fact, our discretionary spending, even with the increases -- >> but you won't give the american people for whom you work a simple answer. >> it remains at the lowest level -- >> time's running out. one more question. under your statement that you gave us earlier, you said that the immigration policies of this president would make social security more sustainable over time. now, isn't it true that everybody in social security does not pay in enough money to justify the withdrawals that they will take over their lifetime and by adding millions of more people unlawfully here to the social security role, will that not make social security less sustainable over time than it is today? yes or no. >> just yesterday, the actuary for the social security administration confirmed that

the president's executive actions that he took late last year would improve the prospects. >> what period of time? >> over the -- >> over the life of the individual? you're not counting the times that these individuals would be drawing their benefits, mr. donovan. you're counting a short-term window in which they would pay in, creating a short-term surplus of money or additional flow of money, but you're not counting when they draw out. it's going make the social security hold deeper. it's going make it harder for us to save social security and medicare and you know it. and you're suggesting to the american people directly directly different than that. it's wrong. >> senator, you don't need to take my word for it. the actuary -- >> senator's time has expired. >> along with cbo suggests the action by the president will reduce. >> senator whitehouse.

>> thank you very much chairman. >> good to have you here. could you please tell us a little bit about the part of your budget document that is called federal budget exposure to climate risk? and what you see and anticipate in terms of costs of taxpayers will bear from our failure to address a climate change problem? >> what we've done for the very first time is to very specifically quantify as much possible what we have seen over a number of years and what we expect to see going forward in terms of what we expect to see. we tried to focus on programs like disaster assistance. fema, flood insurance, property

insurance is another area where we've seen substantially increased edd claims as a result of more extreme weather and i think the basic analysis is that it is foolish for us not to act and both take further steps to reduce climate change, reduce greenhouse gas emissions, but also to prepare our communities for the more extreme weather we're seeing. not only will those save lives but dollars as well. fema shows that where we invest in protecting our communities, we get a 4-1 return in future savings. climate changes, focusing on climate change is a wise fiscal policy, as well as for other

reasons. >> turning to health care, i think most people agree that health care cost is really what's driving our long-term debt and deficits. do you agree? >> it's a measure of what's driving them, yes. >> health care system in the united states that is gro tes kly expensive per capita compared to any other nation. do you have expectations to what the increases announced in medicare particularly for the amount of the payments in medicare that would be taken off of wasteful and expensive fee for service payments and on to more efficient equality based payments will result dm. >> we have not included in the budget specific savings that come out of the delivery system reform improvements. secretary burwell announced. significant additional savings literally hundreds of billions

if not trillions of dollars of long run savings that could have come out of those delivery system reforms, unfortunately, it's just too early at this point to reliably include those, so we've included over $400 million of savings that is quantifyiable quantifiable. if we keep pushing on reform the bipartisan sgr, the dot fix we've included, we have lots of potential to dramatically increase savings and lower cost growth in the future. >> and finally, with respect to the plan that the budget announces to go after offshore parking of funds by corporations to avoid american taxation, so call repatriation, your program appears to have three elements

to it. one, it's mandatory. two, it's, there's a 14% opportunity to repate rate the money and future efforts to park revenues offshores to avoid taxation will be faced with a 19% tax. can you explain why those are important policy considerations when we go about dealing with repatriation? >> absolutely. first of all, you're right. unlike the voluntary tax holiday that some have proposed, which we oppose, we are proposing a mandatory toll charge of 14% on the are roughly $2 trillion of earnings that are overseas and have not been taxed. when you do it as a voluntary measure, you encourage the future offshoring of profits and in fact, cbo would likely

support that with a substantial cost, not revenue. our plan on the other hand raises enough money to fund a six-year reauthorization of the highway trust fund at 40% higher levels than we're currently funding, so it's a significant opportunity to invest in the middle class and infrastructure. second -- my time is expired i'm afraid, so i will leave the witness hanging. if there's anything else you'd like to add by way of response. >> i think it's critical that we have a policy that fixes this system going forward as well. creates a level playing field and encourages american companies to locate here and to bring jobs back here as well in our system would do that. >> thank you. >> thank you, mr. chairman and mr. donovan for being here today. i want to go back to initiative the chairman raised with you which is the question of whether

this budget helps to reduce our national debt. i believe your answer to that question was focused on the size of the debt in relationship to the economy. the gdp, which i understand. i understand the argument and i understand the analysis. it's something that we talked about a lot in budget circles over the last few years. the question i have though is does that really justify a budget that continues to frankly borrow hundreds of billions of dollars every year? and to spend that money in an effort to as you indicated, to stimulate the economy, invest in things that should help the taxpayers and the people of america, but never balance. i think my question, my question is this. is it possible for us or any nation to simply spend in deficit every year, perpetually, borrowing money and never balancing and to keep ourselves

in a prosperous posture? can we spend ourself perpetually sbroo prosperity on borrowed money? >> senator, i think we've obviously talked a lot about this issue of what the right measure is. i think a different way maybe to look at it that i think has been key for us in looking at this issue, the most important measure of a budget is whether it invests in the things that are going to grow our economy going forward and meets our obligations to our seniors. we're facing an unprecedents graphic challenge in terms of the baby boom retiring and i think it's particularly important when you look at it in that context, that over the next not just ten years, but 25 year, which our budget does, that the key tests of sustainability is first to make sure that debt is a share of gdp, is stabilized and is coming down.

so, are you saying though that if we have our debt in relationship to gdp, going down, that we are in a sustainable budget posture? >> i think at a time when we're facing unprecedented demographic challenges, that that is the key fiscal test. second -- >> because our time is so short, i want to go over some numbers with you just to show you what i'm looking at in this budget. using your number, we look at nondefense discretionary spending. it's about 14%. that is projected under your budget to drop to just 10% by 2025. if you look at defense discretionary spending, which is today about 15.7% of annual outlays, it's projected to drop to about 10.5% of total federal outlays in 2025.

but if you look at interest expenses on our spending, which are today, about 6% of total federal spending, they're projected to rise to double. more than double. to 12.7% of federal spending in 2025. my point is we're seeing our defense spending, our discretionary spending being squeezed and we're seeing the interest on the national debt double over the period of this budget window. and that dynamic, it seems to me, is one that shows the inability to just continue to mount a national debt that will squeeze out the potential spending that you talk about that may be needed in other areas. is that not something that we must address by controlling the spending and frankly, by balancing the budget? >> well, senator, i think we agree that it is critical that we make progress on the deficit and the debt. we've actually made substantial progress during the president's

time in office. i also think it raises the issue that this is something we can't just look to the spending side. for exactly the reasons you just described. we're already at discretionary spending levels share of the economy that are as low as they've been on record and we think that's where we have to look to the revenue side as well and i hope that we can work on a bipartisan basis to have a balanced approach to deficit reduction. since 2011, we've achieved 80%, four out of every five dollars of deficit reduction and our measure is over $4 trillion thus far. 4 out of 5, this comes from spending reductions and even with our budget, 3 out of $5 of deficit reduction would come from spending. reductions. >> thank you. >> we believe we need to look at both sides of this equation as well. >> i understand. and my time is up. i'll just say, when i'm a member of the bolles simpson commission

as you know and worked with others the gang of six and others to try to find a solution here. when we were working on that the national debt was around $11 trillion. it's $18 trillion and is going to go to 26 plus trillion. i don't see how we can make the argument that as long as the economy keeps growing, we're ok. i don't see that we can avoid trying to balance our budget and control this debt. >> senator warner. >> thank you, mr. chairman. and honored to see you. you've made a smooth transition from hud secretary to omb director. i want to actually pick up on certain things that senator crepo said. first, i want to commend you for getting rid of sequestration which i've always called stupidity on steroids because he pointed out, even with sequestration, remove domestics

discretionary is down, it would be much lower without getting rid of sequestration and as somebody again who can pride myself in saying i've been in business longer than politics, investing in business, staying ahead of the competition. for government, that's education, infrastructure and research. and our current american business plan is a faulty one and part of that is driven by sequestration, so i commend you for getting rid of that. i would argue that though and i do acknowledge bringing the deficit down as a share of gdp in the appropriate range. i don't believe 72% debt level at the end of ten is sustainable. just a few quick facts, which i know you know, but a few of these, my colleagues might be interested. at $18 trillion, 1% increase in

