whether these reports are accurate and if there is a difference of views on that matter? >> without going into the spifics of classified national intelligence estimate, i can't confirm that they took issue with the nie on three counts having to do with the assumptions that were made abou the force structure deal that we gave sufficient weight to pakistan and its impact as a safe haven and generally felt that the nie was pessimistic. i have to say -- >> about other matters as well? speeches generally pessimism in afghan and the prospects for posts 2014 and that by the way was the timeframe. is after 2014.

if you'll forgive a little histories are i served as an analyst breather for general westmoland in vietnam in 1966. i kind of lost my professional innocence a little but then when i found out by operational commander sometimes don't agree with their views and the success of their campaign as compared to that perspective displayed by intelligence. fast-forward about 25 years or so when i served as the chief of air force intelligence during desert storm. general schwarzkopf protested long and loud all during the war and after the war about the accuracy of intelligence and the fact that it didn't comport with his view. classically, intelligence is supposedly in the portion of the glass is half-empty and operational commanders and policymakers for that matter is the glass is half-full and probably the truth is somewhere somewhere in the water line. so i don't find it a bad thing

and in fact i think it's healthy that there is contrast between operational commanders believe and what the intelligence community assesses. >> thank you very much. senator mccain. >> i want to follow up on the chairman's question so do you believe that post-2014 afghanistan faces extremely difficult challenges? >> yes sir i do. and think in terms of governance and the ability of the ansf which is striving hard to train up. there there are some indications that is having success, but i think the afghan government will continue to require assistance from the west and another issue is the extent to which we and other coalition members will be ableo sustain that support.

importantly as well and is the achievement of a strategic partnership agreement with the afghan government, which would premise, be a preface for our continued presence in some form to advise-and-assist in perhaps to assist particularly with counterterrorism. >> and there has been no change in the isi relationship with the haqqani network who are killing americans in ahanistan? >> yes sir. with respect to the pakistani government and isi is kind of a microcosm of the larger government, their existential threat is india and they view erything, they focus on that and their concern is of course sustaining influence and presence in afghanistan and they will probably continue to do

that through malicious. >> so our relationship with pakistan must be based on the real assessment that isi's relationship with the haqqani network and otherorganizations will probably not change? >> yes sir. i mean there are cases where interests converge. government to government and that relationship and that factoid is reflected in a relationship with isi. >> the secretary panetta publicly stated tht israel will decide in april, may or june whether to attack iran's nuclear facilities are not. do you agree with tha >> well, i think he was, that was quoted by a columnist. i think general burgess answered that question. we don't believe that this point that they have made a decision to do that.

we could have given rise to this simply the fact that the weather becomes better. obviously in the spring and that could be conducive to an attack, t to reemphasize what general burgess said we do not believe they have made such a decision. >> we have seen a very intriguing kind of situation involved here. there have been what is believed to be iranian attacks or attempts to attack worldwide the united states in the case of the saudi ambassador and in georgia india the explosions there now today we read about thailand. does this tell us a numbeof things including the extent of the iranian worldwide terrorist network and that -- this is also tell us there is a covert conflict or war going on between israel and iran? >> well, i think iran is well

two dimensions to this. i think on one count they feel somewhat under siege and on the other ha they are feeling their oats. the ianian lands, they probably view arab spring is a good dating and an opportunity for them to exploit which thus far have not worked to their favor. so today, through their proxies, particularly decided and made a concious judgment to reach out against primarily israeli and u.s. interests. >> they are displaying some capabilities. >> well, yes sir, to a certain extent even though the attacks that you reference were not successful in case they blew one

of their own up but they regard those as sucssful because of a psychological mpact they have in each one of the countries. >> quickly, in the situation in mexico, do you believe that, as you know 50,000 mexicans have lost their lives as a result of drug-related violence. is your assessment that these violent criminal organizations pose a threat to the united states including states along the border? >> yes, sir, they do. there is always the prospect of a spillover and that is one reason why we are working closely with the mexican government and that i particularly true with respect to intelligence initiatives and we are working with them which i have to discuss in closed session but it is a profound threat to both countries.

>> have you seen any indication that the top candidates vying to succeed resident calderon will alter the way the mexican government addresses the threat of cartels? >> i believe serve that, i can't do a one by one assessment, but i believe that no matter who succeeds president calderon, they will be committed to continue this campaign. >> well i suggest you look a little more carefully because that may not be the case at least with one of the candidates. the status quo remains syria with increasing iranian, russian arms and equipment iranian presence and the assistance to assad. what is the outlook as far as the situation in syria is concerned and what is your view?

do we and the arab league and other like-minded countries need to do to alter that equation if it is an apparent stalemate with the massacre continuing? >> well, there are four, we characterize them for pillars of the assad regime. the continued effectiveness of military support, its own military which is quite large. there have been desertions but for the most part, they have engaged about 80% of their maneuver units and assaults on the syrian population. the economy is another pillar that has really taken some hits in place of gas in september. food has gone sky high. they have periodic electrical

interruptions, so the economy is going south. the state of the opposition which is quite fragmented, is very localized. the syrian national council really doesn't only control command and control of these oppositions groups. the free syrian army is a separate organization not connted to the syrian national counci and of course the other is the cohesion of the elites. in all we have seen signs of some of the seniors and the assad regime making contingency plans to evacuate and move families and financial resources. to this point they have held together. assad himself could probably cause his psychological need to emulate his father sees no

other option but to continue to try to crush the opposition. >> guess my question sir was, and less something changes as far as assistance from the outside, do you see a continued stalemate in syria? >> i think it would just continue. we don't see any, short of a coup or something like that that assad will hang in there and continue to do as he has done. >> and the massacre continues. thank you mr. chairman. i thank the witnesses who would have been very helpful. >> thank you senator mccain. senator lieberman. >> director clapper and general burgess thank you for your extraordinary leadership of the intelligence community and protecting your security. director clapper i want to go back to iran for couple a couple of minutes quickly. you said this morning that is your assessment that iran has not made a decision to build a

nuclear weapon, but i assume you also believe based on international atomic energy agency reports and in information that the intelligence community has that iran has taken steps to put them in a position to make a decision to break out and build a nuclear weapon. >> yes sir that is a good characterization. >> there are also certain things they have not yet done which i would be happy to discuss in closed session that would be key indicators that they have made such a decision. >> and that they have done things, is it fair to say, that are inconsistent with just wantg to have peaceful nuclear energy capacity? >> well, obviously the issue here is the extent to which they produce highly-enriched uranium.

you know, they have produced small amounts of higher than 20% highly-enriched uranium which sensibly could be used for legitimate peaceful purposes so if they go beyond that obvioly, that would be you know, a negative indicator, put it that way. >> generalurgess do you want to answer that at all? >> sir i would agree with what director clapper said and i would agree with your character a saint -- characterization. that is already a leaf and it's not that much of a bigger leap to the bigger 90% that they would need to go to. >> thank you and do you both agree that or is it your assessment that if iran makes a decision to nuclear weapons and in fact achieves it, that it is likely to set off a nuclear arms race within the region?

in other words saudi arabia will want to also have the nuclear weapon capacity? >> is certainly a possibility sir, absolutely. >>s also fair to say and we talked about theranian sponsorship of terrorism, that if they did have nuclear weapons capability in their use of terrorism -- in terrorism against regional opponents and the united states? >> yes, sir. it would serve as a deterrent even a thing to a certain extent the ambiguity that exist now serves as a deterrent. >> okay, thanks. let me go to cybersecurity and they thank you very much director clapper for your statement and support for the legislation that senators collins and rockefeller and i introduce. the main intention of the

legislation, does a lot of things, but is to create a system where the federal government through the department of homeland security advised and supported if you will by the nsa can work with the private sector to make sure that the private sector is defending itself and our country against cyberattacks? we have spent a lot of time on this and right now, because of the remarkable capacities of the cyberattackers and the extent to which they can attack privately owned and operated cyberinfrastructure for either economic gains or to literally attack our country, that we need to ask the private sector to make investments and to defend themselves and i'm afraid a lot of them are not yet making it.

is that gin your general impression? in other words bottom line, we hava vulnerability? does the privately owned and operated cyberinfrastructure of america have a vulnerability to both economic and perhaps strategic attack? >> sir the chairman and the ranking member cited the national intelligence at consecutive report that we issued in october which called out both china and russ as our primary concerns and particularly with respect to the chinese and the theft of intellectual property. of coue which occurs, much of which occurs in private-sector. i know that the bill is quite lengthy, some 270 pages. i have not read it all. the important thing for me was

precepts that it addresses including it delineates rules of the various components of government to include the department of homeland security which i believe has an important role to play here. it defines what i feel is a good talents in a relationship with the private sector and how intrusive the government is going to be which is an issue and most importantly to protect civil liberties and privacy. i am sure there are other provisions in the bill that some may take issue with but the precepts i think are important in terms of the balance between protection and o freedom. >> i appreciate very much what you have just said. part of the problem here is as we go forward, i think so much of the vulnerability we haven't even the attacks that are occurring and the exploitations occurring are largely invisible to the public, so am i right in

this regard? the report you just cited sad it. there is extensive ongoing theft of intellectual property of american businesses, which in fact enables competition from abroad that actually costs us jobs here at home and diminishes our economic prosperityt home. >> absolutely, sir. one of the downsides to this for the united states of course is particularlywhen people are robbing us of our technology which of course saves them the investment in r&d so that's almost a double whammy if you will. i think there is difficulty for some and something you cannot see, feel or touch, since it is a passive theft and you don't

directly see immediately the negative impacts of that. unlike an attack which obviouy is by its nature active, in which he would feel the effect of the seizure of the banking system or the stopping of our electrical grid or some other egregious effect like at. >> and would you agree finally that general burgess that right now are privately-owned and operated cyberinfrastructure, electric grid banking system and tansportation water supply are not adequately defended against such an attack? >> that is probably to ruby and it's unen. some parts of the infrastructure are reasonably well protected, but it's not complete and of course you are kind of at the whole weakest link proposition is the vulnerability. >> i wish is was just going to

say and i am like director clapper, if not read the whole thing but from my days when i was in the director of national intelligence and took on the issue with mike mccollum of cybersecurity i think what you have put on the table, sir, is a great first step and as an american citizen, thank you for doing that. it is a good first step. it is progress. changes generally evolutionary as opposed to revolutionary and i would say this is evolutionary in my humble opinion. if i have one thing that i would hope as i think i understand there is not a requirement to share some information. it's encouraged. i always tell people when i speak publicly we are a nation separated by a common language. we all define words a little

differently, so in terms of economic attack and so forth some entities may not want folks to know about what has been taken and they are not required to divulge it, so just to comment from the peanut gallery. >> a i take that seriously. it's a good comment. it's a thoughtful poke and thank you for your words. thank you is to chairman. >> thank you senator lieberman. senator hofe. >> thank you mr. chairman. i really think this is a better hearing than we would have with the straightforward responses and i appreciate that very much and your comment about language i'm going to get that from the record and use it later on. >> i just wrote wrote adelle. >> that was a good one, general. i think we pretty much have decided on this 20% getting back to iran now that's it's something that is being achieved as we talk.

general burgess said whave the scientific, technical and industrialcapabilities for producing a weapon that we didn't really talk about when. when is the big issue? i remember whatsecretary panetta said just the other day about and we repeated that several times some of the questioners have and i think that is consistent. back in the debate where we have difference of opinion as to whether not we should continue with the ground-based interceptor in poland. at that time the unclassified date was actually 2015 so this is pretty consistent. one thing i don't understand, ani think there a lot of people who don't and i would like to get clarification. we do know in terms of t percentage necessary for the production of power we are talking from 3.525% enrichment. is that something that has been

used? >> i think so, sir. i don't know what the percentage is. >> alright, but it is certainly less than the 20% which is apparently where they are right now. >> yes, sir, i would guess. >> this morning in tay rlybird they talk about iran has been met -- reactor to justify uranium to 20% the higher level of refinement that the nuclear power systems require. the higher enriched material also enables iran to potentially mo more quickly so it talks about something that i have heard and i assume is correct that the difficulty is getting up to the 20 percentage. the time between reaching that level and reaching the 90% that we have been concerned about goes much more rapidly than it would eat to get up to 20%. is this accurate?

>> that is generally true sir but there are a number of factors that would affect the pace and volume, which would frankly be best left to the closed discussion. i would be happy to do that with you. >> and that is good but these are things we assume, we talk about and my concern is that when we do end up getting to that point, it's been reported by the president that it's weighing the options of cutting down our nuclear arsenal unilaterally by up to 80% and that is something that i'm very much concerned about and there are a lot of us who actually, in fact during the treaty, the new s.t.a.r.t. treaty was debated. we are concerned about these things and i still am. it's my understanding, and i remember and i want to read a

quote by the president when the president was trying to get the additional signatures on board to pass e treaty. he me some commitment and he said i recognized the nuclear modernization requires investment in the long term and is my commitment to the congress that my administration will pursue these as long as i am president. and yet in fiscal year 13 budget, decreasing that amount by $347 million actually delaying the system of modernization. i have a quote that i've used recently by gates that talks about, i can't find it right here but it talks about the fact that we have some 30 other countries defend underwrite nuclear umbrella and do a knee -- make either one of you have any comments about this, which is not a proposal yet but it's a discussion of production

of some 80%. >> well sir, that is news to me, and to what extent we may reduce or not our nuclear arsenal, i can assure you that the intelligence community will be a participant and would certainly convey you know the threat dimensions of this. particularly with respect to our primary nuclear, the nation's primary nuclear concern which of course is russia and china. >> well, yeah. you said it's news to you but it was just released yesterday. maybe when you were preparing for this hearing you didn't get that. let me just mention something about north korea. >> what i meant was by news to me was reducing to that extent. >> that was in a release yesterday. in the area of north korea, have always been concerned about the

accuracy of our intelligence there and i told the story of going back in 1998 when we made the request as to when north korea would have the capability, and at that time, they talked about three to five years and seven days later in 1998, august 31, they actually fired one and i would just like to know how confident you, the two of you are on the quality of the intelligence we have on north korea? >> i have followed north korea for a long time and served on the armed intelligence for korea in the 80's and i will tell you north korea's one of the toughest intelligence targets we have and it has long been. it's a very very secretive society,ery controlled society, so and there is ambiguity about our insight into north korea's nuclear

capabilities and their intentions. and there is -- there are some promising developments which i would be happy to discuss with you in closed session. wi respect to enhancing the quality of our intelligence insights. >> i appreciate that very much. thank you mr. chair. >> thank you very much senator inhofe. senator webb is next. >> thank you mr. chairman and mr. chairman and senator inhofe both actually the writer in me has to say this. before you use that quote from general burgess, believe the first person who made that statement was winston churchill when he said that the united

states and britain were two countries separated by a common language. i did not want to out you general burgess but someone was going to do it sooner or later. it actually goes to one of the points that i need to make this morning and to ask both of you for your advice and that is ports do count. i also sit on the foreign relations committee and the last few days we ve been trying to put together a resolution with respect to syia and first i would say director that your comments, your testimony and your commes were very helpful today and you can hear the frustration from people like senator mccain on the fact that people think they need to do something but we have to be careful what we do and we have to be careful about the statements that we make as a

