Transcripts For CSPAN3 Key Capitol Hill Hearings 20150123

Interrelated integrated economy, a Global Economy here in the u. S. On weve done well. Ic,cn think its been testified to today. Weve madepy Great Strides in our recovery, but theres so much more upside potential. Dr. Hall, the governors right that . A;u it is a complicatedekm7n,n8 i think tax reform for sure. I think that theres a lot ofen improvements that, in our economic performance6 l q we rationalizing the tax system and53k0q eliminating double taxationcitjso we have closer to uniform of tax rates, for instance entrepreneurial income. And then taxed again as a capital gain or dividend mostly Capital Gains. I think thats definitely Holding Things back. I think that we wouldf in see, we would, could restore earlier rates ofca before would be a huge factor in improvingc÷er paychecks. Xps think certainly 3an part of it. Senator coates and i, and we were pleased that forfb bp chairman camp picked up on thise2slz in our bipartisan tax reform bill what we do is rn triplesca the standard deduction for midd class6 x people. Dr. nass wolfers . Talked about the importance of the increase in size of paychecks. Most families, its about getting people back to work. 1ozp r t hahp hc you get a second in a family, that will double theird income. Whereas if we noncustodial there are broad sways to the population that i think would have a huge effect in increasingoc6n takehome pay. Dr. R gh wolfers and just for you, dr. Hall, and also a b you may not know, my mother ;r,m a Research Associate at Hoover Institute when glen campbetaxoy was president. What i remember most isu k8i they would always tease that they liked mrs. Wyden so much they chose to ignore she was democrat. There was a lot of c heres my question. Im the same way about him. [ laughter ] this e7an is on Infrastructure Investment which is something you have been interested in. We are clearly falling behind the American Society of civil engineers, giving us a deep plus. You cannot havebn . Big League Economic growth with Little League infrastructure. You recently there was a forum in u hicago, a forum on global markets. You said the United States needs7u45uju chargmnzln for roads and e3 bridges. When you said that i pickedjo up on it at the uaime. Whau8w do you mean by the kind of user charges that you would be interested in funding cm8÷ infrastructure . Well senator wyden, in california, and other parts of the country weve adopted rational pricing7 of infrastructure of highways. uo thats socalled realtime pricing. So there are lanes in san diego and one near where i live where its guaranteed that you can go 60 miles because theres a knob that gets turned automatically that raisesy good thing, because] pure xhimxc economic waste,]j generates income. I would like to see better pricing of our infrastructure of all types, especially congestion pricing of highways. It would give a signal about where additional infrastructure is needed. That would be ones where the price is always high relative to how much it would cost to expand. Relative to where we are today. Where thereib expansion of infrastructure highways in particular, highways that are not heavily rw relieve congestion. We could relieve theu[e by pricing it. In the long run we use the pricing signal to decide where to expand the infrastructure. It would be a whole new ball game. Were seeing that all over the economy. Realtimet0qc pricing omab private n areas, like airlinesslax; particular,n increase in Airline Efficiency because all airplanes fly 17÷ full now. And that itself is;6cc÷ a 10 productioy improvement in the Airline Business and its all from woh hahp hc realtime prices. Thank you mr. Chairman. Thank you, mr. Chairman. Sno wyden, im still thinking about Glen Campbell, di 0jk you say . Its not a Rhinestone Cowboy . Different Glen Campbell . Ij4uthought i was7 kuzlcn beginning to see a theme develop here. Dr. Wolfers talking aboutezqpm orangew k r t hahp hc paisley coming back. Serious topics. Thank you to each of theqce÷ witnesses for being here. And thanks to the chairman for having this hearing. I really have two items i want to touch on. One is since thevpen recession in december of 2007 o and we grow a lot of stuff that gets soldal n to markets all aroundm the world. And so2i7c im taxpayer pays for, via their federal tax dollar, that were going to spend more and more money servicingjn c÷ that federal debt, and crowding out other important priorities from national security, to safety net programs. But id be interested in hearing from each of you briefly what your what you see in the futureyfb[n in terms of the]bsd prospect of this9 qu looming debt challenge and Rising Interest Rates if the Federal Reserve does what i think we all expect them to ay do and begins to obviously tus reduce the pace at which theyre buying u. S. Bonds, but also begins toxbx unwind that program. To tackle that . And pb real n4ewnquickly. Thank you, senator cornyn. Vnjxae r t hahp hc thats not an easy question. Im not sure my crystalfjsen ball7 . any better than anybody b maybe not as good as some on this committee. Looking ahead, i guess it is of the fundamental principles that . W w at the roundtable,4vdx it comes back to the idea of growth. Because i use the just. 10 increase in 61;ygdp is about 3 trillion tg 5 the treasury. Looking ahead at the 1 , then to have a growing economy in order to generate the kind of revenue that the government neslce by prudent decisions relative to spending. And ultimately entitlement reform has to be addressed, because so much of the spending is nondiscretionary. And youre exactly right i mean, au rising 3vn ncen i dont know that were close to a rising meu Interest Rate environment, or rapidly rising, given whats going on around the 5 ixworld what on the other hand, the numbers ;tc it did go. Were a very liquid market. Its the time to oinvest. I certainly want to support the notion thats in thisqrd also an optimal way to be thinking about leveraging this low Interest Rate environment that were w5ezin. Weve got a lot of rebuilding that needs to be done in the country. And there are some creative ways. There are publish private partnerships out there. . zd some of the very Transportation Systems that dr. Di hall talked about. We see it in senator warners statement. Those arev privately. So there are mechanisms, but there are still big public decisions that need to be made. Inland waterways of am electric grid. Needs to be done. That also would be accompanied by a tremendous skilled workers to do that. I hear withuiu i hear a lot ofkn1l ideas about how we can spend money but i dont hear a lot of greate ideas about opposed to pass it on to the future generations. Dr. Hall and dr. Wolfers i know my time is limited. 7, r i appre noin your thoughts. Sure. Well, senator, first of all, i strongly share wcn youra concern about the balance between revenue and spending. Ace i run a spread sheet that looks 100 years into the future. Obviously not accurately. One of the assumptie cbo that does the same thing on a shorter 3 factored in the growth of Interest Rates. And that, of course, feeds back into furthercu requirement for revenue to pay that. And its scary. Qg q6hm the trend is slic adverse. The trend is for revenues of the fraction of gdp to rise substantially more slowly than spendin hahp hc and thats a longterm, and it its just remarkably stable. According to thislc spread sheet, say, by b the end of this8jy century we would be just immersed in wed have wayuz n more4÷ debt than we possibly could pay. Something has to,[frgive. Aqn it has to give in the senseai hn of more revenue or less spending. I think our democratic system sitting here needs to take very seriously concerned about that. I share your concerns. If the chairman will permit expired, butmv÷ please go aheaddzwk[5 x q if the chairman agrees. First, the budget deficit is roughly back to normalp j pnow. Were around the 40year average as of last year. The deficit or debt . G the flow of new debt. The deficit. Second, if you look at theent projections and the sorts of spreadsheets, the qcy debttogdpu ahs ratio, which iijsmy think is the right way[ s c thinkq this, is roughly going to be stable over the next 10 to 15 years. Its only beyond that that stuff starts to explode. The truth is, we dontl en actually know whats going to happenyq wx to the economy 204 yn 30÷o5 out. Theialmt point estimates might be right, but the range of uncertainty we might findvq;iz ourselves in two decades finding it rather toow÷jju than too high. Should we be worried about the sustainability ofe the pa÷pinstriped folks on wall street seem to think itso4 n not. The q suggests theres a risk behind this, but also it looksbm7 Interest Rates arenj going to stay low for a generation. And finally whats the role of tvx3 er s of this. Your concern which3n thinkd n is an important one is that we dont saddle future generations with debt. Its equallytj important we dont saddle future generations with ahnsn crumbling infrastructure. Not how much spending to do, but when to do it. The important issue is try to do the spending when its cheap. W its most important, and its going to do cheapest to do Infrastructure Spending when Interest Rates are low. I think thats the cacef r t hahp hc Infrastructure Spending today. The most interesting piece of Economic Research in recent years is the imf has actually done some calculations in which they suggested. that government Infrastructure Spending,3e in an environment like this with low Interest Rates, can actually end up lowering the debt. Itog[ Economic Activity that it can ;5mp im not quite sure im going go so far as to suggest well lower the debt. That the longrun costs, when you think about how the groethd benefits come back in tax revenues, the longrun cost of this could bev j fairlydicux small. Thank you very much, mr. Chairman. Ajre x÷ congratulations on holding the gavel. I wann two out of your firstsnw