be balanced deficit-reduction. we look forward to the president's policies being put into law. >> part of the problem is we have not addressed the policy issues. when i look at a few categories of federal spending social

security medicaid, medicare, and interest on our debt, do you know how much they grow and the president's budget over the 10- year window? it is almost 8% per year, compounded. it is 7.9% to be precise. your own forecast for gdp is ambitious. nominal gdp growth is not anywhere near that level. is it even possible to sustain in definitely growth in big government programs that is consistently, always higher than the economy grows. >> let me take it piece by piece. on health care, the president and congress put forward and passed the affordable care act. it has $100 billion in the first decade. this budget puts ahead -- 43

ended $60 billion in additional savings. social security is not our immediate problem. the president stands ready to address social security. at the root cause of much of what you are talking about is demographics baby boomers retiring. we see this budget as an important milestone. at the end of the day more needs to be done. let's achieve this level of deficit-reduction. then we can talk about more. >> this is an extremely disappointing approach to this. what you ran through is fully reflected in the numbers are inciting. despite whatever savings you attribute to the programs the president is proposing these programs are growing far faster than anything that is sustainable. everybody who has looked at this honestly comes to only one conclusion.

in fact, the president has acknowledged that mandatory health care spending is the problem. this president refuses to propose a solution. i think this is irresponsible. what you are doing jeopardize economic growth while not strengthening the fundamentals driver of the deficit. i think it is a huge absence of leadership. >> people who watched this is the assumption is that we would vote for a budget, it would go to the floor, be voted upon ne. in theory, the president would go fourth. that is the entities ---this

fantasy-land. people who watched think that magic occurs here. there will be a budget process that lays out expenditures for the federal government. the president proposes the budget. we set it aside. we write our own budget. the appropriators set it aside. we appropriate money. the president approves the appropriations. what is going on is not reality. the folks watching us believe we have a budget. we will take the president's budget unmanned -- amend it, and vote on it. that is not how it works. it is appalling. they think the president has the budget we amended come and follow it. for people watching, it is great show and tell today. at the end of the day, is a whole different process.

thank you for the decisive answer that you gave on that. i would like to ask you to produce a document for us. over the last several years when the president proposes a budget, there is a deficit built into it. the congressional budget office goes into a room and comes up with another number that the project. then there is reality at the end of the year. in 2008, a $2.9 billion proposed from a deficit of $240 billion proposed. cbo says to hundred $26 billion will be the deficit. actually it was $459 billion. the following year, $2.1

trillion budget. deficit requested, $400 billion. cbs says it will go down. actually it went to $1.4 trillion. i want to get a chart with those lines. i want to know at the end of the day the actual expenditure rate. >> we can find that. >> go back to 2006. today. -- the back to 2006 through today. when i look at the actual budgets, i will use the last three years that i have been here. $3.77 trillion. it slid a little bit.

when you have a tsunami, there is a surge. these are slight increases. one of those years, we had a big one because we have the worst recession in the country's history. i think the american people need to understand what we're talking about. there are headlines and politics. if you could produce that, it would be very important. you are not replacing the automatic budget cuts. you are suggesting if there is another round if the budget cuts do not happen. >> it is a terrible policy. the president is clear the force in function remains. >> if we do not do something your budget will have to adjust

to reflect that. if we do not act, we do not have the money, we do not spend it. >> i think it would be terrible outcome if that is how we did spending cuts. the president is committed to sequestering. >> i like to say automatic budget cuts. there are other words we use around here. in the 2011 budget control act under section 2055, -- 255 they were exempt. section 2 to 66 establishes a process for them to be reduced. can you send some clarity? >> this question came up earlier. we are hopefully not at a point where that matters. we replaced the automatic cuts. we will work on that for you. >> has omb done an analysis on

if there is a military bracket put into place the economic impact? can you do that if that comes down to reality? thank you, mr. chairman. >> senator johnson. >> senator begich, i think i have a graph to show you the surge in spending. i will use omb's numbers. this comes from president obama's budget last year and this year. it is called total outlays for 10 years. in the 1990's, last year's budget shows spending at $46 trillion. this year's budget shows

spending at $47 trillion. i am doing you a favor and intra- -- answering senators' session's question for you. i have a question for you. you are claiming $4 trillion in deficit reduction. going back to your budget, it shows total gross federal debt in the year 2021. it showed a production -- projection. this year's budget shows total gross federal debt at $25 trillion. that is a reduction of $one point 3 trillion. we passed $900 billion in the first charge. that uses up to $1.3 trillion. where is the other production? >> deficit-reduction is the sequester money that we believe

it should come through a balanced approach. then there is $2 trillion more. >> by realize those are your segmented talking point. if you take a look at the growth in debt the base line last year would have had that at $26 trillion. this year shows it at $25 trillion. what we have a baseline -- >> we have a baseline. >> $26 trillion -$900 billion. then you would be at $25.40 trillion. we should be at about $441 trillion. >> we are taking into account business as usual with a baseline that includes the package and annual taxes. >> that is smoke and mirrors.

it is not being reduced. >> it is being reduced by $4 trillion versus the business of the usual -- business as usual. " we're not reducing the debt and deficit by $4 trillion in this budget. it is not happening. in response to a book fair share," -- in response to "fair share," you quote a couple of different things. i did not come prepared to put this on the chart. congressman paul ryan has done a good job with the health care law, marginal tax rates will rise. that would be above the fair share. but i am still focused on your prior question. " i want to move on. >> use of the top market -- top

margin tax rate would be the fair share. >>congressman paul ryan late this hour at 44.5%. that is above the fair share. >> we're talking about ordinary income rates. there are different categories. the president is suggesting the 35% of back to where it was in the clinton era to 39%. >> another way you said it would be fair is if we went back to the share the top 1% paid during the 1990's. the average then was 32.8%. under bush, it was 36.7%. in 2007, the top 1% paid 40.6%

a larger share of the nea and higher bottom 5%. you are saying that is not enough. >> the middle class has not benefited. " we have a very progressive tax rate. that is one reason why when we have recessions we have the falloff. it is because we have a progressive tax rate. the top 1% paid more than the entire 95%. >> we are in a situation where we need deficit reduction. that should come in part through revenue. the president is proposing spending cuts for every dollar of revenue. that is a fair share. the wealthiest 2% should pay their fair share. we should have no tax cuts on

families earning $250,000. >> michigan congressman up in -- upton talks about the key issues before congress, the keystone pipeline extension, and the debate over the contraception policy. that is today at 6:00 eastern on c-span. >> i am going to go right down the roadw and ask each one a simple question. >> i believe nicotine is not addictive. >> cigarettes and nicotine do not meet the classic definitions of addiction. >> i do not believe nicotine or cigarettes are addictive. >> not addictive.

>> in the 1970's, they wanted to remove nicotine from cigarettes and replace it with a drug as equally as addictive but would cause heart problems and brain strokes. they have the molecules they invented but had no way to test it. that was my job. my job was to find a molecule that the rat's brain would like where its heart would not have a problem with it. >> tonight the discussion on addiction incorporated . >> defense secretary leon panetta and joint chiefs of staff chairman martin dempsey testified before the senate armed services committee on tuesday. the focus was the defense department's 2013 budget request.

