proposals? >> great question. when i first got my job i quickly realized, i consulted with some of the bright academics that there's all sorts of interesting ideas, that sales-based income blocks. so we, we have the system we have, you're absolutely right that mobility of headquarters, mobility of these items makes the current residence-based system fragile. no question. but as policy makers we get to play the hand we're dealt and that's the hand we have for now and we'll play it best we can. thank you very much. >> i guess the next panel should come up.

i'm eric toter, codirector of the tax policy center, it's an honor for me to be here honors don lubic one of the my mentors, heroes and an ideal to all of us on the panel, and many of us in the audience we have a

great panel here. i will -- you have their full bios, i will introduce them briefly. manuel koran is kpmg. she was previously a deputy assistant secretary for international tax at the u.s. treasury department, and during the obama administration and has done many other things before them. i won't go through them all. david rosenbloom is a visiting professor of tax ace and director of the international tax program at new york university's school of law. he's also been a member of the kaplan drysdale law firm. and david has many other accomplishments, but the one i'll mention is he also was the top international tax officials at the treasury department back in the carter administration.

-- where he was tax legislative counsel. and finally we have barbara angus, the one member of panel who is now in government. she has been a principal with ernst & young before then. before then she was also the top international tax person at the treasury department during the first term of president bush -- the second president bush. i will turn this over, and i think i will try to hold you to eight minutes each, if you

could. we're a little behind time. i will take a moment to say i am privileged to be here, don, in your honor and have served under your limp at treasury. i think moments we experienced earlier, in looking around the room, i've had the privilege to work with many of you and were reminded of what is important. i just want to take a moment to say that. we have wonderful colleagues we wish bobby the best. so i'm tasked with starting off just to set the stage around the baps initiative and how it started. i think understanding the origin of the anti-beps movement, which i distinguish from the initiative itself is really critical to understanding the current impact on multinationals, but also the relevant impacts on u.s. tax reform.

since it coined the acronym, many have pointed the finger at the organization for have been opened a pandora's box that has unraveled long-standing international tax rules and upset what was perceived stability ahead of their involvement. i think a closer look both at the historical record of the oecd, and being able to effect significant policy shifts at anywhere near a breakneck speed, as well as its limited ability to keep the initiative in check more recently in check relative to its original policy objectives, suggests that the origins and reasons for the movement goats much deep are than the initiative itself. beps is not the foss first

rodeo. some relevant examples including as far back as 1998, not that far back, but still far back, the report on harmful tax competition in 2004, we saw the establishment at the oecd of the tax plans steering group, which was established to identify and share concerns about aggressive tax planning techniques. is it started out with the participate of seven countries, according to the web sites is now 46 countries strong with an inventory of over 400 aggressive tax planning techniques. and the incentives to minimize taxation. we saw reports on the tax risks involving bank losses as well as corporate loss utilization through tax planning, and then reports in 2011 about the need

for transparency and disclosure, and 2012 report on hybrid mismatches before action 2 was dubbed action 2. while echoing the same themes we saw throughout the 15 action items never resulted in the political call to action we are seeing now being played out in a number of jurisdictions. nor did they prior initiatives receive even a fraction of the attention that's been the hallmark of the beps initiative since its inception. -- never noticed or even word about the prior reports or initiatives and thought they were of meet concern.

boardo bob, i think you covered very much --ened the public and political environment largely outside the united states that really launched the oecd initiative into what it is today. it was the financial crisis, it was the political pressure that politicians were until relative to their handling of that crisis, and the resorting to austerity measures, and just an increased public focus on whether or not multinationals were paying their fair share. sew that is what spurred politicians into action. the original goal of the beps initiative was to temper that receipt ricks and mitigate the risk of what was viewed as politically driven ute lal real action.

