it shows how we can build on the economic progress that has been made over the last five years and make investments to ensure our country remains strong and prosperous while at the same time continuing our fiscal progress. let me turn it over to jason >> good afternoon. as sean noted, the u.s. economy strengthened considerably in 2014 with the strongest job growth in any calendar year since 1999. looking ahead, the administration expects that the economy will continue to grow at an above-trend rate of 3% per year in 2015 and 2016. this assumption is in line with the forecast from a congressional budget office, and the blue-chip consensus. it is somewhat more conservative than the latest international monetary fund forecast. while the economy has come a long way since the recession the expectation of above trend

growth reflects a widely held view that the economy is still returning to the full utilization of its resources. several factors are supporting this growth. fiscal policy has shifted to a generally neutral stance, aided by the ryan-marie agreement reached at the end of 2013. if congress continues to act without harmful austerity, fiscal policy will continue to be conducive to strong growth. consumer spending has picked up, reflecting savings from a recent drop in energy prices, the ongoing improvement in household finances, and increased economic optimism. there is continued room for growth in business and residential investment. the slowdown in growth for many

of our key trading partners is however, a headwind for the u.s. economy and a downside risk to the near-term or cast. the later years of the forecast window, we assume that the rate converges to the two point 3% rate of potential gdp growth. this matches the latest forecast by the blue-chip panel and is generally in line with recent estimates of 2.2% per year for potential. we also project that inflation will remain low, the unemployment rate will continue to edge down, and interest rates will rise as the economy continues its expansion. finally, i want to know that the forecast finalized in november in order to give agencies time to prepare budget estimates. on friday, we learned of the economy grew 2.4% in 2014, above the 2.2% rate that was assumed in november. both inflation and interest rates are lower than we had forecasted in november. we will have updated economic and budget projections in the midsession review that would incorporate all of this information. with that, let me turn it over to cecilia. >> thanks, jason. good afternoon. you have heard us talk about the

budget in the weeks leading up to today. the budget is an expression of the president's vision for what he wants us to be, what he wants the economy to look like in the first century, and how we will continue to lead the world economically. the support for working families that you see in the budget, and expression of the vision of what supports the middle class, and in particular, supports and creates a good start for the artist americans. i will focus in particular on this series of proposals around children and child care, because this budget presents the most comprehensive to-date report for early education for children in this country from birth until they are out of kindergarten. one of the many results of the policy that the president has put forward is more children entering kindergarten ready to learn.

the budget sets a historic goal, helping every family with children under five finding a place for their children to learn and grow while parents work. the biggest elements of the plan include tripling the childcare tax credit for little class families to up to $3000 for families with young children offering childcare subsidies to low income working families to serve an additional one million children per month by the next year, and in addition, the president is repeating, the preschool for all program which would provide high-quality prekindergarten to every four-year-old in the country. there is also an expansion to make sure headstart can be offered for a full day throughout a full year, which is not currently the case for many headstart programs. the combination of these proposals is, essentially, a comp rants of approach to early childhood development in a way which supports children and working families, the other important

investments in the k-12 system as well as in higher education. you heard about the proposal to make community college free. we continue the commitment to pell grants and families in higher ed. the investments in the title i program under the elementary and secondary education act, an important $3 billion investment towards the goal of making sure teachers are prepared and supported throughout their careers, then a $1.2 billion investment to redesign high schools, improve schools, and invest in charter schools. altogether, what we see is an approach that focuses on making sure working families have the support they need, particularly the families with a youngest children. but also, making sure that we are investing in the full spectrum of the educational system from birth through what we think of now as great 14, by making community college is accessible in the future as high school has become for americans

today. >> i would like to spend a minute on middle-class economic and the president's plan for infrastructure. and for structure is critical to creating good middle-class jobs, and it is also critical to our long-term competitiveness in the global economy. we have over $1 trillion in deficit and the infrastructure. we feel it every day. workers trying to get to work, stuck in traffic. businesses trying to get products overseas in an efficient manner to export and support good paying jobs. infrastructure is critical to all of this, and we are not where we need to be. the president feels -- goes very big on infrastructure in the budget, to repair roads, bridges, and our rail system. it is a long-term plan, it is six years up from four years last year.

we have been solving infrastructure in a few month patches, which is no way to plan this. it is $480 billion, which is allowing us to fund above the current level. there are many high return investments for that money. it is fully paid for through business tax reform, specifically the one-time money that is overseas, bringing that money back and raising taxes on that money to pay for the plan. the bottom line is infrastructure is traditionally a bipartisan issue. everyone agrees, our infrastructure is outdated and needs to be modernized. it is also a twofer, it supports the pain middle-class jobs as it sets us up for long-term competitiveness in the global marketplace. i will hand it back to josh.

>> let's go to questions. who wants to be first? >> i want to follow up on the infrastructure and tax component. you believe that without corporate tax reform, you can still do a one-off on accumulated earnings. or, can that only occur in the context of a broader corporate tax overhaul? and also, yesterday, the ways and means committee chair paul ryan said the corporate tax reform has to occur in the context of small business tax reform as well as a which would mean, somehow dealing with individual income tax reform. you see those as inevitably --

>> we believe in business tax reform, which involves lowering the domestic rate, which is 35%, the highest in the world, to 28%, 25% for manufacturing. setting up the international system, that is a hybrid system, a minimum tax of 19%, and then bringing back the money that is overseas at this 14%. that is different than a repatriation holiday. many businesses are small businesses, and the president's plan does a lot for small businesses. it simplifies how small businesses file taxes so they can use hash accounting, which is using their bank's statement, that is available to all business up to $25 million. it allows businesses to write off investments in the first year of up to $1 million. that will help simplify small business filings and lower rates for many small businesses. we believe in doing business tax reform across the board. >> at the same time, making sure we do things that are good for

the middle class. i mentioned investing in infrastructure and how it is good for the middle class. that is a component of any tax reform we do, making sure we benefit the middle class. >> the 14% could not occur -- >> it is not a one-off proposal. it is a more comprehensive approach to what is clearly a

broken business tax system. at the same time, we want to make sure we address business tax reform. >> i know josh talked about in the opening system, about negotiations. something the president said blocking sequestration going forward. i'm wondering as you guys enter negotiations with republican congress, whether those were bright lines that you will insist on in any budget document that might pass. >> you are asking if there are additional ones beyond the ones the president mentioned today? >> [inaudible]

>> we put out the budget proposal today. we have heard nothing from republicans yet. republicans want to declare the budget dead on arrival before seeing it. the president indicated that he is willing to consider good ideas from either side of the aisle, wherever they originate particularly if they benefit middle-class families. i think that is part of why you have seen the president identify at least those two areas as, essentially, deal breakers for him. continuing to leave a sequester in place does have a negative impact on our ability to support middle-class families, and it certainly has a negative impact on the ability of our men and women in the military to keep the country safe. we have obviously seen just about every uniformed military leader who spoke on the issue, raise the same concern. good news in all of this is, the concerns that the president has raised along these lines are consistent with concerns that some republicans have raised as well. we know republicans are concerned about the sequester, the impact it has on the economy and national security. despite the president being declarative about those two elements, it will not be difficult for us to find common ground on some of the proposals that are in the best interest of the middle class and national security. >> from a fiscal perspective, i

also think there is growing bipartisan recognition that discretionary spending is not an important issue from a fiscal perspective. our discretionary spending is near its lowest level, as a share of the economy, as it has ever been. it is important to remember that national security is dependent on more than just the department of defense budget. in fact, in the non-defense category, all the commitments we make to veterans, including the homeland security budget, which obviously is a critical part of protecting our country. it is why it is critical that we get a full year built for 2015 right now. in addition to the investments that cecilia and jeff talked about, this connection between the defense and non-defense part of the budget, you really cannot break that link. >> gem deco >> mr. donovan, you said the budget would allow for social security. i have not read the budget yet. how would it strengthen social security?