it calls for a 1% decrease from last year, part of an effort to save $487 billion over a decade. you can watch the entire hearing on our website at c-span.org. here are the opening statements. this is just under one hour. >> good morning, everybody. the committee this morning welcomes secretary of defense leon panetta and chairman of the joint chiefs of staff general martin dempsey, for our hearing on the 2013 budget request. the associated future year's defense program and the posture of the united states armed forces. the committe also welcomes, and the undersecretary of defense -- the committee also welcome the undersecretary odefense. let me thank all of you for the

commitment to the nation our soldiers marines, and airmen around the globe, and to their families. they are truly deserving of the nation's affection and support. your testimony marks the beginning of the committee's review of the fy 13 budget request for the department of defense. this request for -- this request includes $520 billion for the base budget and $88.4 billion for overseas contingency operations oco. the base request is5 billion less than the 2012 enacted request. the oco is less than last year's level -- last year's enacted level. this conforms with the budget

control act that congress passed last summer. the senate approved a budget control act on a bipartisan basis with 74 senators voting for it. but the control act locked in defense and non-defense -- the budget control act lot in defense and non-defense spending caps -- locked in defense and non-defense spending caps for 10 years. the department rponded with a new program to meet our security challenges. the budget control act also included language requiring the congress to pass legislation with additional, far reaching a deficit-reduction. if congress does not come up with the deficit-reduction package by next january, one that locks in another $1.20 trillion in deficit reduction over 10 years, then automatic spending cuts will be imposed on both defense and non-defense

programs. the budget the president sent us yesterday avoid sequestration by meeting the $1.20 trillion additional defense reduction target and approximately 1/2 in additional spending and 1/2 i additional revenues. the defense request for 2013 not only confirms -- conforms to the limits of the budget control act, but it reflects the results of the departments comprehensive and strategic review initiated by president obama in april of last year and the strategic items that resulted. we look forward to the witnesses' explanation of the process they went through to develop the new strategic guidance, their assessment of this guidance's most important features, and potential risks

relative to the current and potential future environment, and how this supports its strategic priities and manages strategic risk in the near and long term. the administration has called for two more base reagnment and closure or brac, rounds. in my view however, before we consider another round of brac, the department ought to take a hard look at whether further reductions in bases can be made overseas, particularly in europe. there are 4 combat brigades currently stationed in europe. even after they are withdrawn there will still be over 70,000 u.s. military personnel deployed in europe. ending further reductions and consolidations in our overseas -- finding for the reductions and consolidations in our overseas forces should take place before further brac

rods. the process of transition has begun and continues apace. afghan security forces are assuming responsibility for securing the afghan people in more and more areas throughout afghanistan. progress on security israel. the second round of areas to be transitioned -- progress on security is real. the second round of areas to be transitioned will be cpleted this year. they will live in areas where afghan security forces have the lead for providing security with coalition forces playing a supporting role. i have long pressed for afgha security forces to move increasingly into the combat lead and to assume sponsibility for suring more and more afghan territory and communities as the size of the afghan army and police are built up. the success of our mission in

afghanistan depends on getting the afghan security forces in the lead with the support of the afghan people, thereby putting the lies of the taliban propaganda -- thereby proving the lies of the taliban propaganda. we have ways maintained that afghan surity is an afghan responsibility. last june, and an obama said that the 33,000 u.s. - last june president obama said that the 33,000 u.s. surge force would be removed by this december. also said that after the reduction of the u.s. search for some u.s. troops would continue to drawdown -- the u.s. surge troops u.s. troops would

continue to drawdown at -- this is based on no reductions throughout all of fy 2013. one question i hope when mrs. will address this morning is whether they -- one question i hope wnesses wiladdress this morning is whether they expect reductions below 60,000 during fy -- below 68,000 during fy 2013 and wha savings would result. i hoped secretary panetta would clarify his surprising statement earlier this month -- i hope secretary panetta will clarify his surprising statement earlier this month. he said, "hopefully by the mid

to latter part of 2013, we will be able to make the transition from a combat role." there are many reports about reconciliation talks with the taliban. it taliban statements are true that they will open -- if taliban statements are true that they will open a political office in cataqatar, it could be a positive development. i'm concerned that the administration is considering transferring five afghan-taliban detainees from the guantanamo detention facility t qatar. such a significant step strikes me as premature and should be consided in my view, only following positive discussions and not preceding them. another concern i have regarding the progress of the reconciliation talks is the

reported decision by the government of afghanistan to open a second channel in the dialogue with the taliban. that would be in saudi arabia. it seems to me this could create potential for confusion. the united states has said it is committed to an afghan-led to reconciliation process. that is another reason that the discussion process ought to be pursued through a single channel with both the afghan government and us fully coordinated and participating together, whether it takes place in one or two then used -- one or two venues. respect to the u.s. marines on okinawa, we have advocated -- with respect to the u.s. maris on okinawa, we have advocatea change to avoid excess of an unsustainable costs associated with large and elaborate new bases -- to avoid excessive and

unsustainable costs associated with large and elaborate new bases. there are other challenges. there is strong bipartisan determination on this committee and in congress to do all we can to counter the threat that iran poses including stopping ir from acquiring nuclear weapons. president obama has focused considerable diplomatic effort towards that goal because, in his words "america is determined to prevent iran from getting a nuclear weapon. i will take no options up the table to achieve that goal." thadministration is bringing the world together, as it should come as people with one voice against iran's nuclear ambitions -- as it should, as people with one voice against iran's nuclear ambitions. in recent days, general dempsey traveled to cairo to engage the supreme council of the armed forces of egypt on the very troubling decision by the

egyptians to charge 19 americans and dozens of other individuals for operating programs in support of an egyptian civil society. the committee is eager to learn the findings of general dempsey's visit. a decision by the egyptians, if unresolved will negatively affect funding decisions that congress makes in the coming months. relative to syria, the regime of president assad is waging war on the people of syria. despite the condemnation of the arab league and almost all nations, china and russia are preventing the u.n. security council from taking any effective action. if the situation is left as it is, there is also a significant threat that surrounding countries could be severely impacted. our witnesses will hopefully discuss options that we have to help end the slaughter as limited as those options might be. on cyber security, defense strategic guidance notes that

both state and non-state actors both the capability and intent to conduct cyber espionage and the capability to conduct cyber attacks on united states which possibly severe attacks on both our economy and on our security. the director of national intelligence, in recent testimony, placed the cyber- security threat in the top tier alongside terrorism and nuclear proliferation, and the proliferation of other weapons of mass destruction. a recent report from the national counterintelligence executive stated that entities operating from within china and russia are responsible for the massive theft of u.s. commercial and military technologyhat could threaten our national security d economy. we should let china and russia know in no uncertain terms that cyber and economic espionage will have very negative

consequences for normal trade relations and other relations. finally, in the area of personnel, the deparent proposes numerous personnel- related reforms aimed at slowing the increase in personnel and health-care costs which continue to rise at unsustainable rates. these reforms included significant reduction in military end strength over the next five years, other personnel-related reforms, and a commission to review military retirement benefits. i agree with general dempsey and others who urged me in a letter dated january 25011, to grandfather the retirement benefits of those currently serving. we owe it to our service members and their families to address any change in their compensation and benefits in a manner that acknowledges the commitment that we made to them when they volunteered to serve in our armed forces.

secretary panetta, general dempsey, we look forward to your testimony. i will call on senator mccain. >> thank you the mr. chairman. i join in welcoming secretary panetta and chairman dempsey to discuss t president paused but it is grass -- the president's budget requestor fiscal year 2013. wheel discuss the impact of these reductions on future-year defense -- we will discuss the impact of theseeductions on future-year defense programs. i can say today that i do not fully endorse this budget request. indeed, i am seriously concerned about how we arrived at this point. on april 13, 2011, the president of the united states announced his intention to reduce the department of defense budget by $400 billion through 2013 --

however, his announcement was not supported by any type of comprehensive, strategic review or risk assessment. in fact, then secretary gates testified before congress that he only learned the night before about this massive proposed cut in our defense spending. now, the president proposes $47 billion in cuts over 10 years -- $487 billion in cuts over 10 years. respectfully, this does not add up. unfortunately, this defense budget continues the administration's habit of putting short-term political considerations over our long- term national security interest. in afghanistan, merely to commanders -- military commanders asked for a surge of 40,000 troops. the president is regarded their advice and sent 30,000 troops instead, then announced a date for withdrawal.