three witnesses are from michigan. Your good judgment. Witnesses like this every time, this is going to be in play. Thank you. E incxlw you know let me start by saying ive always been taught that if something works, we should do more of it, and if it doesnt work, we should do less of it. When we look at them9n economy, we can see clinton years focused on education innovation,imi booming times,57 u lots of reasons, but booming timesom 22 million jobs added. We go to the nextsqqq;qgsz administration, Bush Administration focused on tax cut ic7cpvpredominantly from the top, it will trickle down. Z[yg funding wars without paying for it, and creating massive debt lack of oversight, financial institutions. And we ended up with60 what we now call the great recession. And so im concerned that we dobo what works. And now what were seeing by ; were not out of it by any means, but we helped save american jobs in theu 6 x . Rue auto withi5u home equity and 401 k s and losing jobs, everything happening in the great÷ recession, its beginning to come back. Fewer young people are working. Ii au want to say, the first thought that came to my mind is thats because the folks in theaf taking the jobs now attanc fastfood restaurants. Weve go that are seniors that are having to come back into q the work force to supplement their income, or folks that lost their job manufacturing coming back and doing jobs thavm 2 ]8n used to be done by young people. But we are x9t turning things around. Jobs are ocuup 11 million jobs up. G x wall street doubled. Deficit down by twothirdsr la yearly deficit. And it seems to me the challenge really is for us to make sure now that everybody who wants and1itzi hahp hc needs a job that pays well to have one job to raise their family, so two or three has f that. Im pretty proud that henry ford had the right idea when he,v[9u despite everybodys criticism atknxneat iri time, folks, business communities thought he was crazy when he actualn more than doubled wages and paid folkskna top dollar. And he created the middle class of this country. Im9j an pretty proud that happened in michigan. Id like to o÷ each of you, what i hear from our manufacturers in michigan right now iswf1nn just at a new announcement, mr. u7xcchairman, withzwqk c magna, a great companyiri into midmichigan hundreds of jobs. Andpoao what they said was, i needhixv skilled people to match the jobs. Number one issue is job our state is focused on that. The president talked about that. So if we talk about how do we capture this, andprdq middle income jobs, therej ,u arem< lotsxg of things. But i wonder if each of you might speak to the need for Skill Development matching that job. Not that people dont have skills, theyre just not pxo skills for the jobs being created. So job. Rc8c,qrntraining costs of college, the fact thatpe dtj are coming out of fouryear schools. Maybe they should be going to twoyear schools. But theyre goiyzx to fouryear schools, coming out with massive debt,zmf cant buy a house. I hear from realtors all the time, terrific concerns now about young people not being able to get credit, buy a house, because ofiq seems to me thats a huge issue that we can beh and working together on. The Business Community, publish private . H p sector and so on. Governor engler i wonder if you might speak from your perspective. Thank you, senator, id be happy to. I think this is a really important j there are 4 million jobs unfilled today in the american economy. It is because people dont have skills. They certainly dont have the right skills. And i think in someviii0u caseshr flatout dont have skills. For too long weve hadn,a÷ a dropout we invest as a nation 700 billion roughly on an annual basis in our k12 system. We have to have a system that can send people off toouwj College Without needing remediation when they zymthere. If theyre not going v to go to colleg6r9t uqn40 in thei country dont. Of those whoa ku u n dont, they need to have a skill that is hopefully i would say measured and certifiedvrir zt standards, so theyre work ready. The dropout rate has to be zero. Thats the biggest mistake that im an advocate that the roundu table strongly works op policies. One area wecpbn think is a mess is the labor Market Analysis. We dontswv actually know where the 4 million jobs are. We dont know enough about what the skills are that are needed to hold ; . Those jobs. Cf1 o industry has to do a[qe job of saying these are the competencies that we require. It needs to beia 0oe aligned with the training. [ the wasted senior year for a lot of the kids. This is. c an area where slu theres tremendous National Need and opportunity on a bipartisan basis. And i know that senator alexander and members of his committee are interested in this issue. Some of you on this very committee, i know senator wydens focused on some of this, giving young people the information they neine we nnjqz to do a much better job of labor Market Analysis in the country. Its a dismal status. Briefly, dr. 1u0 hall dr. Wolfers . Thank r;you, i love the idea that we should do morex4c n of what hj4wworks. I would call attention to the fact that what works on a global basis,uiw the u. S. Economy the u. S. Economy is 20 , 30 , 40 higher paychecks than anyi8cku other country in the world of any size. In particular its way ahead ofxx6x÷ europe. Especially southern europe. X ;b so what works is the u. S. System. And theres some tendency to move in the direction of european institutions which troubles me. If you look in europe,p n countries that specifically say lets free up the labor market lets let the market ilwdwork but not constrain the policies of employers, britain and germany, they had by far the best experieap after the financial p isis. So thats what c if you ask what doesnt work in the u. S. Today, which touches exactly on the themes you were secondary when kids get to college theyre at a . 1x big ÷ disadvantage, especially scandinavian s countries, to have a secondaryjr3 n education. We need a secondary edi njjjrj responsibility is the local government, not the federal government. Still, whatever the federal government can do to try toic w boost the quality and the appropriateness of whats done to kids in high school, that would make a huge difference in terms of all the things that you talked about. Senator boone . Thank you, mr. Chairman. P im sorry, mr. Chairman, if i couldxbx8 seconds fromj im sorry. That would be fine. I would caution pnz all of jbus, that weve got a fiveminute rule here. I appreciate its true wem6. Have three utilized asking each one. If we can try to keep it within five minutes. I appreciate that. z go ahead. Ill t try and show how3 wolverine i rz can dr. Hall was just talking about what works and using the u. S. As an example. If 1970s, and look at today and the medians, the american middle class isik ÷ not doing as well as our neighbors north of the border. Our median family earnings are not as high as they are elsewhere. The most important place to look at skills here is of course, education. There is a presumption and its widely understood in the United States that the government will Fund Education through to the 12th grade. And we now accept thaty at the time that was first put forth it was ridiculed that education. I think that history is possibly quite useful in framing and looking at arguments for either greater involvementrn in pushing postsecondary education, which should be the new middle class aspiration, or trying to remediate gaps before they ever gjiahp hc appear, which would be every childhood9ns÷ education. Thank you. Mr. Pm;p÷chairman, thank you. Congratulations on your chairmanship. We look forward to working with you, as well asd i want to thank ouri lr panel today. Its been mentioned to me, wanlsges are flat. Median Household Income is downy in 3,000 from where it was in 2009. Participation rate is at a historically low level. a lot of people have dropped out of the labor force. Those are big issues. And weve got ac, lot of work to do to try and fix that. 6 5 im a big believer thatao unleash a lot of Economic Activity in this country. I know governor engler, the brt has been a very strong advocate for tax reform. I know the brtq . F represents primarily Larger Companies in this country. Nnu t hahp hc im interested in knowing with regard to tax reform as a way to improve thea5ey taxes for all businesses. State of south dakota 90 of our businesses aren entities. 50 of the el business income is through some passthrough, i g subchapter s or llc. Given these realities, what do yougfr think congress saw to do to ensure thatppo÷ all businesses are in a reformed and simplified tax code . We always talk about comprehensive business reformnqsgz theres the corporate entity and noncorporate entities. There are numerous noncorporatehr t hahp hc entities. We look also, which ones are facing global competition, which ones are more domestic. But its important even when looking at that, to understand that many Domestic Companies are part of a supply chain, whichei . Feeds into the Global Economy. So wee4ul would argue that both need to be dealt with. Dr. Hall talked about the t5iyx yeah the two different types of structures. And he has thoughts about how that might change in the future. Were . 