>> broadly speaking, the long-term deficit is significantly helped by this budget. to be clear, the numbers were put out last week. under current law, we would see both death -- deficits grow above 4% of gdp, and the debt grow over 80% of gdp. what this budget does is reverse that course. it keeps deficits under 3% of gdp every year of the budget window, and critically, it starts to bend the curve on debt and begins to reduce debt as a share of gdp. specifically on social security, one of the fundamental problems we are facing is that the number of workers that we have, relative to the number of retirees that are supported by social security, has been shrinking. comprehensive immigration reform is actually one of the most critical things we can do to shore up long-term solvency of

social security and, as a result, improve our deficit challenges in the long run. in fact, you might have seen last week that just from the executive action that the president took, late last year there is a positive impact on the social security trust fund because of additional payments that come into that. cap or heads of immigration reform, would improve that. so comprehensive immigration reform on a much larger scale would improve that. cbo's numbers are comprehensive immigration reform of that's what we reflect in our budget, in the first decade is about $160 billion of deficit

reduction. in the second decade it is almost $700 billion of deficit reduction and actively called on congress to pass that would set the threshold of that you have to as long as you are majority owned by your historic folder so it would take away the ability to find a smaller for an foreign company and acquired them to shift over. >> if you're serious about finding common ground with republicans, why not include a plan in this budget for entitlement reform? i know that was a big part of the 2011 budget discussion. i want to get your thoughts on the sequester you have been talking about the fact all day that the deficit has been reduced two thirds. did the sequester ultimately work? >> do you want to do inversion first? >> i am happy to start.

in terms of inversions, the budget repeats the proposal be president had made last year and called on congress to pass. that would set the threshold that as long as her majority-owned by your historical u.s. shoulders, you will be treated for tax purposes. we take the ability away to find it smaller for a company acquire that and shift to them. the entire business tax reform agenda is also about making it more attractive to invest in america and to close a number of the other loopholes that companies use that complement what they had done on inversion. all of this, as his secretary said, that helped but it could not do as much as he could do legislatively. i will take the first crack at entitlements. this is a budget that does include a $400 billion of savings from reforming our health system. those reforms to the system are in the spirit of what we have done to date which is how to

make the health system more effective and efficient and when you do that it breaks down cost and saves money for the budget and for seniors and it slows the cost growth in healthcare. that's part of an overall fiscal approach that includes reforming the tax system and reforming the immigration system so it follows in the same path but president -- that the president has in the previous budget of balance to deficit reduction coming from the spending side, coming from the revenue side and sufficient to getting the debt on the declining share of the economy which is what economists would think is important. >> two quick points i would make. there's been a lot of focus rightly so on the short run deficit and how much they have come down. this has been the fastest period of deficit reduction since after world war ii. we have also seen a single biggest driver has been the slowest growth in healthcare cost just to take one example if

you look at the numbers, our spending on medicare and medicaid in the year 2020 is now expected to be almost $200 billion lower just in that one year than it was when the president came into office. so, what jason is talking about on the entitlement reform is important but building on that as well we have a new proposal in the budget which would adopt bipartisan legislation on what's called the doc fix or sgr. we would adopt that and pay for it because everything in the budget is fully paid for and we would add some additional reforms to that legislation that build on what sylvia burwell secretary of hhs has done on the delivery system reform so if we can keep driving those costs lower, we will work even when more important than social security or other entitlement issues of the issue of health care cost is the single most important place where we can really been that the cost curve in the long run on entitlement savings. >> there is a question on the sequester. >> let me say first off just

look at the deficit reductions to date. more of it this past year was because of the tax deal that restored the clinton era rates on the income and the affordable care act. the combination of those then from the sequester and second of all, the most important is where you are over the medium or the long run and there those steps towards the impact in terms of changing the medium and long run debt and deficit trajectory. >> we have charts that show precisely what role is played, but again, on jason's point it is dwarfed in the long run, and

also the fundamental point that it's not going to wear our challenges are on the fiscal side. discretionary spending again is at a very low level relative to gdp and in the budget window it continues to grow smaller as a share of gdp because it isn't growing as fast. so it is not the fiscal challenge we focus on if anything we want to grow the economy, we need to make the investments adjustments that you talked about. >> can you wait for a microphone please? >> hell did you choose the 14% level for the tax on bringing back overseas profits and lloyd -- would there be any limits on what companies could do with those funds and if you have a

forecast for the impact on the economy with a considerable amount that was brought back? >> that 14% is about 40% of the 35%. importantly, it will be on all dollars overseas. so it is not voluntary, it is mandatory. the dollars would come back to the u.s., hopefully to be invested in the u.s. jobs and manufacturing facilities but there wouldn't be a specific requirement. the requirement is that they all pay 14%. >> kevin. >> thank you. i want to ask a couple of questions. first, the debt for all of the high-fiving about the deficit which is impressive but it is a ticking timebomb. how aggressive is our policy towards reducing the debt? >> so, as i said earlier, on the current course, debt would grow

as a share of the economy from about 75% now to about 81% by 2025. what we do in our budget is bring that down substantially so that debt as a share of the economy shrinks from about 75% of gdp down to 73% of gdp by the end of the window. by 2025. and even more importantly, the key things that we are doing unlike sequestration, things we are doing for our long-term fiscal future grow in importance as you get beyond ten years. so the tax changes that we are talking about for example on the capital gains, they are structured so that the scale of revenue they bring in grow over time. immigration reform is something where the impact would grow substantially over time and many of the things we talked about before on healthcare costs

delivery system reform and others, the benefits would compound over time as you bring the growth in health-care costs down below the growth of gdp. so all of those are the most important things you can do in the long run to bring down the debt. at the same time, what we should recognize is that we owe a debt to our seniors who have paid into social security and other benefits. but what we can't do is make reforms that break that promise to them and recognize that we have a demographic bubble that we are dealing with through roughly the mid-2030's and if we can get through the period the death stabilized, we put the nation and a much better position as the number of workers grow particularly if we can pass in a grecian reform. >> a quick follow.

i want to ask about military spending in general. fighting the war on terror and everything that is still happening is very real. does this budget address in your estimation everything that needs to be addressed or is there more that you can do to make sure that the american people are safe? >> first of all, we have to recognize that the country has made real progress. the president talked about in the state of the union address that when he came into office we had 180,000 troops overseas in iraq and afghanistan. we are down to 15,000 in on a downward trajectory there and so we have had real benefits in terms of the lives of our brave service people serving overseas. at the same time, there are fiscal benefits from this. we are spending $130 billion less this year because of his stewardship of the national security those costs continue to decline by more than another 10 billion the budget proposal.

at the same time the budget recognizes that in the base investment in the dod budget not the emergency cost of the base budget. there are places we need to invest and that means investing in our service people and it means investing in making sure that our technology stays ahead of other countries whether that is in space or other research and development. so there are a number of places we recognize that and that's where you see the 37 billion-dollar increase in 2016 for the defense budget that really focuses on where those needs are and keeping americans safe. >> jim. >> sicilia, i wanted to ask about the $1 million being sent to the central american countries to address the issue that happened last summer with the immigrants coming across the border. the biggest problem people in the government talk about is government corruption. what is the united states going to do to protect that to make sure that it doesn't appear in swiss bank accounts and actually helps the people? >> i will tackle this but on the reminder that i'm also a domestic policy adviser. the focus is going to central america both to improve safety as well as development.