commanders recommended retaining the fullurge force throughout this year. the president again disregarded their advice. hefinally, in iraq, the president disregarded the advice of his commanders again, dragged out negotiations with the iraqi government with no intent to maintain the presence of u.s. troops. now, with the political and security situation is unraveling, it is difficult to argue that iraq today is, to use the president's phrase, "stable and self-reliant." it seems as though many of the president's most significant decisions about national defence have been fundamentally disconnected from conditions on the ground -- about national defense have been fundenlly

disconnected from conditions on the ground. i fear the plan to cut $487 billion from the department of defense over 10 years on the continues this dangerous and regrettable -- over 10 years only continues as dangerous and regrettable pattern. this would reduce our force by more than 125,000 military personnel. it would jeopardize our nuclear- modernization plan. it wouldliminate 20% of the army's brigade combat teams, six marine corps battalions, four tactical air squadrons, and seven air force combat squadrons, and 130 mobility aircraft. perhaps most concerning of all, in light of the administration's own identification of the asia-

pacific region as the focus of u.s. defense strategy, this budget would require the navy to reduce shipbuilding by 28%, to retire 7 cruisers and two amphibious ships earlier than planned, to postpone the purchases of one virginia-class attack submarine two combat ships, and eight high-speed transport vessels. furthermore, while this defense strategy and related budget cuts clearly increase the risk to our national security objectives there has been no formal risk assessment provided to congress. how can we and the american people determine whether the additional risk associated with this strategy is acceptable if we do not know the specific nature of the risk, as defined by the u.s. millitary -- mi

litary? these cuts pale in comparison to what the department would face under sequestration an outcome which would be catastrophic for our national defense. domestic politics is taking priority over national security. president is saying he would veto an effort by congress -- the president is saying he would beveto an effort by congress -- if this is catastrophic, as you state, then why don't we sit down -- why doesn't the president said down with us and work out a way to avoid what you and general bmc have described as catastrophic consequences for national security -- you and general dempsey have described as catastrophic consequences for national security rather than saying he will veto antyy bill that does not have tax increases

in it? this will forever shape our nation's destiny. defense spending is not what is seeking this country deeper into -- sinking this country deeper into an unsustainable debt. we wilcreate the hollowingout of the u.s. military and the decline of u.s. military power. we can either take the easy route of dramatic cuts to force structure in investments which diminished our military capabilities and increased risks, or we can balance more modest reductions with an aggressive plan to address the broader cultural problems plaguing our defense establishment. the waste and inefficiency with which the department buys goods and services under the influence of a non-competitive, military-

industrial complex. i believe we must tackle this cauldron problem head-on. we must cut congressional earmarked and pork--- this cultural problem head-on. we must cut congressional earmarks and pork-barrel spending. we must eliminate the shameless cost overruns tt characterize to many of our defense programs -- too many of our defense programs. the phenomena of acquisition malpractice can be found and many more programs than just the joint strike fighter -- can be found in many more programs than just the joint strike fighter. before the department for the risks of force structure to which the budget savings practices like this must -- to

acheive budget savings, practices like this must end. we need to start with goals moved to strategy, and allow that rigorous process to inform the -- move to strategy, and allow that rigorous process to inform the budget we create. thank you, mr. chairman. i look forward to the testimony of our witnesses. >> thank you, senator mccain. secretary panetta. >> thank you. i ask that my statement be made part of the record. i would like to summarize some of the key points. >> it will be made part of the record. >> mr. chairman and members of

the committee i appreciate the opportunity to appear before you to discuss the president's budget request for fiscal year 2013. that began as always by thanking -- let me begin, as always, by thanking you for the support you provideo our military members and their families. these men and women have done everything asked of them and more during more than a decade of war. and i want to thank you for the support you have given them in the past, the present, and, hopefully, in the future. the fy 2013 budget request for the department of defense was the product of an intensive strategy review that was conducted by the senior military and civilian leaders of the deptment of the device --

at the advice and guidance of the president. the delauro request represents a $614 billion investment -- the total request represents a $614 billion invtment, including $88.5 billion in spending to support our troops in combat. the reasons for this review are clear. first, the united states is at a strategiturning point after a decade of war and after a very substantial growth in the defense budget. second, with the nation confronting a very large debt problem and that is a problem -- and deficit problem congress passed the budget control act of 2011 imposing a reduction in defense over f $487 billion or the

next 10 years. we decided to step up to the plate. this is an opportunity to provide a new strategy for the force we need in theuture. that strategy has guided us in making t budget decisions and choices that are contained in the president's budget. the fact is we are andat an important turning public that would have required to make a strategic shift. the u.s. mission in iraq has ended. we still have a tough fight on our hands in afghanistan but 2011 market significant progress in reducing the violence and transitioning -- 2011 marked significant progress in reducing the violence and transitioning. we're on track to completing th mission by 2014 in accordance with our lives and

commitments -- our lisbon commitments. all the nato nations are in line with the strategy we are approaching with regard to afghanistan. we're in the transition. we are transitioning security to afghan forces. our hope is that, as we make the final transition in 2014, they can take the lead on combat operations. we will be there. we will be in support. we will be combat-ready to support them through that process. i want to assure you that nato is fully i agreement with the strategy that we are moving on in afghanistan. last year, in addition to nato efforts in libya -- in addition the nato efforts in libya also concluded. efforts have weakened al-qaeda and decimated its leadersp. despite what we have been able to achieve, unlike past drawdowns when threats have

receded, the united states still faces a very complex array of security challenges across the globe. were still a nation at war in afghanistan. we still face threats to our homeland from terrorism. there is a dangerous proliferation there is a dangerous poor for ration of materials. there is continuing turmoil and unrest in the middle east, from syria at to egypt, yemen, and beyond. rising powers in asia are testing international rules and relationships. there are growing concerns about cyber-intrusions and attacks. our challenge is to meet these threats, to protect our nation

and our people, at the same time meet our responsibilities for fiscal discipline. this is not an easy task. to build the force we need a for the future, we developed new strategic guidance that consists of five key elements. first, the military will be smaller and leaner. we want a military that is agile and flexible and ready and technologically advanced. second, we will rebalance our global posture and presence to emphasize the asia-pacific and the middle east, because those areas represents the thoughts of the future. third, for the rest of the world, we need to build innovative partnerships and strengthen key alliances and partnershipsrom europe to latin america to africa. fourth, will he ensure that we have the capability to quickly confront and defeat aggression

from any adversary, anytime anywhere. fifth this cannot just be about ts. it also cost to be about protecting and prioritizing key investments in technology and new capabilities. as well, our capacity to grow, damp, and mobilize as needed. we developed this new strategic guidance before any final budget decisions were made in order to ensure that the decisions that are here the choices we made, reflect the new defense strategy. while shipping this strategy, we did not want to repeat the mistakes of the past. our goals are to maintain the strongest military in the world to not follow up the force, to take a balanced approach to budget cuts by putting everything on the table, and not break faith with our troops and their families. throughout this review we wanted to make sure that this was an inclusive process.

general dempsey and i worked closely with the leadership of the services and the combatant commanders and consulted regularly with the members of congress. as a result of these efforts the department is strongly unified behind the recommendations that we are presenting today. consistent with the budget control act this budget reflects in the next five years a savings of $259 billion. that is compared to the budget plan's key that was submitted to congress last year. we think this is a balanced and complete package that follows the key elements of the strate and adheres to the guidelines that we established. the savings come from three broad areas. first, efficiencies. we have to redouble our efforts to discipline the use of taxpayer dollars, and that has yielded, we hope about 1/4 of the targeted savings that we have in this package.

the second area is a force structure and procurement reforms and adjustments. we have a strategy-driven changes in force structurend procurement programs to achieve roughly half of the savings in this package. finally, on compensation, we have made modest but important adjustments in personnel costs to achieve some very necessary cost savings in this area. this represents about 1/3 of our budget. but here it counted for little more than 10% of the total reduction that we presented. let me walk through each of these areas. first, with regard to disciplining defense dollars, if we are going to tighten up the force, then i, like senator mccain, believe strongly that we have to begin by tightening up the operations of the department. we have got to reduce excess overhead eliminate waste and improved business practices across the department.

the fy12 budget, as you know, proposed more than $150 billion in efficiencies and we continue to a month those changes but we also identified $60 billion in additional savings in five years through measures that streamlining support functions consolidating i.t. enterprise services refacing military construction projects consolidating inventory, reducing service from contractors. we alsoave a responsibility to provide the most cost-efficient support to the forest. for that reason, the president will request congress to authorize the base realignment and closure process for 2013 and 2015. as somebody who went through the braque process in my own district i recognize how controversial this is. for members and constituencies. and yet.