senate. i have had a number of oasions since i've been here to attempt to look at some of the statements that are well-meaning but hastily drawn and sometimes overly conclusive in their tone. and yet are not really complete in the detail, and these things are pulled into the media and they unanimously have made this particular conclusion about one event or another. we have general dempsey appeared two days ago. i asked him a question about the nature of the opposition in syria. the queson going not to what the assad regime would be capable of doing, which by the way director, thought you laid out very, in very understandable

specifics, but really what is on the other side? who are they? w much of this isdomestic? how much of it is for an? what is the regional dynamic and he made one comment and i'm going to give a partial quote. he said syria is a different situation than we collectively saw in libya and presents a very different challenge in which we also know that other regional actors are providing support rebelling against an oppressive regime. we all know this and i think you made some comments about this as well. i aked him about the reports in the media last week that al qaeda was involved in some of the assassination attempts in syria. would not reject it out of hand. he said he did not know but one of the things that general dempsey was very clear about was they were still attempting to analyze the intelligence

information to come to some sort of conclusions of this is sort an opportune time for me to be ablto ask both of you, what are your thoughts on the nature of the opposition that is active on the ground and in syria right now? >> let me take a stab at that and then i will ask general burgess to amplify or correct as the case may be. as i indicated earlier the opposition is very -- there is not a national movement even though there is a title the title of the so-called syrian national council. a lot of that is from external exiles and the like but there is not a unitary connected opposition force. it's very local. it's on a community by community basis and in fact in some communities the opposition is actually providing municipal services as though it's trying to defend itself against attacks

from the syrian regime controll military. the free syrian army, which is kind of a blanket generic name sort of applied to a collection of oppositionists is itself not identified. there is an internal feud about who is going to lead it. comput katie and this, as you implied, of course are sort of the neighborhood dynamics. the iranians very very concerned about propping up assad so they have an sense helped in terms of trainers advisers and equipment, mostly suppression equipment and that sort of thing. a few and other disturbing phenomenon that we have seen recently apparently is the presence of extremist who have infiltted the opposition mayors, the opposition groups in

many cases may not be aware that they are there. we had the two attacks that you alluded to, bombings in damascus, in december i think it was and then the two additional bombings and both of which were targeted against the security and intelligence buildings, and had all the earmarks of an al qaeda like attack. so we believe that al qaeda in iraq is extending its reach into syria. complicating all of this is and this is another contrast with libya, where we have one or two or three sites that had chemical warfare components. it is a much more complex issue in syria, which has an extensive network of installations. although to thisoint, and we

are watching these very carefully, they appear to be secured. so many complexities here involving the opposition, which i am sure will affect any discussion about coming to some assistance. >> sir, there is not a whole lot i can add to what director clapper laid out. the only other comment i would make is in regards to, what we have seen reference to al qaeda like defense. as we try and look at some of that, it appears to be those elements that may already be in the country, but what we haven't seen so far, and what we have not assessed yet is whether there would be what i would call a clarion call to outsiders coming in, to augment. we haven't seen much of that up

to this time so basically the team that is on the ground is playing with what it has. >> thank you. my time is up but i would like to read very briefly from a piece that was just published by wesley doe group that needs no introduction, a foreign-policy expert in our country. saying, when intervention is become -- they blind theselves a nation and run dangerously amok. they plunge in with no plans with have a plan to demands to supply arms to rebels they know nothing about, with ideas for no-fly zones and bombings. their good intentions could pave the role to syrians preserving lives in sacrificing many more later. again, i hope members of this body will keep this in mind as we develop policies.

thank you mr. chairman. thank you senator webb. >> thank you mr. chairman. director clapper, general burgess thank you so much for being here today and for your service. director clapper i believe you previously testified that the reengage me rate from those who have been released from guantánamo bay was 27%. what is the current re-engagement raid of terrorists who have been released from guantánamo and have they gone up again in the 27%? >> i think the next assessment will reflect a very small less than one percentage point increase. >> so the next assessment will reflect perhaps a percentage increase so from 27% to 28%? >> somewhere in that neighborhood. >> certainly anyone being released from there d getting ck is one too many, isn't it?

>> has. >> i wanted to ask you about, there has been reports from the administration about the potential of exchanging and i asked secretary panetta about this the other day of five detainees to cutter in exchange -- qatar in exchange for the taliban in afghanistan. as i understand the detainees that have been reported by both "the washington post" and "the wall street journal," they have been previously assessed by the administration in 2010 to present a high risk of returning to the site. has the designation for these five detainees changed by the administration? >> no, maam, they have not and i hasten to add that of course negotiations have always been a part of any winding down of combat hostilities and that is thecase here.

this is a case of exploring the option to see what sort of reaction wmight get om the taliban, but a couple of points i would make here is that i don't think anyone harbors any illusions about the taliban members and what they might do if they were transferred. part and parcel to this discussion would he they are transferred to a third country such as qatar and then the conditions under which they would he surveilled and monitored. i would also want to add to that under the provisions of the defense authorization act of fy12 the secretary of defense has certified his view on whether or not anyone could be transferred with respect to their recidivism. i can tell you from personal

encounters with secretary panetta,e treats that authority with the gravity that it deserves, so this is something i think the administration will do very deliberately. >> well and i appreciate that and i appreciate what the secretary had to say about his responsibilities the other day and i know he is serious but i want people to understd very clearly these individuals were high risk. nothing has changed about that assessment and the notion that we can monitor them or surveilled them, we have tried that in the past with releasing people that have come from guantánamo to third-party countries. now we think it may go up to 20% rain gauge might rate for what i understand the administration is described as goodwill from the taliban. i think this is a non-acceptable risk. i think that unless we are gog to get them to lay down their arms, don't know why we would do this to r military men and women into our allies, so i appreciate what you are saying.

i just think this is a huge risk in terms of safety for our troops and our allies. i wanted to ask you briefly about iran. i know you have gotten many questions, both of you, but iran but i want to clarify a couple of issues. does the iranian regime continued to support hezbollah? what kind of threat has a poser ally israel and is iran supporting the gaza strip and what role as iran playing in iraq? >> i did not write down all of those questions. >> basically, do they continue to support hezbollah? >> yes, they do. there is a very close relationship between particularly the irgc and the quds force which is the organization responsible for external operations around the world and hezbollah. it is kind of a partnership

arrangement with the iranians as a senior partner. >> is hezbollah not a terrorist group that threatens our close ally israel? >> yes. >> does iran continue to support hamas and the gaza strip? >> indirectly, yes. >> are there not a threat also to israel and also to gaza? >> hamas? yes. >> general burgess is iran supporting the insurgents in iraq, excuse me in afghanistan and? >> yes, maam. >> okay and what type of roller they playing in afghanistan? >> they have provided arms. they have been caught. we have found iranian arms in afghanistan, so you know they are working for what would it call a dual-track strategy as they work not only to work against u.s. and calition desires, but while at the same

time they want to move forward the government of afghanistan so they're walking a very fine line. >> but they're clearly supporting our enemies and trying to kill our soldiers. >> yes, maam. >> and that iraq will roller they playing right now and how would you describe their the role there? >> i would describe their role in much the same way as they did in afghanistan is a very dual-track. iran does not want a strong iraq on their border, but at the same time, they also want do you know in courage us out of there totally, so again they are walking both sides of the fence. >> so again they are working contrary to a stable iraq and they are also working contrary to our national security interest? >> i would not disagree with that statement. >> they would like to have a cooperative shia dominated

government in iraq, which they have but that is not to say that the iraqi government whether molecules representing the complete satellite of iran. he has his issues withthe iranians as wll. >> but clearly eir efforts are continuing to fuel sectarian violence. >> absolutel the three principle shia militant groups that iran has supported in the past, some of which were directly responsible for attacks on u.s. forces, of course the issue is whether you know, they will turn their ire against the iraqi government or simply become part of the political process remains to be seen. >> when you throw on top but of course their efforts to acquire nuclear weapons, no question there are a grave threat to our national security and to that of

our lly? >> that is true. iran is a big problem. >> thank you. >> thank you senator ayottie. >> i join with other members of the committee in thanking you for your service and your excellent testimony here this morning. focusing on fghanistan and the roadside loans or ieds. as you know members of this committee and the united states senate consider the role of pakistan in providing ingredients used to make those roadside alms as a great threat to this nation's back in the 2012 defense authorization act. ..

>> and that cannot happen if they were not growing the proponents of those roadside bombs? >> correct. they have two of the major companies that produce this material located in pakistan. there is an extensive network from pakistan into afghanistan

to move these materials. >> we know where those plants are. >> yes, we do. >> the congressional delegation i joined met with at least one of the owners of those plants that indicated their production is ongoing and that pakistanis has the wherewithal to stop the flow of those ingredients in afghanistan, do they not? so? >> well, that is a good question, sir is how much the pakistani government controlled any name in the five top and the flat-out regions which border afghanistan. but it is clear they could more than they have at this point. the mac soberly again, to come to the bottom line here they've really made no significant matters of fire. >> not that i'm awa of no sir.

>> turning to another area of inquiry, could you shed some light on the talks that are in progress if there are such talks as mr. karzai has acknowledged in the past few days there are apparently involving the three parties, talent income united states in afghanistan? >> yes, sir, there have been. i don't think either general burgess are kind of the authorities on the negotiations with the taliban. i am sure the special representative for afghanistan, pakistan and marc grossman is far better informed about. but i'm sure there have been dialogue. i'm sure president karzai is through directly or intermediaries has been

discussing reconciliation issues with the taliban. >> you are aware that such talks are ongoing? >> yes, sir. i believe they are. >> what is the need down for releasing these currently incarcerated taliban insurgents if those talks are ongoing at the moment? the maxtor, this is part of confidence building. i think that started as kind of a separate track and there are some reciprocity consideration which are preferred to talk about in closed sesion. >> i appreciate that. i just say i would see no need for that kind of release if in fact they are ongoing and inside the adversary have an interest, a self-interest in talking. i personally would question the

need for any such relea. apart apart from the security issues that have been raised by my colleagues from the hampshire, senator ayotte and others previously feared let me ask you if i make him a general question and i understand he may be reluctant to go into detail in this setting, but if you could characterize whether they are differences in the threat assessments fr our intelligence about the iranian nuclear capability and the potential response to israeli intervention there and the israelis intelligence assessments, if you understand my question, which calls for a general answer, i am not asking for detail. >> your question, to make sure i understand it, to be in the

israelis largly agree? and the answer is yes. >> do you agree? >> sir, i do. and we have at least discussions for many years. i have personally been involved in both my previous life and displays. and generally speaking, our assessment struck withach other. they comport. >> thank you. let me ask a final question and you may not think it is a directly relevant to all the questions you had so far but we have been in discussions with secretary panetta and general dempsey about the overall budget of the department of defense and the platforms that exist. in terms of platforms for intelligence gathering are

there particular areas you think the expenditure of resources poses a threat? in other words, to put it more simply, where diminished fountain impedes or imperils intelligence gathering on the united tates? >> well, sir we are going through our own trust in the intelligence community since a large portion of the national intelligence program is embedded in the dod budget. so we were kind of given the same production on a proportionate basis. so way or the node for the first time in 10 years of cutting intelligence resources. we've been on an upward slope for the whole decade and that is going to come to a halt. and so we will have less

capability than we have had in the last 10 years. that said, i've been through this before. when i served as. in the early 90s and we have thpeace dividend after the fall of the wall and a profound cutting, intelligence community didn't do it very well. so we try to profit from that experience and place stock in those capabilities tat make us resilient to not show so we can't respond as we need to wherever hospots or crises occur in the world. so as the department of defense into the far east or the pacific, we will do that as well and obviously is a major equity for us in the intelligence community is support to the military. where we're a fat dude i think,

to get to your question is for example, as we drawdown n iraq obviously we have a much reduced footprint across the board to reduce intelligence. that was fat but fidelity that we previously had on iraq and i anticipate wt might shot down in afghanistan and intelligence sources are drawdown proportionely that we love so not have fidelity that we have today. some of that context, yes we will do some capability but the premise that the intelligence community and the organizing principles i have triedto push as a result of my experience 20 years ago is those capabilities that enable global coverage to include for areas such as russia

and china and enable us to adapt and be resient depending on what the crisis of the day is. >> thank you very much both for answering my question and for being so forthcoming. thank you. >> thank you very much senator blumenthal. senator brown. >> thank you, mr. chairman. i won't belabor my point but i agree with most of what was fat. i want to emphasize how important is that we ensure israel has every evening service to close any cability to ask with respect to iran. you both you agree with that recommendation or suggestion? >> yes sir. both of us have been proponents for sharing intelligence with the israelis. i'll be going there next week to engage with the israeli intelligence officials and discuss that very point.

>> recommit thank you. and also to add him a little bit more, my colleagues have mentioned syria and how the people are enduring serious tax from a solid. rlier this week the head of al qaeda released a video calling on the slums in the countries joining syria to join the fight against the assad regime. given the president and administration continued to say it's not a matter of if but when we will fail fall are we prepared for the situations are possible possible state where a car that enjoys the state and rege and from whicto coordinate attacks? what is the plan? >> it is a great question because who would succeed or what would succeed is a mystery. we certainly do not know -- hideout what thiswould do.

i quote that i read in my oral remarks here at the outset of the testimony, quoting the roman historian pliny said the best after that ever is the first first aid after that i would have that kind of goes downhill. there is no identifiable group that would succeed him. and so, that would be kind of a vacuum i think, that would lend itself to extremists operating in syria, which is particular travel some the might of the large network of chemical warfare, weapons storage facilities and other related facilities that are n syria. >> i agree. i have a concern that al qaeda and iraq is moving towards syria and consolidating themselves are now. do you have any incidence of that >> yes sir producing evidence

of extremists, sunni extremists. i cannot think of them specifically as al qaeda, but similar ilk who infiltrating oppositionist groups. in many cases probably unbeknownst to those opposition groups. >> just to shift gears before ooting and other recommendations regarding information sharing. but status of that? can you tell me a little about the counterintelligence community and what they do to help leaders in the ground identify potential break down site when we saw fort hood? >> i am not sure i -- >> in the wake -- key reforms have yet to be completed particularly in the area of information sharing which continues to put our nion at risk for homegrown terrorism. are you getting all the information you need from u.s. agencies t test our domestic threats coming to think?