when you hear the vice president talk about it, he talks in strong terms and makes a comparison to what we did in colombia which required enormous investment of resources as well as political capital by the colombians in partnership with the united states if we are talking about building the same partnership in central american countries to make sure that they are advancing economically and that they are also making the advancements we need with respect to safety and security. you will recall that the reason for the crisis and the arrival of unaccompanied minors had to do with folks fear in particular of the fear of violence affecting young people so we are dedicating resources to a panoply of things with the goal being that the united states be a good partner to the societies and help strengthen them so that they are able to deal with these problems in country rather than confront the kind of crisis we had here. and i think it is a broad restoration of the notion that

we have to approach these issues as a hemisphere and the united states has to be thinking about this and thinking about situations like this situation we experienced last summer from a broader perspective that was immigration situation that resulted in a larger phenomenon that we have a role to play making sure that we mitigate. >> just to add a little bit on that point, colombia has been

remarkably successful going at the same issues that you talked about and so the piece that cecilia talked about in this comprehensive approach about , specific piece of the funding that we would dedicate his on governance reform and would be directly targeted at making sure that you built the government institutions and also attack the kind of corruption you're talking about and the other thing i would mention, this is something the president and the vice president really have been focusing on for some time and we've already taken a number of steps where the three countries in particular that we're focused had already agreed to a number of things to strengthen whether it's the rule of law or to stop corruption in their system so we could get more specifics on those but there are steps that have already been committed in advance of us making this commitment. it's also important to recognize that this is one of many opportunities that the

president's efforts on cuba have begun to open up in the hemisphere. we had a moment of opportunity to move forward together with countries across the hemisphere so that we are much more likely now as the sicilia said to get other countries investing, the three countries themselves that other but other countries as well that would support our efforts. >> can you give more details about the balance and is the location for cybersecurity driven by being posed in china and russia? >> i think what would be best given is that we don't have a national security staff here is maybe if we can follow-up with you specifically. there are a number of places

where we are increasing investment to focus but i'm not sure that we have the right expertise to get into the details. >> i will have somebody follow up with you. cybersecurity? can you take that? >> we do have a range of investment around cybersecurity, well over $10 billion of investment that is going toward cybersecurity. that includes both the research and development investments that are part of a broad significant expansion as well as specific investments at the department of homeland security and at omb which is responsible for setting the policy on many of these areas and also in our national security agencies more broadly. so it is as a specific area and you'll see it called out and the budget presentation today with many more details on exactly where those were focused.

>> there's the legislation on the data breach and it encourages the piece of legislation to move forward as fast as possible in a bipartisan way. the president will also be hosting a summit on cybersecurity on the west coast at stanford university on the 13th of this month so ten days or so. >> a number of these proposals have been in the budget for quite some time. the buffet rule. they were not passed by the congress that had a democratic control in the senate. what can you do in the coming year to bring republicans to the table and what makes you think

that these plans have life with the new republican congress? >> i will take the first crack at this. sean may have some other ideas on this, too. the first thing that comes to mind, the fact they didn't pass it the first time doesn't mean they are not good ideas. the reason they are included once again is because they are good ideas and we will continue looking to members of congress and both parties to consider them and actually included in legislation. the second thing is we also would acknowledge that this is

going to be a compromise. we have republicans in charge of the congress, we have a democrat who is sitting in the white house so anything that emerges from these proposals into discussions about the budget will require an effort to try to find some common ground. maybe there will be an opportunity to include some things in the budget that republicans haven't previously supported in exchange for some things new ideas that they may have. the third thing and this is a good segue to sean, there are a pretty substantial number of things included in the budget that have been previously supported by republicans, and i think that it is a good indication that by focusing on what we think the goal should be in terms of protecting the country and investing in middle-class families there should be reasonable common ground we can find and that's why the president so strongly advocates ensuring that we not allow a disagreement over one issue like immigration to become a dealbreaker over all the

others. there are a lot of important things we can do that there does appear to be common ground. i'm not suggesting that this is easy or that anybody here thinks it is going to be easy but there is an opportunity worth pursuing. >> do you want to do two or three of the best ideas that are included in the budget that had previously been supportive? >> jeff may have some thoughts on this as well. there are a number of things. the linkage between international tax reform and infrastructure, which were included in the camp plan and many of the proposals whether it's around childcare or a number of the other things that cecilia focused on that free community college have been ideas that not only have had republican support in the past but actually legislative proposals that we've seen with bipartisan support. so that doesn't mean there's been support for every one of the ideas, but we will see i think, a significant opportunity to get some of these ideas advanced going forward. the other thing i would point out which i think you have a lot of good examples from the budget last year whether it is on the minimum wage or others it isn't just about what the federal

government does. it's also about what the mayors and governors and other local officials do, and i think there is a real opportunity in many of these ideas to build momentum and support in a way that congress may not lead on them, but they may end up following because of the work that happens in other parts of the country. >> i think at a strategic level, there is real alignment. we talked about some of the infrastructure and tax reform and everybody agrees that the current tax system doesn't work and are statutory rate at 35% is the highest in the world and the system is dysfunctional and then everybody agrees that, not everyone, but both republican leaders and some democratic leaders, including the president most importantly, agree on the basic framework for the approach. so there's a lot in the detail that the strategic alignment is real and significant in that thing you can do more granular

and look at expanding which both the president proposes in his budget and paul ryan proposes, so you have a strategic alignment that's an important area and then you have the specific proposals both republican leadership and the president agree upon so we are hopeful to get some of this stuff done. >> on the 529 tuition plan, is there any chance that could be rolled back and we could lose our investment? >> we've already backed away from the original proposal, and it was a very small part of the restructuring of the various offerings with respect to savings and free college education. so the point here is that this administration continues to be committed to making sure that we are making resources available to make college more affordable

so the budget includes things like making sure that programs are protected from inflation. we have the community college proposal, but we also have a consolidation of the various tax credit and other structures that exist out and the idea being that we learned a significant number of folks who participate in one program ended up not participating in the one that would have benefited them more because there are so many different options and it can be confusing. so the goal is to consolidate in such a way that more middle-class families and families working to get to the middle class get the support they need to pay for college and to repay student loans. >> the administration has no plans or proposals in the 529. >> just to put a number on this this, what we are proposing in the budget is and the budget is a nearly $50 billion increase in tax benefits toward paying for college, and so on a net basis

what you'll see is the president's proposal dramatically improves college affordability and the in the tax system compared to what we currently have. >> john. >> two questions. one for josh and one for jason. josh, what do you think the effect of the budget will be for democrats heading into the 2016 election at the presidential and congressional level? is there anything you think they are not going to like? and then for jason, it's my understanding that loophole could be closed without a congressional reinterpretation of the treasury or the irs level. is that the case and if so, why not just close it? >> as it relates to the 2016? on the contest my suspicion is that everybody that looks at

this well think that there is at least one element in the pages that they are presented with -- where they will think to themselves i might have done it a little bit differently great i suspect that is true both those who are in office and who are contemplating running for a different one. but at the same time i also think what is codified in the volumes that were presented today is a pretty cogent vision for how to move the country forward and grow the economy by focusing on middle-class economics, we can build a kind of country that is in the best interest of middle-class families and also in the best interest of the long-term stability but there is an opportunity for us to use this new foundation that we have laid after recovering from the crisis over the last six years to build this country in the direction of making it more fair and more

free and creating more opportunity for everybody. and i think that really is the core of the president's vision and that reflects a vision the vast majority of democrats have and can agree with. the truth is, i think there are a lot of reasons republicans can find to agree with as well. the question is will they put politics aside and work to find a common ground on the administration to do that or will they not what has been or will they not? that has been consistent in the last six years. >> in answer to the second question, treasury and irs are responsible for administering the tax system so you should ask them that question in terms of specific regulations. in terms of our budget proposal, we are asking congress to change the law so the income that is a essentially like any other form of income that burned in certain activities get taxed as such and that is a commonsense idea.