553 probably not as optimistic that that kind of a fundamental change can be achieved here in the short term. So ini possibility, it seems. Weve got to do something that is fiscally sustainable in terms of ive given the deficits weve just talkcrnp about. Weve tried to look at this from a standpoint ofcr how do you without e . S[gzps crosssubsidization and not asking indiv mwj to pay for corporations. If you could sort through this, i think therev can make thatgec i think corporate is easier,18 o÷ g frankly. Becauseio structure is a little different. Pu zp taxation. As the passthrough entities cln gf1 o weve spent considerable time trying to think howw,t can we make are similar3cn progress l7there. The ratescni] k always i guess. After the 86 tax reform, we saw people moving from the corporate to the4ocaunincorporated status, just because they deemed thatpxq be a better position tob dr. Hall, dr. W;hr wolfers both of you mentioned in your, i think testimoe÷ that the decline in the labor d participation rate, Labor Force Participation rate offered some theories about what causes that. Other thanjn; demographic associated with baby boomers retiring, im going to ask this question, and then im going to ask a followup. And if you wo rrrd take them both. What do you think is the single biggest factor thats keeping more americans fromlfa work, and what, if anything, can congress do to reverse u that . Tpd then a specific question having to do dr. Hall in your testimoyec muasqtioned the rise in the number of americans receiving Social Security disability payments. And the negative impact3o,eu that that might be having on the labor force. Could you elaborate on that point . Whats causing it . What can congress and how does the cl Social Security disability payment issue contribute to okay, let me start hksrn well ive done on be a major goal of federal with respect to whats happened to v wx participation among nb÷÷ older workers, i think that the Disability Program does badly call for reform. The disabilityopi program, Social Securityxcov isability essentially prohibits people within the program to even think about you would lose your benefits instantly if youre found working. And the scholars who have looked carefully into reforming disability have beenm that the right answer is to do whats been done in some other counxu s1 aj is to turn disability into a transition program, in whd workersz helped to reenter the7wzd labor market and take jobs for which theyre physically capable. The. K Disability Program was2 created to deal with people doing very physical work. Today most work in . Gz5the u. S. Is its people sitting at desks. Yet theres no channel by which the labor force working at desks. Which theyre physically capable hp of. So theresm pw related jobs grew three times faster than average of job growth over the last four decades, and pay 13 to 18 higher than other jobs, all of which suggests trade policy issues that we need to deal with. But im wondering if the roundtable, or either one of the three of you have if you agree with that. Obviously that can be a dynamic aspect in terms of improving our economy. And a lot of emphasis should be put there on these trade agreements and so forth. On the other hand, does it give you pause when you when we receive reports back that chinas growth was less than anticipated. Theres been a slowing down there. Japan, negative growth at best. Europe has slipped into negative growth. The instability in the world, not just the middle east, but its impact on europe, impact on markets clearly is going to be a factor. So does this, while obviously we should go ahead with these trade initiatives, should we be concerned about these factors not achieving what we would like to achieve . Two points perhaps. On the numbers, the written testimony that ive submitted has footnotes that provide source documentation for the increase in wages and in terms of the job growth in trade related jobs. So that information is there. I wont go into that. On the pause for thought about other nations i move by the fact that where we have ftas in place, just the 20 nearly half of all, 40 , and thats in my brt document, 46 of our companies to go to other countries. The tpp is a negotiation with 11 asiapacific companies. It would be about 60 of the world gdp, and 40 of the total world trade. The opportunities are too good in the experience of highly relevant that weve had previously that it argues to go forward. So yes there are details, and much of those are addressed in your tpa directions to the trade negotiator, but we think the risk is outweighed by the opportunity. I hope thats the case. Dr. Hall, any comments on that . Just one very quickly that i wanted to reiterate that theres two benefits of opening up trade through agreements or by other means. One is the governors just indicated that its a way to get good jobs in the u. S. But the other thing is, which is equally important, its a way to get cheap goods into the u. S. In return. The imports. Dont neglect the import side. Theres been huge increases in real income in the United States as a result of having very inexpensive products available, walmart and elsewhere that are astonishingly cheap, imports. That raises the u. S. Standard of living. The standard of living shows unambiguously that the trade is great for us for two reasons. I make two observations. Your comment you know the you return to trade is great when japan is in recession. Japan is a huge economy. The fact that japan if japan wasnt in recession, it would be a huge economy plus 3 . The second is, i think that to the extent you were talking about if the world is becoming more chaotic, what does this mean about the return to the trade. And i think arguably that raises the return to the trade more interrelated world is one that has greater shared interests. And the Foreign Trade becomes a Foreign Policy as well. Cooperating with your neighbors when you have deep economic linkages with them. Even more bluntly, in terms of the Foreign Policy would have a huge effect in russia, because we used to trade with russia. And its been quite effective. So i think there Foreign Policy issues on the table as well. We hope these numbers are correct. We hope this can be a very essential element of helping drive Economic Growth in the United States. I just wanted to get your thoughts relative to the potential instabilities and sluggish trade partners impact on that. Mr. Chairman, my time is expired. Ill withhold my second question and try to get it in at another time. We go to senator menendez at this point. Thank you, mr. Chairman. I want to congratulate you on your ascendancey to the chair. Im going to go to my questions. I understand. Let me say, i appreciate the panel. We have made some enormous strides in our economic recovery since the financial meltdown and recession of starting in 2008. Weve seen some robust job growth declining unemployment, growing gdp. Theres still work to do. In my mind the focus on measures that we should be looking at strengthening middle class incomes investing in our infrastructure and improving educational opportunities. With that in mind, most i think, members of this committee believe that there is a pressing need to reform and simplify our tax code. However, opinions begin to diverge when we are talking about what are the goals for reform. What they should be and how exactly we go about accomplishing though goals. I think the president made it pretty clear where he stands on this question. And i strongly agree with him that we need to be focused on measures to help middle class families instead of keeping in place tax loopholes geared toward special interests with highpaid lobbyists. So along this prioritization, dr. Wolfers, very simply what is more beneficial to the economy and individual families, measures targeted towards the middle class and households across the income spectrum, such as tax credits to help working parents afford child care, students afford college, or further tax breaks for those who are the top. Bracket who dont need them, and in many cases arent asking for them . I think my answer is that tax breaks and policy targets to the middle class are going to yield a much bigger dividend. I mean that in two respects. One, there is an emerging body of evidence that an inequality is a force that will be a drag on our economy. We can ameliorate that directly if we can get things like college available to much of the middle class. And then theres another point, the other issue is whats the point of having Economic Growth if it actually delivers nothing for most. And so to the extent that these policies could do that, i think its worthwhile. I also think that theres some really simple stuff. When someone first explained to me what socalled steppedup basis was, the trust fund loophole, the mind boggled. I think that would be true for not only economists but the consumers. There is no economic benefit, so they potentially free up a whole bunch of money to do something far more useful. If we in essence help educate the work force that the private sector needs in order to deal with the Capital Requirements in a Global Economy, and at the same time help more middle class families have greater resources to help educate that child and or to be able to get to work so they can have their child be taken care of without losing so much of their disposable income, theyll have more income to spend in our society, and that will help fuel our economy would it not . Absolutely, sir. Now let me ask governor engler and you as well about the importance to our economy of investing in our infrastructure. Particularly at a time when Interest Rates are near historic lows and there is continued slack in the construction industry. Today there was a report that came out in new jersey, mr. Chairman, that was led by a nonprofit transportation entity. And it said, new jerseys bad roads and bridges are costing individual drivers almost 2,000. And contribute to higher numbers of fatal crashes. And it goes on to talk about a whole host of elements. When were talking about people getting to work, work forces getting to sales forces getting out there to sell the products, being able to move our products to marketplace, to ports and whatnot, can you talk about the importance of investments and infrastructure . Because we always look at this with a Transportation Trust fund that it continuously seems to be broken. And we do it in the short term. Instead of also looking at the investment and Ripple Effect that that generates. Can you respond to that . Well im a believe in infrastructure. And im a believer in investing in