-- and yet it is the only effective way to achieve needed infrastructure savings. to provide better financial information, we are increasing phasis on alluto-readiness and accelerating key time lines. i directed the department to accelerate effts to achieve fully auditable financial statements. we were mandated to do it by 2017. what i have ordered is that we move that up to 2014. efficiencies alone are not enough to achieve the required savings. budget reduction of this magnitude required that we make adjustments to force structure and procurement investments. at the choices we make cap to fit the five elements of the strategy that we developed for the future military force. first, we know that coming out of these wars, as i said, the military would be smaller. our approach to accommodating these productions has been to

take this as an opportunity to fashion an agile and flexible military that we need for the future. that highly-networked and capable joint force consists of an adaptable and battle tested army that remains our nation's force for decisive action capable of defeating any adversary on land, and at the same time, being innovative about how it deploys its forces. a navy that maintains forward presence and is able to penetrate enemy defenses. a marine corps that remains a middleweight expeditionary force, with the reinvigorated amphibious capabilities. an air force that dominates air and space and provides rapid mobility globaltech, assistant --ersistent isr. and national guard and reserve the continue to be ready and prepared for operations when needed. we made conscious choice not

to maintain more force structure than we could afford to properly train and equip. we do it another way, we guarantee a hollow force. we wanted a force structure that we could effectively train and maintain. we are implementing force structure reductions consistent with the new strategic guidance for total savings of $50 billion over the next five years. the adjustments include, as was pointed out are resizing of the active army from 562,000 to 490,000 soldiers by 2017. this will transition doubt in a responsible way. we will gradually resize the active marine corps to 182,000. warders -- we will reduce the size of the air forces retire some aging c5a's and c130s but maintain a fleet of 275

strategic airlifters and 318 c130's, a fleet will be more than capable of meeting the airlift requirements of the new strategy. the navy will protect our highest priority and most flexible ships but we also will retire seven at lower priority navy cruisers. the reason we're doing thais that these cruisers have not been upgraded with ballistic missile defense capability and would require significant repair. that is the reason the navy chose to do that. second the strategic guidance a clear at we must protect our cabilities needed to project power in asia pacific and the middle east. at this end, the budget maintains the current bomber fleet, it maintains the aircraft carrier fleet and a longer term of 11 ships and 10 air wings, it maintains the amphibious fleet,

and it restores the army and marine course of force structure in the pacific after the drawdown from iraq and as we drawdown in afghanistan, while continuing to maintain a strong presence in the middle east. our goal is to expand our rotational presence in both areas. the budget makes selective new investments to make sure we develop new capabilities to project power in the territories and a means. we will put $300 million into funding the next generation airforce bomber. we're putting 1.5 $8 billion into developing new air foe tankers $18.2 billion for the procurement of 10 new warships, including two virginia-class submarines four flintall combat ships, one joint high-speed vessel onecbn-20 class aircraft carrier. we are investing $100 million and increase cruise missile

capacity of future virginia class submarines. third, the strategy makes clear that even as asia-pacic and the middle east represent the areas of growing strategic priority, thunited states will continue to work to strengthen its key alliances to build partnerships, develop innovative ways, such as rotational deployment, to susta our presence elsewhere in the world. we make the investment in nato and other partnership programs putting 200 million in fy13 and 900 million over the next five years in the ground surveillance system, one that was just approved by the nato ministerials in the last meing. 91 $7 billion in fy13 to develop missile defense capabilities that protect the u.s. homeland and strengthen regional defenses as well. the new strategy envisions a

series of organizational changes to boost efforts to partner with other militaries. we are allocating a u.s. aid to the nato response force and will rotate to europe for training and exercises, increasing opptunities for special operations forces to advise and assist our partners in other regions. fourthly, the u.s. must have the capability to fight more than one conflict at that time. we are in the 21st century and we have to use 21st century capalities. that is the reason this budget invests in space cyberspace, long-range precision strikes and the continued growth of special operations forces to ensure that we c still confront and defeat multiple adversaries even with the force structure reductions that i outlined earlier. it sustains the nuclear triad of

bombers, missiles, and submarines to continue to ensure that we have a safe, reliable, an effective nuclear deterrent. even with adjustments to force structure, the budget sustains the military that i believe is the strongest in the world. an army of more than 1 million active and reserve soldiers with 18 divisions approximately 65 brigade combat teams, 21 combat aviation brigades. the naval force of 285 ships the same size force that we have today that will remain the most powerful and flexible naval force on earth. a marine corps with a 31 infantry battalions, 10 artillery battalions, 20 tactical air squadrons. an air force that will continue to enforce their dominance with 54 fighter squadrons of the

current bomber fleet. lastly we cannot just, as i said cut. we have to invest and leap ahead of our adversaries by investments in the latest technologies. that is why this budget provides $11.9 billion for science and technology. it includes $10.1 billion for basic research. it provides $10.4 billion to sustain the continued growth in special operations forces. it provides $3.8 billion for a dunman air systems -- for unmanned air systems. at the same time, the strategic guidance recognizes the need to prioritize and distinguish urgent modernization needs from those that can be delayed. particularly in light of schedule and cost problems. therefore, the budget has identified $75 billion in savings over five years

resulting from canceled or restructured programs. some examples, $15.1 billion in savings from restructuring the joint strike fighter by delaying aircraft purchases so that we can allow more time for development and testing. $1.3 billion in savings from delaying development of the army's ground combat vehicles due to contract in difficulties. $4.3 billion in savings from delaying the next generation of ballistic missile submarines by two years for affordability and management reasons. in addition, would terminate selected programs - o'clock 30 vision of global talks, which has grown in cost to the point where iis no longer cost- effective. the weather satellite programs, because we can depend on existing satellites resulting in savings of $2.3 billion. all of this requires that we

have and maintain the ability to mobilize and regrow the force if we have to. that means we need to maintain a capable and ready national guard and reserve. one of the things we're doing is that the army is going to retain more mid-grade officers and nco's so that theyan be there with the structure we need to restructure the four straight at the reserve component has demonstrated its readiness and importance over the past 10 years of war. we must ensure that it remains available to train and equip and served in an operational capacity when necessary. another key part of preserving our ability to quickly adapt and mobilize is maintaining a strong and flexible industrial base. i am committed to making sure that our budget recognizes that industry is our partner in the defense acquisition enterprise.

we have to maintain a pace if we are going to be able to mobilize and be prepared in a future. finally, with regards to our most important element of our strategy and our decision making process, our people, this budget recognizes that they, more than any weapons system our technology, are the great strength of the united states military. one of the guiding principles in our decision making process is that we must try to keep faith with our troops and their families. for that reason, we are determined to protect family assistance programs to sustain it is important investments in the budget that serve our troops and their families and continue to make efforts to ensure that these programs are responsive to their needs. in order to build a force needed to defend the country under existing budget constraints, the growth in costs of military pay and benefits must be put on a

sustainable course. this is an area of the budget has grown by nearly 90% since 2001. about 30% above inflation. in-strength has only grown by 3%. this budget contains a road map to try to invest those costs in military pay and health care and retirement in ways that we believe our fair, transparent and consistent animal commitments to our people. -- consistent with a final commitments to our people. on military pay, there are no pay cuts. we have created sufficient room for payment -- pay raises in 2014. we will provide more limited pay raises in 2015 giving troops and their families notice and leadime before the changes takeffect. the budget devotes about $48 billion, almost $50 billion, to

health care costs, a big part of our budget. the man has more than doubled over the last decade. in order to continue to control the costs of these we are developing a copays and deductibles that are to be phased in within four to five years. none of these proposals would apy to active-duty service members, and there wl be no increases in health-care premiums for familiesf active- duty service members under this proposal. we also feel that it is important to address the military retirement costs as well. what we are urges the establishment of the commission with authority to conduct a comprehensive review of military retirement. we have made clear, and the president and at the department, that the retirement benefits of those who serve should be protected by grandfathering benefits. members of the committee putting this together, this kind of balanced package, has been difficult.