>> in this budget it's been in the past budget and they implement the policy a policy to do that and i guess the question is -- >> you should ask the treasury and irs with their authorities and plans are in this area because this is -- they are responsible for implementing the tax law that congress passes. >> the gentleman in the back. >> steve with the "washington post" editorial board. >> hi, steve. still relying on the corporate repatriation to fund the infrastructure by not just raise the gas tax? >> the president hasn't proposed and has no plans to propose increasing the gas tax. the plan that we describe here using the dollars from overseas, bringing them the u.s. and raising money in order to find a

long-term reauthorization at a level that is close to 40% higher we think is the right plan. it has a lot of traction. with that said, the president is open to other proposals. we consider other proposals that congress contemplates. >> i was interested in what the pay for is for the two free years of community college if you don't mind and also, jeff following up on that question, how real is the infrastructure plan and aren't you in effect raising taxes on american businesses which seems to be a nonstarter in this congress and then secondly, expecting them to believe that once you raise the taxes it is just a one year only and it won't become a permanent thing? >> so i will start the revenue raisers that we described in the tax reforms we laid out are more than enough to cover the

community college program as well as the other elements of the budget that i described. >> repeat the first part of your question. >> [inaudible] bringing the money back from the corporations -- how real is it to expect this congress to basically raise taxes on american businesses or ask them to pay the tax they are not paying now, and secondly, to believe that this is a one-time only tax? >> as i mentioned earlier it is a comprehensive approach to the business tax reform. a very important component is to also make sure that it's good for middle-class families infrastructure investment being essential to that. there is the revenue neutrality, so no additional money from the corporate or business taxes. with that said it is a one-time, opportunity because the $2 trillion that are overseas that would be taxed here at a much

lower rate of 14% and that raises the money to do the six-year reauthorization at a much higher level than the current, so its long-term it's long-term revenue neutral but this one-time opportunity with the $2 trillion which hasn't been taxed overseas is at 14%. >> can i add one thing to that because i think there has been some confusion about the relationship between this proposal and something that would be completely different and in many ways the opposite of the proposal which is the repatriation holiday and of course we are explaining the difference and also helps to answer your question. the proposal the president is making would be mandatory on all overseas is a opposed to the election that could be made. as a result, raises money, $70 billion over 10 years. as opposed to the repatriation holiday would lose money and then third that gets at your question this is part of the plan to reform the tax system so i'm a going forward basis you

have a 19% minimum tax on all the earnings of the subsidiaries in the corporation and because it is part of a plan that deals with the earnings that occurred in the past and the earnings in the future, it becomes a stable system as opposed to a one-time measure that then raises a question about how you're going to deal with it again in the future. >> on the politics the other thing that occurs to me is when the president was running for the office in 2007 and 2008 u.s. c-charlie advocating raising taxes on the wealthiest americans, something republicans said was dead on arrival that they would never approve of but shortly after he was re- elected and campaigned on the issue again he did actually succeed getting the republican majority in the house of representatives to eventually vote for the tax increase on the wealthiest americans so the point is because they are against it now doesn't mean that they will be then. >> to that end, the framework i have mentioned a couple of times, the president has been

lowering the statutory rate. bring the money back from overseas with a one-time toll charge. using that money from all four components is the same as the republican house ways and means plan. >> major? >> three quick items. how do you achieve your mandatory savings that you project over 10 years? what is the baseline va number for this year? how do you project going forward? what is your overseas contingency? >> on the mandatory side, we discussed earlier that there are $400 billion in savings on medicare and medicaid. those are not the only mandatory savings in the budget. there is program integrity savings that we have achieved at

the irs. because we are under investing we are losing out on tax collections. it is about $60 billion of mandatory savings we get if we invest. crop insurance is another example of an area where we think we can improve the system and encourage farmers to the planting more. there is a range of other mandatory savers, not just on the health side. but on the health side, there are a range of them -- they include reforms on the provider side. they accelerate the kind of

savings measures we have seen in areas that we think they are not current incentives to save. that is things like home health care aides and a range of other ways and payment arrangements we have with providers. there are about 20% of the savings which focus on ensuring the highest income beneficiaries are paying their fair share. there are also things like controlling drug costs and other things that even though health care costs are growing slower than they have historically, we still have areas where costs are growing quickly like some of these designer christian drugs

that we think could be brought under the umbrella of cost saving proposals that have worked in other areas. >> if you have your budget pages 105 to 119, there are 15 pages with dozens of mandatory proposals that save money. you had two others but they seem like numbers we could get you. >> oko i mentioned earlier is down about $130 billion since the president came into office. it declined another $11 billion under our proposal and on v.a. -- i don't have the precise number in front of me, but it is a substantial increase for veterans health care in the range of 7%, let me get you a specific number. >> josh, you mentioned that you

said the first time you thought about the budget in a 2016 context, can i ask you a little bit about that, is it something are hoping democrats will seize, and could i asked mr. donovan to expand a little bit on the idea why you targeted crop insurance and the savings on that because it is not playing well in kansas. [laughter] >> in terms of 2016, one reason is we will have a fiscal year 2017 budget that will be out too. not for political ends, but to get something done. our principal goals are bipartisanship and trying to get action on capitol hill and not just a talking point. >> going back to the earlier point, if you look at the broad scope of proposals we have in the budget and recognize the fact that we have roughly 100 different cuts, consolidations and reforms. there will be things that democrats and

republicans alike will not totally agree with, but we have in past years proposed reforms to crop insurance as well. what you find is there are places where, for example, the way that we structure these insurance programs, we encourage farmers not to plant. we also have other places where

we encourage or subsidize farmers in farming techniques that are less sustainable for the land they are working. we think these are smart techniques that are reforms that both maintain the basic protection of farmers for real emergencies, but do not encourage them not to plant when they could or encourage them to follow practices that are not good for the land they depend on. >> i wanted to ask about the debt, you said there are some mandatory savings that would help with the sustainability in the long run, but you started by saying with economic growth and things starting to move this budget was an opportunity for the president to say what he thought should happen. i wonder why a lot of people are

saying this is a missed opportunity. he didn't choose to shave off the projected fast entitlements, is it too politically difficult to do that? >> let me just disagree with the fundamental premise. when the president came into office, he recognized what i just think a broad group recognized as the single most important contributor to the long run growth in the cost of our entitlements, which was the spiraling cost of health care. what we achieved since he came into office, in part because of the recession he inherited but also structural reforms in our system, had substantially lowered the long-term cost of entitlements.

in 2020, you are talking about almost $200 billion of savings in medicare and medicaid. if you look at the budget and projections you see substantially lower cost far into the future than when the president came into office. the fact that we are adopting not just $400 billion in medicare and medicaid savings that we discussed, we are also adopting a bipartisan proposal on the doc fix on sgr reform. it will lower the cost of health care in the future. and a range of other things we're doing the on the medicare and medicaid investments. i think we have a very strong argument that the president has been focused on the beginning of the key drivers of long-term entitlements.

and he continues to be focused with real momentum behind us in lower health care costs. this has been lost a little bit in the political back-and-forth -- in addition to health care costs, the single most important thing we can pay attention to is we have a demographic imbalance in our country. a growing number of retirees for the number of workers, therefore immigration reform is fundamentally something that alters the balance on entitlements in a way that no other things do. it grows the number of workers her retiree. that is why the contributions to the social security trust fund and medicare and dedicate our enormous benefits that should not be ignored. >> can i add a tiny bit economically, in 2008, the transition with larry summers, tim geithner and the whole original economic team was trying to figure out what the

right fiscal goal would be and economically the decision was the right goal was to make sure the that was falling which require the deficit being below that 3% of gdp and that is a goal we achieved in 2014 and a goal we need to take additional steps on taxes, health care and immigration to make sure we continue to meet that goal over the next decade and beyond. it is consistent with what economics would tell you that you need to do. >> the 3% target was also the one advocated by the minor deities that served on the simpson volt condition. while it included the wisdom of the obama economic team it also included the stamp of approval from that bipartisan committee. the president has also been clear that his approach in

dealing with the debt and deficit is that we are not going to ask the elderly and working families to bear the brunt of improving our fiscal situation. that there are a variety of steps we can take that reflect a balanced approach. the last thing, i will speak like an economist, correct me if i'm wrong, one of the most important things we can do is to and sure we have a strong dynamic growing economy. we will not have one if we chip away to the kind of investments that are critical to the success of middle-class families. making the kinds investments that we know will be good will also be good for the debt and deficit reduction down the line. do i at least get a pass? >> absolutely. >> ok good. dave.