infrastructure. And i think you have to sort of break it down. I think theres elements of Infrastructure Investment where you know the user can pay and theres a great return on investment that allow for that investment to be made up front. And paid off over time. Examples of that, you know youve certainly got to you know, everything from the air Traffic Control system, to i mentioned the electric grid earlier. Theres tremendous upgrading that can be done. Water systems. All of these kinds of things. Road and bridges are harder to get its gotten harder to insist on a user pay approach, because some vehicles dont pay traditional fuel taxes. The efficiency of the fleet is such today that we pay many more we drive many more miles for census and taxes paid. So i think thats going to have to be adjusted over time. Youve been fixing the trust fund holes with general fund borrowing. Thats probably not sustainable. Weve got a big hole coming up this spring again. One of the things that is driving all of america crazy is the inability to plan longer term for anything. Whether its tax provisions that expire. We had a code for two weeks, if we go back to december. Infrastructure is the same thing. States especially the states weve got a few northerners around the table here you cant work on roads in the winter. So you need to be able to go in the spring. If the trust fund isnt funded you cant budget your money accordingly. So you underbudget that way. So i think in this low Interest Rate virnlt, theres a tremendous opportunity to do projects. And many of them will have a i mean, if you borrow money, youve got to pay it back. I think many of them have a Value Proposition that allows that to take place. In other cases there is Public Investment thats required. I think its not right to if youve got a hole in the roof, you should fix it. Your time is up. Senator scott. Thank you mr. Chairman. Congratulations as well. My first question is for governor engler. I think about the impact of lowering the Corporate Tax rate on job creation in our country. I think it could have a significant impact. I think also about the recent tax inversions that have occurred. Could you comment on what you think the longterm impact on perhaps research and development and other aspects of companies who move, and or invert their companies to foreign will have on job creation in our country . Secretary louie yesterday in his remarks over at brookings referred to our backward International Tax rules. They shifted their income overseas. Thats what weve got in the current code. So part of the change is to get where virtually the rest of the world is and allow those foreigners to pay the taxes in the country where theyre earned, and then brought back home. That has to be advantageous to the United States to allow that. I think once home that money is then available for whether its Capital Spending and i you know, or hiring, or higher dividend. Lets get it home so its spent here for any number of productive purposes including research and development. The r d is a good example. Its been in the tax code since 1981. We were the best in the world at the time it was put in. Were not in the top 25 today. Its devalued over time. Plus its temporary. We dont have one. As of today the r d tax credit is expired. I think it needs to be competitive. And as i said in response to senator thunes question, we think theres improvement across the entire spectrum, whether its a corporate status or a noncorporate entity, we can improve. But we particularly want to any about anybody in either status whos having to compete globally. Because today weve got the worst competitive environment. Thank you, sir. Dr. Hall, Labor Force Participation. I note with some interest that if we were using about the same Labor Participation rates as we had in 2009, 65 , or 65 point something percent, versus where we are now, there would be 7 million more folks in the labor force to be counted. It doesnt seem like all of that can be contributed to retirements. How would you help me understand the percentage of folks working . Or involved in the labor force . Senator, theres a table in my prepared testimony that breaks it down by age and sex. As i mentioned earlier the big declines in participation have been among young people. Theres a theory, im not going to sponsor this theory but theres a theory that entertainment, i think this is most relevant for teenagers but entertainment, compelling entertainment has become quite cheap. That makes a difference in how teenagers decide how to allocate their time. It may be things like that. I think you should be encouraged, that this is perhaps not a total disaster. For one thing, these are not in most cases primary earners. Were not talking about the middle class. If you look at people in the peak earning and family responsibility years, theres been no decline in their participation. I think thats a very good thing. The decline has been people under 35 especially teenagers. I think, you know, we may figure out, and of course some of this may reverse theres always that possibility. To me, it doesnt cry out for any policy change, at least until we understand it better, see how permanent it is. Thank you. Final question for you as it relates to the president s proposal. He talked about increasing the Capital Gains tax. What impact would that have, especially when you think of the back drop of dodd frank and the capital leaving banks going toward entrepreneurships, what would that have on the entrepreneurs and the job market long term . Its pushing up an already high tax on entrepreneurial activity. Entrepreneurs create a C Corporation, they the C Corporation pays the Corporate Income tax by worldwide standards at a very high rate. And then it gets taxed again before it goes into the hands of the entrepreneur. So the tax rates on entrepreneurial activity are really high. And i dont think they should be elevated. I think we need to straighten this all out and have an integrated tax system that is careful to get the rates right for everything, instead of the hodgepodge we have now. For example, the conflict of the carried interest came up that goes in a different direction. Thats where what should be taxed as ordinary income is sneaking in only as Capital Gains. And its not income thats previously taxed under the corporate system. So we need to change this. We need to get the rates on entrepreneurial activities down. We need to get the rates on that takes the form of a carried interest up. We need to straighten all those things out and get reasonably uniform tax rates on activity. That would just be a huge step forward. Thank you. My time is up. Chairman, first of all, thank you very much. We all look forward to working with you as chairman of our committee. We wish you the best. Thank you. Senator wyden expressed the views of all the members on our side. Were looking forward to a very productive time. I want to thank our panelists. I think this has been extremely helpful. We are looking at ways america can have a stronger economy built on the success that we have create more jobs and particularly increase real wages in this country, to keep up with productivity gains. Which is a major concern. So theres a lot of focus on the business tax. And when we talk business tax, i think youve got to talk about not only the corporate rate, but you have to talk about the individual rate since so many businesses pay at the individual rate. We hear frequently that the United States has some of the highest marginal income tax rates in the industrial world. And i find that somewhat surprising, considering when you look at the reliance upon the Public Sector among the industrial nations of the world, revenue into the Public Sector the United States is near the bottom of the industrial countries. And of course the reason is that the United States relies almost solely on income taxes, where ags the rest of the industrial world has a heavy reliance on consumption taxes. When the World Trade Organization was developed, we thought it was just fine to allow for border adjustment on the consumption taxes where as the income taxes are not border adjusted putting the United States at a real competitive disadvantage. So i want to try to get to the core of the problem. Im not sure that just by rearranging the chairs on the deck, its going to make much difference if we still rely heavily on income taxes that are not border adjusted, where its the rest of the world relying on consume, taxes. I suggest we make some change. One group says well, we dont want to have a revenue machine for government. And there are ways to deal with that through using some form of an automatic rebate, if revenues exceed what you anticipated it being. So you can deal with that issue. The other, of course i hear is that we dont want middle income families to be more burdened than they already are today. And through the use of rebates based upon income, you can deal with that issue. Both of these matters can be dealt with in a much simpler way than our current income tax structure, with its complexities, et cetera. So i guess my question to you, from a policy point of view, from the point of view of americas competitiveness why wouldnt it advantage our country to take advantage of our natural advantage, that is that we rely less on the governmental sector for revenues, than our industrial competitor than our competitors in industrial nations, why shouldnt we be looking at a way to take advantage of that competitively . Dr. Hall, youre shaking your head the way i want you to do. You listed all the selling points. Particularly, the key idea you mentioned, that you can have a rebate built into it so that you can get the right distribution of the burden particularly excuse lower income families with a lower tax, and have a lower tax rate in the middle income as opposed to higher incomes. The consumption tax most economists think is a great idea. Our proposal