at the same time, it has been an opportunity to try to think about what forced to we need now and what force and we need in the future. i believe we, the service chiefs, the combatant commanders, have developed a complete package to try to address our threats for the future and to try to ensure that we achieve our strategic aims. as a result, the fy13 request is balanced, it keeps america safe, and we think it sustains u.s. leadership abroad. please take a look at the individual parts of this plan. i encourage you to review this entire budget. this has to be a partnership but i ask you also to bear in mind the strategic trade-offs that are inherent in any particular budget decision. this is a zero sum game. there is no free money here. the need to balance competing strategic objectives is taking

place in a resource-constrained environment. we will need yr support and partnership to impleme this vision of the future military. i know that these are tough issu. this is the beginning. it is at the end of this process. make no mistake -- the savings we are proposing a significant and broadbased and will impact all 50 states. this is what congress mandated on a bipartisan basis, that we reduce the defense budget by almost half a trillion dollars and. we need a partnership to do this a manner that preserves the strongest military in the world. this will be a test for all must -- for all of us whether reducing the deficit is about talk or action. let me be clear -- let me be clear -- you cannot take

capitally dollars out of the defense budget and not incur additional risk -- you cannot take half a billion dolls out of the defense budget and not incur additional risk. we believe they are acceptable risks, but they are risks. we have got to depend on the ingenuity and in terms of new technologies for the future. very frankly, when you go through this there is no margin for error. this is why congress must do everything possible to make sure that we avoid sequestration we are more than prepared to work with congress to develop an approach for sequestration. this approach would submit the department to another $500 billion of additional cuts that would be required to take place in a meat ax approach. we are convinced it would haul out the force and effect severe

damage to our national defense. the leadership of this department military and civilian is unified behind the strategy we presented behind this budget and behind the need to avoid sequestration. i look forward to working closely with you in the months ahead. this is going to be a tough challenge, it is but the american people expect of its leaders to be fiscally responsible in developing the force for the future, a force that can defend the country, a force that supports our men and women in uniform, and a force that is and always will be the strongest military in the world. thank you, mr. chairman. >> thank you, secretary panetta. general dempsey. >> thank you, chairman levin senator mccain, members of the committee, for the opportunity to discuss the budget proposal for fiscal year 2013. this budget represen an

irresponsible investment in our nation's security. at its core is an investment in people, the sons and daughts of america who served the nation's military. allow me to open with a few words about them and what they have accomplished. the last 10 years of war have been among the most challenging in our nation's military history. through it all the joint force has persevered and it has prevailed. our families have stood with us to climb after deployment after deployment -- start with us deployment after deployment after declining, and so have you. as i sit with you today, our service men and wen remain globally engaged. we are deterring aggression, developing partners, delivering aid, and defeating our enemies. they stand ready and strong and swift every day. i traveled with a few of them to afghanistan and egypt this week. i saw extraordinary courage and

skill in officers and men and women of the nato training mission, managing the development of the afghan national security forces, in the brave and vigilant marine security detachments in our embassy in cairo, and in the super junior airmen who flew us to the right place at the right time. they exemplify a professional military with a reliable record of performance. in just the past year, for example, we further cripple al qaeda, we protected the libyan people from near certain slaughter, while affirming made a possible general beyond the borders of europe -- while affirming nato's important role beyond the borders of europe. like we did in iraq, we are steadily transitioning responsibility for security onto afghan shoulders. we ought to japan recover from a perfect storm of tragedy in the -- sgt. -- we helped japan recover from a perfect storm of tragedy and destruction.

we defended against cyber-bred, sustain our nuclear deterrent posture, work with allies and partners to build capacity and prevent conflict ross the globe. we continue to provide this nation with a wide range of options for dealing with the security challenges that confront us. an increasingly competitive dangerous, and certain security depaenvironment demand that we be alert, responsive adaptive, and dominant. this budget helps us do that. it is informed by a real strategy that makes real prices. it maintains our military posture decisive edge and our global leadership to -- it maintains our milary's decisive edge and our global leadership. with this in mind, allow me to add a few additional comments to those of the sretary. first, this budget should be considered holistically. i cautioned against viewing its programs in isolation, because it represents a comprehensive and carefully devised a set of decisions. it achieves a balance among

force structure modernization pay and benefits. changes that are not informed by this context risk of ending the balance and compromising the force. second, this budget represents a waypoint not an endpoint, in the joint force we will need in 2020 and beyond. specialized capabilities once on the margins become more central even while we retain convention overmatched. it builds a gbal network to a joint force that is ably led and always ready. third, this budget onis commitments made to our military families. it keeps faith with them. there are no freezes or reductions in pay, no lessening in the quality of health care received by active-duty service members and one of veterans. that said, we cannot ignore the increasing costs of pay and benefits. to manage costs, we need pragmatic reforms. all of this can be done in a way that preserves our ability to

recruit and retain americans's talented youths. finally, all strategies and budgets to resource them carry risk. in my judgment, at the risk lies not in what we can do, but how much we can do and how we can do it. this invests in our people on the joint capabilities they most need. to close, thank you, thank you for keeping our military strong, thank you for taking care of our military families, for supporting those who serve and who have served and who will >> this president's day, former navy seal formerpfarrer -- former navy seal shock -- chuck

pfarrer talks about his book about the mission that resulted in the killing of osama bin laden. >> one of things that motivated me to write the book was the stories have become corrupted by these factoids that did not sell like a mission, so talking to the guys that were there on the scene, the whole thing basically was over in 120 seconds. quite a different story. >> see his remarks as part of our prime time lineup. it also includes a debate on whether to prosecute wall street banks for mortgage fraud with former new york governor eliot spitzer and assistant attorney general brewer. it all begins monday at 8:00 p.m. eastern on c-span.

>> the director of national intelligence testified before the senate armed services committee on thursday on national security threats. he told the committee he believed that al qaeda in iraq is extending its reach into syria. army lieutenant general director ronald burgess testified alongside james clapper. carl levin of michigan chairs the committee. >> good morning, everybody. let me start by welcoming our witnesses. we are glad to have the director of national intelligence james clapper, and cia director, general ron burgess, as our witnesses. we thank you both for your long and continued service to our

nation on behalf of our troops to whom we owe so much. this commission has a special responsibility to the men and women of our armed forces to be vigilant about intelligence programs because the safety of our troops, decisions on whether or not to use military force, and the planning for military operations depends so heavily on intelligence. the security situation in afghanistan remains one of our highest priority threats for our intelligence community. in the last year, there are clear signs of progress. afghan security forces are in the lead in providing security in kabul including during the gathering of over 2000 afghan leaders. the afghan army and police are in charge of security in a former taliban strongholds in southern afghanistan. in addition, the minister of interior and ministry of defense planners have developed a plan for the ministry's combined team

operations for 2012 and 2013. the afghan army is widely respected, and even the afghan police traditionally lagging far behind in that virtue, are gaining increasing respect among the afghan people. nevertheless, security remains fragile. the key to progress on security in afghanistan is the process of transitioning the lead for securing the afghan people from coalition forces to the afghan security forces. the transition process is under way and continues apace with the afghan army and police assuming the security leak in more and more areas throughout the country. we heard tuesday from the chairman of the joint chiefs of staff that the transition process is on track to meet the goal of having the afghan security forces take the lead