>> thank you, josh, and forgive me if this was already asked and answered, but the budget proposes to cut the veterans choice card program and take some of that movie and move it elsewhere, can you explain that? is the choice card program not as needed as it was last year? >> there is not a proposal to cut it. as we were looking at the projections for the v.a. going forward, we recognize that this choice program is a brand-new program. for those not involved in the details, it was set up by legislation that gave certain veterans who were either waiting for a certain period of time or lived a certain geographic distance further away from facilities had the ability to get a better choice card and to

seek medical care outside system. as we were putting together projections, you can imagine that it is quite uncertain how many veterans will ultimately exercise that choice and use exercise that choice and use that program. what we have done in the budget is proposed flexibility that would allow the v.a. to draw from some of the $10 billion that was set aside for that program. if needed, and in case more veterans than we expect seek health care within the v.a. system. what we were trying to deal with was to give some flexibility to deal with some of the uncertainty that we have given that this is a new program and we are not sure how me veterans we choose to remain in the system or seek health care.

it was not a cut in that sense. >> this gentleman here. >> on the point that it would be a document from which negotiations can take place, on the matter of financing infrastructure, is the mandatory requirement one of those potential negotiating points? as you may know there is a bipartisan bill in congress that may not include that aspect. points? as you may know there is a bipartisan bill in congress that may not include that aspect. >> as jason said earlier, >> as jason said earlier, we arewe not supported of a voluntary repatriation holiday. that costs a lot of money and is to reform a broken system and to fund infrastructure. >> just to be specific about that, what the voluntary repatriation does is encourage

profits to be held overseas going forward and therefore it ends up being scored as costing a lot of money rather than saving. >> let's do the last one, the president is getting ready to do his event in the east room. >> two quick ones. josh, since we have you here, can you describe the president's inking about arming ukraine and sean, for you republicans are interested in to the idea of dynamic scoring and i want to ask what kind of challenges that presents going forward as republicans create their budget proposals and try to calculate the dynamic elements of the features of their budget. >> i think i read the same story that you did that maybe something your question, there are a lot of people who, one way or another making their views

known. the president continues to be -- this administration continues to assess what our strategy is to further isolate the putin regime in russia. the strategy that we have implemented so far has succeeded in uniting the international immunity around this principle and respecting the territorial integrity and sovereignty of other countries. it has also succeeded in forcing -- and forcing a sanctions regime against the russian economy which has succeeded in devaluing their currency, causing many independent debt evaluators to downgrade the credit worthiness of russian securities. it has caused longer-term

projections to be revised downward into negative territory. just about every measure you consider, the russian economy has taken a big hit because of the strategic decisions president putin has made. that pressure is only continuing to intensify and has served to isolate them. but it has not caused him to live up to the kinds of diplomatic commitments is previously made de-escalate the situation. we are continuing to escort -- analyze what situations are available. there are a wide variety of opinions about this, but when we have anything to announce we will let you know. >> just on dynamic scoring, to be clear, the current practice which we support is to do a

range of what we call supplementary analyses. that includes using some of these dynamic models to look at to do a range of what wewhat the potential range of effects could be on macroeconomics. so that policymakers can understand and ink about those. the fundamental problem of taking what are right now speculative and broad ranging analyses that are not used for budget scoring, is that the range of uncertainty is vast, from the point of certain kinds of tax changes might grow the economy or shrink them. the long time practice of cbo directors for decades has been highly speculative and uncertain kinds of effects, to take them

in as school rubble savings or cost on any significant bill. and really, it degrades the ability of policymakers to understand and do accurate budgeting. this is not something that in the past has been artisan. there has been agreement that lookingunderstand and at this information has been helpful but to actually use it for scoring is highly problematic in terms of being able to get a precise understanding of what budgeting looks like. >> thanks everybody for sitting through all of these. if you have additional questions, folks will be available to answer your detailed questions. thank you.

>> administration officials will be on capitol hill this week to take questions on president obama's budget request. live at 10:00 a.m. eastern on c-span 3. wednesday, defense secretary nominee ashton carter will be at the senate armed services committee for a confirmation hearing. we'll have live coverage at 9:30 eastern also on c-span 3. >> coming up on c-span, more about president obama's budget blueprint, followed by health and human services and later the state department. there are political landscape has changed with the 114th congress. not only are there 43 new

republicans and 15 new democrats in the house, there is also 108 women in congress including the first african-american republican in the house and the first woman veteran in the senate. keep track of the member s of congress using congressional chronicle on c-span.org. it has lots of useful information there including voting results. new congress best access on c-span c-span 2, c-span radio and c-span.org. >> president obama released his 2016 budget request which includes $4 trillion in spending. it includes $585 billion in discretionary spending.

>> thank you for joining us, we believe very strongly that this is a strategy driven budget that meets 21st century national security needs of our great nation. the strategy arrived budget is to keep sequestration cap's in effect in 2016 and beyond. i will detail in a moment and as others will detail later, we will submit a budget above the sequestration enacted caps. third, even at the president's level, trying to achieve a healthy balance between capacities, or

size of the force, the capabilities of the force and the readiness to respond to challenges will remain a constant challenge and this is especially true with regard to maintaining technical superiority. our defense strategy is outlined in the 2014 qtr. it calls for a joint force to defend the homeland, conduct a global counterterrorism campaign and to operate forward in multiple theaters to share our friends and allies against multiple adversaries. this is designed to help global leadership and preserve global peace. like it or not, america remains the global first security responder of choice as we have seen.

then formed an international coalition to fight against i sill and iraq and syria and finally to respond to the ebola crisis in western africa. >> these responses come on top of a volatile security environment. many in this room, i do not need to tell too much about. but it requires a lot of our joint force. today there is about 211,000 service men and women around the world in 136 countries trying to preserve the peace. in this very stressing and volatile environment, if the forces are aligned with what we see happening in the world and if it is keeping pace with emerging threats.

at the requested levels, we believe quite strongly that this budget is the best balance of ends, ways and means that we could possibly achieve. we are asking for $534 billion in fy 2016. that is $36 billion above the fy sequestration caps and $38 billion above the fy 2015 limits. when you add it all up this is approximately $150 billion over the sequestration caps. in addition to the base budget

this edge it supports our efforts to continue the drop-down in afghanistan, to operate in the central command area of responsibility, the persian gulf and the environments there to. this strategy driven resource and budget is designed support the five key priorities of the 2014 qtr strategy. i would like to run down them very quickly because we believe they are the right ones. number one, continue to rebalance the asia-pacific region. we will continue to do so. second, maintain a strong commitment to security stability in the middle east. third, sustain a global counterterrorism campaign through and with partners whenever possible and four, we want to strengthen our key alliances and partnerships.

and finally, prioritized key modernization efforts. we what to make sure the number of forces in our program remains sound. we recognize the offense of the past year will cause us to question the assumptions that will underpin each of these priorities, especially with respect to what is required to keep security in the middle east. for now, we believe the requested fy 2016 budget levels will allow us to execute the 2014 qtr strategy at manageable levels of risk. at funding levels lower than the president is proposing especially at all sequestration cap levels, our strategy will become brittle and more prone to

breaking. for that reason, the leaders believe that any reduction in funding below the presidential budget, or a broad denial of the reform initiatives we have proposed to congress will make the overall strategy unmanageable. this comes to my third key theme. even at the president budget level, maintaining a prudent balance remains extremely challenging for three reasons. we are coming out of 13 years of war. the longest sustained combat in our history. this is causing enormous strain on the men and women in uniform as well as the civilians who support them and our contractors. what is happening, because of high demand, we are going to be

doing a running reset over the course of the next several years and we will not return to full combat readiness until 2020-2023. second because o&m costs, or operation and maintenance, the defense department needs to see 1% growth per year or the balance starts to get out of kilter. we have been at the same level for three years. between fy 13 and fy 15 we have been at $496 billion. on top of that, we have been digging out of a readiness program when sequestration hit. we have been trying to attack this problem, but it is still very hard to keep up with what we have had.