didnt include border adjustments but its very easy to come up with a version of that. Economists are not as enthusiastic about border adjustments because we think it comes out in the wash in other ways. But i know politicians like border adjustments. So all the advantages you discussed and all the advantages i mentioned too, all combined into making a terrific idea. Thank you. Ill take that. Thats 90 what i wanted to hear. Governor engler, do you want to comment on that . I put my old manufacturers hat back on. We used to look at this, because what a neat thing to be to on the border put it on everything coming in and take it off on everything going out. That had real attractiveness. It is a heavy lift for congress which cant even make things like the r d tax credit permanent to get there. It is a challenge. It seem like small things are heavy lifts. Maybe heavy things are lighter lifts. Be visionary. All i know is that the conversation, the flat tax type of conversation your legislation on the progressive consumption tax youve introduced, i mean, im kind of tax wonky. Id like to talk about all these kind of things. But also with respect to our chair and Ranking Member some of the work theyve done i want to recognize that probably we have a room of possibilities on certain things and put that on the study commit tie. Maybe the sixth committee that looks at the longterm structure. It is a big change. And i you know, were willing to talk about anything that makes the u. S. More competitive. I appreciate that. We study things to death. I know we dont have consensus yet. There will be a need for us to bring about greater consensus. Everything were talking about has been tried in other countries. So nothing is new here. Thats right. We know what will happen. And the United States will be much more competitive than we are today. At one time we didnt have to worry about taxes on competition, today we do. Again, i thank the panel for their discussions. Thank you, mr. Chairman. Senator heller . Mr. Chairman, thank you. I think youre the chair of all my committees now. Look forward to working with you on veterans. I want to thank senator hatch and senator wyden. Look forward to working with you. Its great to be on this committee. Im real pleased that the first issue is discussing Economic Growth and creating jobs. I think for most american people, i think thats where they come down. I want to say hello to the governor. Good to see you again. Everybody on the panel, thank you for being here and for your words and effort. The economic recession affected everyone. But in my home state of nevada, it was especially harmful. Nevada experienced the nations highest Unemployment Rate nearly 14 at its peak. I would argue real unemployment today is north of 9 . As well as the highest foreclosure rate in the nation, and the highest personal bankruptcy rate. Its been a rough few years. Though our situation has improved nevada remains one of the highest Unemployment Rate in the country. Nevada families are still waiting for true economic recovery. That they can see. And in fact, feel in their pocketbooks. Americans have been told the economy is getting better. But theyre feeling the effects especially in my home state. Though the national Unemployment Rate has gone down, millions of americans have dropped out of the work force entirely. The fact is that this administrations policies have put up barriers to Economic Growth. We have already burned some tax code that has only become more complicated under obamacare. Businesses continue to face mountains of new federal rules, and regulations. And we have a Health Care Law that makes it harder to see your doctor, makes it more difficult for employers to grow, and raises taxes for hardworking american taxpayers. To truly grow our economy there are key factors that deserve the attention of congress. Americans deserve a cleaner simpler tax code. Trade policies that ensure americans competitiveness in the growing international marketplace. And Health Care Policies that actually focus on improving access of affordability and quality. I look forward to working with the chairman and Ranking Member to move these issues forward. With that, a few questions today. Theres an article today that came out in politico. As you know, we havent had tax reform in this country since 19 1986. Ill just read two paragraphs out of this mornings article. It said lawmakers in the white house are overstating the benefits of a Business Code rewrite. Some of the economists say predicting any likely overhaul will do little for growth, and may even hurt the economy. Thats because for all the complaints about special interest loopholes, and skyhigh rates, the biggest Corporate Tax breaks are generally by economists to promote growth. So i think that voice is going to get louder and louder as we Work Together as a committee to improve the Corporate Tax code that we have. I guess my question to you, governor is there any truth behind these comments and what are the risks you see moving forward on Corporate Tax reform . Well, one of the risks of not moving forward is that we continue to retain a patchwork temporary tax code that we have to come back every few months, it seems, to try to extend it. It allows nobody to plan in advance. Nobody to rely whether youre frankly an individual or individual taxpayer. As far as the, you know a named economist that said certain provisions have benefits, of course. Many of those benefits are put in to offset some of the negative effects of the code weve got. That was the whole goal. I mean, since 86, you know, weve seen changes made. But whats really changed since 86 is what the rest of the world has done in reaction to our code. And so then we react to that. And some of those provisions are designed exactly to try to make us more competitive against some other regions in the world, or some other practice out there. I think that a simpler flatter fair tax i mean i enjoyed the conversation with senator cardin but thats a long wait to get there to where he would like to go, but we can clearly see a simpler tax code in our future if we act now on some of the things that i think are doable in this committee. Weve talked a little bit about education. And i know brt has a solid position. Id like to get your view on this. But in nevada about 30 of the High School Graduates go on to a posthigh school education. Unfortunately by 2020, most of the jobs in this country will need a posthigh school education. How do you feel about the president s proposal on tuesday of Free Community colleges . Well the Free Community colleges are spending a lot of their time doing what the drop out because if you drop out youre really dropping out the whole economy. Thank you. Which triggers my time. Im going to be brief. I wanted to note that each of you have raised the 364,000 yes of tax reform. I want to assign you home assignment. The governor and i appreciate the many great things you have done for country and your state. Somewhere at the brt, in the bowels of the brt lowing the tax rate from 25 to 35 . Can you tell us if were to go through a comprehensive reform using tax treatments to offset the reduction in revenues from the percentage rate. Could we come up with a consensus from the committee as to what can be used. Yes, there is. Absolutely a list that i think works. Theres a reluctance. A reluctance to put all the cards face up until its that magic moment to do the deal. Theres no question in a fiscally responsible way we are looking hard at how that works and how much can be done. Were optimistic. Great products can be made. Eager to work with you. Id love to see that list. Thank you very much. You made a statement, and i couldnt find it although im sure its there. You made statement that you recommendsed triggers. Can you supply us with what those triggers are. What trigger as a professor of economics where you would have those triggers come in and how you would have them come in. If you want a simple formula now, one of the Unemployment Rate is about 7. 5 . Triggering on a bunch of stuff. Youd use Unemployment Rate as some other index . It strikes me as the single best. Second request on that. There are many types of taxes as we all know. What taxes would you trigger with that stabilization mode. I would need to think harder about the question. For sure income taxes. Beyond that i would need to think harder. It would be helpful to know. If you think about that because its an interesting concept. I appreciate it. It tells us that any time we raise or lower taxes there are economic consequences so we better do it correctly which brings me to dr. Hall. Youre an advocate of the flat tax. In one of the answers you gave you talked about the tax code we have right now. The name you give an income determines the tax rate it has, 28 on the proposed Capital Gains or 20 or 23. 