>> i'll put it this way. we have come a long way in the la 10 years and information sharing. it is a big focus for me, for the opposite direct or of national intelligence sharing vertically across the agencies as well as horizontally and vertically as well as federal private sector. there's been a lot of work done towards that. it's an emphasis area for me and i do think we have made great improvements. but at the same time of course we have had episodes like wikileaks, which reminds us that the need to balance thsharing and security. so we always have that fine line to draw within those two. but i think we have improved, but there's always more to do. >> thank you both. >> can you bear much, senator brown.

senator udall. >> mr. chairman, i'd like to yield to mr. mansion. i know he's got a scheduling conflict, bui think to keep my place. >> bgess flip-flopping. >> we appreciate those courtesies. >> thank you, mr. chaiman. i am reading a book called becoming jobs by jim clifton. i would recommend it if y'all haven't seen it. basically the coming jobs will be the biggest war facing this world. who is fighting for jobs and basically breaks it down 7 billion citizens in human beans on this great planet earth. 5 billion over the age of 15 3 billion seeking a job of some sort. only 1.2 billion for my jobs in the world today. so we can see the mammoth problem we're facing peer but that, what i'm asking is what you can do intelligent past events, do you consider the

impact of unemployment and what it will have on the stability of the population and how that increases likelihood of unrest and terrorism? >> absolutely commissary. i think the point even more basic than jobs is if the project in the future what the world supply of food and water is going to be in the face of the owing population. you project out the population of the earth is going to be in the face of declining resources. and yes, absolutely we do account for that entering any kind of intelligent assessment and indelible illustration of that was arab spring because of the conditions which actually still at his. the population bulge of high numbers of young unemployed people rising economic difficulties of deprivation.

the lack of political freedom of expression. and of course one of our major insights into that is in social media, which has become a major bellwether for the attitudes of people. so to answer your question is that you consider that in assessing the potential for disruption. >> thank you. neral, following a when i read this book and i was thinking the amount of money we spent in afghanistan, knowing when they leave had no economy the only economy they had success. knowing that the terrorists have her ability to foster terrorism will be the same and i have a very hard time understanding why we are still there and i know i've talked to everybody and i feel very strong. what i will sa is based. north korea and iran have possession of u.s. drone that crash in december and will ot

reverse engineer them. so they will have it their disposal. whon earth did we not design or request the design of distraction when they lost the strong center in a circumstance that we could have destroyed them so they could not have been copied and reproduced back to use against us? >> i'd be hay to discuss that with you in closed session sir. >> value. >> but is this a session at kim jong un fr the korean peninsula and what does it mean for north korean nuclear program and the six party tals going on? >> sir, what i tell you so far is as we watch the succession is unfolding as we had thought it would. it's actually moving as has been designated in at this time we see no change to any of their policies than we actually see no impact on the way they conduct

business at the present time. >> concerning al qaeda, al-shabaab formally joined al qaeda this past week since somali americans travel from the u.s. to join al-shabaab and patrons national government and i'd like to know from you, what are we going to be doing to respond to this threat? >> well, first of all i would play down debate the significance of this union between al-shabaab and al qaeda. i think these are two organizations -- al qaeda is an organization under season is in decline. al-shabaab for its part is under pressure by virtue of both ethiopian and kenyan incursions into somalia. they have lost territy and are under the gun.

so i think we'll continue to do what we have always done with these two organizations. al-shabaab for its part has been largely focused on regional issues. that is within the horn of africa as opposed to project and a homeland threat. is othersome of course at t number of foreign fighters recruited the debris and train them and fight. >> finally, general to both of you are, on tuesday, general dempsey texas i'd do governments in egypt is where the film is $1.3 blion of aid from the united states. we have been a solid partner. according to press reports, the same government general empsey spoke of his living power to anti-american factions. some are campaigned to end u.s. aid to egypt. based on your intelligence assessments, will we be able to

rely on a future egyptian government to uphold the 1979 peace treaty with israel? >> that's an excellent question, sir and i think thawill depend very much on the continuation of the transitional proce in egypt, particularly when they write their constitution and what the constitution may or may not pay about the treaty with israel. i think under any circumstance circumstance -- acampora s-sierra see how circumstance of any government that emerges after the staff transition our hands often june, that there won't at least be a review of the treaty. but how that will come out we don't know. >> let me just say thank you to both of you for your outstanding service for this country of ours. but that, i want to thank my gracious colleague from

colorado. >> teeny mac, senator mansion. senator graham. >> thank you vote for service to our country. i think is mentioned at the intelligence budget is certified to admit defense budget. secretary pineda said if we did sequestration, if we take another five to 600 billion on top of the 487 being planned it would be devastating irresponsible and the department of defense site. what i had same effect on the intelligence side? >> absolutely. >> would you agree with me if america ever needed a smart intelligence network it is now because the enemies we fight really don't care they die, they just want you to go with? >> .another reasons yes, sir. anif i may add, provisions as they pertain to inteigence are even more onerous because it would not have any latitude to

move or pick and choose where we would reduce. a stipulated price that every programmer has to take a proportional head. so we would be a face with the prospect traversing a letter to employees, which would have a devastating effect but the employees who weren't as well as virtually every major acquisition system we have in the intelligence community because they would all be wounded. >> it would result into destroying. >> i wouldave a hard time saying as director of national intelligence that i could face a group like this to any degree of confidence that i can find adequate intelligence >> america would go blind in terms of intelligence gathering. >> it would over time. >> let's go to iran. keep this 30000-foot view.

the regime school didn't she think his survival? right? >> yes sir. do you think they've made a desion that may be the best way to survive is to develop a nuclear weapon? >> well, sir, we've said consistently that they will base this on a cost-benefit analysis. >> t. think they are trying to develop a weapon? to think that is their goal? >> they are putting themselves and put the sustainable infrastructure to enable them actinic that decision. s, sir. >> to think they are building power plants for a peaceful nuclear generation purposes? >> that remains to be seen. add to your data tension that comes to make a nuclear weapon? >> i do. >> you're not so sure they are trying to make it?

>> you tell whether or not they are trying to create a nuclear bomb? >> they are keeping themselves in a position to mae that decision, but certain things they have not yet done and have not done for se time. >> how would we know when they've made that decision? >> i'd be happy to discuss enclosed. >> i am very convinced of developing a nuclear weapon. it seems logically that they get a nuclear weapon and nobody really features going to bother them. >> let's talk about are your capability in the hands of the iranians. is that a good out on for the united states national interest if they were able to achieve capability? >> a nuclear weapon and the means delivering it. >> the reason being is that it created nuclear arms race.

>> that is certainly unlikely outcome. >> arab and sunni states would not have a nuclear trump card. >> correct. >> the likelihood of a terrorist organization been able to access clear materials in the hands of the iranian would be greater, not less, hen you think quite for publicly so. and of course that is the nexus as a terrorist group and weapons of mass destruction. >> when president obama says it is unacceptable for them to achieve nuclear capability, do you agree with that? >> sir, i do. spin with the congress will do containment of nuclear-capable iran is not a good national security strategy, so we'll be back in a president and i'm glad to hear you agree with that proposition that we should not as a nation continue nuclear-capable iran announced effect of the sanctions may work. i hope they do.

i'm not into believing all is lost. do you also believe that i'll license should be remain on the table fr capability? >> is a personal view. that is not the intelligence communities. >> just personally. >> certainly i do. >> that's what the president said in a certainly a crew of 10. >> let's get back to iraq. has the security environment deteriorated since we left iraq militarily? >> i think it is about the same. we have recently done an assessment on the prospects in iraq for then next 18 months. i think video is while there are challenges and certainties, we believe at least for the next year or so that the iraqi government will continue. it appears that the sunnis at this point believes that their

best prospect for protecting their interest is to participate in the government. >> so you believe that us withdrawing all of our forces from iraq has really had no effect on the iraqi security environment? >> i wouldn't say no effect. >> which is a minimal effect? >> i think terrorists are enable both capabilities that they no longerave by virtue of our absence. at the same time, as indicated in the statement, dated reasonably well and they have a reasonably capable ct fours. >> do you know what the vice president and vice president tried to indict him days after we left and not before? >> i do not know why the timing of it then i guess the implication would be our president is they are. although, we're doing all we could diplomatically.

i don't know why the timing. >> is it generally viewed as the sunnis and kurds that when america left iraqthat would save them to iranian influence? >> sir, i dot really know how -- >> had the tact the sunnis and kurds? >> i would suggest that you do. >> when it comes to afghanistan afghanistan -- >> there's no suggestion they are concerned. >> i suggest you sit down with sunnis and kurds. now, aghanistan. the strategic partnership agreement is really the last card to be played in many ways if not correct? the afghanistan? >> i am not sure what you mean by last card that is certainly an important -- >> ester treatment, if i could have 30 additional seconds, i'll be quick. the bottom line is that we have

an american military presence post 2014 at the request of the afghan government and people that would allow a counterterrorism capability american air power, that would always give thedge to the afghan security forces and probably be the end of that militarily. you agree to construct? >> idea. i think that it be a very positive tng not only in afghanistan, but regionally. >> the best way to negotiate the taliban is saying they'll never take that over militarily. you need to get involved in the system? >> at a minimum, the talladega would not provide a reservo >> michigan congressman fred upton, chairman of the energy and commerce committee, talks about key issues before congress the president's budget request, the keystone pipeline extension, and the recent

debate over the administration's contraception policy. "newsmakers" -- today at 6:00 p.m. eastern on c-span. >> i had a list of the chemicals in cigarette smoke and had a hunch one might be addictive. >> i went down the road and ask each the same question under oath to see what their response was. >> i believe nicotine is not addictive, yes. >> cigarettes and nicotine clearly do not meet the classic definitions of addiction. there is no intoxication. >> i do not believe nicotine is addictive. >> not addictive. >> not addictive. >> they had a program in the 1970's where they wanted to remove nicotine from cigarettes and replace it with a drug that was equally addictive but would not cause the heart problems. they had all these molecules that they invented but had no way to test them. that was my job, to find the

molecules that a rat's brain would say "i like it" and the heart would not have a problem with it. >> tonight, a discussion with the subject of "addiction incorporated" and the film's producer at 8:00 p.m. eastern and pacific on c-span. >> thursday, treasury secretary geithner discussed the president's 2013 budget request before the house budget committee and acknowledged the proposal does not address budget deficits caused primarily by health care costs. this is about two hours and 40 minutes.

>> the hearing will come to order. welcome, everyone, to this important hearing. i would like to thank secretary gunnar for joining us. this is your second hearing today and forced this week. you are halfway there. -- i would like to thank secretary geithner. you are a glutton, i will tell you that. we know defending this budget is no easy task, and we appreciate your time. >> not as hard as your budget. >> it is going to be a fun day. >> you have my sympathy. you do. >> you are about to get mine, but in a different way. it is pretty well known that one of your favorite sayings -- which i really enjoy this -- is

a plan beats no plan. it is a phrase you used often during the financial crisis. you were in the middle of the firestorm of the crash as the chair of the new york fed. i remember those days vividly. i remember your predecessor and the chairman of the federal reserve talking about crises and spirals all about the impending collapse of the economy. it was a very ugly moment, and what came out of that was ugly legislation because the whole thing caught us by surprise, all of us. the circumstances could not be more different today. back then, we faced a crisis that most people did not see coming. today, we are facing the most predictable crisis in our nation's history, and yet you brought us this. this is no plan. this is no plan to restrain spending, to grow the economy

and most of all it is no plan to save us from a debt-fuel crisis, which would be a disaster for all of us. if plan beats no plan, why has the president once again decided to duck under the drivers of our debt? why has he given us promises instead of leadership, excuses' instead of accountability? why have we seen the president turned his back on the bipartisan solutions that have been percolating out there -- seen the president turned his back? why has he based his reelection campaign on dividing americans after house republicans put forward a serious solution in our budget last year? the president had an opportunity to advance alternatives, to then compromise. if there is a growing bipartisan consensus, reforms are needed.

there is growing bipartisan consensus on issues like tax reform reform is based on premium support which would treat medicare by increasing choice and competition. they have a bipartisan history. it includes the work i have recently done with the senator from oregon to strengthen medicare. fundamental tax reform also has a bipartisan history. in 1986 -- i was in high school at the time, but i read the book -- we did tax reform that lower tax rates and broaden the base. the congressional sponsors of the bill were from both sides of the aisle. i would argue this is not necessarily an issue of left and right. it is about those who are willing to tell the people the truth about our nation's fiscal

challenge and those trying to duck from those challenges. this budget takes the latter approach. it represents a very clear threat to the health and retirement security for american seniors. it threatens our prosperity with ever-higher taxes and commits our children and grandchildren to a diminished future. i do not know how you conclude otherwise. secretary, you would probably be the first to acknowledge that having no plan is a plan in an of itself -- it is a plan for failure and to extend the debt crisis. having no plan means we are planning for decline as a nation. point of this hearing is to find out why that kind of future for our country is apparently acceptable in this budget and to this administration. i hope your testimony can provide answers. i look forward to a great conversation. with that, i yield to the ranking member. >> i thank you very much, mr. chairman. welcome, mr. secretary. i think, as the secretary will

testify, this budget represents a plan. it represents a responsible plan, a good plan, and the debate we have in this committee is not between plan and no plan. it is between two very different visions of how we move forward in this country. what this budget does is three essential things -- one, it helps to nurture and move forward our very fragile recovery. i think we all know that when president barack obama was sworn in, the economy was in total freefall. we now know in the last quarter of 2008, we were in free fall at a rate of -8.9% of gdp. you mentioned that when the previous secretary came, the economy was in crisis. that is exactly right. that is the crisis the president and heritage. when the president was sworn in, we were losing over 800,000 jobs

every month. the first thing the president and previous congress did was to put a net under that free-fall and then begin to reverse it. we passed the recovery act. we passed legislation to help rescue the automotive industry successfully, and many other measures. the reality is that today, for the last 23 months, we have seen over 3.5 million jobs -- private-sector jobs created in this country. that is good news. is it enough? certainly not. that is why the president's budget lays out a strategy for continuing to nurture that recovery and continuing to help businesses hire more people and grow the economy. one piece of that, something i hope will get done later today in the house and tomorrow is to extend the payroll tax cut for another 10 months. very important provisions to the

american people. but that is not enough. the plan the president put forward in the budget, similar to the one he brought before the congress last september, also contained a number of other important provisions. you will find that while we have seen growth in private-sector jobs you continue to see layoffs in the public sector. teachers losing their jobs. firefighters, emergency responders. that is why the president's plan says we need to provide assistance to the states. the plan also calls for $50 billion investment in infrastructure. absolutely necessary. we have over 13% unemployment in the construction industry. we have roads that need to be built. we have schools that need to be renovated. this is a win-win. it is often curious to me to hear people say that building an aircraft carrier helps create jobs, which it does, but

building roads does not. you have to make sure we have the budget not just for strong defense, but it is a job building an aircraft carrier -- yes, it is. building a road is as well. why we would decide to not invest in our infrastructure, which has been essential to our past economic growth and essential to our future of economic growth, is a mystery to me. the president has put forward a good plan there. what else does this budget do? it mix critical investments in the future. i'm sure the secretary will talk about that. the g.i. bill helped send millions of americans to college to get a better future, and it has paid off not just for them before the country. look at the investments the country has made in science and research. research helped lead to the internet, helped the united states get a head start. we want to invest in this country in science and research

so we can maintain a competitive edge. finally, this budget takes a balanced approach to reducing the deficit in a predictable way. it reduces the deficit as a percentage of the economy to under 3%. it gets it down to 2.8%, at the end of the two-year window, and it does it in a balanced way. frankly, that is why our republican colleagues object to it. not that you do not have a plan -- you have a balanced plan that says we will make tough cuts in discretionary spending. goes down to the lowest level as a percent of gdp since the eisenhower administration. they cut over $50 billion in health mandatory and cut other mandatories as well, but they also did something else -- a proposed tax reform not just to simplify the code, which is absolutely essential but they do it in a way that other bipartisan commissions have done to also help us reduce our

deficit. the reality is that our republican friends have taken this position -- they talk about tax reform but not one penny from closing loopholes in the tax code can go to deficit reduction. not one penny. that would be a violation of the pledge taken by 98% of house republicans. so the dilemma we have is not between no plan and plan. it is between irresponsible balanced plan the president submitted -- be responsible balance plan the president submitted any plan we have seen before -- it is between a responsible, balanced plan submitted by the president and the plan we have seen before. folks at the very high end of the income scale -- you are not asking them to go back to paying the same rates as they were during the clinton administration when the economy was booming. simple math -- you have to find

it somewhere else. that but it took $700 million out of medicaid. 1/3 of medicaid cut. it places the risk of rising health-care costs on seniors through a plan that ends the medicare guaranteed. and it cuts import investments in infrastructure, education science, and research. those are the choices we have. mr. secretary i know you will elaborate on the plan you have. i think it is a good plan. it is irresponsible plan, and it is a balanced plan. -- it is a responsible plan, and it is a balanced plan. >> i guess we will agree to disagree. >> thanks for giving me the chance to talk to you today about these important questions. i will talk about four things just briefly about the economy and the challenges we face there. then a bit on the near-term and

paris on growth and jobs. i will lay out the broad strategy and the points on where we disagree. -- a bit on the near-term is imperative on growth and jobs. the economy is getting stronger, but we still have a lot of work ahead of us. despite the financial headwinds from the crisis has people bring down debt and we work through the housing construction bauble, despite the severe cutbacks by the government, despite the crisis in europe despite the oil crisis last spring, despite the terrible damage in confidence caused by the specter of default this summer, despite all these shocks and headwinds, the economy has grown at an annual rate of 2.5% since growth resumed in 2009. private employers have added 3.7 million jobs over the past 23 months. private investment in equipment and software is up by more than 30%.