we continue to pursue these forms aggressively, especially so we can put more money into modernization. that is the third reason we're having so many problems. we are facing challenges unlike anything we have seen since the cold war. we need to keep the old equipment and systems going, but it is more expensive to do so and requires more resources. our space capabilities support global operations face unprecedented threats. we're forced to spend more money on space resiliency. we are having to shift money into what we call counter access area denial areas. even at the president's budget

level, it is a constant rubiks cube trying to figure out the best mix of capabilities capacities and readiness. the white house has helped us in disregard. adding about $21 billion in requirements, specifically more toward modernization as compared to the budget levels. this is a deferred modernization problem. we're trying to tackle it in this budget and we need help to do so. we look forward to congress we think this is the right budget this afternoon we will answer any questions that you have and we expect to answer a lot more over the course of the next several weeks as we deliver our budget and talk to the members

of congress. >> thank you mr. secretary and good afternoon. the first message i have is internal, assembling the defense budget is hard enough in the best of times, but is extraordinarily difficult to do in our time do to the trifecta of declining resources constraints and uncertainty over future resources. i want to start rethinking the many able to put in the long hours. they are as dedicated and hard-working as anybody else in this department. the deputy secretary as outlined the contours of this year's submission. no budget is perfect we believe we have assembled the best domination of capability capacity and readiness investments that we need. we also believe it meets the current and future needs of the all volunteer force that has

served us so well. as such, the chairman and i fully support this budget. we feel it is what we need to fully support and remain at the edge of the defense strategy as outlined. we have little margin left for error for strategic surprise. i heard the term "third and manageable" a couple times last night. it should not come as any surprise, that we don't like to hear third and manageable. we don't like third down at all and forth down is not an option. that balance is inescapable. if you disturb one goal something has changed for the others to reset the balance.

the means that we have aligned have steadily decreased over the last several years. at the same time the security environment has become more chaotic and potential adversaries are eroding. at the end of the strategy we are trying to serve, we are making progress in some of our ways to efficiency and the variable that has carried the lion's share of the strategic balance's risk. our best military advice is any decrease below the request will require adjustments to the defense strategy to restore balance. it does not mean it completely breaks but we will have to make adjustments if we stay in

ballots. all you have to do is look inside the planning construct to get an idea of what that means. it ultimately will mean reduced leadership and freedom of option -- which is not one we would all prefer. when i talk about reductions i'm not only talking about reductions to sequestration, i mean anything below the level we are submitting. i would also reiterate that while fully respectful of congress's rule, not only how much we spend but what was and it on our the same as a reduction and would require an adjustment to that strategy as well. that's what makes this a strategy driven budget. we are asking for what we need

above the sequester levels to keep risk manageable. we have to do better in the most important things such as nuclear deterrence. it represents an opportunity for a decline in our investment. we do look forward to working with congress to get this submission across the finish line and hopefully on time this fall. thank you again, we will now take a couple of questions. >> i wonder if you could talk a little bit about what happens if you don't get all the savings or you don't get a budget above sequester, how does the strategy change or how does it break? what can you not do? >> this is something i would hope everybody here and members

of congress consider first. it is easy for us to tell you if you go to the sequestration level we will by this many jsf's, but what does that mean? we're trying to get to the strategy we won't he able to do. the program is designed to allow us to do two things simultaneously, to respond to crises simultaneously. to have a large joint campaign involving the av, army, marine corps, combined operations etc.. the other is to respond to an opportunistic aggressor in which we try to impose costs or denying the adversary the objectives. we believe the pb15-4 four structure is broadly sufficient

to need and if we would take more cuts we would have to consider moving down the number of forces that we have. at that point you have to ask yourself, would we still be able to do those two things simultaneously, could you still have the same level of presence? could you still respond in the timelines we think we could respond to today. the answer in our view is not likely. we want to maintain focus on this budget. we believe this budget is what the nation needs. if congress does not agree, we would answer that question specifically. >> you have a lot of people doing the math saying, so what if we lose $36 billion in sequestration, that is roughly where you were in 2009, why

could you not live with $400 billion? what do you say to that? >> at the wartime peak, we dropped 20 to 30% off of that. we see challenges to our space constellation, the demands of keeping the nuclear deterrent force going, the demands and the problems we are facing potentially projecting power into certain theaters. we have taken risks both in readiness and capabilities to maintain the capacities necessary to respond. we have three years of tilt up demand on modernization that we have not been able to get to. if anybody says, you have been

at $496 billion, that is true, that we have been accumulating risk. the president has said i am not comfortable with those risks and that's why he is asking for the increase from 15 to 16. >> how close are the joint chiefs to telling the white house, we need to rewrite the strategy because it is too uncertain whether congress will in this hyperventilated partisan environment will release the cash. you say it is unmanageable, but at what point do you tell the white house we have to rewrite this? >> i would not want to put words into the white house these, but i think they would agree that with sequester we will have to re-craft the strategy. i don't know that i would say abandon it, but we would have to

make adjustments. if you look, as i mentioned in my remarks, it talks about steady state operations and crisis operations. steady-state asks us to do three things, defend the homeland, counterterrorism operations and provide a presence in many regions. we are not going to compromise on homeland defense. the other pieces could probably affect counterterrorism efforts a bit. we may find we would have to do presence and fewer locations or lower amplitude presence in many locations. those are the kind of decisions will have to make and that will impact our ability have action in the world. i think we would have broad agreement across the government and that we will have to make adjustments.

>> in fy 13, we took a punch in the gut and sequestration. if you are member we had to stop flying, we stopped putting ships into dep oh maintenance. we dug a readiness hole. we were not satisfied at those levels, but we accepted them happily. we said, we have been surviving but not thriving. we have not been able to get to these modernization issues that have been facing us. when we presented this to the white house this fall they agreed with us. that is why we are asking for a budget that is above. we believe this is the right balance. >> we have a pretty good way of looking at the relationship between supply and demand. on the supply side you can capture this in a diagram.

what it would look like under this budget and what it would look like under sequester. it is not a pretty picture. i am talking about real requirements for presence and crisis response. it is starting to get ready dicey, that that is why we are saying manageable risk. >> i'm told you have $7.9 billion for investment, reset and readiness which sounds a lot like putting money on procurement and operations make in its, do you have a criteria in mind when you decide what you will get from that account? some people think that is pure padding. >> we would be the first to say that over the course of a decade or so that we haven't overseas contingency operation funding,

too much has crept into that account. we are determined to fix that. will take time, we cannot do it overnight. it would represent a bill almost as big as the sequester bill. we will be putting together a plan to do that and we hope to have it teased out of their starting in the budget and completing in 20. but it remains to be seen how we will do that but we would agree that we will get oko spent one what it was intended. >> their intent is to try to move what these and during base costs that have crept into oko over 13 years of war, act into the base object. we can only do it if these sequestration caps are lifted.

as the vice-chairman said, that is a $20 billion per year that. so we are working with the white house and first we have to find out if sequestration caps are lifted and then we will unveil our plan. >> i would like to turn it over and again thank you for being here this afternoon, we look forward to answering your questions over the next several weeks and months. >> thank you everybody.