to that end the oecd said it was attempt to evaluate and maybe change the rhetoric. when that initial announcement was made, there was a point of focus that was on -- not on the behaviors of companies, but rather on what are the limitations of current worlds. and that first report was future of statements what we are looking at is to the other thing that report utilized is and the initial reports promised that they were not going to relitigate the issue of source versus what happens i think is telling as to how much of this

was oecd driven initiative. you in base we would are never imagined back in the lubic area, the number of reports that include tax those political forces, not surprising that led to baps and had the oecd attempting to mitigate the direction it was going are also not surprisingly leading to some of the outcomes we are seeing from the projerked. we've also seen that ultimately the source versus

residence country taxation has been reopened and unilateral action has not been topped. so i'll conclude by saying the impact on that form is understanding as we look through to what extent we all to consider the beps initiative, it's important to understand it isn't about the oecd and we shouldn't have to worry about i it. and u.s. interests those interests are clearly impacted by the behavior of other countries, and the u.s. tax base can be eroded not only by the behavior of multinationals, but by the behavior of other governments. >> thank you. >> well, thank you, and thank you for the opportunity.

good to be here, don. thank you very much for this opportunity to speak about policy and reform. it seems to me i have seen this movie before, however. we all love to sit around and talk about policy. i will get to policy in a second. let me say while we talk about policy, our tax system is being slowly eroded into the level of administration. it doesn't matter the rules if you don't have people to enforce them. if you take even a quick look at what's happening to the internal revenue service in the last few years, you would realize one of the reasons it almost doesn't matter the rules. we have lost so many people in the revenue service, the enforcement capability is diminished dramatically. unless that gets rectified, frankly who cares if we don't have a tax system? saying all of that, i will now turn to tax policy. i see beps as the -- sort the the revenge of the source spaces

approach to tax i get this a bit from what bob stack set, because the deal, as i underis it coming out of world war ii was in the internal war, the source cunning and the residence countries would have -- and that's certainly broadband the u.s. view of the world. i particularly and dramatically reflected in our treaty policy, where we are way beyond our ocd favors the country of the residence. what has happened, i think, is that the residence countries, and we were and still are presumably the premier residence country, failed to do their part of the deal. they failed to impose tax on their own taxpayers. i think you draw a direction line -- not even a dotted line, between check the box and beps. i think beps is a direct reaction to check the box rules. they were used aggressively by

u.s. taxpayers in ways that got until the skin of a lot of countries. i think it was probably a foreseeable thing that that would happen. i think the problem -- unlike john, i've never been inside a corporation, but i think the problem is the war between the long view and the short view. it does seem to me that taking the short view in terms of tax planning has resulted in a lot of pretty aggressive things which have led inelect ably to what we see in beps. saying that, the question for me has been how should the united states react to that? we've been the premier country going around the world, telling other countries be reasonable. if you want our investment, limit your tax at source, and frankly the indians, the chinese, the brazilians, a lot of other countries, they're just not buying it anymore. they're basically answering, we'll set our own tax policy,

thank you very much and by the way, you guys in the united states aren't doing such a great job, either. frankly that's where we are, and i think we have to come to terms with that. so far, my perception, some will say this is unfair, is that our policy has essentially been to do nothing, pretend that beps doesn't exist t unfortunately it does exist, and i think the upshot will be quite dramatic for a lot of companies. i don't think we do a heck of a lot about it, though i hope we can improve dispute recognition, and the efforts of bob and others to advance ways of getting disputes resolves, because i see a lot of disputes on the horizon. another thing we could do is double down on our bask policy of saying residence country rules, we go around to brazil, india, try to convince them to be reasonable in their treatment of our companies. i've had a fair amount of experience recently particularly

in india, and i tell you, it doesn't work very well. i don't think that that's going to be fruitful. the third thing we could do and i think really something that's long overdue, is we could rethink the balance between our own source base of tax ace international, cross-border tax policy, it's that everybody seems to think almost exclusively about the outbound rules. i've seen entire books where there wasn't one word about inbound, but the inbowen investment on a year by year basis is staggering. i saw the statistics this morning. it ain't 1946 anymore, guys, so we really ought to revisit rooms that having in place for over 50

years. i think if you you wanted to at inverdicts lowers the corporate rate as a means of is that machined less. what you can do is pay more attention one even invert, because why people enverdict is it's better to be foreign. we tree people better, the i.r.s. audits are much lighter, and in many cases nonexistent. all of that needs more attention. it isn't going to be cured by a bit of policy around the edges. we really need to rethink where we stand in the world.