interest is rates, takes you to $120 billion a year off the top. that's greater than the whole department of homeland security and the department of education combined. at the end of ten year, even within this budget window, this is where i think our colleagues on both sides may not want to be here at that point, will be spending more on interest than we will on total defense or total domestic discretionary. and while i commend and believe revenues have to be part of the mix, i remember spending a very long new year's eve, great colleague, but not necessarily the people i wanted to spend new year's eve with, to fight to get $600 billion in revenue so we didn't go over the proverbial fiscal cliff and go into unknown financial abis. i might point out we fought all that, $600 billion, we have had

two one-time sources of revenue that have more than topped that number. we're at $420 billion in extraordinary profits from the fed. now, we can argue about fed policies being good or bad, but i don't think anybody thinks those kind of profits are going to be projected forever and while cbo and omb count the money differently, a bill that you, senator, and senator corker and many others have workeded on on the repayments on fannie and freddie, $220 billion at this point, you book that as revenue. so, if you take, get rid of those $650 billion plus of extraordinary one-time revenues, our deficits are actually worse than the appearance would look at this point. now, where i would differ and many of my colleagues on both sides, one has to be taken, i think that has to be a question,

but you've got to get to the revenue side. this is where i may not agree with all of the methodologies or spending purposes, but revenues have to be part of the mix. cbo has recalculated the numbers and i think senator enzi understands you've got to have a reference point and percentage gdp is what everybody at least agrees is the common area. anybody who says we've got to look back at 50-year averages, they're 17.4%. we've never balanced the budget on that. and no matter what you cut with a demographic bulge you pointed out, you're going to have to get revenues up. the only time we balance the budget in the last 50 years when revenues under the new calculation between 18.8 and 19.9 and you at the end of ten get you about 19.3, somewhere in the midpoint, so, i think this is a debate that's going to continue. i think we have a little bit of breathing room because of hard action actions you've taken and the congress has taken, but anyone that thinks we're going

to be able to solve this problem without revenues being a significant portion of the mix and that any kind of lookback one basis is going to get us there because even with entitlement reform, we have demographic bulge, so i'm running out of time. i wanted to make that statement. the quick point i will make is you've raised repatriation as a one-time payment for infrastructure. congressman delaney and i are look ing looking at that. i would simply ask you to comment on that. is there some more modest proposals? we had a bridge pact last year that also dealt with infrastructure financing and do you think we need to finance those infrastructure financing programs in a single place? >> so, good, i'll be happy to do that. >> thank you for doing that. senator graham. >> thank you, mr. chairman.

i would expect when we coour budget and i know we will under senator enzi's leadership, that you'll probably like our budget about as much we like yours. but at the end of the day, there seems to be some common ground here. the idea that sequestration needs to be fixed, i agree with you, mr. donovan. at the end of the sequestration as we have it today under the budget control act, what percent of gdp will be spent on defense? >> i don't have that number in front of me. if you do, please tell me. >> between 2.3% and 2.7%. in terms of historical averages since world war ii, what have we been spending on defense? >> significantly higher than that. >> do you agree that the threats in the world don't justify going to 2.7%, 2.3%? >> we fully agree and this budget makes clear that sequestration is a threat to our military readiness and we ought to reverse it. >> back to senator sessions'

questions, you do spend more than the budget control cap. you say you account for it by off setting in mandatory senator portman may challenge that a bit, but there's a desire by some of us on the committee to replace sequestration, at least most of it, with a revenue component and a mandatory reform component. i just want to be in the camp of saying i'm not going to support a budget that continues to gut the military. and it's just not the military. it's the cdc, nih and a lot of other programs, so i support the idea you're trying to achieve. i just don't know if i agree with the methodology. about the workforce. how many retiree, how many workers do we have for a retiree today in the work force? >> it's three. >> when i was born in '55, it was 16. 16. unless there's a baby boom among

60-year-olds, i think we're in trouble. in 20 years, it goes to two. does that make sense to you? >> absolutely. >> that we're living longer and having fewer children. a lot of western nation face this problem, is that correct? >> absolutely. >> doesn't that cry out for rational immigration reform? where do the new workers come from? >> couldn't agree with you more, senator. >> for those who say on our side or any other side that we're flooded with workers, you not looking at america the way it is and you're obviously not running a business because if you're in the business world, you're having a hard time getting high skilled workers and if you're in the manual labor world, you're having a hard time getting workers, so i just reject the idea that we don't need workers. we do. we just need to pick the workers. we need a rational way of choosing an economic based system rather than just chaos. when we talk about america in the future and the challenges we face, probably the biggest challenge dmes click is the retirement of the baby boom

population. there are about 80 million of us. that's why you need immigration to replace us in the workforce but is it fairly accurate that by 2042, if nothing changes, we'll be spending all the money we collect in taxes just to pay for the medicare social security bill? >> sounds about right. >> so, just pause for a second. unless something changes, all the money we're going to collect in taxes in the future, whether there's 17.5 or 19.whatever, is going to go to pay for two government programs. medicare and social security. there will be no money left to invest in infrastructure. no money left to invest in the military unless you have massive boar borrowing. do you agree with me that the

challenge of or generation is to find a way to change that dynamic to make medicare and social security sustainable without taking all the revenue? >> i guess i would put a few caveats on that. one, we need to do that in a way that keeps our promises to those who have paid into the system. >> i agree with that. we're not talking about divesting people. we're talk inging about long-term structural changes means testing benefits. adjusting the age of retirement, but we need revenue. so, what i'm willing to do is work with you and other members of the committee to find a way to structurally adjust these retirement programs. in terms of revenue, if you took all the money the top 1% made, would it balance the budget? the answer is no. >> i don't think it would. >> if you took every penny out of the defense department, would it balance the budget?

>> it would not. >> ok, so you're not going to tax your pay into prosperity or cut your way into prosperity. you have to reform entitlements to sustain an america that's not going to become greece. does that make sense? >> it does and in fact, our budget has $400 billion of savings in medicare and medicaid and i couldn't agree with you more that immigration reform is perhaps the single most important thing we can do to improve the solvency of social security going forward. it saves close to a trillion dollars over 20 years in terms of reducing deficits. >> senator murphy. >> thank you, mr. chair and thank you for your presentation, mr. donovan. if we step back to the central theme of the budget, you're laying out a vision in which right now, under our economy, we have high income inequality. high wealth inequality. all new income is is going to the 1% or fraction of the 1% and you're saying and i correct me if i'm wrong because i want to summarize this, that we can proceed to invest more in education, ranging from early childhood through higher education education, we can invest more in infrastructure, we can invest more in r and d

and that your budget presents a way to pay for these so that you actually have a net decrease in the deficit of current law. >> that's correct. >> i want to applaud you and the president for laying out a vision that changes the path our nation is on. right now. imagine that you have a family a large family of 100 pea people and that family is work ging together, but all the income that comes into that family goes to just one member of that family. i think the balance of the family would feel that that was not an equal opportunity arrangement. would you agree?

>> i would. >> and it would be an arrangement in which that one member of if family would pres per greatly, but everyone else who has basic challenges and hopes and opportunities would find those closing because all the revenue from that family is going to just one member. and i look at the p conversation from my constituents who are seeing the incredible inflation in tuition for higher education. and they are looking at that and they are saying, why is it that our father's generation managed to provide lower cost higher education to us so that we might thrive and that we have been fail ng that and you're saying we need to correct that. we may need to open the doors of opportunity to higher education. >> absolutely right.