>> ladies and gentlemen, mr. mike mccord and mark ram someday. they will read for about 20 minutes and then take your questions after that. >> thank you. good afternoon. i have to begin by sending out greetings to the people of my wife's hometown of punxsutawney and thank them for letting us share groundhog day with them. in that spirit, i'm going to predict at least six more weeks of budget season. possibly more. second, i just want to say to seahawks fans, sorry for your loss, but at least it was an interesting game for once. so general ramsay and i are here to address an equally -- topic i understand that the press release has been posted. that a number of documents have been posted on our website that

are available to you and to others to read that will have more details than we have time or i have capability to address in the session that we have here today. but let me start off by saying that i think there are a couple of things a strike me about our budget request and the process that went through this year. first is consistency. i think you heard, touched on a little bit, we have the same strategy that was back in 2012. the same ends that we are trying achieve, we have basically the same four structure end points. major denominators like that. they are still the goals and plans of this budget, for example, 304 ships in the navy. 50,000 active duty. the same end points that we had are still with us. we also have basically the same -- the same budget profile.

those of you who follow, and i not everybody focuses on the budget as much as people do inside the building. but if you looked at last year's plan, of where we said we would be in 2016, we are basically at that same place. we also have the same profile over the next five years as we have been projecting last year. we also have many of the same proposals, reforms that we believe are needed to the program, through the budget, whether it is compensation, base closure. there is a lot of similarity consistency of the things that we have been saying we need to get to, things we needed to do, where we wanted to go that are still the same in this budget. second, i think that there is a real theme of balance in our deliberations with military and civilian leadership and with the final project of trying to

address today's needs as well as tomorrow's needs such as modernization for future challenges. finally, i will say that i think probably what will be a big theme this year as people discuss this budget on capitol hill and other places will be the increase that was alluded to in a question already over the level we have had the last three years, why is that necessary? i think that is our challenge to explain that, of course and make the case for that. i think we have a good story on that and we'll get to that in just a minute. the budget that we're asking for is taking us back to a level that we had earlier in the first several years of this administration when i was here as a deputy comptroller. this is the level that we're proposing. the same level as 2012. and f.y. 10. we had a trough. the sequester, including the mechanical sequester that hit us in 2013 as well as the flattened

spending that was imposed by the two-year deal. as the deputy said, that was not the worst outcome that we could have had and it did give us some stability, but it was never department's position being down at that level was acceptable to us. so i think this budget is consistent with where we have been on that position all along. we have a trough really, as the deputy was alluding to driven by those reductions that we now have to dig out of. if i could get the next slide. the strategy as you have heard is basically the same strategy that was described and affirmed in both 2012 and the q.d.r. in terms of major elements like to asia pacific rebalance. we are very consistent with what we have been trying to achieve. following that, the next chart kind of shows you over time our budget requests, both the base on the bottom, the base budget

and the war funding on the top. you already heard the numbers i think. they are on your charts. i won't take your time to read them out to you. i want to take a little time with the next chart that shows the funding lines over the last couple of years. the line on the top, the f.y. 13 budget was the budget that we submitted and developed after the budget control act was agreed to. this is a number you have probably heard many times out of this department. the $487 billion from f.y. 12-f.y. 21. that is represented by that top line. had the super committee not failed to reach an agreement, that's where we would have been. that's where we think we should have been. the following year, we submitted a budget that was a little bit less over the next 10 years. that is the blue line. the f.y. 14 budget line. that was submitted right about the time or shortly before the sequester happened. then in the -- in the ensuing

spring and fall, when secretary hagel got here, he directed strategic choice and management review refered to by the acronym skimmer, which is in the chart and we explored a broad range all the way down to sequester levels, focused on an area that is sketched out in gray on this chart, which was the level that we thought we could sustain the strategy fully or getting down to where we thought we would not be able to do it without major changes, a level that was referred to that range is described in gray. the sequester took us below that range. the two-year budget deal, the bipartisan deal kept us flat at that level. the three-year trough was pretty far below where we thought it should be. it takes us pretty much to the that range. you can see within our five-year plan following this, continuing

along at the end of that range, the lower end of that range. so again, we have been fairly consistent the skimmer was almost two years ago now that we sketched out a range. we are bringing a budget that takes us up to the range that we said then and believe now is the range we need to be in. and taking us back to a level of funding that we had several years ago, not to some extravagant level that is unprecedented in our history. i think again that we have a profile that is both defensible and consistent with what we have been saying. the next slide just gives you again some of the basic facts about where the money is by military department and by the major areas of expenditure this the budget, our operating costs and investment costs. basically what you'll see on this chart if you look at the increase from last year to this year, what is it that you're getting as the budget increases? about 40% of it is on the operating side and about 60% is on the investing in the future side.

the personnel costs go up only slightly. it should be noted that the size of the force decreases somewhat. it speaks to the point that we are trying control the growth of compensation costs. we're not cutting competition. even when the size of the force is stable or slightly declining our personnel costs are still rising although again most of the investment that we're trying to put into readiness and also investing in the future. the next slide describes some of the resource tradeoffs and some of the constraints that we have. the deputy has alluded in a couple of forums to some of the issues that happened last year just in the time from when we submitted a budget a year ago today, russian aggression in eastern europe. the rise of isil. the ebola nation the department was sent to help out on. we know they expect us to have a ready capable flexible force to respond to unforeseen events like that. our troops do everything we ask

of them, but we have to -- we feel we have to have a higher budget to address those challenges, to keep the force ready to respond to unforeseen events like that, to dig out of the readiness hole that we're in, to look toward the future on some of the issues that are here. i think the deputy has also alluded to the fact that the planning that went on really assumed that we would have some ability as we saw implemented the president's policy to draw down the forces in afghanistan, that those forces would be able to come home. the pace of world operations has hampered that. that is one of the channels described on this chart that require us we believe to step up our game and make it a challenge for us to try and do what we have been doing at the funding levels we have been at, if you want us to continue the have that quality force in the future.

as i said, in any introduction briefly, the force structure, the size of the military that is we believe we need to support is roughly the same as what we have been saying in terms of end strength and the size of the nuclear triad and major operational units like the number of ships, tactical fighter wings. there shouldn't be any surprises to those of you who follow these issues closely. we have slowed some of the ramps on end strength to allow people more last year's budget i know had some confusion about the army. i can address that later but we have straightened that out in this year's budget request. we also have some of the same proposals to the extent to some of which were agreed in whole. some in part. some were not agreed to at all last year. this is a mixed bag. this is just trying to meanings few.

aviation restructure and the air force probably got the most headlines of anything last year. base closure is an issue i think everyone knows. i'll be happy to speak to that. some were agreed to. some were agreed to this part. some were not agreed to at all. this probably doesn't do justice to the complexity of all of these issues, just to list some of the topics on a slide. again, to the things that were not agreed the department believes the proposals were the correct and necessary proposals. there are also things where we have moderated based on real world changes, in particular the demand for i.s.r. continues high, once we started deploying to iraq and syria. we have moderated the phase-out of the u2 from last year. there are changes but many of the things we think were the right proposals and we're sticking with them.

the next slide lists some of the major modernization programs that i know you probably have had a chance to quickly look at these. i'm not going again read you these numbers. i would say that the -- just to pick out one, last year when our budget was down we said we just can't afford to do this. at the higher level that we are requesting now we feel we can afford to maintain 11 carriers but that is contingent on being up at this higher level. if we had to come down i'm confident our position would be that we could not afford to stay up at 11 care zpwrers we had to persist at the $496 billion level going forward. that is an example of something that we -- makes a difference and there will be many examples that i think will need to be discussed throughout the year, what is it that you can afford to do at this higher level. we're proposing it is not

affordable at the level that we have been at. these are not of course all of the notable items. we're going to be followed today i believe by the army, navy, air force. the missile defense agency. just to take an example of something that is not on the slide, there is probably a story on some of the vehicle modernizations. something that doesn't get as much attention. some of these programs have a pretty healthy increase over last year's level. many more things that you can delve into as we go through all of the parts of the department's rollout today. in addition, i think the deputy alluded to the fact that we had a good back and forth inside the administration over the fall of some issues that were important to all of us. many of you are quite familiar with it, which is not necessarily only about money. i would say there are over 100 recommendations of that review and only 20% of them involve money. this is an example.