and in my opinion, what is really needed is a thorough going review of our statutory law. next comes treaties. i think we are way too favorable. i have said -- these are sort of radical thoughts. i think we all to can the gnome discrimination clause, why? we want to -- let's gets a little let hypocritical about our rules. the new noddle doesn't go far enough in my opinion for a complete rethink. you can't really do it. you can't start with the treaty. you have to start with rethinking the statute. the three approaching i see are

do nothing or make tail a few leaves from the book of brazil, india, china, who say we have a market and, you know, we're going to impose tax on the entry into our market. we have a market too in the united states, and i don't think you can plan around that market. that market isn't going anywhere. so it seems to me that that's what i would see as coming out of the beps material. thank you. first let me say how delighted i am to be here, and to thank dawn, because i wouldn't be here. don called the senior partner in the firm and said do you have anybody who's foolish enough to come to work in washington and -- and without don, i

wouldn't be here, and i thank you. so i rarely find myself in agreement with david, but i certainly do, and i'll get to that in a minute. i think we need to focus on our source-based taxation. but as alan said we don't know what residence is anymore and source, so maybe we need to focus on destination. to frame international tax reform, i always like to start outside the tax world, what is it we're trying to accomplish? i think the answer is maybe to raise revenue, but probably not in this area, but to increase the standard of living, investments, jobs, excess tiffness of u.s. firms, but only to the extend it's a have i to increase the u.s. standard of living. how should we change our tax system to do that?

jo find race to the bottom very helpful. what they are looking to do is attract the investment. and i have only two reasons i can think of as to why we wouldn't look at what other countries are doing. one of them is maybe we think we're smarter than the rest of the world. for a long time we did. it's pogo. we med the enemy, and he is us? no other country in the world could pet toy -- maybe that's a blessing, maybe that's a problem. or then maybe we're different from the rest of the world. well, maybe we were once when we had the big large u.s. market to ourselves and didn't have much foreign competition, u.s. firms didn't have to compete abroad. no longer. today as a result of technology, trade, low-cost transportation,

u.s. is a small open economy. larry summers and jim hines did a great paper making that point. so we ought to behave like one. the rest of the world are lowering corporate rates and adopting territorial system, and let me be clear, without minimum taxes. current home country tax. passive interest income, maybe that's one thing, but active business income, nobody is doing it, and it's a very bad idea. it's a hybrid system, what we have today. it's too broad, will hurt the competitiveness of u.s. firms. it's too narrow. we have a 15% minimum tax intangibles will still go to take advantage, saudi arabia triage, that ten or 15-point difference, and it won't raise any money. foreign governments will raise their rates to soak up the

minimum tax, and multinationals will stop planning to reduce their rate. it's just a bad why the, and no other country has one. if we're going to reduce our rates and adopt a territorial system? how do we pay for it? rate reduction, i would start with base broadening on things that can't move. i would slow deprecious on things -- and telecommunication -- things that have to be here and aren't in the traded sector. i would capitalize a lot of things -- repairs, advertising, i understand that's a timing items and pushes the revenue loss outside the ten-year window, but you would be using dynamic scoring, whether you like it or not.

show the that 60% from the rate reduction would be made up in economic growth in the long run. i would adopt thin-cap rules, and if i needed more money, i would shift the burden to capital to individuals either through integration, with a different deduction or credit system. higher taxes, accrual taxation as eric has recommended. how to pay for territorial. there was a study if you exempted dividends, you would raise a billion. so on a static basis we're collecting no new revenue. having said that the joint committee has estimated moving to a territorial system at a 35%

rate maybe $3 to $400 billion. i think there are two pieces to that. one is incredible at system shifting, the joint committee is anticipating the dividends will come back. i don't know why they're assuming that. they haven't in the last 20 years, and i don't think they will in the next ten, but having said that, that's the headline number, instead of a blunt tool, i would address base erosion. believe me, i think it's a problem. i don't think it's a bigger problem under territorial than it is today. i think today it's a heads i win/tails i lose. i think it's a huge problem. i try to identify where the problem. where is the problem? go to your cfo and say i'd like