in fact, the president's proposal to make two years of community college free is really baseded on the idea many thought decades ago that we couldn't make high school universally available. we need to make at least two years of community college available and this is a critical step in terms of doing it if we're going to prepare our workforce for the future. >> i had a chance to give a commencement speech to three colleges last year and i think that the working class families who are represented there both those who were going through college and the families who came to celebrate their graduation, would believe that was a pretty good idea to open those doors of opportunity wider. >> absolutely. and look, it has to begin as you know well senator, from the very beginning. whether it's quality prek programs, insure inging that

american families can pay for child care. that's why we expand the child care credit up to $3,000 per family. it's a broad range. >> let me go back to one part of the plan, my family of 100 members i was speaking of where one member of the 100 is getting all of the new revenue the family is generating. but also, that one member out of the 100 is getting fabulous tax breaks and you are proposing that some of that wasteful spending in tax give aways needs to be adjusted for a fundamental issue of fairness and to invest those ibs instead in a better deal for the middle class. >> that's exactly right. as our tax system stands today there's hundreds of billions of dollars each year in capital gains. that avoid taxation because of this current system for what we

call stepped up basis in capital gains. similarly, on the capital gains all we're saying is let's go back to the 28% rate the country had under president reagan and we think that will establish those are two steps of many that could begin to establish more fairness to the tax code. >> thank you very much. >> senator johnson. >> hey, mr. chairman. welcome back. i want to spend a little bit of time, some short answers on things we agree on. you talk about economic growth as senator sanders did. we had steps of major -- from 2009 to last fiscal year, we've actually increased revenue by $916 billion per year. >> i don't have that number. >> from 2.1 trillion to $3 trillion. over $900 billion. 874 billion was due to economic growth. only 42 billion was due to that

fiscal cliff tax deal. i'm trying to point out that economic growth really provides the growth senator warner was talking about. we need to concentrate on that. to personal size, it's important for us to point out why debt is such a problem. if you're a family in debt over your head, it's kind of hard to grow your personal economy because the debt collectors are knocking on the door and anything past spending is really spent to service the debt, isn't that correct? >> if you're not investing in education. >> you don't even have the money to invest in that because sop of your income is being spent just servicing the debt. is that what happens with a family and same thing is true on a national basis. one other thing. if you're going to solve a problem, isn't the first step to solve a problem admitting you have one? and then properly defining it? would you agree with that?

>> i guess i would say our budget takes on -- >> i'm just talking about solving the problem. you've got to admit you have one, correct? let's go over the charts. i would think that we don't have just a ten-year budget window problem although i realize what your budget is confined to. the baby boom generation, 10,000 people today, we've made all these promises and we don't really have a pay to pay for them and by the way, i have to challenge senator sanders. we want to save social security and medicare, that's our goal. make it sustainable for future generations, but this is a chart of the cbo's alternate fiscal scenario in terms of deficits over the next 30 years. about $9 trillion, you're saying 8 trillion the first ten years which is the budget window we're talking about now. then 31 trillion in the next decade. 87 trillion in the third decade

for a whopping total of $126 trillion in deficits over the next 20 years. that's pretty accurate, correct? >> i think that's before our policy, which is i said earlier, not just over the ten-year window, but the 25-year window would stabilize debt as a share of gdp, which is again, this doesn't measure it as a share of the economy. cbo says the right way is a shared measure of the economy. >> if you look at that $126 trillion. that's comprised of about $15 trillion of deficits in social security. about $35 trillion in deficits to the medicare problem and then $71 trillion of interest on the debt. ok? so, again, talking about or responding to what senator graham was talking about interest starts dwarfing all the other problems. i realize these projections, so, we have to kind of compare you know, how likely is this and all i really have to go on is on history. we've just taken total federal spending over the last 30 years, compared to this 30 year fiscal

scenario just for reasonableness, so our entitlement, we spent about 7.9% of gdp on entitlements, we're looking at about $13.3 trillion. when i was working with sylvia white house figures were about 13 trillion. 3.5. all other spending, 6.4 over the last 30 years, 6. then of course, interest is is a plug. to me, if anything, the ultimate fiscal scenario might be understate understating the size of the problem. my question to you in your budget deliberations, are you looking at the 30-year problem? and if you are, what has the president included in his budget to address the long-term unsustainability of social security and medicineare which produces $71 trillion of interest payments. >> so, three key things that i

think we could all agree are really driving these deficits in debt over the long-term. health care costs. a lack of enough workers as we talked about earlier. relative to the number of retirees that we have and having adequate revenue and all of these key things that we attack in our budget, the impacts grow over time, so, whether it's the capital gains reforms and others that grow substantially in the second decade and beyond immigration reform, which grows are from $160 billion of deficit reduction in the first decade to 700 billion in the second decade and more beyond that, or many of the health care changes, the 400 billion in the first decade grows to a trillion dollars in the second decade, so, we are absolutely focused on making smart choices that would grow and impact over time with a focus on the deficit. >> you're talking about a trillion. thank you, mr. chairman.

>> senator baldwin. >> mr. chairman, i would ask that i'd be allowed to offer a longer statement for the record, but to jump -- >> in writing? >> yes. >> without objection. >> the writing doesn't count against the time clock here. thank you, director donovan. i'm pleased to see that the president's overall budget focus on an issue that every one of us cares about deeply here, which is ensuring that every american has a chance to share in the benefits of economic growth in this nation. before i get to a couple of specific questions on areas relating to that growth, i wanted to outline two areas which i believe fall short that haven't been given much attention and i hope our committee will give it great attention as we move forward. the great lakes are 84% of north

america's surface fresh water and over 20% of the world's surface fresh water. but yet for a second year in a row, the administration's recommended cutting funding for the great lakes restoration initiative, this time by $50 million. i know for myself and many of the other senators who represent the great lakes, this is really a nonstarter and we have the warning signs all around us right now, whether it's what we saw last summer in toledo, the threat of invasive species and the great lakes are such an incredibly important asset. so, i look forward to working with the committee on that, but i feel like this is a way in which the budget has fallen short. another area that i wanted to just quickly touch on is critical access hospitals. you know, the administration has placed a priority on access to

health care. yet rural access is is a major challenge. many of us represent states with many areas, many rural areas and the economics of rural health care are unique. and the cuts that have been proposed for critical access hospitals i think will create real harm in our communities. now, back to some specifics on ways in which this budget can spur economic growth, we've seen this stock market back in recent years, but wages have remained stagnant as the ranking member outlined in his opening remark. in many cases, fallen in adjusted dollars and while this is obviously a huge problem in the aggregate, when you listen to the stories of people trying

to get ahead, it is heartbreaking. in my state, one of the key engines of economic growth, one of the key ladders to accessing the middle class is our manufacturing economy. our manufacturing sector and i was pleased to see that there is continued focus in this area in the administration's budget proposal. it was two years ago in this committee that i offered an amendment on the issue of manufacturing institutes across the country. it was accepted on a voice vote and in our last fiscal visit 2015 funding legislation, it's now signed into law manufacture across the country ft i was proud to support that effort. you also have an initiative called the american made scale up fund to help american made manufacturing technologies reach commercial scale production in the u.s.

i would like you to talk about the seven new institutes proposed to the president's budget. what areas are you going to focus on and secondly, explain the scale up fund. how does the administration envision coming about and how do you make sure it's not duplicative of other programs? >> senator, thank you for asking about this. this has been a bright spot in our recovery. more than we've seen in decades in the u.s. and specifically thank you for recognizing the great bipartisan work that was done. we were very excited about it, to get these manufacturing institutes authorized. what this would do is provide both discretionary and mandatory funding to get up to the full 45 institutes that the president called for initially. and those are the departments of commerce, agriculture, defense

energy, would all be engaged in institutes specifically targeted to areas they are working on whether clean energy, new agricultural advances and others. in terms of this start up fund what it is really targeted to that we have not done in other ways, we do great basic research in this country and in fact, the budget proposes to sail up our investment in basic research. what's missing, we think, is a public private effort that would take the most promising technologies and get them to scale where we could really do manufacturing at a scale that would create new industries and drive large-scale job growth, so the idea of this start up fund is to provide a credit subsidy to use the technical term in our budget that would allow us to raise private capital towards these promising technologies and

scale them up to really put them into practice and create hundreds of thousands of jobs. >> thank you, mr. chairman. i wanted to ask you, does interest do anything for us? the interest that we pay, does it do anything productive for us? >> no. >> so, if it does nothing productive for us, aren't you concerned when you look at the proposal when we get to 2021 which isn't too far off, we're already spending more on interest than defense and we have had the decision previously that as we look at 2025, interest payments essentially are exceeding as we look at defense and nondefense, we're in a position where that's a huge chunk of 12% that does nothing for us. of what we're spending money.