i'll touch on this a little later, things that are priorities of the secretary priorities of the department are not necessarily the biggest budget things in all cases. space is something that is significant funding as well. there is a significant new concern going forward. this is about the future years as well. we have space and i think power projection are areas when we talk about modernization and addressing the future. looking at eroding technological superiority. these are primarily the type of areas we are talking about where we are investing and we can talk about some of the particular munitions. some of these areas are classified and we can't talk about them in detail but there are also some things that we can talk about. something that is important to the deputy. i think he has already spoken about this.

i don't know that i could really do this justice compared to the justice who is leading our efforts here. we have tried to give you a flavor on this slide. are not only about money but ways of thinking how to approach the problem. where he is trying to move the department forward. some of the particular programs listed here, probably you're familiar with the rail gun effort. undersecretary kendall also feels very strong about it which i believe he testified on to some extent last week in front of the house. when we get to readiness i'm going to ask general ramsay to talk about the near term side of what i described as near term readiness and longer term readiness. >> good afternoon. i have got two slides on readiness that i want to touch on and then as mr. mccord laid out. the services and missile defense

agency. as i go through these two slides, i want to point out that the first bullet under each of the areas is kind of a look in your rearview mirror about getting back to a full spectrum readiness posture. and then what this fiscal year president's budget does in the area of readiness. we have spent an awful lot of time in the last three cycles since i've been in this job. what has become obvious over these three years is obviously readiness is very difficult, complex area to understand. it has a lot of moving parts. we literally have put about as much resources as we can into readiness to try to get back to full spectrum recovery. all the services at the p.b. 16 level, all things being equal, operations tempo being about what it is today and no other strategic surprises in the world is on track for 2020.

the air force, we're biasing toward capability taking the near-term risk, they are more on track for 2023. obviously the events of the last year caused us to go back and look at this. we had some -- i would not call them surprises out there but every single year in the world there are events that unfold that we had not planned to do. because it is impossible to plan to do them. some of the readiness things a really came to the fore this year were there are lots of things that affect it. forces have to have the time to reset. for example, in the army, it is to get back to full spectrum readiness. after 13 years of counterinsurgency, their heavy forces, combat forces need to rotations. that alone takes money and that alone takes time. there are other forces, air force forces, some army forces for example, that have not come home as we had thought because they were doing other things in the world. for instance, the counter-isis

and counter-isil campaign. it is eating up a bunch of the navy and officer. we're moving things around and responding to what the nation calls upon us to do. each story has a little bit of a different readiness challenge. the army and the air force are primarily they are trying to get their rotation rates set. again, they are denying us in some cases the time for the forces to do that. the challenge for the department of navy and the marine corps and the navy forces themselves really are two big challenges. one of those is being able to reset their aviation arm. especially the older model f-18's. so all of the services to some of them have a depo backlog that we are working through. it is a long standing issue. we knew it was coming. it has been built up with 13 years of combat the nation's longest war as well as the hole we dug in 2014 or

was dug upon us. the navy has a backlog of ships to get through their shipyards. if you go to the next slide, just touch very briefly on special operations command. they are rebalancing geographically. they are filling out their special operations commands. they have largely been i wouldn't say untouched by readiness. they had their challenges well. they are sort of resetting their force again for being largely in afghanistan. that is going to take time to reset them as well. if i can go on to the next slide, please. i have two slides to just briefly touch upon for compensation. this is another area that the department has spent a great deal of time on the last several years. i'm not going to read it. there is all the principles that we use. if you look at what the president told the commission that reported earlier

retirement conditions and largely followed the same principles, we just to make sure you understand, this budget submission does not reflect the commission's recommendations. they were an independent blue ribbon commission. they used the department data to make sure their recommendations used the correct starting set but they were done independent of the department. we have embarked at looking at those recommendations but our solution does not include their recommendation. the president's budget last year had a package of pay and compensation recommendations that we felt were necessary, and i want to hit this point very hard to, help us balance the capacity of the force, the capability of force and the readiness of the force. the dollars we saved in paying compensation last year and this year went back to the services to help balance out readiness and capability and maintain that capacity, to get to the meat and

boverpbes this whole thing, i want you to recall that in the q.d.r. report from last year there are three pages starting at painl 39 that detail capacity of the force. when we set the fore, howing by the force is going to be, we have to go back and look at how that force is compensated because the military personnel and the department are the strength of this nation. we consume, us uniform personnel, about 36% of the budget. we are looking under every rock. we have flipped everything over ourn compensation path. we have been on a path where we have to slow the rate of growth in compensation. there are a few minor adjustments. we found a locale disparity. there were certain locales where we were going to force active duty family members to pay a

co-payment. that has been eliminated. we are asking this year for a 1.3% military pay raise and the president will ask far 1.3% civil servant pay raise. we'll operate the commissary more like a business. they will take some efficiency overhead reductions. we're looking for legal changes to allow the pricing structure to be changed a little bit. the way the food products are transporteded to the commissaries and looking at flexibility how the surcharges are paid and can be spent. lastly we are going to ask congress to approve the the pharmacy changes, the same as last year. >> thanks, mark. let me just turn to the next line about reform. i'm not going to read any of this to you. just to make the point even to

the c.f.o., not everything is about money and we do not just ask for money every time we have a challenge to address. i just wanted to take a second to recognize some of the efforts, one or two which are mine across the department to manage this institution better and to take care of our people. probably the most note sble sexual assault prevention and response. an important effort to the white house and the congress. secretary hagel's organization of missing nernl. about a month ago, kendall signed out a new d.o.d. in 5002. everything has some relation to the budget but these are primarily budget-driven things. if i could just take a second now discuss the war funding.

it is a deputy mentioned $51 billion, it is a reduction by over 2/3 from the left at the start of this administration reflecting the draw down. there is still a reduction to the $51 billion compared to $63 billion last year. over $100 billion years prior to that. i want to mention that four areas -- there were four new things that we asked last year over the course of really starting from the president's speech at west point and then progressing on to throughout the faul fall. a new counterterrorism partnerships fund. a new european reassurance initiative and training and equiping the iraqi army. all of these were new in one respect or another last year.

all of them were a bit of challenge. working with congress to get them to grow things that were new and different, which is always, you know harder for people than things that are the same year to year. we have a varying degree of support. pretty much full support on the european reassurance initiative last year. less than terrorism fund. all of these things were agreed to this some form or another last year. all of them are contained in our budget this year. the initiate sieve a unified whole but you'll find it in the budget spread out in different places which is the way congress gave it to us last year. we have asked for it in a more distributing fashion. we have brought it together for purpose s of display. the process and the rules, we

develop these rules, it is something i spent a lot of my time on. we followed the rules since. there is nothing new here other than these four new proposals to address particular situations that i described. any plans to change that will require additional relief on the base budget top line. i think that is followed by a pie chart that maybe describes some of the same things. i'll get to your questions. i want to say we think that we have as the vice chairman has indicated, a good budget that makes the right choices for national security. we would be happy to talk later on in the year if need be about what there might be as an alternative to that. but we believe congress should accept and should look strongly with support on our proposal to nupped level above what is allowed by the budget control act.

as you know, the president has been consistent ever since the budget control act was signed and not conceding the sequester was right for the there's budget is no different in that respect. >> if you can follow up on the contingency operation. you are asked about this but considering there is only supposed to be about 5000 troops in afghanistan, still an awful lot of money associated with those operations. over $40 billion for afghanistan missions. to what degree is that money directly related to operations in afghanistan and to what degree is the $16 billion for other theater operations like in the gulf? is thi