to move something offshore. when do you do it? for tax reasons, when the tax savings are greater than the nontax costs of moving. when is that? you have to have big savings you can count on. when do you have savings you can count on? high margins. when do you have those in a competitive market? only when you have protected intellectual property. that's the plus side of moving. what are the costs? the costs of moving, if you have -- your products can be put into a fedex envelope and shipped or sent over the intern internet, very low costs. think high tech, pharma, intangibles is where i think the issue is.

you have to also move your manufacturing outside the united states. i can explain that later. because they can't manufacturing in the u.s., or if they had a contract manufacturing arrangement there would be a permanent establishment here, we're hollowing out our base. i would address this base erosion with very tough on rules, form laic, i would outlaw cost sharing, outlaw contract research. i would put a weighted quiche use the realistic alternatives test and would limit the return in a cashbox to the weighted average cogs of capital.

the r&d would have to be done, and i would only apply it to very high margin stuff, and then i'm out of time, in my negative territory. i would think about a dpt, a diverted profits tax for the united states. what we have left is our large u.s. market. the india, china, and now the uk has set the path for it, i think it's a lot of sense for us to explore that. i'm out of time, otherwise i would tell you why and how we could do it.

>> today i'm not officially speaking for the committee, and i want to thank don. i with him also in the private sector, and while we weren't directly colleagues, and sometimes we were on the opposite side of an issue, don always approached me in a very collegial way and made clear that in his view we were both working to the same objective of a better tax system. so it's a privilege to be here at the first donald lubic symposium. i thought the question posed to this panel was a really important one, and i think it also has a really simple answer.

and so that's my simple answer the i'll elaborate for a few minutes on that. over the last decade countries around the world have been reducing the corporate tax rate. the uk -- that's less than half of the u.s. rate. in the same time period cunning around the world have been replacing worldwide tax systems with territorial approaches. the fortune 500 used to be dominated about i u.s.-head quartered companies, but those spots are increasingly being taken by foreign head quartered companies. the u.s. tax system must be modernized to reflect the modern world. largely focused on household name companies.

that i think the oecd was seeking to deliver, what we're seeing our country using beps as an excuse to justify what are often blatant retch grabs. there are many examples of unilateral action being taken in the name of beps that are at odds with the beps recommendations. the uk diverted profit taxes is one example. a response to concern about the permanent establishment rules, but a very different response than the response agreed to and negotiated in the oecd that involved amendments to the pirm nent establishment definition in the treaty. one could say that the u.s. 38 a regulations, which are controversial for many reasons are very different response to concerns about interest

deductibility than the beps action 4, and the agreed recommendations with respect to limiting interest deductibility. is in sharp contrast with beps action it seems this is just the long line, justified by beps, but not in line with the agreed beps recommendations. to starts corporations, and again almost exclusively, and in the u.s. we're seeing -- forced to consider a foreign acquisition or to succumb to a foreign takeover as the only way

to remain competitive in the global marketplace. these transactions are labeled inversions, but we should recognize them for what they are, a means for survival. the ways and means committee held a hearing earlier this year on 2016, and what that means for tax reform. the clear conclusion was that we need fundamental tax reform that inclusion a modernization of the u.s. tax rules. i think an important point driving home was international tax reform is not just an issue for global american businesses, but an issue for all american businesses. if a global american company is forced to move its headquarters to a foreign country through an acquisition, or takeover, that often means that over time key decisions that used to be made in the u.s. will be made overseas instead.

include the local i think in looking at this issue, building a wall is not the answer, tax reform is the answer. the ways and meentsds committee has been charged with leading the effort to produce a blueprint for comprehensive tax reform that will lay out the house republican vision for 21st century tax system. that will be released the summer so the committee is ready to lead the effort to enact tax reform in 2017 as it involves particularly complex issues that include the meshing of u.s. tax rules with a rapidly changing rules of our trading partners.