>> so, i think the fundamental point you're making is that the budget needs to take steps that reduce our debt so that interest payments are lower than they would otherwise be. >> are you concerned at all when you look at the trip, over tripling of the interest of doing nothing for us over the ten-year window, which goes from 229 billion we're spending in interest now, to $785 billion of doing nothing for the american people, no infrastructure, no education education, no defending the nation. nothing. >> and that's exactly why our budget focuses on and achieves $1.8 trillion in deficit reduction and in the long run, puts debt in the economy on a stabilizes it, puts it on a declining path. >> let me just make clear so the

american people watching this, hearing that you think that stabilizing in a good scenario is spending, tripling plus our interest payments over ten years, getting us in a position where we're spending more in interest than defending a nation, spending more in interest than we are on education infrastructure protecting the environmenting all the other things that the federal government does, so, you and i just have a disagreement as we look at this, whether this is a productive way to look at things and i know that the american people will decide themselves on what they think about that. i wanted to ask you about the solvency we've talked about the demographic problems we have with medicare, social security and the numbers that i've gotten is we've got the demographic problem challenges we look at it as very immediate.

it's more than a demographic challenge when it comes to the social security disability fund because as i understand it, the trustees have said that the fund will be exhausted in 2016, which is next year. does the president's budget do anything to address the structural issues or the fact that this disability fund is going to be exhausted next year and i'm worried because the people that really need this, if we ignore this, they will only be able to pay 1% of disability benefits. do you do anything about that? >> we're very concerned as well. the most simple, direct step that's been taken many times before under both parties is a small reallocation of the payroll tax. and we ought to take that step and make sure that those who have earned these benefits get those benefits. >> well, let's, and i don't mean to interrupt you because i don't have a lot of time.

so, what you're doing is basically ignoreing the fact that it's exhausted and transferring the money. let's be honest. when you say a small allocation, that's transferring the money yet it's a system that's going insolvent, so we're transferring the money from one pot to another. we're not solving the problem. >> let me finish, please. the combined funds remain solvent until 2033, but we are taking steps on the disability side specifically. we have a number of steps in the budget that will ensure those who are due the benefits get those and a number of pilots and other efforts that will ensure that anyone who can work is able to. and so, we take steps there and in the longer run on social security, the demographic challenges, comprehensive immigration reform is one of the most important steps we can take

to make sure that social security is is insolvent going forward. >> as i look at this budget, i don't see steps in here that are going to solve this problem by 2016. or any real meaningful steps but since you've just said they are in there, i would like a specific answer to me question for the record. thank you. >> happy to do that. >> senator kane. >> i would echo a lot of my comments from the senator in chicago. it's going great things for the chinese who are using it to build highways and airports and such. i find myself in agreement with both sides of the debate and i would suggest mr. chairman it would be a useful exercise to convene this committee in workshop to get us all together to have the kind of discussion we're having in the context of this hearing about revenues, debt, deficit interest and threats to the economy. i think we could all benefit

from sharing those views. i agree with my colleagues who talk about debt and deficit. we cannot ignore interest. and the fact that's been pointed out numerous times, interest will exceed defense, interest will exceed, almost equal social security. it's a gigantic expenditure that really does nothing for us and it's going to heat up autothe up all the programs everybody likes. whether you like defense or head start or whatever, it's going to crowd those programs out, so i agree with that. i think that's a very debt, the debt and the deficit is a serious problem and to me, lowering the deficit is progress, but not an answer because the hole is still getting deeper, i think we really need to think about that. on the other hand, as senator johnson pointed out, the best wii the get out of this mess is through economic growth and there are several strategies that involve spending money.

infrastructure's probably the most important one. lincoln at the age of 23 when he first ran for the illinois legislature, put out a pamphlet on investing in roads and waterways. it was an infrastructure plan because that's the basis upon which the economy depends and we are doing a woeful job of underfunding our infrastructure at this time. the other big way to grow the economy is through education. the biggest economic stimulus program the federal government in the history of the united states was the gi bill. after world war ii, which sent millions of people to college for the first time and really expanded was the basis for the expansion of the middle class. both of those things involved money. and expenditures, so how do we get out of the problem, how do we grow the economy, make the expenditures that we have to make at the same time, not keep digging ourselves deeper into

the deficit hole? and it seems to me there are three or four strategies that we ought to put together into a comprehensive strategy. one, is we have to look at federal expenditures and make sure they make sense and that they're not duplicative. the idea that every one made is perfect and good and useful and ef kay shouse, that doesn't pass the straight face test. two, we have to look at the structural health care costs. that's one of the biggest drivers of the deficit is health care costs. it's not national parks defense. it's the sheer cost of health care costs. steven brill has written a whole book about how expensive it is to be treated in this country, twice as expensive per capita as anywhere else in the world. the reason health care costs are expensive is that they're expensive and we need to focus on structural changes, which i know the affordable care act does, but that has to be a national priority.

if we continue as we are and let health care costs fee for service continue to drive the kind of escalation, which unfortunately may recover shortly, we'll never get out of this hole. and then the next strategy is some kind of revenues. we can't deal with the demographic problem if don't look at revenues. my concern and i'm interested in a balanced budget amendment. i think something that puts constraint makes sense. on the other hand, if you add the no balance amendment and no tax pledge, it creates a ratchet effect that you will never solve these problems and squeeze out everything else as you pointed out, but payments to the elderly. there's got to be some relief built into that and that's where i think we need to have some discussion about revenues and i don't know what the right number is. whether it's 19%, 20%, but we have to take account of the fact we've got this big in the python, which is the retirement of the baby boomers and that's

going to end at a certain point, by the way, somebody said in the long run, a famous philosopher said in the long run, we're all dead, but the demographic reality of the next 25 years has got to be dealt with and we can't just say well, we're going to maintain taxes at historical levels and therefore, meet all of the obligations to the national defense and cover the cost of our commitments to the elderly. so, it seems to me it's got to be a combined strategy of ago knowledging the problem, number two, senator reductions in expenditures. health care costs reductions. revenues, probably from tax expenditures and investments in proven job growth strategy like education. i did want to make one point. congratulations in getting us a budget on time. that hasn't happened before in

recent history and i think you are due some credit for that. >> thank you. >> mr. chairman, could i take a moment? >> his time is expired. you can send us your answer. >> happy to do that. >> senator corker, we're going to have a vote that we're trying to get everything in before. >> thank you, mr. chairman and appreciate senator king's comments. i want to say i don't want to volunteer to die quickly to solve the social security problem, but i know that's a part of the solution. so, to our -- >> i didn't mean it that way. >> thank you for bringing the budget in on time. i think the focus on percentage of gdp, 74.2% in keeping it steady, what we see happening year after year after year is people don't take into account things that happened like happened in '08 and '09. even though that's what you project to occur, that's under

semi rosy circumstances and things will happen in the interim. that's what happens in the world we govern and i happen to think a balanced budget is one that keeps our nation strongest. i think that you know, the greatest threat the our national security is our inable thety to grapple with these issues. cbo director was in here saying that look, debt and deficits harm standard of living of americans. and yet, as projected in your budget, that just continues. it also slows growth, especially when you get to where we are in the cycle, where we're having almost full recovery. that hurts the standard of living of americans, so basically, the way this budget is laid out, what we're doing if we were to take this up, is we'd be hurting the standard of living of americans over time, more and more and more. i'm a little disappointed that

you guys took a powder, if you will, on the highway program. basically we haven't solved one single problem since i've been here. not one. you know, we keep kicking the can down the road. i've been here eight years. you've been here six. we have not solved one single problem. and instead of solving the infrastructure problem, y'all took some, an easy, some easy money. probably won't work that way, but i do wish that y'all had look at that in a more serious way and put it on a steady pattern and i think all of us know that putting a lot of money quickly into infrastructure, more than has been in the past usually candidly leads to waste and not planning things out in an prominent way. spending has been over the last 50 years, at 20.1% and under current law, mandatory spending will be at 14.2% at the end of ten years and your budget, 14.8

and that obviously as everyone has said, creates huge problems. for 50 years, revenues have been 17.4%. and spending's been at 20.1. that's been with republican congresses, republican presidents. democratic congresses, presidents and so, i actually agree. we have a revenue problem. and a spending problem. and as senator johnson mentioned, the best way to generate revenues is through robust economic growth, but we certainly have a problem on both sides. it's my belief that we need to go through good periods, times of balanced budgets and actually surpluses and then in bad times, there may be a need to have some deficits, but what we continue to do is bank on deficits forever. so i just have one question. i know this is generally speak speaking. sort of a wish list. some people might say an idea

budget. i don't want to be projortive when i say this, but i saw a large stack of budget documents on the table on one of the papers and i thought how sad wasteful. those are all going to sort of be in the circular file after today. it's an aspirational budget that's not going to be adopted. it says some things you'd like to see happen. my question is this. republicans can pass a budget, have to pass a budget. have to pass it in both bodies. and if we do it alone, the likelihood is we will nibble at some of these issues. but we don't solve the problem. because the president then will override the things that we may put forward. so, for us to really deal with