4, whatever it might be. Taking an interest as a gained rate or dividends rate. That was a testimony for a flat tax or fair tax, is that correct . Right. I want to ask you that question. The biggest stumbling block is transition from the code were in to the code wed have. For example, you have longitudinal, depreciation. I can go on and on. Would you design a model for one day you would up and it was all of a sudden 18 flat tax just pulling something out of air. What would you grandfather in for this tax code. In the proposal, theres first year write off. Then the question, thats what were looking. Thats easy. The question then of how you treat the hangover of previously promised deductions. It would cost a lot of money but we could just honor them. Thats probably what i would recommend. There are some other issues having to do with a personal saving vehicles. Those can all be worked out and have been worked out. It does get into some detail that i cant go into this morning. Its something ive thought about and its doable. You have to do it right. There are fairly long list of fair, correct transition rules that would have to be applyied. Its done. I appreciate your answer. Id love you did that paper a number of years ago if you give it to me. I like to learn and i get bored at night watching tv. The reason i raise the point when reagan reformed taxes in 86 the one thing we made a mistake on is passive loss and massive gain. It took a large segment of the economy primaryily investment rules. You have to be very careful when you change the treatment of taxization investment. Theyve already made it. You have to make sure youre not handing down the consequence. With that said im going to turn over to the Ranking Member. Thank you. Let me go back to what you and senator thune talked about. Youve been kind of taking the time over the years to talk with me about it. I think you know how strongly i feel about comprehensive tax reform. I think a big part of this debate is really going to come down to petes auto supply and frans Hardware Store because if they walk away thinking that all the discussion in washington, d. C. Is about the big guys the big guys will get the breaks, the multinationals will get the breaks and pete and fran arent beginning to get anything a and b, when they start looking at the numbers they may think theyre going to have to pick up some of the costs in order to have the break for the big guys. I think thats a show stopper both substantively and politically and viewed to your credit indicated your interest in talking about this. I understand that theres some discussion going on in the Business Community in an effort to try to think this through and you have to find it. Given the fact businesses. Small Business People on day one to see there was an effort to try to ensure as we do tax reform we want everybody to get ahead and recognizing Small Businesses. I know this is not the time talking specifics or how everything will be paid for. Whats your sense of that discussion and where it might go. I think that first of all, its an unavoidable discussion. It has to be part of the whole conversation. I think as long as were working with the constraint of what is described edd fiscally responsible tax reform it mean ifs youre going to try to bring rates down with your cost revenue then as it was just mentioned what then offsets that revenue loss, i would think theres a fairly dynamic affect thats there. Theres some affect. I think its a beneficial affect that that will be seen at higher revenues. I understand the scoring rules that we use. If we say whats fiscally responsible. Those that are noncorporate entities nobody should subsidize the other. They shouldnt be subsidizing corporate relief and i would argue vice versa that corporate shouldnt be subsidizing. How do you get them a better tax code . How do you get a better tax code. I think we figured out where we would like to be on the corporate side. The others a little more complex because you just point out the diversity. Many clustered at the bottom. They kind of go up. Some are pretty big. Those are big guys. As we look at this your question about a Small Business credit or something all of those are intriguing. Were very open to working with the committee to see what could be done. We always speak of comprehensive tax reform. If its comprehensive that means theyre not left out. One of the troubling sates is the huge gap of economic areas an economic recovery in rural areas and the National Association of counties released a report noting of the 3,000 Rural Counties only 65 are in economic recovery. No county in any state has seen a full economic recovery. 23 Rural Counties in my state have lagged belong the urban and populous counties. Clearly, in my state and i just came from a town Hall Meetings in rural oregon im not going to accept to turn the Rural Communities into sacrifice zones. We just write them off and say thats the way it goes and the end. Try to deal with the huge gap. Id be interested on an idea from each of you. Dr. Wolfers. Im going to reject the question rather than answer it. Fair enough. We should weight each of these as real people with dignity. That doesnt mean favoring one group over the other. The important part of your question is the claim how many recoveries got a lot further to run. On that i completely agree. The trend toward urbanization has been going on throughout the history of the u. S. The exactly what comfort should be given to the people who are still in rural areas but its very important to understand that especially certain big urban areas that are the other extreme. In the urbane area its 4 . We have a progressive tax system which helps a lot in that respect. We have a social safety net. Im not sure it would be appropriate to go beyond that to have something specifically aimed. Europe one of the main, huge problems in europe is very consistent attempts to prevent people from migrating to big cities and thats been one of the many drags on growth of productivity in europe. Again, im against the europeanization of the u. S. And we do want to move in that direction. We have a pretty robust social safety net. The numbers on that are quite impressive. How much help we do give and particular excuse to people in that area completely lyly from paying taxes. We do a reasonable job. I can tell you in rural oregon people are first and foremost interested in family wage jobs and opportunities in trade and want an improved infrastructure. They want a balanced approach. Nobody this weekend said the answer was just safety net programs. Anything else you want to add . Real quickly kind of one of those like these. I do think that technology has a huge role to play in solving that gap. I really felt the idea that everybodys got high speed access, we can take the work to where the people are today. Would like to give it in the world but you got to get it. You have to build that. If id leading one of those communities today, im really putting my emphasis on the education work force. Governor. I talk to people around the country and they say what do you do . I say im a comforter governor. Johnny and i used to Work Together. We married later in life these wonderful women and we had kids. Our kids got to spend a lot of time together. Share a passion for a particular Baseball Team thats now traded away two of the best pitchers in baseball. We still have plenty. Having said all that we also are interested in how to refoster greater Economic Growth whether the governors or senators or president s wp we dont create jobs. We help with the nurturing environment. I was pleased with the president s speech. He focused on things that could create a more nurturing area for job creation. Talked a bit about tax reform. Im long time interested on the rates. He spent some time with cyber security. From universities whether its michigan or hawaii state, delaware you name it. I think were doing a better job. Its a big job. He spoke to that Immigration Reform. Someone has mentioned, the Immigration Reform was long time. We do budget deficits and foster greater Economic Growth. The last one is transportation. Governor engler in his current job one of the things hes done is led the National Association. Looking at what kind of gdp growth for Transportation Systems. Transportation planned for the next six years. They said we got a fair amount of gdp growth and economic boosts. The real growth, real growth in terms of gdp from fully funded Transportation Program comes from an adjusted time economy to be able to mover goods and products across the country, out of country and into foreign markets. Thats where we get the real gdp growth. The big question has been how do you pay for this stuff. The last five years we have seen 12 years we kicked the can down the road. We borrow from the general fund thats break. I dont think its a very smart policy. Reduced that has nothing to do with transportation. One of you, i think it was you dr. Hall may have mentioned Something Like user fees. I know in michigan the governor tried to double gas tax from 19 cents to 30 cents. I think it passed the senate and not the house. I have great interest in that and funding it through this committee. Heres my question. Senator, our Ranking Member is from oregon. Theyve been working for ten years on something called the road user charge. In delaware if you go through any state on 95 you pay a toll. We have highway speed ez pass. If you go south in my state down to the beaches you go through its state route 1. Its a toll. We have a combination of tolls. We have road user charges. Dr. Hall, i think you were talking about congestion and charging. I think that makes a lot of sense. Given this advice were going to run out of money yet again. 