productivity has improved exports across the american economy from agriculture -- productivity has improved. exports across the american economy are expanding. americans are saving more and bringing down debt levels. the financial sector is in much better shape, helping to meet the growing demands for credit and capital. these improvements are signs of the underlying resilience of our economy, the resourcefulness of american workers and businesses, and they are signs of the importance of the swift and forceful actions we took with the fed to stabilize the financial system and pull the economy out of the worst economic crisis since the great depression, but we still face a very significant economic challenges, particularly for the average working family in this country. americans are still living with the acute damage caused by the crisis. unemployment rate is still very high. millions of americans are living in poverty, looking for work, suffering from a fall in the value of their homes while struggling to save for

retirement. for these reasons, the president's budget calls for additional support for economic growth and job creation alongside longer-term reforms to improve economic opportunity improve long-term growth prospects and improve fiscal sustainability. i want to applaud the congressional leadership for the progress they have achieved reaching an achievement to extend the payroll tax cut and emergency unemployment insurance. this is my second point -- do not stop there. there are more things we can do with bipartisan support, things that have traditionally had bipartisan support. it would be good to make the economy stronger in the short term. just because we disagree now on the long-term shape of tax reform and entitlement reform it does not have to get in the way of doing more things now that would help the economy in the short term. i will give you three examples -- more help to get construction workers back on the job with substantial infrastructure program would be good policy.

helping americans refinance to take advantage of lower mortgage rates would be good policy. and better incentives for investing in the united states would be good policy. all those things are things that had brought bipartisan support in the past, and we should not let the disagreements we have on the ultimate shape of tax reform entitlement reform get in the way of those things now. so do not stop with the payroll tax extension. beyond these immediate steps -- and this is my third point -- the president's budget lays out a strategy to strengthen economic growth and improved economic opportunity while reducing our deficits to more sustainable levels. i know the conventional wisdom is that this debate does not matter because congress is too divided to legislate in this election year, but this is a very important debate. it matters because it is about fundamental economic priorities, how to increase growth and opportunity, how to strengthen health care, how to

return to live within our means. we have to make choices about how to use our resources more wisely, particularly given the millions of americans who will become eligible over the coming decades for medicare and social security. it is important because, as you all know, at the end of this year, we face the expiry of the bush tax cuts and the possible imposition of the sequestered. together, that will force us to come to an agreement on another substantial down payment on fiscal reform. we need to get to work on how to build consensus on how to move forward in this case, even though we are so far apart on some of the fundamental choices. in the president's budget, we propose reform that would save $4 trillion over 10 years. $3 trillion on top of the caps on discretionary spending we agreed to in august. if congress were to enact these reforms, they would lower the

deficit from just under 9% of gdp in 2011 to just under 3% of gdp in 2018. that would stabilize the overall debt burden as a share of the economy in the second half of the decade. that would put us back on the path towards fiscal sustainability and leave us much better positioned to confront the remaining challenges -- and they are formidable, still -- that build in future decades as americans retire. under this plan, discretionary spending is expected to fall to its lowest level as a share of the economy since dwight eisenhower was president, and the president's proposal would also slow the rate of growth of spending in medicare and medicaid, both through the affordable care at reforms and the additional proposals we have laid on the budget for additional savings -- both through the affordable care act reforms any proposals we have laid on the budget for additional savings. the budget makes a series of

targeted investment proposals in education, in innovation, in manufacturing and infrastructure. these are not expensive proposals. they are things we can afford, and we propose to pay for them within a framework that reduces our deficits to more sustainable levels. in order to achieve this balance, the balance between significant, substantial deficit reduction over time, there is still room for investments that matter. we propose to raise a modest amount revenues for tax reform. the president's plan proposes roughly $2.50 in spending cuts for every dollar in revenue increases. these revenue increases would fall only on the top 2% of americans, not the rest of the 90% of americans. they would raise revenues by roughly 1% of gdp. -- not the rest of the 98% of americans. focusing these revenue proposals

on the top 2% is, in our judgment, a more fair and better way to achieve fiscal sustainability better for the economy, and better than the equivalent amount of cuts in things like benefits to middle- income seniors or in infrastructure and even defense spending. we proposed tax reforms that raise revenues not because we think it is good politics for us or because any of us like to do it. we propose it because we do not believe it is possible to meet our national security needs to preserve a basic level of health care and retirement security to compete effectively in the global economy without some increase in revenues as part of a balanced plan. we illustrate in the budget a range of specific tax changes that could be added on to the present tax system to raise the necessary amount of revenue, but we think the best approach to get their -- there would be

through comprehensive tax reform. we have outlined a general set of principles that would be designed to make the system more fair, more simple, to better invest in the united states. we will lay out in coming weeks a broad framework and object of that is better for the united states. we think that is a good place to start. i hope as the chairman said at the beginning, there is the prospect of bipartisan consensus on the framework. final point -- i know there are members of congress who are critical of these proposals and would prefer a different strategy. you should judge our plan against those alternatives. let me say where we agree and where i think we disagree. where we agree is that our fiscal deficits are unsustainable. they have to be brought down over time, or they will do a lot of damage to the country. we agreed that the commitments made to medicare and medicaid are unsustainable and unaffordable over the long run,

but we disagree in some fundamental respects. some of you had suggested that we cut deeper and faster with more severe austerity now. in our judgment, that would damage economic growth and reverse the gains we have achieved at getting more americans back to work, and it would put more americans into poverty. a program of severe, immediate austerity now is not a growth strategy. we cannot cut away to economic growth -- we cannot cut our way to economic growth, and we have to be attentive to an economy still reeling from economic growth -- from economic crisis to make sure we do not hurt economic growth in the long term. second probably for -- probably a more fundamental contrast, is there are those on your side to suggest we try restore fundamental balance without trying to raise additional revenue from anyone or cutting taxes for the period in our

judgment, to do so would necessarily entail deep cuts in income for retirees and innovation. and cuts in defense spending that would hurt our national security interests. the choice we face is not about whether we should reduce our deficits -- we all know we have to do theat. it is about how quickly we do it but it is fundamentally about whether to do it with a balanced plan that helps growth in the short run or with a plan that will place more of the burden on cuts in national security medicare, low-income programs education innovation, infrastructure in ways that we think would be unfair and damaging to our interests as a country. these are tough reforms, but it is a balanced mix of spending cuts and tax increases. it gives us room to make investments that will improve opportunities for americans and

will help protect our basic commitments to retirement, security, and health care with the elderly and poor. it provides substantial immediate help for the average american alongside reforms to help restore long-term sustainability. it will not solve all our challenges. even if you embrace these proposals today, we could still be left with substantial additional challenges, but it would put us in a much better position to meet those challenges. thank you, mr. chairman. i would be happy to try to respond to your questions. >> thank you. i guess we will just demonstrate how we agree to disagree on a few of those points. here is the question i want to get to -- do you think this budget averts the deterioration of our fiscal problems? >> we are not claiming it solves all the problems facing the country, but it does meet the critical essential task of restoring our deficits to a more sustainable position for the

next 10 years -- the critical, a central test -- the critical essential test. our overall debt burden as a share of the economy starts to come down. we meet that and help lower the trajectory of costs but we still would face, even with this framework, more work to do in the long-term demographic challenge. >> bring out a chart 513 -- bring up chart 513. i do not see the rhetoric matching the results. you say that -- your budget says that the government position gradually deteriorates, that our fiscal condition deteriorated. these are your numbers.

it shows exactly -- >> it shows exactly what i said, which is if you look at 2012, and destabilizes that debt burden as a share of the economy. you are right that as millions of americans retire, those costs in medicare and medicaid start to increase again. that is why we are saying openly and directly to you that we will have some work to do. what you do it is, i think, in your budget -- although i know you have a new one coming -- is you would lower that path in ways that would substantially increase the burden of health care costs on middle-income seniors. although we agree with you we will have more work to do, but we will not adopt an approach that would undermine that basic benefit. >> go ahead and show slight --

slide a again. the red is the status quo, the baseline we are on. this is last year's budget. we cut it off at the end of the century because the economy according to cbo, shuts down 92027. -- shuts down in 2027. >> you are talking about more than half a century, but if you look at the gap between us, it is a pretty small gap, and that gap, which is all we are debating today is one where you are achieving that slightly diminished path -- >> this is your time so we will just take a long time. here is the point -- leaders are supposed to fix problems. we have a $99.4 trillion unfunded liability. our government is making promises to americans that it has no way of accounting for

them. you are saying we are stabilizing it, but not thinking in the long run -- that means we are going to keep lying to people and keep all these empty promises going. you are the treasury secretary. we cannot make good on our bonds in the future, who will invest in our funds? we do not want to have a debt crisis, it comes down to confidence and trajectory. we have confidence we are getting our fiscal situation under control, preventing the debt from getting to these catastrophic levels? to go back to the preceding chart, you are showing that you have no plan to get this debt under control. you are saying we will stabilize it but then it will just shoot back up. my argument is that is europe. that is bringing us toward a european debt crisis because we are showing the world, the credit markets seniors people organizing their lives around promises being made to them today, that we do not have a

plan to make good on this. >> maybe we are not disagree and in the sense that i have made it absolutely clear that what our budget does is get our deficits down to a sustainable path over the budget window. why do they take off again? why did they do that? >> because we have 10,000 people retiring every day. >> right. we have millions of americans retiring every day, and that will drive substantial health care growth. what we do know is we do not like yours because what yours would do it is put an undue burden on a middle-income senior and substantially raise the burden for them for rising health-care costs. >> you are right though, that governing is up about -- you have to make choices between the immediate and the urgent -- >> in the interests of time, we are fine the you do not like our path.

that is what politicians -- republicans and democrats and differences of opinion -- are all about, but if we do not come up with a plan for this country we will pull the rug out from people relying on these benefits. we provide more for the poor and middle-income and less for the wealthy, and we think that is the smart way to go on funding these important guaranteed programs. i do not put all that aside -- >> i do not think that is a fair description of your plan. >> actually, i do, but we could go back and forth on this. put all that aside. if we do not start showing the country that we have a plan to make good on its promises, to secure these health and retirement benefits, then we will have a debt crisis. let me try to go to something where we might have a little bit more agreement on. tax reform. i have enjoyed reading some of your quotes where you said there is a better way to do tax reform than say what you are proposing in the budget. i think you say a better way to do it is to lower rates and broaden basis broadenbases --

borade -- broaden bases. i could not agree more. we have had all of these bipartisan working groups. this is for my friends. go to slide 10. a lot of folks think that if we lower tax rates, the rich will just with everybody else off that they will get away with murder. take a look at the facts -- when we have lowered tax rates since 1980, the share of the tax burden for the wealthier people has gone up. 1986 is a good example. the shares shot up so the wealthy actually pay a higher proportion of the tax burden as those tax rates go down. why? three reasons -- we provided middle and lower income relief for families throughout that time. cutting top rates actually increased economic growth, but for mobility, and prosperity --

>> not so much, actually. >> i will get to the next one. we will show you an adjustment of that. third, we have taken away loopholes that benefit the well- off. >> also not so much. >> that is the point i'm trying to get to. in 1986, we closed loopholes. we went to a 21% rate in the decade alone. let's go to slide 14. this is the cbo chart of the index of federal taxes. this is controlled for changes in income distribution which goes to your earlier point. it shows that from 1980 to today, we are not lowering the distribution of the tax burden. it shows you that like, after 1986, by closing loopholes and lowering rates, we can get better growth and the wealthier will pay a higher proportion of

the burden, and that is controlling for changes in income distribution. the point i'm trying to make here is there ought to be a bipartisan element of compromise here because what we have shown -- for those who are worried about the distribution of the burden -- you can actually keep higher and people paying more of the tax burden and get a better system -- you can actually keep higher end people paying more of the tax burden. it is time for a new round. that is my point. >> can i respond? i agree that we will need tax reform. we should all embrace the basic elements that what we need will lower rates and broaden the base. let's talk about what i think separates us still in terms of basic strategy. the dominant plants out there

that have bipartisan support -- some said -- simpson-bowles the senate 6 -- share in common with us a basic recognition that you need tax reform to find a way to generate a modest amount of higher revenue. in our proposal, in our budget, revenue as a share of gdp would rise modestly back up to around 20%. that is slightly lower than where they end up in simpson- bowles but a little higher than you will get through current law. i think in your free work last year you show revenues rising to 19% of gdp. >> right. >> though you do not specifically increase revenue raising tax reform -- revenue- raising tax reform, you assume growth will bring that. i think the two main differences

between how we think about this today -- but we have to test this when we set to get serious about it -- is an explicit commitment need from both sides as part of a balanced plan with tax reform that will raise gdp revenues. you have to ask yourself -- how do you want to allocate that burden? in the previous proposals -- and we would take the same approach -- you will have to have effective tax rates, which, as you know, are very low -- you have to have effective tax rates go up modestly. we think they should go up really only for the top 2% of americans. >> time is cutting out, and he has to go to a signing thing. this is actually bipartisan. that is not what you are proposing in this budget. everything you are saying sounds great, but you are proposing to raise tax rates and add more complexity to the tax code.