these issues, the opportunity to lay out what he would like to see would happen but knows isn't, do you discern any desire on behalf of the administration to sit down with all of us and work toward a budget proposal that is painful to all, but really solves the problem? >> senator, absolutely. and in fact we constructed our budget building on really what was a bipartisan precedent in marie ryan which said we know discretionary spending is too low, we know that in the long run that our challenges are on the mandatory and on the referendum side and what we ought to do, and this is what our budget does, is more than fully pay for a dollar for dollar increase on the defense and nondefense side in discretionary spending, with

reductions on the mandatory and new references. that is the model that we used. we think it is a model we can build on. it is what got us back to regular order on budgeting and it is what created more jobs because we got rid of mindless austerity and mindless crisis and we are ready in our budget because of bipartisan discussion this year and use it to solve our short-run and long-term challenges. >> thank you, mr. chairman. >> senator purdue. >> thank you, mr. chairman. mr. donovan, thank you as well for providing this budget on time. i'm the rookie here and the benefit is -- you've run out of senators here today. but i would like to submit some questions later though in writing. but i have one question. and that is the severity in this debt that it is sustainable at

about 95% of gdp. i personally disagree that gdp is the denominator and i believe growth should be the denominator. this is a quote from president june 3, 2008. the way this administration has done it is to drive up our national debt from the first 52 presidents, the first 42 has driven up the debt, that is irresponsible. any 2010 -- in 2008 we added $4 trillion to roughly a $6 trillion debt. since 2008 we've added $8

trillion to that debt and this budget takes it up to $26. the problem is right now at $1 trillion -- and this is the way -- i'm really concerned about the forecast of interest rates. if you look at the sensitivity analysis and took the interest rates, we would already be paying close to $1 trillion in interest today. i just don't think that's sustainable on a $4 trillion revenue source. so when i look at this thing -- and that's one problem. the second problem is these future unfunded liabilities that senator johnson highlights and we really don't address, you comment add couple times that the social security medicare problem really accelerates in the second decade -- and i'm really concerned if you look at those things those liabilities added to what we have right now we can characaterize any way we want to. but look at it per household which is how things get paid, that's over $1 million per household in america today.

i don't think that's sustainable. social security and medicare and medicaid pension benefits and our i want rest payments, these are all contributerd. but it brings it home for me and my constituents. so my question is this. looking at the second decade and the third decade, and kicking this can down the road, how should we look at a debt that's 95% of g.d.p. is being sustainable? it occurs to me that this is a national security issue. i don't say that light lifment right now we have a treaty. one of those is taiwan. that treaty says if the country of taiwan is invaded by china we have to defend taiwan. the problem is we have to borrow the money from china to.

that's an anecdote that's not lost. my constituents want to know when we're going to balance the budget and how we get to the long-term budget. the word sustainability is very tricky. i get it. you said this is sustainable at 95 and declining. i disagree. i don't think it's sustainable. but i would love to get your opinion about why that's sustainable given the vagaries of the capital markets around the world and the volatility of the i want rest rates that we've seen. >> first of all senator, recognize that when we came into office we were facing enormously difficult fiscal circumstances and we have brought down the deficit by more than two thirds with a broad set of steps and that the steps that we've already taken have substantially reduced long run deficits and debt. whether it's bringing down health care costs, a range of other steps that we have taken

on economic growth. and as i've said earlier, we agree that we need to focus on those long term steps and reducing the growth in health care costs -- >> i'm sorry to interrupt but would you -- you still think that 95% of g.d.p., that that's sustainable? i'm talking in the second and third decade out here past our projections. >> our budget is not at 95% of g.d.p. under current law it would rise up to 81 prtsdz of g.d.p. our budget changes that brings it down in the 10-clear window to 73%. and would actually keep it stabilized throughout the 25-year window which is really as we talked about earlier, when these demographic challenges are hitting us most strongly. and that's why i say it's sustainable. >> thank you mr. chairman. >> senator portman who used to

be in your position. >> as he reminded me at my confirmation hearing. congratulations, you've been nominated to the worst job but the best job. >> and my worst day was the day you're experiencing right now. and let me start by saying you're doing a fine job defending a budget that i think is very difficult to defend because i don't think it comes close to meeting the challenge. and i think you've done a good job defending it but we have to set the record straight on a few things. this notion that this budget is all about -- in response to senator corker's question following the ryan-murray proposal of less mandatory spending and breaking the caps and more discretionary spending. it's not. i think perhaps because you want the last few years to look good this is the reality. and i will give you the numbers. i'm not going to ask you a question here because these are what the numbers are. spending on the discretionary

side actually goes from 6.5% now down to 4.5% of g.d.p. defense goes down from 3.5 to 2%. to make the numbers look better, so you know it's $ trillion in new taxes. it's $1 trillion in new spending. you said in response to several of the questions including senator session that is no mandatory spending is less it's more it's $885 billion more in mandatory spending. i'm happy to share the charts with you but that's what it shows. so i like your theory. you say you guys are following. but the budget doesn't meet that standard. you know i know we're going to have some big differences in these two budgets but we've got to figure this out. i think it's very obvious what the problem is and i think you guys skirt it. i'll ask you a bunch of questions. one, you're talking about you

need to raise more revenue. you do. you have over $2 trillion in new taxes. over the last 50 years is it true that our taxes as a percent of gp have been just under 18%? is that about right? >> roughly right. but as i think it was said earlier, at the only time that we balanced our budget, we actually had revenues that were up as high as 20%. and so particularly with the demographic challenges we're facing we think that the revenue levels that we have are the right ones. >> so just before we had this recession 2008-2009, we had deficits of 1.2% of g.d.p., 161 billion, and we had 18% in revenue to g.d.p. and by the way, this whole notion that you guys have done so much better than you expected to do, the cbo baseline that you inherited in 2009 which already took into

account the recession as you know. it included all the war funning -- in other words, it had much higher levels of defense. the baseline there that cbo gave you had deficits that were half of what have owe cuffered, 3.4 trillion. this year's deficit is double what cbo projected for 2015 during that time. i don't think by the standards that were set by the baseline then including the recession taken into account and all the war spending, that it's fair to say that this has been a break thru. that we've made progress. but let's continue on these questions because i think the problem is pretty obvious. and i know you know what it is and we all know what it is and we aren't addressing it. you take revenue up. am i correct that discretionary spending, what we call other mandatory spending is also

falling as a percent of the economy over the long term? that's a yes or no. that's yes. you know that. >> well, i think it makes the point that we are finding places particularly on the mandatory side where we're rue deucing spending. and i want to respond to your earlier point that we are reducing spending on the mandatory side. we're making room. but with $400 billion in reductions in medicare and medicaid tens of billions of dollars in program integrity savings crop insurance. >> on all those entitlements, which as you know is the issue as well as social security and interest on the debt, you take it from increasing 105% health care entitlements over the next 10 years to increasing 99% over the next 10 years. i mean, obviously that's the issue. so discretionary spending goes down.

it doesn't have more discretionary spending. it has less. it does less for both defense and nondefense. health care entitlements do go from 105% to 99%. but it's 7.8% now it rises to 9.8%. i know the discussion earlier was about the 20-year number that's really scary because it's unsustainable. so we're heading toward record high tax revenues. individual tax revenues go to the highest level ever. that's just what it is. near record levels and other mandatories, other variables driving the record levels are entirely these incredibly important vital programs that we have got to save for future generations. and if we don't do that, i'm afraid we will have let down the people who have voted us to represent them. thank you. >> thank you.

that to your relief concludes our questions for this morning. i want to thank you for agreeing to testify this morning. we appreciate your time here with us as well as the work that you have done to write a budget resolution for congress by this legal -- by the legal deadline. and we now get to work on a budget resolution by the legal deadline of april 15th. and i look forward to working with my colleagues on that. i want to remind my colleagues that they can turn in questions for director done von but they are due no later than 6:00 today. and they have to be in writing at the committee clerk's office, which is dirkson 624. and then i am sure that director done von will respond within 7 days. so with no further business before the committee we stand adjourned. >> thank you.