12th time in five years. We run out of money in may. What advice do you have for us . My sense is it needs to be a combination of things. We have not raised the gas tax or diesel tax for 21 years. Gas tax is a dime. 24 cent diesel tax about 15 cents. We all know whats going on with the price of gas. What should we do . You want to lead it off. Im happy to start. I do think as part of a comprehensive Business Tax Reform proposal theres an opportunity to do some thing that i dont think they are permanent fixes. I think they are multiple year fixes in the transportation fund. They would not be as good as if you were to address overall revenues for the fund of dedicated user fee sources. I do think theres creative ways. I look at that as theres a possibility. Theres also been in the press comments that dont add up where they say lets repatriot one dime and use that money. That doesnt work. Theres way to do it. Camp got at and some of that in the proposals made in the house in the last congress. Some of the other proposals about how you may change the way Highway Trust Funds administered and at what level. You are completely right in the problem. We can make a contribution that can be very helpful buying some time. We really need to step it up. The needs that are met are unstaggering. Dr. Hall. Im not equipped to deal with these daytoday problems especially from 2600 miles away but where do you live . California. Where . Mellow park. I used to live there. Really. Yeah. Our road was next to the stanford golf course. Great. I went back there a couple of years ago. He had a sign in the front of the house that said top carver may have slept here. Taking a longer perspective on infrastructure in general especially roads, roads should make a profit for theowners of the road. The government ought to make a profit because they sit on a lot of land. Its worth a lot. That shows how different it is from today than it shoultdd be. On the gas tax theres a gas we should have a gas tax as part of a carbon tax. Otherwise, as been pointed out earlier the gas tax is extremely inefficient and now ineffective way to deal with recovering fees. We need to recover fees from transponder, ez pass or whatever its called in different parts of the country. We do a lot of that in delaware. Thats great. We also have gas tax. We should have gas tax because of carbon content. That doesnt mean we should keep raising it all the time. We havent raised it in 21 years. Then its probably too low. Getting the right level of realtime pricing of the users of infrastructure. Air travel the same thing. Its scandalous since most people who fly are at least middle income that we fund them through infrastructure. We need to get that straightened out too. There shouldnt be any federal subsidy to air travel. Thank. Dr. Wolfers. Are you from aaustralia . I am. Are Australia Citizen . I am. One at the moment were effectively subsidizeing the dirtiest forms of transport rather than the cleaner ones. Theres even Better Things we can do. This is the simplest instrument we can use. I like to run to work. When i run to work i have to join a gym just shower. On the days i drive to work i can use tax exempt money to pay for parking spot. Were subsidizing one form of transportation rather than another. I would argue, probably not the right form. The second is how to get more bang from your buck. One is to think about spending more when stuff is cheapest. We have a lot of construction workers out of work right now. We have low Interest Rates. Now is a great time to spend if the boom keeps going five years time will hopefully be a terrible time to spend. We can get more bang from our buck. The third was you said you began by saying you asked some economist for what the Economic Growth pay off would be. I think thats the wrong question. The real pay off is moms and dads who get loam to see their kids 15 minutes earlier every day. Thats not Economic Growth but its an improvement in living standards. Thats a great point. Texas a m does a study every year and they figure out how much time we sit in traffic, not move. Its about two full days. Thats a good point. Well taken. Thank you. Mr. Chairman, how about that . Hes been our leader on in ininfrastructure. Thank you all. Were adjourned at this time. Well be looking for your phone calls, Facebook Comments and tweets approximate all on washington journal live at 7 00 a. M. Eastern on cspan. Here are a few of the comments we have received on the state of the union address. I am very excited by the president s state of the union address. I would have liked to hear him talk a bit more about job security now that unemployment has gone down. I would like to hear what policies are great to be in place to help people hold on to the jobs that they have and people who are having a difficult time finding work. I was actually unimpressed. Maybe im a Little Old School but to me a universally paid Even Community college, really takes away of the initiative out of the student. I dont know maybe again back in my era we had to work our way through college. Our parents didnt provide. We found way to get through college. For those that have nothing, that are flat broke potentially there should be some help. I think we got to be cautious on how were throwing that money out. Not just from a budgetary standpoint but what it does or doesnt do for the recipient. The republican from iowa, she did make a comment that said you dont need to come from wealth and privilege to understand what is right for this country. I wanted to let everyone know im a first generation american, so i do understand what it means to build from nothing to come to something that you can be proud of. We need to let go of old ways of thinking and embrace where we are as a country today and where were going. We need to continue to salute or troops and theyre sacrifices and embrace where our future is headed but i also wanted to say we still have so much ahead of us. History has proven that we can be judgmental of our leaders and history proved that differently. I just hope that in the next two years we can keep focus and hold tight to our values despite party lines to continue to grow our country and our future generations. Continue to let us know what you think about the programs youre watching. Call us at 2026263400. Email us at comments at cspan. Org or send us a tweet. Join the cspan conversation. Like us on facebook. Follow us on twitter. In a news briefing defense secretary chuck hagel discussed the u. S. Military budget and the mission against isis in iraq and syria. Secretary hagel announced his resignation last year. His replacement ashton kartscarter awaits senate confirmation. This is half hour. Afternoon. As we leave 2014 behind, i want to first of all thank all the men and women of the Defense Department for their sacrifice, their service of this country. I also want to thank their families for the incredible sacrifices they make. All of america is very proud of the men and women of this institution. Some you have know the last week i had an opportunity to thank some of those individuals personally as i took three days to travel around the United States and visited some of our bases. Again, it was personal opportunity for me to let them know how much ive appreciated the work theyve done for the country and what they continue to do. I know how proud this country is of these men and women. We see the kind of work they do for commitment, their service all over the world. We see their agility today in the middle east where our men and women continue to stay on high specifically off the coat of yemenyes coast of yemen where that situation changes hourly. Weve seen their agility in west africa where thousands of our troops deployed to help stop the spread of ebola. Stopped the spread of ebola at the source. Weve also seen their agility in afghanistan and iraq. Theres still much more work to do and much ahead of us. Im encouraged by the progress thats been made. Many you have were with many on a recent trip to afghanistan and iraq. This is an ongoing process of development measured by many metrics. As to the progress were making. Im sure well have the opportunity to deal with that more directly as we get the questions. In afghanistan we have transitioned with our partners to renew support mission. Training, adviseing and assisting afghan forces. In iraq our troops are working with Coalition Partners to help train and support iraqi forces as they take the fight to isil. As iraq seeks to form an inclusive government that represents all the people of iraq. We will begin to deploying soon troops to the region to help train and equip the moderate syrian opposition. I was briefed yesterday on that progress. Very important roles our allies play in advancing our shared interests around the world. Since our alliances and long term partnerships are important to our own security, threatening these allies relationships with a core Strategic Focus for this department in 2014 has been very important. It will be an ongoing priority. Over the past year we held the first u. S. Defense forum on u. S. Soil. Undertook new initiatives to strengthen our lines with the philippines. We reached new agreements with china. Also upholding fundamental principals such as freedoms and navigation. We held the first u. S. Defense ministers meeting in over five years. Deepening our cooperation with gulf nations that have been critical to our Coalition Operations against isil. As rush we bolstered our training exercises and rotational deployments as we continue to make progress in this area to reassure our allies and demonstrate our resolve. As we end more than 13 years of war, the dod has been focused on laying the ground work for enduring institutional reform. Ensuring our nuclear deterrantent remains safe. Strengthening and improving our systems. Embracing Better Business practices and moving toward greater institutional, financial accountability and transforming our pow, mia accounting mission. We put unprecedented focus on health of the forces issues like eliminating Sexual Assault in the military improving accessibility, quality and safety of our militarys Health Care System and restructuring and modernizing d. O. D. s program with the v. A. All these efforts and more will help ensure that our constitution will be stronger more capable and better prepared for future challenges. Dods budget and its part nershipner nership is central to all of this. Not only in finding new ways and funding our Ongoing Operations around the world, but also in pursuing cost saving measures that are essential. I appreciated the members of Congress Working together to provide d. O. D. With the resources we needed last year. Given an increased operational tempo the operation builds will help ensure our ability to execute the president s Defense Strategy this year. The progress we made will quickly evaporate. We need long term budget predictability and we need the flexibility to prioritize and make the difficult decisions in order to manage our institution more efficiently and more effectively. Deferring these necessary decisions and actions will only make them more difficult and costly down the road and into