>> as i said in my opening remarks, in some ways, we are trying to motivate tax reform because we are saying -- i want to be clear. we are saying that if you have to raise as part of a balanced plan 1% of gdp in revenues, as every bi-partisan commission has said you have to do, and you are going to do it on top of the current tax system, here are some ways to do it. but we are saying over and over again we think the best way to get there is through rate- lowering, base-broadening, more simple, more efficient more fair. but the main, fundamental difference between us is if you guys can commit to raise revenue through tax reform, we will be on the way, but we will have a debate about who should bear that burden, and our judgment is the top 2% of americans should bear that burden through a

higher tax rate. >> let me get you there, and i'm not trying to talk you, but this is what is frustrating -- your rhetoric never matches your action. not talking about you personally, but the administration. you are showing us a budget to raise tax rates and add complexity to the tax code. >> the burden of governing when you propose a budget, as you know is -- >> this is your fourth one. >> that is true. we have said "here is what you have to do if you are going to get enough revenues to do this in a fair way." what we propose to do in this context is modestly increase the effective tax rate on the top 2%. >> the top effective rate goes to 44.6% on individuals. first of all, assume for the sake of argument that might

which this thing has been tested 1 million times. the point is you are raising effective marginal tax rates. in wisconsin, nine out of 10 businesses file as individuals. >> we will only raise them if you decide to agree to raise them and decide you would rather not do comprehensive tax reform. >> these things you say -- you are not putting into your budget. this is the fourth budget where we hear all this happy talk about coming together. we do not see those proposals in black and white in your budget. >> one last thing -- we never claimed this budget included a comprehensive proposal for individual tax reform. never claimed it. we spend, as you know -- we spent four months working with republican leadership the summer on a way to get a balance plan with comprehensive tax reform to raise revenue alongside

substantial savings in medicare and medicaid. we found in that process frankly, that you were not really there yet not quite ready. for that reason, we decided that we should do some foundation- laying and lay out some principles -- >> i do not even know how to respond to this. >> is this on? again, welcome, mr. secretary. having been dissipated in some of those rounds, my sense is they basically collapsed because of the fundamental issue we are debating in this committee which is whether or not to take a balanced approach to addressing our deficit challenge, and we did not have a partner to compromise with on a balanced approach. let me just say what the

cochairs of the bipartisan sense and -- simpson-bowles commission said. in the framework you announced in april and what you submitted to the committee in september the president embraced many of the goals and principles outlined by the fiscal commission and incorporates some of the policies we propose. we are pleased that the president's latest budget continues to focus on deficit reduction and are also encouraged to see real, specific policies for them a tax expenditures slowing health care cost growth, and reducing spending throughout the government -- specific policies for lowering tax expenditures. i think we would be able to accomplish some of these things. i would like to put up a chart to address this continuing myth that relatively small changes in

the top marginal rates are the chief driver of job growth. that has just been proven false by history on numerous occasions. what you see years after the 1993 budget agreement with the top marginal rate was raised you saw over 20 million jobs created during that time. after the 2001, 2003 so-called bush tax cuts with a reduced the top rate, by the end of that time, you saw a net loss of jobs. obviously, there were lots of things going on, but the major point is that minor changes in the top marginal tax rate are not the primary drivers of growth in our economy. of course, the other benefit of that higher rate was as the secretary said, it brought in more revenue, which meant at the end of that 10-year period was the last time we actually had a

balanced budget, which helps contribute to long-term economic stability and growth. i think it is important to keep in mind these historical facts as we debate the whole question of tax policy. briefly, this shows the trajectory of the president's budget. it is a plan -- it is irresponsible plan, and as the secretary pointed out, it gets the deficit below 3% of gdp at the end of a 10-year window -- it is a responsible plan. many have said this is a budget full of gimmicks. for those of you new to the committee, i want to show you what president obama's budget would look like if we used the so-called gimmicks that were used in the previous administration's budget, just because a lot has been made of that. what you see on the left -- of

all the costs that were not counted in the bush budget -- in other words, the bush budget assumes that we were not going to fix the amt. they assumed that they assumed we would never take care of the dot fix. if you use the bush methodology you get the following. the top line is the president's budget using eastridge for accounting techniques, percentage of gdp and the blue line is what president obama is budget could claim if you use the bush administration accounting gimmicks, so the secretary has acknowledged that we have gotten a lot of work to do as we did with the demographic changes 10 years and beyond. >> that tells you that the enemy

is the omb. >> in this case, the omb actually did the way i think we would want them to do in terms of documenting the likely outcome. now, i just got to end with this because i do have -- >> [unintelligible] >> i have to lead to design something with another group but fundamentally, we have got to figure out a way to come together to resolve these issues. there are some basic disagreements. we believe it is important in the short term to continue to take measures that are described in the president's budget to boost job growth. i remember more than one year

ago, our colleagues were pointing to the new government in the u.k. as an example of how we should proceed here. we should have an austerity budget. i think the secretary can talk about what the growth numbers are in the u.k. these days. they are not very good. it is a good thing we did not follow that proposal. the second is a balanced approach. the secretary has pointed out that when you take the time of measures that were in the chairman's budget last time, we do when you take the type of measures that were in the chairman's budget last year -- when you take the type of measures you have an issue. we need to find a way to reduce the growing health-care costs throughout the american health- care system. now, the reality is the affordable care act put in place a lot of mechanisms that we believe will begin to do that and will prove successful, but there is more work to be done there. i think what we need to do there

is come together in a way that deals with the fundamental problem, not just shift the problem of medicare to senior citizens, and that is at the heart of what this is all about in trying to find a balanced approach because if you do not ask the folks who have done well to put in more then you're going to have to take more and more of a middle-income and seniors. mr. secretary, with respect to the experience you have seen, those that have taken a strict austerity approach what is that so far? >> as was pointed out that you can experience, we are not in the position anything like the rest of europe in this context in the extent that we enjoy still and you can see it in the prices of u.s. financial assets the enormous confidence around the world that this country

this congress, the city will ultimately find a way to put in place the more substantial fiscal reforms so there is confidence out there in markets that ultimately congress is going to come together and do the right thing soon enough in this context and you see that confidence in the u.s. financial markets. if we were able to buy it we're going to try to change this crisis and reduce that in two years or three years, we would kill this economy. you dramatically setback in a long-term reduction package you reducing another crisis. although there are some they will suggest we have to cut more now. >> thank you, mr. secretary.

so let me get this straight what your testimony has been so far. do you agree the tax system we have in this country is far too complex and not working, but you are not going to give us a new tax reform system now him that would be simpler but would rather in this budget give us a more complex tax system until later on in the term? >> i know you do not like the current tax proposals. >> is it more complex? >> yes you are going to have things that are complicated. it is better to do this through tax reform. >> you are giving us a proposal that is even more complex. >> it is just the nature of the beast in this context. >> mr. secretary, i would think of all people, especially you, would understand that our system is too complex for the

individual to fill out their tax return but prior to this, with a simpler tax system today rather than waiting until the end of your term. >> i think we are writing -- righting the fundamental difference. effective tax rate on somebody is going to go up again as you are raising revenues. >> mr. secretary that is not the question. >> the question is, when are you going to give a simple tax reform? and your answer is that you are not. >> no, we are not. >> you're going to raise revenue with tax reform. >> that is what we spend so much time discussing with your leadership this summer.

>> that is leadership. wait for other people to do something, and then we will react. >> you just spent about six months debating about defaulting on obligations that you gave us. if you want to call the leadership that is fine. we can have that. it was in the spirit that we have to work this out in a bipartisan way. we sat down with your leadership for months to try to work out whether we could find consensus. >> during all of those months, we never got from you the same thing you are telling us right now that you are not going to give to us? >> did the leadership share with you the things that we got proof >> we did not get that from your either. >> on entitlement reform and tax reform. >> on tax reform you did not. >> so where is your tax reform plan? that is why we are here today.

>> if you want to bludgeon the into admitting that we are not going to give you a tax reform plan i confess. we are not giving it to you. if you want to use your time for that, that is fine. >> my question is where is your entitlement reform plan? >> we have in the budget $360 billion of specifics corbeil savings in medicare and medicaid over the 10-year budget window and an additional $250 million of other mandatory savings. >> mr. secretary, let me rephrase this. where is the long-term reform? >> we are not proposing to solve the problems in the country for the next 100 years because if we knew how to fix them for the next 10 years, people would have more confidence to work on them

in the next 50 to 100 years. if we cannot fix them in the next 10 years, why are you fixed on the next century or millennium? >> my time, mr. secretary. you are taking shots at the plan that mr. ryan has proposed that does try to solve it over the long term, and are critical of those plans, significantly. what you would like to have is a debate or a dialogue in that here is the plan that we have proposed mr. ryan has proposed. where is the plan that you have proposed >> you guys have got to make a decision. can i say one thing? you have to decide just for consistency. are you going to say you do not like our plan, which proves we have a plan, all right or we do not have a plan. you cannot have it both ways. we are not claiming we are going

to do what you would do to medicare. we are not going to do that. >> i am going to run this tight because we have and schedule. the federal reserve does not see it your way. ms. schwartz? >> thank you. i am not sure you have to gavel them through before their time is up. >> getting momentum. >> we were just finished with hearing it. we will have another four minutes of a comfort zone. the fact is, there is a very different approach. you spoke very well and clearly about the fact that the president is putting forward a 10-year plan and that is actually pretty good given that we have such a tough time seeing our way through it,

stabilizing their deficit and being able to make investments that ensure our economic competitiveness. that would be a very good economic outcome. disagreement the plan president put forward. wanting to just cut everything, to make the kind of investments that are going to assured the american economic competitiveness. making research and development.

to talk about what is in the budget but to mention it to the allied ideas, and to talk about what is very successful already, the tax credit. this was $1 billion that we major went to over 3000 companies startup companies across this country companies that are alive today working on therapies and devices -- i would like to say that be done again this was $1 billion that went to over 3000 companies. this is one way to do it. ipg the funding for nih and r&d. innovative businesses that use patents, and this has been tax policy in other nations that as

been successful in drawing out new industries it innovative industries making products based on a patent, so i am more crime legislation that would do that here. i wanted to mention those two specifics and give you a couple of minutes to talk about in a really positive way how we are not only going to get out of this tough economy but we are going to continue to grow and be good economically. >> i will take a look at those proposals and welcome your support from those. not just an eye age and medical discoveries, but across a range of parts of science crucial to technological development.

energy better incentives for investment. been a substantial infrastructure investment, so those court things innovation infrastructure a better investment. but that is what we think should be the core of the strategy and if you look at the combined cost of those things, they are very modest well within our capacity in the country but you have to look at a responsible way to pay for these things and we in the budget put out how we plan to pay for those reforms. >> we very much appreciate that, and we will try to keep this a little more civil, but at least every other speaker, and try to lay out what is a clear vision for this country and a contrast to the other side, and i appreciate what you said about the willingness of the administration a at -- to the

other side of the aisle and not getting the cooperation back. i think it does protect the americans that need the payroll deduction. >> we have got it. >> growing jobs in the economy. i do not think any of you get a kick from austria does this

budget set out a specific plan of something to prevent the sequestration or the 10% cut in national defense? is there something where you are committing that you want to stop the sequestration so we do not take that 10% cut? >> a good question, and thanks for asking it. if you count the savings and the cabs of discretionary spending and we agreed on in august and there is the spending cuts and revenues so the spending cuts alone are enough to meet the tests that you have to meet and the sequester, and are spending reduction proposals primarily are the 350 or so billion dollars that we would save from medicare and medicaid and the 250 million or more that we would say from other mandatory items. we believe that that mix of policies goes well beyond what

you need to replace the sequestered and better than letting the sequestered it. >> so if that happens is this the questor repealed? >> i can remember exactly the way the legislation is written, but if congress were to increase performance that achieve more than the savings required by the sequester, than the sequestered does not go into effect. >> and does that include tax increases. >> that is a question. we have a magnitude of savings proposals that would exceed the required amount to suspend a sequester. >> the first thing is, i just came from the armed services committee, and a top military administration is setting the sequester is a total and complete disaster. the second thing was jobs and the economy. one of the things with the tax increases is that you are going to repeal the depletion for hard

mineral fossil fuels, i.e. coal. they have been tough on them already in terms of permits. increasing the size of expanding -- makes it very hard. and now, increasing taxes on the coal companies. is that right? >> styling back, reducing the very generous subsidies we provide for a number of parts of the energy sector, and we think that is necessary. we think it is good energy policy and good economic policy, and i would remind you -- >> let me just get really practical. if you get rid of the allowance it means the coal company taxes will go up, right? >> yes they go up.

>> they are running about 22%. what would happen if you get rid of that? >> i would have to respond to you in writing but the average tax rate is in the high 20's, and the reason they did to pay only 22 or 18 whatever it is for the energy industry is because other businesses are paying more. it is not efficient. it is not fair. it is better to have a flatter system. >> to remove it it is basically going to shut down the coal industry. i know the president i have a least heard it that he is favorable to that idea. if you continue the foot dragging on the permits you increase the groundwater situation. you cannot mine underneath an intermittent stream or something that has no water in it in part of the year, and then you get rid of this depletion allowance.

when you take the call out, there is nothing there. we have the same thing for things like sod farms or if you take enough of that off, there is no more topsoil. to me, it sounds like war on the private sector. >> we do not believe congressman, that our proposal will have that risk, but i would be happy to talk to you more about what makes sense with this. >> thank you. mr. blumenthal -- bl;umenauer.

>> the debts we have just paid. >> it was not just some. >> we had people go home for the christmas holiday over the debate about the payroll tax. but actually the people sometimes are hurt and we watch folks come back from holiday and approve what had been essentially rejected and we're going off to sign off on the conference committee that is extending it for the rest of the year and paid for which you could not have imagined -- the rest of the year unpardid for. i was struck with what are chairman sen on tax reform. i thought that was a fascinating period, but i would like you to

comment on a couple of differences. something that made a difference. i do not have they charts to put up that talk about the much higher performance of this economy when the tax rates were much higher. there are things like investing in education infrastructure that matter deeply but 1986, it did not have to wonder 35 members of the house of representatives who signed a pledge that they are not going to raise anybody's taxes on anything because as you know there were lots of changes in that reform that ended up raising taxes on a number of people despite cries that it was going to shut them down. it actually did not. , reagan signed off on something that correlated taxation on

individual work and investment. there was a president to repeatedly raised taxes. ronald reagan raised a gas tax in 1982, one nickel a gallon, back when that was real money. so it seems to be one of the biggest differences from 1986 to now is that we have two parties that were willing to make adjustments and raise taxes where necessary. they had some confidence going back and forth working together though there were signs that things were off the table. i wonder if you could just elaborate from our vantage point -- your vantage point, and the president and the speaker were making progress before somebody's chain was yanked but if you want to talk about 1986

versus selling today i would welcome your thoughts. >> the difference between it 1986 as the president said a plan within a substantial increase on businesses in order to pay for a substantial tax cut on individuals which he subsequently decided he had to reverse. he reversed a substantial part of that individual tax credit in the coming years because he realized it was irresponsible and unsustainable. but i want to try to take the positive side of this debate, because -- >> please. >> the question is are we coming closer together or moving farther apart.

use of the appropriations process really work at the end of last year. it took us longer than we thought, but there was the payroll tax cut and the unemployment insurance. helping to refinance their mortgages, for example. there are some things we can agree on even while we are trying to narrow our differences on the other things. >> doctor? >> thank you mr. chairman. mr. secretary, welcome. i think the american people by and large want us to get the job done and there is a lot of misinformation and disinformation that comes out and i have for some of it this afternoon. the fact of the matter on the payroll issue, there were some

folks in town trying to solve this issue and some folks who fled. those that fled were our democratic colleagues in the senate. uncertainty in the market is destructive to job creation. i assume you agree. >> well, i guess right now there would be the weakness of demand. >> uncertainty for employers whether tax rate is going to be what the context is going to be. when we talk to the job creators they say they have to wait. >> what is hurting growth now is people still have too much debt. we are still working through the housing problems, and there is the triple storm the triple threat of oil, japan, and

europe this year. >> the uncertainty on the other side was a two-month fixed to these things. we had passed the house and 1- year holiday tax reduction one year of unemployment benefits extension, and a two-year plug for the positions. i want to talk about small businesses. >> 42% to 3% of small businesses. >> i appreciate that -- for 2%, 3%. >> it employs 33 million people. those 2% employee 33 million people.