throughout afghanistan by 2014. successful transition is going to depend on a number of factors. we would be interested in hearing our witnesses assessment of the current surge 30 situation -- the curette security situation in afghanistan -- the current security situation in afghanistan. i'm concerned by recent news reports that the latest national intelligence estimate reflects a difference of views between the intelligence community and our military commanders over the security situation in afghanistan. according to these news reports the nie contains a set of

additional comments endorsed by coalition commander general allen, ambassador crocker, in european commander disagreeing with the assessment relative to the sustainability of security gains, particularly in the south. i hope our witnesses will address this alleged different of -- difference of views. security in afghanistan is going to remain in jeopardy as long as there continues to be sanctuary in pakistan for insurgents conducting cross-border attacks against u.s. coalition and afghan forces and against the afghan people. pakistan's refusal to go after the safe havens the last pakistans assertions that it is committed to peace and security in the region. pakistan supports the network

was the former chairman of the joint chief of staff called a veritable army of the isi pakistan's intelligence agency as a major cause for u.s.- pakistan relations reaching a low point where they are going to remain until the pakistan military ends its ties to these militant extremists carrying out cross-border attacks. we need to understand the intelligence community's assessment of pakistan was a strategy with respect to these in certain groups and the reconciliation process as to pakistan's power to determine outcomes. the u.s. campaign against the global jihad is movement had a number of significant cesses in the last year, notably operations against osama bin laden.

these successes struck major blows to al qaeda's senior leadership and to one of its most active affiliate's. as a result of these operations and sustain pressure in pakistan, yemen, somalia, and north africa, al qaeda and affiliate's are showing strain. we would be interested in the assessment of the intelligence community of last week's announcement of a merger between al qaeda and al shabab and whether it signals an increased threat to the united states and our interests in somalia. last august, the president issued a presidential study directive 10, which identifies the prevention of mass atrocities and genocide as a core national security interest and moral responsibility of the united states. i'm pleased to see director clapper has included in this testimony a discussion of the importance of the prevention of

mass atrocities and a need for the intelligence community to report on these rapidly so as to inform policymakers of these deeply concerning events. over the past year, the international community has acted to prevent a mass atrocity in libya, but we are currently witnessing a mass atrocities in syria. these tragedies resulted in the deaths of many civilians seeking their universal freedoms and destabilize a sensitive region that is critical to the united states and our allies. there is a strong bipartisan determination on this committee and in this congress to do all that we can to counter the threat posed by iran and in particular, stop iran from acquiring nuclear weapons. in the most recent defense

authorization act, we made a major breakthrough. with respect to rand's sanctions, by requiring foreign financial institutions to choose between maintaining ties with the u.s. financial system or doing business with the central bank of iran especially relative to the purchase of iranian petroleum and related products. president obama has appropriately focused considerable and determined diplomatic effort to prevent iran from getting a nuclear weapon, and he has repeatedly said there are no options off the table to achieve that goal. the american people are entitled to a clear intelligence community estimate about the length of time it would take iran to construct a usable nuclear weapon if and when they decided to produce one and how likely it is that they will decide to do so.

an additional matter of concern was raised in a recent report discussing iran's apparent willingness to host and supports senior al qaeda leaders and facilitators. this is a matter that has not received a great deal of attention in recent years, but a true, iran's sanctuary could preserve some of the group's most senior leaders and potentially provide iran with a dangerous proxy. the committee looks forward to the director's testimony on that matter as well. on syria the recent veto by russia and china of the arab league drafted resolutions and the united nations security council has boasted the assad regime and has regrettably demonstrated their willingness of china and russia to support regimes seeking to crush individuals who are seeking a better and for your life. -- freer life. we hope directors will share

what we know about individuals seeking to overthrow the assad regime, what we know about who is supplying the palace of regime with weapons, what the intentions of the regime are, and what we know about the willingness of a syrian military to continue to kill and maim their own countrymen. relative to iraq, despite the political and economic and security challenges that confront iraq, the government's leaders appear to be willing to work together to resolve issues politically rather than through violence. while there is much this new democracy needs to do to build a new and truly pluralistic and sovereign nation, we would like to hear the views of our witnesses on the progress of the iraqis to date, their outlook for stability and political compromise. we also would be interested in the risk of unchecked iranian influence in iraq and what is the iraqi government's

commitment and capability to deal with that influence or their willingness to deal with that influence. i'm going to put my comments relative to china and the asia- pacific in general and record and end with just a comment on cyber security. director clapper pose a prepared statement indicates that the intelligence community places the cyber security threat to our country and our economy in the top tier of threats along side of terrorism and the proliferation of weapons of mass destruction. that is surely aware that cyber threat belongs. a recent report from the national counterintelligence executive stated that entities operating from within china and russia are responsible for the massive and routine theft of u.s. commercial and military

technology, and that could threaten our national security and our prosperity. it is important to know that our intelligence community regards this as being not as, whether it is a significant national security threat, and whether that view is shared by our policy makers, and whether china would believe that we are just bluffing if we talk about ending normal trade relations with the economic espionage and counterfeiting and that of our intellectual property do not end. before turning to senator mccain for his opening remarks and to our witnesses for their testimony, we have arranged for a closed session in the office of senate security following this open session in the event that such a closed session is necessary.

senator mccain. >> thank you, and let me join you in welcoming general clapper and general burgess and thanking them for their many years of distinguished service. i also want to take this opportunity to express our enormous gratitude to the men and women of our intelligence community. it is a truism that intelligence often fails publicly but succeeds privately. i only wish the american people could know the full extent of what our intelligence community does to keep us safe. today's hearing is a fitting companion to the one this committee held on tuesday to review the president's annual budget request for the department of defense as well as his broader proposal to cut $487 billion in defense spending over 10 years. as a secretary of defense and the chairman of the joint chiefs of staff told this committee on tuesday, the administration opposes planned reductions in defense spending would entail greater risks to our military,

to our missions, and to our national security. this stands to reason, but what does not is why we would choose to increase the already growing risk to our national security at this time. just consider the scale and scope of these risks. despite the remarkable damage inflicted on al qaeda's core leadership by our military and intelligence professionals, al qaeda affiliate's in iraq, the horn of africa are growing stronger more independent, more diffuse, and more willing to attack american interests. as evidenced by their plot to assassinate the saudi ambassador in washington restaurant, the rulers in iran clearly pose a more direct threat to us then many would have assumed just a year ago, and that is on top of the hostile actions in which iran has been in gauging for years, including killing americans in iraq and afghanistan, supporting terrorist groups across the

middle east, destabilizing arab countries, propping up and rearming the assad regime in syria, and continuing their undeterred pursuit of a nuclear weapons capability. the threat posed by the iranian regime could soon bring the middle east to the brink of war if it is not there already. north korea is in the midst of a potentially dangerous and destabilizing transition. an inexperienced 29-year-old is now in charge of a government that continues to produce nuclear weapons develop ever more sophisticated ballistic missiles bread and our allies in the republic of korea, and administer the most brutal apparatus of state oppression of any country on earth. the chances of increase conflict and miscalculations are as real as ever before. the people's republic of china continues with a non-

transparent buildup of its military forces while engaging in provocative acts against its neighbors in international waters. indeed, tensions in the south china sea have rarely been higher. at the same time the number and sophistication of cyber attacks on american targets by chinese actors likely would chinese government involvement in many cases, is growing increasingly severe and damaging. indeed as last year's report from the office of the national counterintelligence executive makes clear, "chinese actors are the world's most active and persistent perpetuation -- perpetrators of economic espionage." in afghanistan, the taliban insurgency is damaged but not broken. regrettably, there will to stay in the fight against the international coalition and our afghan partners has only been increased by the administration's repeated public

commitments to certain dates for withdrawing down our military forces regardless of conditions on the ground. meanwhile, pakistan remains as fragile and combustible as ever and as the statements of our witnesses make clear pakistan's intelligence service continues to support terrorist elements inside afghanistan that are attacking and killing americans. in iraq, the fragile stability and democratic gains that iraqis have been able to forge thanks to the surge now seem to be unraveling. the prime minister appears to be consolidating his power at the expense of the other political blocs. violence is up significantly since the departure of u.s. troops. al qaeda in iraq and violent shi'ah extremist groups are still very much active and threatening to the stability of iraq. it is increasingly difficult to argue that iraq, to use the