>> president obama held his first cabinet meeting of the year on tuesday. before the start of the meeting he addressed reporters and

urged congress to pass a funding bill for the department of homeland security. here's a look. >> i thank all for the outstanding work they did last year to make 2014 a breakthrough year for america. what we saw was job growth, unemployment coming down, energy production up, clean energy production up reduction in deficits, continued expansion of exports, and as i said at the state of the union, we are now poised to not just f recovered from the recession but really to move forward in the 21st century in a better position than just about any country on earth. but that requires we make some smart choices. are we going to have a country

where just a few do spectacularly well or are we going to have a country where prosperity is broad based? and we're making sure that everybody has a shot who are willing to work hard. and that middle class economics is going to be the central theme of the work that every single agency does not just in the coming weeks or the coming months but for the remainder of my presidency. the budget that we put forward reflects those priorities. it makes sure that we are investing in infrastructure and research to continue to make us grow. it makes sure that we are providing tax credits and tax breaks for the middle class families. for their child care expenses, makes sure that they're able to afford college educations for their kids. that includes the proposal i put forward for free community college which could reduce the debt burdens for young people who know that they need the skills to succeed in the 21st century. it is fully paid for through

smart spending cuts as well as tax reforms. it fully reverses the arbitrary cuts of recent years to domestic priorities in 2016 with dollar for dollar increases for defense. it is full of ideas that republicans should embrace like cutting taxes for middle class families. and one idea that they need to embrace right away is making sure that we are funding the department of homeland security. i talked about this yesterday. i want to reemphasize it today. the department of homeland security contains numerous agencies that every single day are keeping the american people safe. they're at our front lines, at our borders, at our airports, along our coasts. and they need certainty in order to do their jobs. the notion that we would risk the effectiveness of the

department that is charged with preventing terrorism, controlling our borders, making sure that the american people are safe makes absolutely no sense. the idea that we would have members of the coast guard or our border patrol or tsa not being paid and expect them to still be able to perform as effectively as we need them to perform makes no sense. and the idea that we would do that because of a separate disagreement between myself and the republicans about the need for comprehensive immigration reform certainly is something that is not going to make sense to the american people. so i am encouraging congress to go ahead and get a budget done for the department of homeland security, make sure it is properly funded, and then i am looking forward to engaging

with all of them so that we can make sure that we have got a government that is delivering nor the american people and making sure that we are giving middle class families and everybody whose willing to work hard to get into the middle class a chance to get ahead. and we are also going to have an opportunity in our cabinet to talk about some administrative actions that we are taking to continue to make government more efficient, more effective, more customer friendly. and we have made some real progress on that front in every single agency from veterans administration to the small business administration. i am really excited about some of the things that we are going to be doing. saving taxpayers money making sure that our organizations are tight, streamlined, and effective. so i appreciate all the good work that all of you are doing. i want to thank our press corps very much. so we can get to work. thank you, guys.

>> following a cabinet meeting budget director shawn donovan, homeland security security secretary jay johnson, and sylvia bur well spoke about the initiatives that affect their departments. this is 10 minutes. >> good afternoon. as the president talked about at the cabinet meeting we just left, yesterday he presented his budget to congress that laid out a comprehensive vision to accomplish his goal for middle class economics in the 21st century. that included significant new

investments for making sure paychecks go farther in america today, for growing the jobs of the future the high wage jobs of the future, and making sure americans are ready to take those jobs. the budget also lays out how we are going to make sure we are keeping americans safe in the 21st century to do that, the budget proposes to reverse the harmful sequestration cuts which are stopping our ability to accomplish those objectives. and the budget fully pays for those investments through smart savings in programs across the federal government and by making sure that we are asking the wealthiest to pay a little bit more towards our future. in fact, the budget achieves $1.8 trillion in deficit reduction over the 10-year term and we look forward to working with congress to make sure that that vision contained in the budget is achieved this year.

but while we are working on 2016 funding obviously there is stilling work to do on 2015 funding as well and secretary johnson is here to talk about that. >> thank you. the president's budget for the department of homeland security for fy 2016 is a strong budget. it is a good budget. it funds all of our key homeland security priorities. before we get to that, however we need an appropriations bill for the department of homeland security for 2015. as i said earlier today, on capitol hill, to the senators i met with and as the president said, we need a clean appropriations bill for fy 2015 for the department of homeland security. these are challenging times right now. both in terms of our counter terrorism priorities, border security aviation security cyber security, maferetime

security port security and all of the other vital homeland security missions on behalf of the american public and public safety. so we continue to urge congress as soon as possible to pass a clean appropriations bill for the department of homeland security. right now the department is operating on a continuing resolution which will expire on february 27th. as long as homeland security is on a continuing resolution, we are severely restricted in terms of our spending and our spending on new initiatives for the department. such as border security, the secret service grants to state and local law enforcement to police departments to fire departments we cannot fund new grants in these vital homeland security law enforcement areas slongs we are on a continuing -- as long as we are on a

continuing resolution. so we continue to urge congress to pass a clean appropriations bill unburdened by politically charged amendments that attempt to defund our immigration reforms that we announced last november. thanks. >> the department of health and human services is part of our 2016 budget effort funds everything from middle class comics to precision midsen to make sure we have an innovation economy to early childhood learning. an important part of also funding is the implementation and work that we do to continue increasing quality affordable access to health care. and this afternoon actually this morning the president and i had an opportunity to speak with a number of folks who had written to him about the changes in their lives that occurred because of the affordable care act and most of you all know our last week's numbers when we came out with them were 9.5 when we included

9.5 million people enrolled or reinrolled or signed up new. but the numbers are very important but yet the stories that we heard today tell the reality of the success and that this is working. and the stories we heard touched on everything from people who had preexisting conditions because someone had had cancer since they were 12 to issues of prevention. a gentleman who hadn't had colon cancer in his family wasn't going to get a colonoscopy but did because it was part of the preventative care. so the stories of those who did not have insurance for many years and did. so we see the act working. that is something we are very focused on. regrettably i was just told that another repeal vote just went through the house. but what we want to focus on is not taking away those benefits but continuing to build on that quality affordable act care and access. and i would be remiss if i didn't remind everyone, february 15 in terms of our

time for the marketplace to be open we want to encourage everyone to come in and meet that deadline come in now. you have until february 15th. i want to encourage everyone to come in now. as we tried to make it consumer friendly we can do it three different ways, the website, or if you want to talk to someone. and if you want in-person assistance. it's important to continue that affordable quality access. and we want to make sure people know there are affordable choices out there for them so that they took like the people we spoke with today can have a change in their health security and financial security. with that i think we will take some questions. >> with can he ask you about the situation and given the fact that a discredited study linking autism to vaccination seems to have nevertheless gotten some legs acknowledged

by the administration. are you concerned about recent statements as they relate to parental choice and not vaccinating kids particularly one whose are going to school? >> i think what we are clear about is the facts on this issue and our director of c.d.c. spoke to it again yesterday as did tony fauci and what we know is that right now in our country we have over 100 cases of measles something we don't want to have, a disease that is highly preventable through vaccination, and is highly contagious. and this is something we know what to do and we know how to do it. and vaccination is an essential part of that. that's what you continue to hear from all parts of the administration from the president through our director of c.d.c. and we just want to encourage and make sure everyone knows how important that is. as the mother of a 7 and 5-year-old i know how important this is as an issue. so we want to keep encouraging people that vaccination is an important part. our message and the conversation about this is getting through. >> people [inaudible] >> what we believe tazz

director of c.d.c. has said, we've had a lot of experience with state and local public health in the last 7 months and the importance of that relationship that we have -- i'm referring obviously to the work that the c.d.c. and the federal government did with states and localities as we worked through ebola. the role of state and locals in implementation is extremely important. and we at c.d.c. are doing our direct -- our director twt c.d.c. and communication with the states are jorn going. we believe we are clear about what we believe is best for the nation and we look to our state and local health departments to implement. >> are you concerned that the federal response now is -- are you going in the on the ground? >> what right now what we're doing is what we do. we are partners and trackers. in terms of we reach out and all the state departments of health reach out to us to tell us their numbers, to tell us their staptssticks. we reach out with their chases and see if there's anything that they need or want us to do to help. we'll continue it that's the

way we do in most all of these things. we'll continue on that path. we're asked for help with the states. we will. and we'll continue to do our tracking that we do so that we can report on a nationwide behaves. >> secretary could you talk a little bit more about the funding bill on the hill? are there more compromises you see other than urging congress to go ahead and pass it? is there anything else you can do? >> we continue to stress to members of congress and i had conversations with republicans democrats, and i understandents. and i'm willing to continue to do that. i'm willing to o talk to any member of congress on either side of the aisle about the importance of a clean funding bill for the department of homeland security right now. in these challenging times, as i said a moment ago, the american public needs a fully funded department of homeland security for purposes of counterterrorism, aviation security, cyber security, border security, and a whole set of missions.