>> i am not sure if those numbers are right, but that definition of small businesses includes things that many do not consider as being small businesses including lawyers and private equity firms. half of those businesses you just refer to have income after expenses of more than $1 million. >> epically think -- the people who think those are small businesses are the secretaries and clark and a small outlet. they certainly know they are working for a small business, than when you raise taxes on the small business, you get less of what the small business does. >> how are they doing in the second half of the 1990's? >> we are not comparing them like that.

we have a program of budget. increasing taxes to chase ever- increasing spending, is insanity and the american people know it. >> are you sang the budget you're going to propose is going to have no increases in it? >> we do it in a neutral ways the that we close loopholes and broaden the base lower the rates. >> raise revenue. >> we raise revenue of times that you can accommodate the changes. i am happy to be on the panel at the treasury department when you invite me down. i am happy to do that. mr. secretary, the fact the matter is, in this budget that you have you increase taxes $1.90 trillion. $1.90 trillion. if your increase in taxes to

balance a budget that is one thing. if your increases are to find this, that is what is so frustrating to the american people. >> that is a good question but that is not what we are doing. we're proposing to raise taxes for 1% of gdp over tenures. >> $1.90 trillion. -- 1% of gdp over 10 years. >> $1.90 trillion. what you are saying is already in law. i would be happy to show it to you. >> i have got more time. >> you want to be added year by

4:30, do you not? -- you want to be out of here by 4:30? >> i think anybody watching your appearance here and listening to that would understand that we need different approaches over the next few years than we need of the next 40 and i appreciate that very much. i would like to say or ask you, we have seen a lot of charts with lines going not 50, 60, 70 years. with changes in medical research demographics, culture world situation how reasonably reliable do you think those projections are 40 years from now or 50 years from now? >> not an all. >> about as much as betting on the kentucky derby turns -- horse?

>> when the clinton administration left office in 2000 the cbo budgets of the next years of roughly $5 trillion and we have swung from the projected surpluses to projected deficits in a range of about $8 trillion, so this gestures you what can happen in a short period of time when people make these choices or you face a crisis. tenures as possible, 40 years is ridiculous -- 10 years is possible. >> republicans have used this argument a lot saying 2% of small-business owners represent 30% of small brush business income and does not essentially undermine their point because this very small percentage of small-business owners is making the lion's share of all of the

income for small-business owners, and it is kind of hard to argue that 4.6% more in taxes is going to be a real impediment to them. >> they may be rather small but they are rather rich. if you're not point to raise revenues by allowing the effective tax rates to rise moderately for the top 2% of americans, who are you going to ask to pay more taxes or whose benefits are you going to cut? that is a way to think of the trade-off. the reason this is so beneficial is a try to find that gdp and revenues in this near- term period, medicare benefits, infrastructure then you will do more damage for the demand to their products. you'll have less products that they can sell. we think this is a better

package for growth than the alternative if you are going to commit to dealing with the deficits. >> ok, cannot let you get away if you are talking about that. there is the accounting method that would have very dramatic effects on the distilling industry in my state and something that has become a growing export. yesterday, i asked whether or not in constructing the proposal that there is a consideration of the broader economic impact of and in that, and, of course, i am particularly industry -- interested in the distilling industry. has there been a look at the economic impact could >> we have looked very carefully, as always do at the impact on the industries affected, and in our view it is modest and manageable, but nobody wants to see their taxes go of. who are we going to ask to pay

for those special tax -- i understand the merits of them but we face deficits, and we have to find a way to make the system more fair so that businesses in certain circumstances are paying the same effective tax rate. >> i know, for instance, one industry which does $3.40 billion pace something like $800 million in excise taxes, and heavily taxed industry. is there something we can look at that we can analyze? i know part of this was about oil and gas, and this is the lion's share, but oil does not taste at all a bourbon and i would be happy to demonstrate that for you. if you had that kind of analysis, i would love --

>> i would be happy to be as much information as i can in that context. >> are you calling upon the senate to pass your budget? >> i thought you were going to be asking that. i have heard this in the last few days. i am not a budget process expert but i will offer a few things in response to that. the senate does not need a budget resolution in order to pass appropriations bills passed tax cuts, tax reforms the entitlement reforms, pass savings. as you know,passed payroll tax cuts. we would like the senate and the house together to find more things they can do together that would improve this. >> i would love to hold hands

with harry reid. it is a simple question. are you calling upon the united states senate to pass the president's budget? >> we are absolutely calling on the senate to in braes the house as well, to embrace the reforms we have in the budget. absolutely. >> are you calling upon the senate to pass the president's budget? >> can i answer your question? can i just say one thing? it is not the test for you to send the senate things that you know will not have bipartisan support. that is not a test of legislating. >> i am asking about a democratic president president obama, and you as the secretary of treasury, are you calling upon the senate, which is controlled by the democrats, to vote on and pass your budget? >> absolutely, we would like the senate and house to act on the

reforms that the president has in the budget, and that is what a budget is for, but i do not think that is a test of legislating in a divided country with a divided government. >> so is it fair for me to say that you are saying you are not calling on the senate and house to pass the president's budget? >> you can say what i just said. we would like to see it happen. >> the senate has failed to pass a budget in more than 1000 days. it is -- >> if that is that you want to spend your time -- >> i do not want you to tell me how to do my job. we are doing our job. you can smile and laugh about it all that you want. >> i can help you with other questions, but i cannot help you with that one, because that is

about the senate. >> this is the way become to reconciliation. that is how we worked things out. they pass something, we pass something, and we come together but if they refuse to do their job, and the white house is just going to sit here guinea with a little smart -- sit here like -- to sit here giddy with a little smirk. would you agree or disagree with this analysis? >> i have not seen that, but i will need to take a look at it. >> on page two of your testimony, and for members who are looking at this you have this one particular sentence in here that i would take some issue with. it is the end of the paragraph on page two.

"these savings are sufficient to stabilize our debt by 2015 and begin placing our debt on a downward path." what is troubling is when i look at the total when president obama took office it is roughly $9 trillion. now it is predicted to be $26 trillion. the president has never put forward a budget that balances to actually pay down the debt. is that correct? >> we propose reforms as i said that would reduce the budget deficit to a level that is sustainable defined as the level that stabilizes the debt burden at an acceptable share of the economy and starts to bring that down. >> what percentage is acceptable? >> the deficit level you need to stabilize the debt has to be slightly below 3% of gdp, and if we do it in this time frame that would stabilize the debt burden as a share of the

economy, and we talk about this as net debt as a percentage of gdp, and that level is a manageable burden of -- for us. but that is a start. if you do that, in the succeeding decades, those costs start to grow. >> thank you. >> i'd like to talk about the 49 states, the attorneys general. in new jersey, homeowners will receive direct relief with the majority going towards refinancing. however, the overall agreement of $17 billion for principal reduction is nothing compared to the $700 billion total in negative equity for homeowners in this country. that is to me and a big deal.

in august 2010 the new york fed in its document found out that the principle write-down of a mortgage was 18% in-update it would cut the probability of default 40%. that is a big deal. within one year, a modification. considering nearly half of all of our standing mortgages are owned by freddie mac and fannie mae, correct my friend from new jersey? it seems to have a simple solution. tell me where it is not so simple. secretary donovan commented that we need to break the logjam of principle reductions. and as you know, a triple incentive has been offered to banks, mortgage companies willing to cut mortgage

principle for underwater homeowners 3 jon vacation program. you have talked about this for some time have you not? some other states, obviously. while the decline in the median price of a single-family house home outpaced the national average by 3.7%, a drop. with one county having an 8% drop last year. mr. secretary, then made it is apparent. is it contained within the president's 2012 budget, and if not, why not? >> it does not need to be in the budget and it is clearly

beneficial to the taxpayer to do it and there is a range of types of mortgages where this is the case so we, it sounds like you support, we are working closely with fannie mae, freddie mac, others, to encourage them to take another look, because we think it is in the taxpayer's interest to do it. >> most of what we have done in the last six years has not held to this problem. i would lay before you that just as many do that we have more added to the list, and you know that quite well. this is going on and on and on. what help does the taxpayer gets -- get and then bring down

the whole neighborhood if he cannot pay his taxes. then somebody else on the street has to pay his taxes, and this is dragging down. i will listen. but in the minute i have left people were caught for their homes. >> we believe the fha has the authority now in a way that is good for the taxpayer. our problem is that we do not have the ability to compel them to do it. this is our constraint.

i would hope that we can make some progress. >> this is never going to get us back to the problem land. why fannie and why freddie seem to be on hold the ground i do not know. thank you, mr. chairman. >> thank you, mr. chairman, and thank you, mr. geithner. thank you for being here. i just to follow-up on the questioning. the budget. you think the budget is important. last year's budget that the administration proposed, do you remember how many votes it got in the senate? >> in the way it was done, it got very few votes. >> 0. >> because of the way it was done. >> because of the way it was done. it did not get any votes. my question is, is this a waste

of time for us? last year's budget which is similar to this year's budget coming from the administration, this seems to be a waste of time. if it is not going to get a single vote in the senate, why would we want to go through this process? why go through the time of putting the budget together if you have not worked with your government colleagues in the senate and did not give you one single vote? >> that is not what i said. we have spent a fair amount of time working with the leadership, and the proposals in this budget to try to build on of course even the work of the super committee in the fall, so we think this is good policy. the reason it is worth paying attention to is because it would be good for the country. >> does not show how far apart you are? >> i am not worried about the democratic colleagues. >> i am not worried about

distancing some democrats. i am worried about distancing some republicans, but that is why we are having this debate. >> i am in this category as a farmer in indiana. over 60% of unincorporated passthroughs. my question is, the president's tax policies including those in the health-care legislation would push the top tax rate up. do you think there is a disparity? if you take the upper income tax rate, if you take another issue which is 2% and medicare taxes of 3.2%, that gives you over 30%. do you think that is a disparity between small-business owners and corporations to pay an upper tax rate? >> i thing to do a fair comparison, you have to look at the effective tax rate of those

passthroughs and the effective tax rate, and i think you did that you would find it to be small. >> do you have those numbers? >> i will be happy to look. >> extending the taxes at the current level would obviously amount and a large tax increase. you do not extend that payroll tax cut after this year? >> there are some things you only want to do on a temporary basis. last year, there was expensive for businesses. there are some things you should do on a temporary basis. this is one of them. >> for the next five years. why not make a five-year rate instead of making it towards the

end of 2012 when it looks political? >> good question. the cbo analysis that shows what i think your show very moderate growth that is on the assumption that all of the books -- bush tax cuts expire. we want to extend them for americans. it is our judgment that our economy is likely to be in the situation next year with the payroll tax cut expiring. >> i get tired of this because i think we need a debate in washington and i get tired of republicans being thrown on the bus, saying republicans want to destroy medicare and social security, where that is not the case whatsoever, and then the president turns around and cut the tax rates which actually funds social security so there is less money going to those programs. there is less money going in.

>> no, that is not. this is made up automatically by general revenues, has no impact on. >> it is still going to come from the taxpayer. those funds do not see any less money going in? >> no. that is the way the law works. i think the question is, i am not sure i understand, do you want to extend the payroll tax cut longer? >> i am fine with that. >> i do not think you can justify doing that. we will have to work through that. >> i would just remind the witness that you are the witness, they are the questionnaires. the executive side of the table is on that side. >> sometimes i have to ask a question to answer your question. >> ok, let's just make sure it is that. >> i like to ask you about

identity theft and tax fraud because in the fall of last year my local police chief said "where are all of the criminals on the street? all of the drug dealers are gone. all of the petty theft criminals. we thought we are doing a great job. crime is down, and then they raided a motel with rooms where they had laptop's set up one after another, and they found where all of the criminals were, and eight where filing fraudulent identity is to get refunds. and they have quite a racket going on. they call it "turbo tax" because it is so easy, and they could put in hundreds of these and you should see what the postmaster had. rows and rows, checks coming to post office boxes, some they

have been able to get. the bust last year was $130 million worth, and they think this is just the tip of the iceberg. this is not just in tampa florida. this is happening all over the country, and we have got to get a handle on it. here is one of the problems. the tampa police department advised me that their investigation is complicated at every turn and while we all value of personal privacy protections, there must be a way for them to investigate the fraud. in the big turbotax bus, they even had taped confessions by some of the people, but because there was a missing link in the evidence on the actual tax return they could not bring them to prosecution. the u.s. attorney is completely

frustrated. law enforcement, across my state, they are very frustrated. first, what can you do to address that? we have final legislation. my colleague he understands this but we cannot wait for legislation, and two the irs has got to have better screens and filters czechs, especially now here is tax filing season. the tampa police department said they have $9 million more in fraudulent returns so we have got to get a handle on this to protect the taxpayer and if we are looking for cost savings we can start by putting a stop to this. >> i appreciate you drawing attention to this problem. they are doing a good job trying to get us to look get as you are

illegally benefiting from things that are not entitled to. one thing we will need is more resources from the irs to make sure they have enough. i will be happy to look at your legislation and consult and talk to your staff and see if we can address how to reduce the remaining barriers. >> and, colleagues, i asked for your help, as well. >> they have not found it yet. they steal the identities. we have had cases where people were working in nursing moms and went and stole information even children going to file in here is the problem with the irs. they say it your refund is less than $10,000 that is not enough for us to investigate and that is a real problem. they have got to come up with

some strategists where in some as a post office box and they are getting 25 checks the irs has got to be aggressive on this. >> they are very aggressive but, remember, they have to devote their resources to where they are able. we have a problem. we are working on it. we will be happy to come talk to you to try to solve it, and we need to do a better job in this area. >> thank you. >> all right. 25 seconds ms. black. >> thank you, mr. chairman, and thank you, mr. geithner, for being here today. if we had some time yesterday. >> we did. >> and we will have some time today. i want to start out by making a comment about the division and divisiveness here on capitol hill and it has disappointed me in the last year than i have

been here. i came from a state legislature where i worked with bipartisan support on very difficult issues, and i know what that is like. it is hard work. it is hard to do but i have gone through the budget, and i must say i am not read the whole thing yet, but i did read the first pages of the budget very carefully, and i want to read a couple of things to remind people that this is not a way to start out a discussion of bipartisanship when you have on the very first page of this document divisiveness, and so, here it says i presented to congressional leaders another balanced plan to get $4 trillion in deficit-reduction. unfortunately, republicans in congress blocked our deficit reduction measures in almost every part of american jobs at for the simple reason they were unwilling to ask the wealthiest americans to pay their fair share, and it goes on several

pages. i am not going to read borbon but it continues to talk about republicans, republicans being bad people who do not want to work with him. this does not set a tone of bipartisanship. and this is the leader of our country, and i have got to start out by saying that, because that is very disappointing to me that this would be the first page of the document before we even get to talking about what is good or bad in here. let me turn your attention to something that is important to me as someone who comes from a health-care background. first, i want to ask you which you agree that this is the biggest driver of our debt? >> not over the next 10. >> would you believe that with 10,000 seniors retiring every day that it is a factor of our debt currently? >> obviously, the biggest part of spending are in medicare and social security and the defense budget, so those costs actually

matter a lot but the growth that really starts to hurt us build a little more gradually. >> you are right, because we did see the chart at the beginning and you even the knowledge there that this begins to grow pretty rapidly with what you can look at. that is not to be worried about until 20 years down the road? >> i am a strong supporter of early action on these things, because the longer you wait the more damage reporting. what i am pointing out is that we believed it would be a substantial step forward for us to agree on how to fix our problems for the next 10 years even if we cannot agree on how to solve them for the next 100 years. >> my time is running out so at some point in time, i want to

send you some questions and have you answer them for my purposes, but the president did acknowledge this was a problem because he had the balsams and commission take a look at that. there were some old retirement in forms and their -- reforms in there. > we are much closer to the broad that strategy with that than we are with what you talk about in the republican budget. neither the republican budget nor our budget provide a detailed social security reform programs. but if you look abroad programs of spending and tax cuts, we're closer than the republican budget. >> i am going to reclaim my time.