president's words, is, "stable and self-reliant." one year into the era of spring the situation remains fluid uncertain, and in places, very troubling. from geneva and libya to -- from tunisia and libya to egypt and bahrain, outcomes are still far from clear. then, there is syria where the conflict appears to be entering a new phase. more than 6000 lives have been lost, and there appears to be no end in sight. the bloodshed must be stopped. we should rule out no option that could help save lives. we must consider among other actions providing opposition groups inside syria both political and military with better means to organize their activities, to care for the wounded, to find safe havens, to communicate securely to defend themselves and to fight back

against assad's forces. the time has come when all options must be on the table to end the killing and force assad to leave power. we could continue for some time listing the myriad of other threats facing our nation, and i'm confident we will cover most of them in today's hearing, which -- what should be clear is that by no objective assessment of the threats to our national security degreasing. to the contrary, they are increasing as the prepared testimony of our witnesses make vividly clear. so the question that members of congress and the members of this committee in particular need to think long and hard about is this -- why, in an international environment of growing uncertainty, risk, and threat, we choose to add to those risks by making large and misguided cuts to our national defense budget, cuts that by themselves

will not significantly reduce our national debt, the real driver of which is our domestic entitlement programs? i do not see a compelling answer to this question at this time, and i imagine today's hearing will underscore that point. thank you, mr. chairman. >> thank you so much, senator mccain. director clapper. mr. clapper. >> thank you. distinguished members of the committee for inviting us to present the 2012th worldwide threat assessment. i observe you probably are the given up for us. i'm joined today by the defense intelligence agency, friend and colleague lieutenant general ron burgess. these are marks in her statement for the record reflect to collect event sides of extraordinary men and women of the united states intelligence community would be recognized and we must appreciate that and

have it is our privilege and honor to the. we are most appreciative of your knowledge of the work, sometimes under various conditions around the world. with all its attempt to cover the full scope of worldwide threats in these brief or remarks, said like to highlight some of the issues we identified for the coming year some of which you party done for us a sense that. earlier this month, there was the 51st anniversary of my enlistment in the marine corps. entering my entire career don't recall a more complex and interdependent arete challenges that we face today. the capabilities, technology, know-how, communications and environment of forces are combined by borders and transnational disruptions astoshing feat. never before has the telligence community been a call to so many issues in such a

resource constrained in my area. continue to integrate the intelligence community and implementing new efficiencies and is always simply working hard. but candidly maintained the world's premier intligence enterprise in the face of a shrinking budget will be a challenge. we will be as accepting and managing risk more so than we have had to do in the last decade. when i say we, i mean both legislative and executives. we begin our threat assessment as he did last year with the global issues of terrorism and proliferation. the intelligence community sees the next two to three years as a critical transition phase for the terrorist that particularly al qaeda and like-minded groups. with osama bin laden's death the global jihad movement lost its most iconic and inspirational leader. the new al qaeda commander is less charismatic and to capture

a prominent al qaeda figures has shrunk the group's top leadership there. even with this capability some focus on smaller simpler plots i'll qaeda remains a threat. as long as we sustained pressure we just al qaeda will be largely symbolic importance tohe global jihad is movement. regional fillets to a lesser tent small cells and individuals will drive the global jihad agenda. proliferation that his efforts to develop acquire or spread weapons of mass destrtion is also a major global strategic threat. among nationstates as you've alluded, iran's technical advances particularly in uranium arrangements to an assessment there has more capable of producing if it's political leaders specific way a supremely there himself chooses to do s. north korea's export of ballistic missiles and associated materials including iran and syria illustratethe

reach of the norse proliferation activities. we don't expect that it kim jong un to chage the policy of attempting to export most weapons systems. i would note that in this your statement that the record as you have noted as yourselves of the elevated our discussion of cyberthreats to follow terrorism and proliferation. and perhaps in something of e newcastle just to affirm the cyberthreat is one of the most challenging ones we face. we first see a safer environment in which emerging technologies are developed and implemented before security responses n be put in place. among state actors, particularly concerned about entities within china and russia conducting intrusions into u.s. computer networks and stealing u.s. data. the rule that nonstate at her side playing in cyberspace is a great example of the easy access

that could potentially disrupt legal technology and know-how by such groups. two of our greatest strategic cyberchallenges their first native real-time attribution of cyberattacks come in knowing who carried out such attacks and were perpetrators are located. second is managing older abilities within the i.t. supply chain for u.s. networks. in this regard, ybersecurity bill was recently introduced by senators lieberman colin, rockefeller and feinstein and addresses the core homeland security requirement that approves cybercurity for the american people, nation's critical infrastructure and the federal government's own networks and computers. intelligence committee considers such legislative steps essential to addressing our nation's critical infrastructural vulnerabilities which pose serious national and economic securityrisk. briefly looking geographically around the world and in

afghanistan and general burgess will have more to say about this coming during the past or the taliban and lots of god because mainly mainly a place to th international security forces or isaf were concentrated. the leaders begin to enjoy safe haven in pakistan. the efforts to partner with afghan national securi forces are encouraging the corruption and governance continued the afghan forces effectiveness. most provinces have established basic governance structures but struggled to provide services. the international security force in support of afghanistan's neighbors notably in particular pakistan will remain essential to sustain the gains achieved. although there is broad international political support for the afghan government particularly in europe about how to find afghanistan initiatives after 2014.

in iraq, then it's been sporadic high-profile attacks continue. prime minister maliki's recent aggressiveness against sunni political leaders have heightened political tensions. but for now we believe the sunnis continue to be the political process as the best venue to pursue change. elsewhere across the middle east and north africa, those pushing for change are confronting ruling elite, such caring ethnic and tribal divisions lack of experience with democracies, stalled economic development military and security forces and regional power initiatives. these are fluid political environments that offer evidence for extremists to produce a more assertive in political life. states were authoritarian leaders have been toppled such as tunisia, egypt and libya have to construct to reconstruct the political systems are complex negotiations among competi factions. and nowhere is this transition i believe more men egypt which i think will be a bellwether and

of course and so strategically important because of its size, location and of course the peace treaty that now has with israel. in syria regime and transit social divisions are prolonging ternal struggles and could potentially turn domestic upheavals and two regional crises. in yemen although the political transition is underway can the security situation continues to be marred by violence and fragmentation is a real proper though the. as the ancient roman historian task this once seed the best day after he batted for is the first. after that, i would have been scared very problematic. the intelligence community is also paying close attention t african continent throughout the western hemisphere, europe and across asia. and here are two issues are self-contained. virtually every region has a

bearing on our key concern to terrorism, proliferation cybersecurity and stability. throughout the globe, whether their environmental stresses on water, food and natural resources as well as whole thread, economic crises and organize fancy ripple effects around the world and impacts on u.s. interests. amidst these extraordinary challenges, it is important to remind this distinguished body in american people in all of our work the u.s. intelligence community's choice to exemplify values. the chariot or omissions with respect to look on protection of civil liberties and privacy. that pledge leads me to mention our highest legislative priority this year and require support of both houses of congress. our first specifically to foreign intelligence surveillance act amendments act for saa which is set to expire at the end of 2012. title vii allows the intelligence community to

collect battle information about international terrorists and other important targets overseas. the law authorizes surveillance of non-us persons located overseas who are foreign intelligence importance for information about threats such as proliferation. it also provides comprehensive oversight by all three branches to protect privacy and civil liberties of u.s. persons. department of justice in my office conduct extensive oversight use of activities and report to congress and compliance twice a year. intelligence collection under fisa produces crucial intelligence that is vital to protect the nation as international terrorism and other threats. ..