and we believe that congress ought to recognize that we cannot continue on a continuing resolution for the next couple of weeks. or beyond. because of the importance right now of getting my department fully funded. >> secretary johnson could you talk a little bit about whether you're planning for the possibility that funding expires? how dangerous would that be if february 28th, march, and you don't see it pass a bill? >> a shutdown of the department of homeland security right now in these times is frankly too bitter to contemplate. but we have to contemplate it. and the consequences would not be good. first let's start with the men and women of the department of homeland security. those who are essential would be expected to come to work and not get paid for that period of time. so we're talking about working men and women who need a

paycheck. so it is horribly unfair to ask people in the critical role of homeland security to come to work and not get paid because congress can't fund the department. but aside from that, there are a whole host of activities that we would have to seriously curtail in a government shutdown. let's not forget that we have the important mission of homeland security but the department interfaces probably with the american public more than any other department. through tsa, through customs, through immigration through our port. and so to eevep contemplate a shutdown means contemplating seriously cutting back on things that are vital for homeland security and causing terrible disruption with the american public right now. so i continue to urge congress. we need a clean appropriations bill and we need it by february 27. >> your conversations today

with whoever in congress do you come away any more optimistic that in the end the congress is going to give you what you need? >> i remain optimistic because i believe that congress will do the right thing. and they will do the right thing because they recognize the importance to the american public of funding homeland security for this nation. and they i'm sure recognize the impact on our inability to fund grants to fire departments sheriff, police departments mayors and governors in their states and their congressional districts. and so i am confident -- i'm optimistic that congress is going to ultimately do the right thing. but i continue to urge congress to pass a clean bill and i am actively talking to whoever will listen to me -- republican or democrat -- about the importance of doing this. thanks.

>> tuesday the senate armed services committee examined propose changed. the proposals include scaling back military pensions by 20% and creating 401(k) type investment accounts. this hearing is 2-1/2 hours. >> good morning. i want to thank each commissioner for your diligence and hard work over many months to present the recommendations you present today. our witnesses today are the commission chairman, the hon

maled no, pressman, boyer zackheim mr. michael higgins gentlepeter chirle, and -- general peter chirle. and i understand that senator bob kerry is snowed in in new york. and the honorable christopher carney. this year a signature issue for this committee will be thoughtful conversation of the commission's recommendations to modernize military compensation and retirement benefits. as we do, i encourage the members of this committee and my colleagues in the house and senate to keep an open mind. we are also here to hear from

any military or other organizations that have constructive ideas to improve the current system. no one has a monopoly on good ideas and we all come to this debate as patriots who love our nation and its armed forces. we want to improve the quality of life for all who serve and their families. we honor the service and sacrifices of service members and their families, active duty, guard, and reserve, and we pledge to keep their well-being foremost in our thoughts. as we deliberate the commission's recommendations. upholding our sacred obligation to them does not mean resisting change. we must not shrink from the opportunity before us to create a modern system of compensation and retirement benefits that would provide greater value and choice for those it serves. congress established a commission in the national defense authorization act of the fiscal year 2013 to conduct review of military compensation and retirement systems and to make recommendations or modernization. we asked the commission to develop recommendations that would one, ensure the long-term viability of an all volunteer force, to improve quality of life for service members and

families to ensure successful recruitment, retention, and careers for those members. and three, modernize and achieve fiscal sustainability for the compensation and retirement systems in the 21st century. the military's current compensation and retirement systems are decades old. in their current form, they would be less than suitable for modern-day military members. today we have a nearly 70-year-old military retirement system. the military health program was implemented in the mid-1990's. before the retirement system and tricare were appropriate for their time, both were appropriate for their time but clearly times have changed. we are here today to learn how the commission's recommendations could make compensation and benefits better for the military members and families of our current

forces and forces of the future. we are in a world of multiple threats and increasing danger and we count on young americans to enlist or commit to serve in an all volunteer force that protects us and our families. if this committee evaluates the recommendations to modernize military compensation, we must carefully consider any changes and how it will motivate them people today to serve in the 21st century in a constrained physical environments, we must consider how best to achieve the proper balance between providing attractive compensation and benefits for our troops. and paying for military modernization and readiness, effective equipment, and advanced training will enable military to respond in moments of crisis and keep our citizens safe. we can make both of these objectives and we must. clearly we will not have enough

time today for a complete and thorough review of every recommendation. that is when i asked senator graham, chairman of the personnel subcommittee, to hold a series of hearings in the near future to explore all of the commission's recommendations in greater depth. especially in those areas of retirement and health care. i thank senator graham and gillibrand for their leadership on these important issues. finally, we look forward to the testimony from the commission today. their recommendations come to us unanimously after nearly two years of hard work, research and debate. i encourage the commissioners to speak freely without reservations. some of them i know i am sure will do that. thank you again, commissioners for your extraordinary efforts. senator reed. >> -- oh sarah -- senator kerry arrived. thank you for writing. thank you mr. chairman.

> i think it is extremely important to have this meeting today. this comes after yesterday the budget for 2016 was submitted. while we await the full details, there are a few immediate notable requests. first, the request for $35 million above the control act spending cap. it was $499.8 billion. it represents no growth. that is $35 billion more. it shows how deep the funding was overrun. particularly in the modern training accounts. the department summits these proposals last year.

congress reported some an elected for others to have this recommendations. both sides of the aisle have been reluctant to support compensation reforms requested by the past several years while this commission deliberate and suggests we sit way until this report was submitted. this is the context in which today we hear from this very distinguished panel. these issues are of paramount importance to the nation and military members and families. we charge the militarily fighting and winning the nation's wars. any person in that responsibility is recruiting and training the best in military service. and ensuring their trained and equipped for the missions and arduous duty we ask of them. usually willing talk about caring for men and women in uniform, discussion is focused entirely on their pay. but these other elements are equally important. if we want service members to a come home alive.

it is important to save the goal of this commission is not to save money. it is to strengthen the all volunteer force. it is to modernize a retirement system that is 70 years old. and importantly, it is to ensure that service members and their families and have a quality-of-life and service that will enable the services to recruit and retain the best men and women needed to meet national defense objectives. under the current budget situation, i fear we are quickly pricing ourselves out of having a military sufficiently sized and adequately trained to meet the myriad threats we face. as we heard last week, the budget caps currently do not allow services need national defense objectives. these recommendations are enacted and do provide savings. such should be used to address structure and we invest in

modernization. finally, i would like to highlight one inequity of the current system. only 17% of all service members will leave with any retirement benefit under the current system. officers are more than twice as likely to leave with these benefits. even while i listened is now have always included the most recent conflicts, and the vast majority of casualties. under these recommendations, as many as 75 percent of all service members will leave the services with some retirement benefits even if they do not serve the full 20 years on active duty as most service members do not. thank you mr. chairman and panelists. i would like to thank all the members of the panel. thank them for their valuable time and effort to bring what i think is an excellent

comprehensive report which i know will serve as guidance for us as we move forward with a much-needed reforms. i thank all of you again and we are ready to move forward with your statement. thank you for your chairmanship. >> thank you mr. chairman. distinguished members of the committee. i am honored to be here today and we thank you for the opportunity to testify. we also thank you for your support of the commission in the last 18 months and leadership in protecting service members compensation and benefits. i would like to request that our report be entered into the record. there are unwavering commitment to excellence in the service of our nation and never been cleared then the last 13 years of war. as commissioners, we recognize our obligation to craft a valiant compensation system

that is relevant to contemporary members and able to operate in a modern and efficient member. we are unanimous in our recommendation. to strengthen the bond -- the foundation of the force and ensure national security, and truly honor those who served and their families to support them. now and into the future. our report is informed by our own experiences with military service and public policy, and as public servants, however our recommendations are most informed by the insides of service members, veterans, retirees and families. the commission and staff visited 55 military installations worldwide. they listen to the views of hundreds along the way. more than 150,000 current and retired servicemembers provided thoughtful responses to the commission's survey.