the future and weaken the defense enterprise. The past year was marked by persistent threats from terrorism, Global Health pandemic and sectarian violence. As the president reminded us on tuesday night if theres one constant weve seen over the last year its the necessity of American Leadership in the world. That leadership and the ready and Capable Military that supports it will be even more important in the years to come. Ladies and gentlemen since this News Conference will most likely be one of my last as secretary of defense, i wanted to thank you all. Thank you for your informed work. Thank those of you who have been with me on my of my trips over the last two years and thank you for your personal courtesies to me. With that ill will glad to answer questions. Mr. Secretary yesterday Prime Minister said that he was ub upset by what he considered the slow stalled pace of u. S. Weapons and training in iraq. Do you agree with his assessments . Has that been slow or delayed and the 6,000 the reports of 6,000 insurgents killed is that a measure of what the u. S. Is doing and is that number accurate . Well, regarding Prime Ministers comments. First, i dont agree with those comments. I met with the Prime Minister as many of you know who accompanied me on that trip about a month ago. We have put a particular emphasis on getting the kind of equipment and material ammunition, the needs the requirements for the Iraqi Security forces and the kurds. We were able to move missiles expedited in every one of these cases. The flow of ammunition and material and the requests continue at an accelerated rate. I do disagree with the Prime Ministers comments. I will say even further i dont think they are helpful. I think the Prime Minister might want to be a little more mindful of that. We have about a dozen Coalition Partners who have trainers there along with our trainers. Well have a fourth Training Camp up soon. As to the second pard of your question im not seen any verification of that number of 6,000. We do know that some of isils leerdship have been killed. It is a measurement. I dont think its the measurement. I was in a war when it was lot of body counts every day. You look at things like do you have isil on the defense. Are they having difficulty recruiting . Yes, they are. Have the Iraqi Security forces cut into their supply lines . Yes, they have. Has there been a distortion in command and control that works . Yes, there has been. Significant, tangible measurable. These are also the metrics that you look at as to how much progress youre making in a world. You and others keep pushing the congress on this. Whats your best take. You read of the congressional dynamic whether it will return in 2016 and the military services need to absorb an additional 34 billion. Whats your take . I dont make predictions but what i do do and what i have done and i think the leaders of this constitution will continue to do, as the president noted, and he will do is warn and be very deliberate and direct about what will happen. We will not be able, this institution fulfill the commit ms of the president s Defense Strategies with kind of continued abrupt, steep large cuts that sequestration will demand. There will be adequate opportunities for the chiefs to testify on this. I dont think any of our oversight committees have scheduled those hearings yet. This is an appropriate venue and forum to talk about these things opinion this will impact readiness and impact the uncertainty of our budgeting. That means platforms being deferred into the fumpture. Is this case where the 1 of the public being connected to the military that disconnect is hurting you because the 99 really dont care that much enough to fight congress or mobilize opposition to overturn sequestration. I dont know if i would identify that reality. The 1 of the this country fight our wars and defending our country. Thats a fok tor in factor in the large scope of the dynamic of whats at play. Theres only 535 that have a member of congress job. Thats why you elect them. Be aware and be informed and explain to their constituents, those who represent what the reality are. There are variations to that and there should be. Thats the way our system works. Its their responsibility to make the case. This afternoon im going to have, this is an example, two more conversations with two senior senators about sequestration. I think that the last year we have made progress with the congress on informing and helping them understand and assimilate what the consequences are of sequestration. It does take time. Our system takes time. You have members calling me and calling other leaders asking for some time with us for us, me, secretary of defense to explain in more detail because im concerned. To what extent is the unrest in yemen slowing the Obama Administrations plans to transfer prisoners from guantanamo and reduce the area . Well, the base commander has been relieved. Clear view of appropriate authorities. I wont have anything to say specifically about that which would be inappropriate. First, i have always supported the closing of guantanamo. One of first republicans to take that position. I articulated why i thaug it was important. Its specially what the president has said. That said the secretary defense has under the current law and the way the process works has a responsibility to certify be transfer of detainees in that significant two that certification process in the interagency, everybody has to sign off on it and they do. Every transfer that ive certified and i think theres been about 44 that ive certified. Theres a substantial mitigation of risk to the security of america and our people and our allies. I have tried diligently before i put my name on that document to assure not only myself but the people of this country that is what i have done as the certifying officer here on behalf of the people of this country. That said, what we have left about 122 in guantanamo detainees. Many are yemenese. Every major player has a role. Our intelligence department, fbi, state department of Homeland Security and so on. Because of whats happening in yemen and we were well ware of the danger and uncertainty in what was going on in yemen before today. That has to be factored in. Heres the point. Its what country is willing to host these detainees. Weve not sent them back to yemen. Again substantially mitigate the risk to the United States. The consditions in yemen today arent any different than what they have been, and we dont send them back. Now that the european command have increased protection across its bases what are your concerns post paris, post belgium and you see the trend of foreign fighters returning to europe . What has led to this increase in security measures and what concerns do you have about the threat that foreign fighters, isis fighters in europe pose to u. S. Military personnel . Well, its been a threat, barbara, and its a reality. We have been well aware of that. We are well aware of it. They are the closest to the reality of these dangers. As ive said before, from this podium and different venues on capitol hill, this is a long term challenge and threat. This country and countries of the world are going to be dealing with. This isnt anything thats going to be oversoon in is not a threat that can be fixed by sending great armies into invade countries. I believe this challenge won by an integration of the interest of nations and integration of the agencies within those nations. Youre not going to fix these big problems through military solution. To protect our interest and our bases to be alert to what the threats are, it takes all of these groups, all these countries and all of our instruments of power together working together to deal with it. Isis fighters in europe targeting military personnel, families, do you believe they are threatened by isis fighters at this point . Weve seen no indication of that. No intelligence. One of components of the Obama Administration strategy on iraq against the Islamic State has been getting the Iraqi Government to take steps to increase inclusiveness in the security spheres. Usual you were in iraq with me. I think you were the pool representative in my initial meeting. You were there at the time i was there. I actually talked a little bit about this. Firts first the commitment do what we think the United States and what he plooefbelieves and i do believer he believes it to form a more inclusive government. To allow all the elements of his country to have a role, a real role not just paper role in governing and a say in govrperning is something were doing. You have certain parameters and those are insulators and safeguards that assure the people that voices, all voices will be heard. Thats the success for his country. This is about the iraqis. This isnt about the United States. For his country to bring that government together so that the people of iraq will have some confidence and trust in its leaders and its government, the National Guard effort. We have worked with Prime Minister and his defense minister, which i think is another element of how important it is to bring the government together is another part of this. The acceleration will really determine an ultimately the outcome of that effort i think the future. Can i follow up on jamies question regarding guantanamo. What do you see as the biggest obstacle on making good to close it . Are you willing to sign transfers. I understand theres one on your desk. Will you be relieved to be rid of that duty when you leave this job, sir . I dont know about one on my desk. Its under my desk. As far as i know everything, i have made a decision on everything that is ready is be made a decision on. I dont know about that. This is the responsibility that i have as secretary of defense. Its one of many. I think its a big one. I take it seriously. I think its an important one. I wont be rushed into any decisions. I suspect ive not made