what i have seen in the way this administration determines in the way we should balance this budget is on the backs of our providers. >> we are proposing $370 billion. you can't decide if that is bold or not. it we think of this as a fair and we're putting those primarily on pharmaceutical providers and other providers of health care, not significantly on physicians, and some modest changes to beneficiaries. you can choose a different way of doing it, but if you are going to do it that way, you can do it on the backs of beneficiaries. fessthank you, mr. secretary, for

your time. i thought before my time has ended that you might want to take a few minutes to respond to several things that you did not have an opportunity to respond to because your time ran out. he said a few minutes ago that you felt the but you are presenting stabilizes the debt burden in a few years as a percentage of gdp. i want to know if you could specifically described a few ways that happens? >> it takes $4 trillion in deficit reduction to get down to where you achieve that measure of sustainability. we propose to do that with a mix of spending cuts and increases in the ratio of roughly 2.5 21. that comes from cats -- caps on

discretionary spending. combined with a traditional 1.5 and spending cuts composed of substantial reforms to medicare and medicaid and other programs like farm subsidies and alongside that, we propose 1% of gdp. the combination would reduce the deficit over the next five to seven years to below 3%, which is a level you need to achieve what is called the primary balance. that is expenditures-interest. for an economy like ours, that's a level that would stabilize our debt burden at a manageable level. that only buys us 10 years or so. that's a long time and a substantial contribution. we have to build on the roof --

we have to build on the affordable care act reforms. >> as i listen to my colleagues on the other side of the aisle there were several questions that came up around tax reform and entitlement reform. i am here as a freshman member so it's just my second year. i want to know if historical you could give examples where a president put forward a budget that included a major policy changes along with the budget because it would seem to me, and i want to see tax reform especially, but i don't know if it would be appropriate for it to be included. >> itthe major tax reforms were not proposed in the budget. date normally, beginning with a broad and from work, they

started the process on the hill and the tax-writing commission took over the burden of that responsibility. on the entitlement reform side, you are right to point out the most successful example we have seen the social security agreements reached under president reagan came out of reforms proposed by a bipartisan commission chaired by chairman greenspan at that point and were not included in reagan's budget. that is a good example. we have laid out both inside and outside the budget some framework for reforms, but that can only be the beginning of the process. the way the balance of powers are written in the constitution, congress has the power of the pan and has to write the laws of the land. it is just obvious to say this, and this is the challenge we face, you cannot do these things with out finding

bipartisan agreement. i know we were disappointed by the outcome, but we did some important work over the summer and we did some in the super committee dialogue and we will build on that when we find a way how to come closer together. >> we need to see some of those together. but they have not seen some of the proposals put forward, one by the administration -- >> you have to start by exchanging ideas and once you have an agreement under broader framework, it's easy to move for on the details. to be fair, we are not debating whether the plans exist. we are debating whether we like our plans are not and we have to

figure out how to make them overlap. >> thank you. >> it is good to see you again. i'm sure this is always the finest part of your job. >> i enjoy this discussion because these are debates we have to have about fundamental things. we like our plans. we know that you like yours and we have to figure out how to do something together. >> i completely agree with you. i ran for this seat after spending time in the private sector. i ran because i'm afraid for my grandchildren. it is a straight forward and as simple as that. i'm here for them because we have a problem. if we cannot somehow, the

administration and the government republicans and democrats, if we are not honest with each other, we cannot solve this problem. i think we both agree on that. >> i completely agree. >> i would ask my republican colleagues and democratic colleagues, i plead with them on behalf of my grandchildren, stop demonizing every good idea and instead debated on its merits and come up with a solution. i am willing to do that. we need solutions. last week, ben bernanke said the best approach is to put in a long-term strategy. i understand the going beyond it 10-year windows is difficult. >> he would be thrilled with 10 years. >> he probably would be thrilled with 10 years, but we haven't really got a strategy to address the key drivers i am concerned about. one is the cost of medicare. we came up with an idea and i

got a badly demonized. it was an idea that warranted debate. the other one was interest payments. i think interest is very critical. got nearly $five trillion of interest by a the end of the decade. then they almost triple to almost 16% of outlays. could i have figured three brought up? based on the projection, it is going to go to 20% or 30% or 40%, given the estimates you used for interest rates stayed pretty much the same. i want to know your feelings are about confidence if the trend line continues beyond 2020? >> you are using the nominal deficit number. what matters for confidence

credibility, and rates and growth, is whether the debt burden as a share of the economy stabilizes at a moderate level. if you were to do that chart as a percentage of gdp you will show the deficit come down to a level that stops at the debt from growing. if we were able to achieve that, you could be very confident that we would not face the rise in interest rates in the later years that would damage economic growth. >> you are comfortable with the interest-rate projections you have on your budget? >> they have to assume congress would enact proposals to bring the deficit down that far. >> in the last four years of your budget, we have an increasing dollar value of debt each year. >> this is very important. we're a 14 trillion dollar economy. we're going to grow in nominal

terms and you have to measure the debt as a percentage of the economy. it is not helpful to look at it economically or of financially -- it shows you that it stabilizes as a share of the economy in the second half of the decade. that is not enough. if you just did that and went home, 20 or 30 years out, it would start to grow again and that's a problem. especially when you pile on outlays on top of medicare, this is a practically crisis problem. your concern in the 10-year window, my youngest grandson is six. >> i totally agree with you and i want to make sure that you understand i am not minimizing the long-term problems. i know them better than almost anybody. all i am saying to you is we

budget in 10-year windows. that is our obligation and we propose a balanced package to meet that simple task. i wished the president had accepted since and-bolts. we often hear it brought up, but it was his own commission and he did not even accept it. >> we are at mr. honda now. >> on the simpson-bowles, one of the things they talk about when we talk about medicare, medicaid and social security, the principles don't address that on the back of the vulnerable. i think that is a principal the president has been looking at and that is a point of disagreement we have here. >> could i say something in that context? the a few differences on that --

it cuts much deeper and your side would be comfortable -- there's a social security package disproportionately waited to benefit cuts which gave us some concerns. if you look beyond those two differences, we are very close in broad strategy. on the tax line, we are close. we have a pretty substantial set of medicare and medicaid savings that are substantial compared to what is proposed in that 10-year window. we're very close on strategy with those two exceptions. with the proposals we made, we show how close we come to that basic context. where you guys are apart from since and-bolts, are on two things. you have much higher -- simpson-

bowles. you have much lower revenues and that's a difference. if we could use that as a foundation, and we tried that over the summer, we would be a very good position. >> there was another comment regarding small businesses and i think you were attempting to define what small businesses were and trying to indicate whether to% would be falling. >> based on the evidence we all used by the independent arbiters, following the bush tax cuts on what we call the top 2% to expire as scheduled would affect 2% or 3% of small businesses. easing that definition we were

adopting, that would include businesses that are neither small nor of moderate income, nor your typical main street hardware store because in that definition any individual partner and a law firm or hedge fund or private equity fund or lobbyist is treated as an individual small business. if that individual partner makes more than $250,000, we are proposing to raise their effective tax rate. we do that because we are comfortable that they can handle it. that was a great time for job creation and productivity growth. but if we do not ask them to bear that larger burden, someone else going to have to do it. we do not think that would be fair or good for economic growth. >> that population of small businesses does not even come close to looking like a mom-and- pop businesses? >> a tiny fraction of the businesses affected by this would meet that definition of a

mom-and-pop store. to meet the definition, they would have to be a mom-and-pop store, employed by people, and after expenses earned, more than $250,000 a year. a lot of people don't feel like that is a lot of money. but you have to look at the effective tax rate that would restore it to basically where was in the second half of the '90s, which frankly, small business would love to have the economy they had at that time. >> for the purpose of those who are watching this folks understand the distinction between what you are talking about, small business that would be under s corporations -- as opposed to the small business as we usually go to and trade on

the corner or with a family business or family restaurant in -- >> you have to have income after expenses more than the threshold to be caught by. most of the 2% of businesses get caught by that, about 50% or maybe slightly higher, they make more than a million dollars in income after expenses. >> thank you very much. >> thank you for joining us today. i want to continue the line of discussion that my colleagues started. the reason i am here as i came from a perfectly good job in the private sector. things were happening here than i thought would damage the future of my family. my granddaughter's picture is on the back of my voting card and reminds me why i'm here. every decision i make affects not only next year, the next

five years, the next 10 years but effects her when she is 75. let's put a figure 12 opt for a minute, if we can. its 2065, figure 12. i know you think these projections are no good. directionally, they both say the same thing. >> even if we stabilize it for the next 10 years, it starts to grow again. >> after 2022, we have a problem. >> i am in agreement with you. the fact that it only serves to grow in the second decade doesn't mean until then. i agree with you. >> that is where i am going. why would a budget be prepared that would kick the can down the road?

let's assume your granddaughter is appointed to be secretary of treasury. how are you going to tell her to finance this. >> i hope for her sake she is not. it is worth reminding everybody that we fought a very tough fight, not just to extend health care but locked in reforms that would take a trillion dollars out of those long-term forecasts in the second decade. we are posing another 370 on the top of that. we are making a difference on that process and if we can find a way to go beyond that, we would be happy to do that. the problem is the way you have laid out to do that in our judgment would shift to much of the burden to a middle income

retiree. >> let's say you can't blame anything on me because i've only been here 13 months. how would you fix this? these are your projections. >> i would walk again a sustainable outcome for the next decade and i would do it as quickly as we can. then i would take the experience we have at that point and the debate we're having -- chairman ryan deserves enormous credit for this -- the debate we are having is what model of how we provide health care to people is best likely to improve how is likely to be provided some people use less of the stuff that has less value. >> what percentage of the total

tax load to the top 2% pay? under the president's definition of fairness? >> in our judgment, they should pay more than they pay now. >> how much more? >> by the amount they have laid out. we are proposing to put it over 10 years an additional 1.5 -- $ 1.5 trillion -- >> i think the basic division we have is that our judgment is in a system where we have progressive taxation, we think it is there to a modest increase in the effective tax rate. if we don't do that, where are we going to find the savings? i don't think you want to

support middle-class americans paying more taxes. otherwise you have to -- >> i would tell you of my proposal would be. let's grow the economy. let's make the federal government small and make the private sector large. even chairman bernanke said he had to choose to allocate resources, the private sector is going to get it right. that is the reason i would make the choice any day -- >> it's interesting. thank you very much for doing a great job. i'm enjoying watching this. is going to yield my time to the republican. it's much more entertaining. not that republican.

our friends on the other side are saying on the other side, simpson-bowles simpson-bowles -- we had a vote in this committee that talked about the structure, not even necessarily the details and a lot of the republicans voted against it. you could not get one republican on the other side to say i would be for some tax increase on the wealthiest 2% or 1%. you could not get one of them to raise and and say they were for it. that is the hold up. that's where the compromise would come in. >> would you yield? house democrats voted against it as well. >> i agree with you. not the one blaming the

administration for not adopting simpson-bowles. i remember exactly. the point is there are accusations being made against the administration when there are members of this committee who voted against it then turned around and blame the administration for not adopting it. the reason is because we cannot get a republican to said it would raise taxes on warren buffett. that is the bottom line. that is what this all comes down to. we have this debate every time we have a major cabinet official. we get all this nostalgia for ronald reagan. i had to do a little homework. tax equity and fiscal responsibility act of 1982. tax increase by ronald reagan. highway revenue act, a tax increase are oregon. social security act of 1983, a tax increase by ronald reagan. deficit reduction task -- that

the reduction act of 1984, tax increase or ronald reagan. 1985, a tax increase by ronald reagan. the budget reconciliation act of 1985 superfund, a tax increase omnibus budget reconciliation act of 1987, a tax increase. continuing resolution 1988, a tax increase by ronald reagan. we look back and say it was a fairly responsible thing to do. to think of this man, that the candles up and burned incense and have a big picture of ronald reagan to think of him running in a republican primary today he would be behind ron paul -- he would probably be behind -- he would be out of the race now. we have to think about this when we talk about how we are going to sit down and figure this out. everyone is willing to make tough decisions and anyone willing -- the speaker and the

president had some semblance of a deal that could not get past an ideology. nobody here wants to sit here and say we need to raise taxes but for god's sake if we cannot ask warren buffett to continue to invest in infrastructure and the kinds of things that will lead to long-term investments -- i have one or two questions. when you say the tax rate will not go up for someone -- >> it just for the margin. >> the first 250,000 would be taxed at the current rate and everything after that would be taxed at a higher rate. >> that is why it's called a change in the marginal tax rate. >> what does that mean for someone makes $250,000 a year or say they make $350,000 a year. what would that mean as far as an increase goes? >> it is a very, very small

increase. >> i cannot do the math in my head. it could be a thousand dollars. it is modest and you are making the point well. >> somebody made $350,000 next year would pay an additional $500 or $1,000, they would pay an extra $500,000. as our country, as we see from these charts, we are all worried. we all have pictures in our office. no one has the high ground on that. we are saying asking these folks to pitch in an extra 500 dollars or $1,000, one makes $300,000 a year is a small price to pay. >> i would like to yield 15 seconds. >> would you please send me a

response to my question about what the top 2% -- what percentage the top 2% will pay? >> it always good to see you. i'm going to go a different direction and ask you something i don't believe you have been asked. i want to talk about a global minimum tax which is a concept that was raised just recently for the first time when the director of the white house national directors council said we need a global minimum tax so that people have the assurance that nobody is escaping doing their fair share as part of a race to the bottom. yesterday in milwaukee, the president said something similar when he said from now on, every multinational company should have to pay a basic minimum tax and every penny should go to lowering taxes of companies that choose to keep people in america.