by thank you and the members of the committee for your dedication to the security of our nation and your support for our men and women of the intelligence community and yr attention here today. with that i will stop and turn it over to general burgess. >> thank you director clapper. >> i want to thank you for the opportunity to join my longtime friend and professional colleague, director clapper in representing the men and women of the united states intelligence community. i would like to begin with current military operations in afghanistan, where we assessed

that endemic corption and persistent deficiencies in the army and police forces under mod -- undermine efforts to extend governance and security. the afghan army remains reliant on isaf for key combat support such as logistics, intelligence and transport. while afghan army performance and grouped in some operations when partnered with isaf units, additional gains were required sustained mentoring and support. despite successful coalition targeting, taliban remains resilient and able to replace leadership losses while also competing to provide governance at the local evel. from the pakistani safe havens that the taliban leadership remains confident of eventual victory. to the west, iran remains committed to threatening u.s. interests in the region through its support to terrorist and militant groups including in

iraq andafghanistan while it remains committed to strengthening its naval, nclear and missile capabilities. iran can close the straits of hormuz at least temporarily. and they may launch missiles against united states forces and their allies in the region if it is attacked. iran could also attempt to employ terrorist circuits worldwide however the agency assesses iran is unlikely to initiate or intentionally provoke a conflict. iranian ballistic missiles and development could range across the region in central europe. iran's new lacks -- space launch launch -- iran today has technical, scientific and industrial capability to eventually produce nuclear weapons. while international pressure against iran have increased inuding through sanctions, we

assessed that tehran is not close to agreeing to abandoning its nuclear program. in iraq, dia assesses the baghdad security forces probably can maintain current security vels this year despite manning shortages and overly centralized command and control. despite perceptions of sectarian violence and a need for logistics, intelligence and tactical communications training, iraq security forces are putting forces on the straight. they are securing high-profile tes and they are conducting intelligence driven targeting. however, sunni insurgent and shia militant groups likely will remain serious challenges for iraq and remaining u.s. personnel until more comprehensive political reconciliation reduces lingering tensions among religious and tribal constitucies. more broadly across the region,

popular forces eekend the middle east and north africa are demonstrating the potential to reorder long-standing assumptions relationship and alliances in a way that invites risk and opportunity for the united states and our allies. arms domestic opponents pose an unprecedented challenge to the al-assad regime in syria and its collapse would have serious implications for iran hezbollah, hamas and lebanon. turning to asia, north korea's third generation third-generation leadership transition is underway. improving the economy and regime's survival remain enduring leadership rarities. pyongyang's missile programs provide strategic deterrence international prestige and leverage to extract economic and political concessions. while north north korea may abandon portions of its nuclear program for better relatns with the united states it is

unlikely to surrender its nuclear weapons. pyongyang's position military can attack south korea with ttle or no strategic warning but it's a verse from logistic shortages, aging equipment and poor training. pyongyang likely knows he cannot reunite the peninsula by force and is unlikely to attack on a scale that would risk its own survival. we see no sign that the leadership transition has changed the regime's calculus regarding nuclear weapons and the defense intelligence agency retains continued focus on the peninsula to provide waing against additional attacks from the north. china continues to build a more modern military to defend its core interests which are territorial sovereignty, national unity and sustained access to economic resources. u.s. forces in a taiwan or south china sea contingency remains a

top chinese military priority. investments in naval anti-air and anti-ship capabilities are designed to achieve periodic and local sea and air superiority to include the islands closest to the mainland. once focused on territorial fense, china's air force has developed an offshore strike missile defense, strategic mobility and early warning and recognizance capability. try china may incorporate that these capabilities in novel ways that present challenges for u.s. forces. last year's first flight of the fifth generation fighter in launch of china's first aircraft carrierunderscored the breath and equality of china's military probe i'm however a lack of modern combat experience is but one example that steps remain before china achieves the full potential of its new technologies, platforms and military personnel. regarding cyberthreats, we

continue to see daily attempts to gain access to our nation's government and business computer networks including our own secure systems. this thread is large and growing in scale and sophistication. finally, al qaeda losses in 2011 have focused a core group and its affiliates yemen, somalia and north africa on self-preservation and reconstitution. though damaged the group remained committed to transnational attacks in europe and against the united states. al qaeda in the lands of the maghreb for iq i am acquired weapons from libya this year kidnapped westerners and continue to get support from nigeria-based -- what we have made gains outside and its affiliates we remain in a race against their ability to evolve, regenerate leadership and launch attacks. self-radicalization or ne wolf

individuals including within the united states and even within our own ranks remain an enduring concern. i would like to close by noting how honored i a to represent the men and women of the defense intelligence agency. remain acutely aware that while much of a plea to his secret our work is always in the public trust. on their behalf i would like to thank the members of this committee for their continued support and confidence in our work. thank you. >> thank you very much general burgess. let's try seven minutes for a first round and i hope there will be time for a second round. director clapper prepared statement said the following in terms of the intelligence community's assessment about iran's nuclear program. quote, w assessed iran is keeping open the option of developing nuclear weapons

should it choose to do so. we do not know however if iran will eventually decide to build nuclear weapons and his statement also said that we judge iran's nuclear decision-making is guided by a cost-benefit approach which offers the international community opportunities to influence tehran. general burgess do you agree with that statement of director clapper and his current statement? >> yes, sir and i think it wld be very consistent with what the vice-chairman of the joints chiefs and myself along with a couple of other witnesses stated before this committee almost a year and a half ago. >> and director clapper, i understand them that what you have said and without general burgess agrees with, is that iran has not yet decided to

develop nuclear weapons. is that correct? is that still your assessment? >> yes sir, that is the intelligence communities assessment and that is an option that is still held out i iran and we believe the decision would be made by the supreme leader himself and he would base that on a cost-benefit analysis in terms of don't think you want a nuclear weapon at any price so that i think plays to the value of sanctions particularly the recent ratcheting up of more sanctions and in anticipation that will induce a change in their policy and behavior. >> is at the intelligence community's assessment that sanctions and other international pressure actually could, not will necessarily, but could influence iran in its decision as to whether to proceed?

>> absolutely, sir, and of course the impacts that the sanctions are already having o the iranian economy, the devaluation of the currency, the difficulty they are having and engaging in banking transactions which will of course increase with the recent provisions of the national defense authorization act. and so to the extent that the iranian population and the regime then feels threatened in terms of this stability and tenure, you know the thought is that that could change the policy and i think it's interesting that they have apparently aed the e.u. for resumption of the five plus one dialogue, and of course there's their nother meeting coming up

with the international atomic energy administration, so we will see whether the iranians may be changing their minds. >> i have to tell you i am skeptical about putting any significance in that but nonetheless it's not my testimony that we are here to hear. is your testimony and it's obviously important testimony. director clapper in a recent interview defense secretary panetta said if iran dides to pursue a nuclear weapon capability quote, it would probably take them about a year to be able to produce a bomb and then possibly another one or two years in order to put it on a deliverable vehicle of some sort in order to deliver that weapon. do you disagree with the defense secretary panetta's assessment? >> no, sir i don't disagree and with respect to the year, that is i think technically feasible

but practically not likely. and there are all kinds of combinations of implications that could affect how long it might take should the iranians make a decision to pursue a nuclear weapon and how long that might ke. i think the details of that are best complex and arcane and sensitive codas of how we know this are best left to closed discussion sessions. >> do you think that the year is perhaps ripe and more likely that it would take longer or is that the implition? >> yes, sir. >> now, "the washington post" comnist recently wrote that a the senior administration official belies that an israeli strike against iran was likely this spring. general burgess, in view of the intelligence community has israel decided to attack iran?

>> sir, to the best of our knowledge israel has not decided to attack iran. >> i was concerned as i indicated in my own statement director clapper by recent reports of the latest national intelligence reflects a difference in views between the intelligence community and our military commanders. over the security situation in afghanistan and i made reference to who signed up to that difference of views including general allen and ambassador crocker,. general allen ambassador crocker, general mattis can you tell