we developed a working relationship with more than 30 military and service organizations. additionally, the commission received input for more than 20 federal agencies, several department of defense working groups, research institutions, private firms and not-for-profit organizations. the result of this process included 18 months of comprehensive independent research and analysis, 15 unanimous recommendations that will improve access, quality and value within the compensation system. i will work to represent the most comprehensive review of military commendation and benefits since the inception of the volunteer force. consistent with the mandate, we reviewed each program to determine how an organization might ensure long-term viability of the all volunteer force and enabled the quality-of-life for service members and their families and achieve a greater fiscal sustainability for compensation

and retirement systems. our recommendations do this and more. improving choice, access quality, and value within the compensation system. our retirement recommendations propose a blended plan that extends retirement benefits from 17% to 75% of the force as ranking member reed has already stated. it leverages the retention power of traditional military to maintain the current profile, protect assets of servicemembers who retire after 20 years, and reduces annual federal outlays by $4.7 billion. our health benefits recommendations improve access toys, and value of health care for active duty, reserve, and retirees. while reducing outlays by $3.2 billion. our recommendations on

commissaries maintain grocery discounts while also reducing the cost of delivering benefit by more than 500 -- $500 million annually. with these savings, while these are significant, the commission does not engage in cost cutting drills. in fact, our recommendations to improve service members financial literacy, support families, and transition assistance, require additional funding to ensure program efficacy. in summary, our recommendations represent a holistic package of reforms that modernize the structure of compensation programs to adjust the level of benefits delivered to servicemembers. they sustain the all volunteer force by maintaining or increasing the overall value of compensation and benefits for servicemembers and families. they provide additional options

for service personnel managers to design and manage. this approach creates an effective and efficient compensation of benefits system that after full implementation saves taxpayers more than $12 billion annually. while sustaining the overall value of compensation benefits of those who serve, and have served, and families to support them. my fellow commissioners, i thank you again for the opportunity, and we're honored to present unanimous recommendations. we stand ready to answer questions. >> thank you for your statement. i'll have a couple of brief questions because i was briefed already. if any of the members of the committee wish to respond to any questions, just signify and you will be recognized. two brief questions.

how do you know your recommendations will provide the same for structure to the service? on the issue of the proposed compensation system? in other ways, right now there is an incentive to remain for 20 years. in this present plan there will be retirement compensation literally throughout. how does that -- do we have incentive for people to remain in for a career or not incentive? >> we do indeed mr. chairman. in our recommendations, we do a blended plan that we already have defined benefits. we added a defined contribution to make sure that we can do the retention or provide for the retention if they wanted us

to. i'm going to have commissioner higgins to talk to the specifics of that. >> thank you mr. chairman. and chairman mccain. the system we have devised includes the incentives, flexibility, and choice that people want in the force. we feel at its essence, it is going to be a very powerful retention tool. when we look forward at how this system will operate over time, our belief is supported by our analysis. in this case it was a model which was the dynamic retention model used. we believe this will -- our proposal will exactly model the current force profiles and we

will have the tools within it, including a continuation page, thrift savings plan, which is currently not offered today. it will include the tools that will draw people through the 20 year career, much like the defined benefit as today, and into a large extent because defined benefits is retained under our proposals. about 80% of that. these new tools and flexibility along with defined benefits, we believe we will operate very effectively and the modeling we have done will support that. >> on the issue of health care how does this incentivize beneficiaries to seek most cost-effective means of getting health care.

>> mr. chairman, thank you for the question. i was very important to us as we took a look at the programs that are providing benefits to our servicemembers. as we travel across the country and talked to servicemembers and families, listening very carefully to the conversations in terms of what people said they wanted, they preferred access and value with the things that kept coming time and time again. i will ask the commissioner to speak specifically to that. >> chairman and members of the committee, cost-effective means look at it from two ways. one is the government and the others to the families. when we look at this as how can

we achieve both? presently under tri-care, we don't because there is insufficient utilization management tools. it is a limited network because of low reimbursement rates and how the tri-care contractors actually recruit and pay below medicare rates. so we said, can we do better -- also with regard to the families and improve quality of care. given the choice they want and get better access. we found that if we moved to a system whereby we have what we call tri-care choice, which is very similar to an old model where they can select from available plans in a geographic region, it does call for more empowerment of the individual.

we are asking that that individual is able to select the plan that best fits their family. when we do that, the plans that are administered by opm, those plans will have effective mentioning utilization tools and it becomes more cost-effective, not only to the families but to the government. >> thank you. >> thank you very much mr. chairman. let me direct this to anyone who would like to respond. part of your recommendation is that health care will strengthen the facilities. the additional facilities that have to be ready to deploy if we deploy. part of that is that a will be part of the health care systems. can you comment on this will issue of strengthening the

military medical infrastructure along with giving individuals more choices? >> i'm more than happy to. i think we are in a death spiral right now from the standpoint of, we don't have the number of reps they need to keep doctors up to standard. this is a way we can bring into our military treatment facilities and kinds of cases that contribute to battlefield medicine. that is what makes this system so different than any other system. we need well-trained doctors not only to treat patients in hospitals, but to be ready to deploy wherever we send them and provide that same kind of treatment on day one of the conflict. this allow us to attract the kind of cases that will keep those skills of and were so absolutely crucial to our

wounded rate in the last 14 years of war. it will do that on day one. i really believe this is something that is going to ensure we have that combat medical readiness capability we need moving into the future. if we don't do it, we are going to have a very difficult time being able to provide that. >> this is not just about the benefits to the individual military personnel. this is about the overall viability of the healthcare system in the military. >> absolutely. and that's one of the reasons why we look so strongly at a readiness command because we really believe there's going to have to be somebody who's keeping an eye on this system to ensure that the services are doing the kinds of things that are necessary to keep those m.t.f.'s viable training

grounds for our physicians. >> let me direct this to the chairman. i'm sure i'm not alone. but when we mobilize national guardsmen, women and reservists, they're the ones sometimes with the most difficulty getting into the health plan, getting benefits, making sure their family, who's not close to a facility, who may be far removed, it seems to me that this approach that you're suggesting, choosing among a set of private insurance plans, would be much more easily accessed by reserve components. is that accurate, mr. chairman? >> that is correct, senator reed. one of the things that happen with our proposal for the reserve components is any time they're mobilizing or they're being activated, the family

members normally would go without coverage. there's a period of time that they just don't have coverage when that happens. this will solve that problem for them because it won't have to worry about losing, going long periods of time without coverage, coverage of healthcare, when the reserve component member activate and deactivate. >> senator reed, that's an excellent question. that strategic reserve that we built over time really wasn't prepared operationally. we know that. you funded it. you did a lot of things to bring it up, round to out, to make the total force that better in the 13 years of war but with regard to the undesirable choices that reservists and their families had to make upon those mobilizations to be part of the contingency operations, you're absolutely right, senator. so when we looked at this and said with regard to that total force, even though we really pressured the chiefs, do we really want an operational reserve versus a strategic reserve? they really do but they don't

want to call it that because they don't want to fund it but what is realistic because when we talk about the war after next and how to fund the war after next and caring for the people, when it comes to healthcare, that benefit needs to be for the total force. for the reserve components, the continuity of care that your question goes to, it is so disrupted from the family. if we say from day one when you join the reserve component that healthcare is part of that benefit, you can select the type of plan that best fits your family, your premium is 25%. we cap it at 25% for the we cap it at 25% for the premium and then there's no disruption in the continuity. they like their local providers and then if they're on for a longer period of time, meaning they've gone on active duty they're part of the contingency operation, then they go on to the active duty plan, they

receive their basic allowance for healthcare that takes care of the premium for that of their family. >> thank you very much, mr. chairman. >> mr. reed, if you don't mind i'd also like to have another member of our commission to speak to that, he's a reservist, please. commissioner kerney. >> thank you, mr. chairman. mr. reed, those of us who lived in rural areas, when we were on reserve duty, it wasn't tricare exactly, it was more like try to find care and this takes care of that. what we're offering now is a system that provides a network that is robust enough to care not only for the member when they are on their civilian side but also for the families when the member is deployed and that is exactly what we're trying to do here and do it in a way that is fiscally sustainable. medical readiness as well as dental readiness are critical aspects of the overall readiness mission and if we can do that with this kind of a system of a tricare choice system, then i