i'm curious what you can shed any light as to what they're talking about, what you are seeking to accomplish and how that would work and what is this global minimum tax we're starting to hear out? it is not as new as you think. when the proposals for tax reform were laid up next are all, a global minimum tax was proposed to make sure people can not avoid paying their fair share. it is a principle many countries have embraced and i think the chairman recognize the challenges in trying to decide at and sat at a level consistent with the objective -- the objectives we have to make sure we are improving investments in the u.s.. we are going to outline to congress in the next couple of weeks, a broad framework for comprehensive corporate tax reform. in that context, we will give

you a broader rationale for what we think that context is. >> let me tell you what concerns me. there was a reference i read for an american built to last. that was a document put out ride around the time of the state of the union in one section calls upon us to remove tax incentives to move overseas to in international minimum tax and says the president is proposing to eliminating incentives to make sure all companies pay taxes on their overseas profits. preventing other companies from attracting american business through unusually low tax rates. how do you propose to do that? >> you are giving us more credit for the idea that we deserve. >> i would be happy to ask how he proposes to do it but how would you propose to do it? >> we will give you more details on the framework and we can talk about.

you want to look at the overall mix in the overall corporate tax rate, broadening the base and other safeguards and reforms but our common challenge, the same challenge, it's an american challenge, democratic or republican challenge. we have a tax system now that encourages people to shift investment in come to lower tax jurisdiction and we would like to have a system that improves incentives for investing in the united states. it is a hard thing to do, particularly if you are trying to be fiscally responsible. that is why we are talking about a broad corporate tax reform with safeguards to prevent people from shifting income and investment overseas. >> you are not the first member of the administration to say those words at the rate of loopholes, simplify the tax code and his music to my ears. why isn't it in this year's

budget? >> we talked about this in the spring. we put together a comprehensive plan but we had to spend a lot of time trying to talk your colleagues out of defaulting and we lost some time. super committee wanted to take a run at it, we gave them a bit of time. >> i reclaim my time. i'm mildly encouraged because i expected you to blame president bush. i'm glad it's my fault. >> note -- >> if we are talking about preventing other countries from attracting businesses through unusually low tax rates, that concerns me because that could be applied domestically as well as internationally. i work in a state that works very hard to lure business with a favorable tax environment, and i would be very concerned if

this administration uses language -- >> i can assure you know risk of that. >> thank you. i want to associate myself with the remarks from my colleague from florida related to taxpayer identity theft and the resources treasury expense pursuing that. we have the worst problem in the country in florida. i cannot tell you the exponential increase in costs. all of our casework now is helping constituents, through the morass of having to untangle the identity theft impact on their lives. it is really important. >> i could not agree with you more and i wouldn't be happy to spend time walking you through what the irs thinks we can do. >> that would be great. i had a chance to talk about

this and i was glad to hear some of our colleagues on the other side of the aisle and reference to their grandchildren and the concerns they have about the long-term impact of deficits on their grandchildren's lives because that means there is an opening for them to oppose the extension of the 2001 and 2003 bush tax cuts for the wealthiest americans which add $700 billion to the deficit. hopefully the numbers that have made those references will take a hard look at their own record because they have been participants, willing and enthusiastic participants of adding to the deficits in recent months. the question i want to ask you to proffer your opinion is in terms of the balance the president proposed in his budget in dealing with the deficit short-term and long-term there's a cuts side and a

revenue side of the ledger. the economic experts have cautioned about the potential foreshores for cutting the recovery we are on. can you talk about the balance the president has talked about in proposing in the alternative the way we have heard others propose we should get the deficit reduction purely through cuts. >> to really important questions in this context. can you do fiscal consolidation responsibly without doing anything for growth in the short term and without a balance that includes revenue and the answer is no. we have an economy still healing from the financial crisis and that the growth is not strong enough to bring the employment

rate fast enough as is fair to the american people. that is why we propose a series of targeted measures to help job creation right now. you have to do it in a way that is responsible and make sure you pay for them and make sure they are tied to long-term reforms of the people of confidence we will go back to living within our means. it's a combination married with long terms for the deficit. the second key test for growth, although we tend to disagree, is should you do it with a balanced package carboys revenues, more spending cuts? or should you do a spending cut only approach? >> [inaudible] >> if you do it with no revenues, you have to ask if you're going to reach the same deficit targets.

your side wants to go deeper and you have to cut spending more deeply. you will find it very hard to find spending cuts from defense from medicare, from low income programs, and even if you try to do it, you would do a lot of damage to the economy. >> have we have heard -- as we have heard reference to ronald reagan and his approach to addressing the economic recession, i would like to quote him in 1985 -- we're going to close the unproductive tax loopholes who have allowed the tralee -- the truly wealthy to not pay their fair share. they made it possible for millionaires to pay nothing while the bus driver was paying 10% of his salary. it's crazy. it's time we stop it. i could not have said it better myself and i yield back the balance of my time. >> i would say he was selling a

presidential leadership at the time. broader rates and a base -- >> as part of that, i think we should remember some of the adjustments he made was to tax capital gains and dividends at 28% level, the same rate the bus driver was paying their. he was not showing preference to hedge fund owners or others. he said everybody needs to be treated equally. it is 20% level verses the hedge fund guys today. >> i appreciate the questions and discussion of balance. defining balance as spending that is less than or equal to or revenue.

when does the obama budget balance? >> it does not balance in the next 10 years which is the only thing we project. >> does it balance in the next 20 years? >> in the republican budget, it balances in 2037. it depends on the choices the call -- the congress makes. we only forecast for 10 years, but we do not achieve balance in 10 years and we don't know how to do that, just like you guys. >> the answer is never does the balance. you probably would not say that. one thing i want to talk about is we hear information from you mr. secretary, about what it's going to do to the economy if we do the following initiatives or if we don't. tomorrow will be the third anniversary of what you and the administration would projected to be the economic salvation of this country, the passage of the stimulus package.

i wonder if we could put h.r. apt if we could see with the results of been from that package. this is the prediction from your office from your president of what would happen if we passed the stimulus package. the third anniversary is tomorrow. you find out that it did not work. you were wrong. you find out -- these are just numbers, when you get to the end, we have an obama jobs deficit of 5.4 million americans. 5.4 million americans without a job based on your economic theory. with the unemployment rate. we were promised at this time we would be almost 6% unemployment. we are well above that. the obama jobs deficit is 5.4 million jobs. i know you have many proposals in the budget that would hopefully tackle the bad

economic policy, but could you tell me which tax increases you are proposing that will help eliminate the obama jobs deficit. which ones will create new jobs for americans? >> let me refer you to the cbo analysis, john mccain's economic adviser for the economic recovery act. they both agree the recovery act helped substantially in restoring growth to the economy and saved millions of jobs. >> these are your numbers. they are not mine. i was not appear and we can blame everybody in this room. could you explain which tax increases will close the obama jobs cap? we were promised an additional 5.4 million jobs that did not appear. out of your 1.9 trillion dollars

in tax increases, which ones will put 5.4 million americans back to work? >> i want to dispel you of the illusions your presentation. >> this is your number, not mine. >> this came from the administration. >> the right question is -- these are your numbers. the numbers and you're not -- the numbers are based on a similar philosophy. >> the budget contains a comprehensive and balanced a of reforms, both spending and tax reforms combined with investments that in our judgment you can ask the cbo to judge it, we are confident it will be good for growth. >> i hope you're right but you are 5.4 million jobs or wrong. you have been wrong again and

again and again. for this room, it's about numbers. for people in america, it's about real jobs. >> i would say it is an adolescent perspective on how to think about economic policy. >> let me tell you a quick story for someone who has been the private sector and help create jobs, and i know that's not your job. you've never started a business. joe in junction city says of the president raises the capital gains tax -- are seven people in junction city kansas he will not hire because of your tax increases. if you can say that's not really what is going to happen, but if you tell joe in junction city -- it didn't work in your stimulus package and i don't think it's going to work again. >> thank you. could we go back to figure eight, please?

i guess not. figure 12. this happens -- this has been alluded to a few times. these are the numbers we projected from our budget last year. it's in contrast to what would happen if we did nothing. with the baby boomers retiring at 10,000 per day, you see what happens. then we go to figure 12. that is your chart, i believe. it correctly indicates the plateau you talk about within the 10-year budget window where you claim to stabilize the debt to gdp ratio. you see a similar title wave after that.

from that, i take un the administration are prioritizing the constituency in here and now. republicans, democrats americans in the here and now that can vote for you, vote to reelect you or punish all of us at the expense of a constituency that will never reward any of us. because why? because they don't exist yet. there the children of tomorrow. they are the children of my two boys. you don't agree with that? >> i don't agree with that. if you can go back to figure eight. what is interesting about that chart is once you get past the next 10 years and get into deep uncertainty in the decades beyond that, why is your green path you call path to

prosperity, why is that decline? the reason why, and i apologize for saying it this way, but it is true, but you guys propose to take hundreds and hundreds and hundreds of billions of dollars out of low-income and middle- class retirement programs. that is why you get that number down. the reason we're having this debate is because we don't think that's the fair or right way to do it. you are all invoking your children, which i respect. i have children, too and i have spent my life in public service. i'm in this job because i care about the basic economic future of the country. we sure that basic obligation. i would just make the suggestion that as president reagan recognized and most presidents have had to confront you cannot govern the country if you commit never to raise taxes on anybody because things change, wars happen, crises happen, and

millions of americans are retiring. >> reclaim my time -- if that's the case, what's the proper amount for a federal government to confiscate from its people in order to run its operations? >> that's a good question, i would not use that word. >> you are confiscating property. you are confiscating the work and money of individual citizens to run your operations. if the current level is not appropriate, what's appropriate -- what is the appropriateness of the federal government to confiscate from its own people to run itself? >> do you think -- >> reclaiming my time. this is a simple question. if we're not taking enough what's the proper about to take? >> since you are -- >> what about is a proper not to

confiscate? >> in our budget, if you were to adopt it, revenues would rise to slightly more than 20% of gdp by the end of the decade, which is lower than the revenue forecasts imply for the policies in the simpson-bowles plan for which many of you have shown so much affection. >> about one-fifth. >> slightly higher than the historic average but lower than simpson-bowles. >> it is not a revenue problem that we have, it's a spending problem if you agree with that figure or if you agree with your own figure. >> we proposed to reduce spending to 22% of gdp and the reason is that high is because americans are retiring. we cannot suspend the reality of people retiring and because we get people retirement security medicare social security

cauterizes the levels to rise. >> thank you. a nice long day. you are almost done. i agree with you that this is a long look issue. get a lot people retiring in we have to make sure the safety net is there and we have to make sure social security is there. a lot of the issues we face our budget issues based on population. we get that. my concern -- we talked about this last year -- term primary balance and sustainable debts and deficits gives the clear impression we will never balance and we never planned to pay down principal ever. i understand the process of buying bonds and all that. i understand it is not like a mortgage. there is some concern to say a single focus of the administration is let's try to get us to a spot where we can

handle this, we are never planning to ever pay down principal, ever. is there something inherently bad about balancing the budget? >> it is not quite fair. you get the deficit to below 3% of gdp and then you hold it there and then you start to bring the level of debt down as a share of the economy -- >> you are mixing of the numbers and trying to get below 3% of gdp. is it wrong to actually balance the budget? >> it may not be the ultimate way to think about the ultimate objective. you are starting from somewhere now and it is hard to imagine governing a country -- think about world war two -- >> that is an anomaly. >> it these wars were pretty expensive.

>> if at any point in the future, can you say this is our role to balance the federal budget question are >> i would not try to talk you out of having an objective to get the balance. but it is all in how you get there and frankly how much flexibility leave the chief executive and the congress to deal with the anticipated war or recession or the huge demographic boom. >> let me ask about a couple of things that just came up there that i'm not sure we have sed. one of the things that has come up is the energy taxes. can you be more specific? it is fairly vague. >> we're pretty specific in the budget in a series of tax reforms which would reduce and remove a fair amount of subsidies. >> there are eight major tax

pieces on traditional fuels. which would you eliminate? >> do you want to read it from the budget right now? >> like intangible drilling costs. >> some of this is a concern for me. we need to be in domestic energy and talk about increase and -- here is the concern. if we say that is good and let's tax that more, do we get less of that or more of that? >> we are in the middle of and we're very confident we will see a huge expansion in energy production in this country oil and natural gas. we want to see the country use

things more officially -- more efficiently for obvious reasons. >> we have huge production coming on line. >> i don't think i agree on the economics of it but we are proposing to increase the effective tax rates. we do not think there is a compelling case for the industry, so we are proposing to dial the back. i don't think any risk is going to get in the weight of the huge boom for energy production in that united states. >> i would disagree because most of the production is coming from smaller producers. it is different in the bulk of the production done nationwide. it is a very capital intensive

focus and they have to have that. if that goes away, so does the production. >> even with these changes, the economics of eight finance -- it will be favorable in energy. >> that is a tough gamble when we are finally starting to get on top of it. i yield back. >> we are done. >> want to keep going? >> let me just close by saying we see things differently and we have to agree to disagree on a lot of these things that we will have to come back another time. >> can i say one final word? >> this could go on for awhile. >> i think you could increase this. if you listen carefully to the

debate, as i know you do and you look at how much democrats have moved on medicare and medicaid and other mandatory to date, it exceeds the amount of movement shown on revenues for the high end. if you could come a little closer, we can get a little closer but we are not there yet. >> backroom deals are not the american public are looking for. they're looking for budgets that show we believe that they're looking for is to lead and to govern and propose ideas and get things done. that is what we're trying to do. our friends in the senate are not even trying. you put a budget out and that's the law. but the description of your budget, we take issue with. i think we can have a better economy through broad based low rate tax reform. you can get a higher share of taxes from higher earners with a better tax system that doesn't

compromise growth. >> not without a modest increase in the effective tax rate. >> you really want to have the last word. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> i've got a list of all the chemicals in cigarette smoke. i had a hunch one of them might be an addictive drug. i'm going ask each one a simple question. >> i believe nicotine is not

addictive. >> i asked the second one. >> cigarettes and nicotine do not meet the classic definition of addiction. >> we will take that as a note. >> i -- we will take at as a no. >> and a program beginning in 1973 wanted to remove nicotine from cigarettes and replace it with a drug that was equally addictive but a drug that would not cause heart problems and brain strokes. they have all these molecules' they invented but they had no way to test them. that was my job. my job is to come in and find a molecule that the rat's brain would say i like it and that rats heart would not have any cardiovascular problem with it. >> tonight, a discussion with the subject of "addiction inc." -- a former philip morris research scientist and the film's producer.

>> this president's day on c- span, eliot spitzer joined a debate about whether to prosecute wall street banks for mortgage fraud. >> i almost hate to bring up occupy wall street, but they had a sign that down there that was actually very accurate. we will know corporations are people in texas executes one. [laughter] the problem we have right now is we have given corporations all the upside but none of the downside. we have given corporations all of the rights and privileges we extend it to individuals yet when it comes to holding them accountable, because of the diffusion of responsibility because of the layers and buffers built in by lawyers, accountants, investment bankers all doing their job in good faith, it's very difficult to ascribe a criminal intent. just as on the financial side where we said you have to keep the upside and we guarantee you too big to fail on the