we have seen that the crafting of new international tax rules benefits from consultation and input. we need more input. be need to spend more time looking at what is happening in other countries, and about that i don't mean we should follow the lead of our cunning, the international tax rules that other countries choose to put in place may well not be at all appropriate for the u.s. and the u.s. economy, but it's very important that we understand them. because of the impact they have on u.s. companies investing in those countries, and the impact that those rules have on foreign company that is seek to invest in the u.s. so we need to understand what's happening in the rest of the world, as we look to international tax reform, we'll continue this consultation and input process this year, so that we're ready with the right international tax reform package as soon as it can be enacted into law. so returning to the question

that was put to the panel, foreign tax changes are significant, they do affect u.s. businesses, and they ratchet up the need for u.s. tax reform. does anyone have any responses. >> i agreed with david that we should be looking carefully -- i don't know if you want it as a destine action-based sales tax into the u.s. or president anti-base erosion, but i think there's -- all of our focus on base erosion has been on outbound. not to say that that's not a problem and should be dealt with, and if we do that, other countries are likely to retaliate, and that will solve the countries acting in their own self-interest. >> just picking up on that, i think one of the things i'm

struck by is not coordinated tax policies, looksing to tax a relitigation of source, but without coming to the table and strike the deal the way the original deal was struck between residence and source. with respect to its inbounds, makes an adjustment, maybe it's territorial so just take a hypothetical. if the u.s. were to move to a territorial system so the u.s. company rating outside the u.s. doesn't have to worry about double taxation vis-a-vis the u.s., the source doesn't necessarily mean it's not going

to worry about double taxation with respect to multiple jurisdictions claiming the tax, so don't we need to do something more than simply think about do mist sick reform? and is there city room to have coordinated action in the international space? >> i think it's critically important we do something domestically. all of the change that's happening around the world has disproportionate impact on u.s. companies, because of the ways in which our international tax rules are completely different. if we move to a more territory system. what that does in terms of the buildup of foreign earnings right now an action that's taken

by another country has a different effect. >> i don't disagree with a -- but it seems to me that again beps is not and unfortunately, i think that the debate is gone. i think it's too late to try to persuade people we all to all get together and get serious about i don't -- i like bob's statement, but i thought it was.

those days are long gone, and beps is the proof of it. >> so the world is a big place. if you look at the capital exporting countries, europe and -- they all have remarkably

similar tax systems. if you believe in markets and my friends the commit have taught me to do that. it's like they got into a conference room and agreed how to tax outbound investment. not at all territorial and they have lowered their corporate rates. they did that because it's in their own self-interest. they want revenue, but they also want investment. but they have harmonized on outbound investment. we are an outlier. on the -- on what we call the source country, the big rich markets, india started with the vodaphone case. a permanent establishment. i think they're right. it's a construct of wealthy countries who are going to use their markets, and you don't have to pay any tax. now the uk is following. so let us join. we have a big market. bob stack said the uk is doing two things. they want headquarters.

great. we should want the same thing. they want nationals to thrive outside. great. we can have both. so it is -- but david said it. the goals should be national interests. back in 1962, when we -- when the architecture of our basic system was put in place, the goal of every economist, and peggy musgrave then on was global welfare, not national well fair. national welfare is a relatively new starting in the international tax policy debate. >> it's easy to be a moderator with this panel. >> yes. one word, one word. john just pushed one of the buttons i had previously not pushed. i think the oecd is the wrong forum for us to be making progress in. the oecd has the urge to admit

to the table -- said. >> it's a rich men's club. >> so what? it isn't anymore. the lowest common denominator is getting lower and lower. i think we ought to be forming collisions of likeminded countries to talk about these problems on a one-by-one bay. i think-day-old -- we do have -- >> we have things in common with market companies -- with countries as well. >> we have both. >> i think that's an important point. i think it's sort of a false choice for the u.s., when we are both a source and residence country and we want to continue to be both. >> right, but we've overemphasized residence to the exclusion of source for too long. >> as a knew eve economist, i learned that there were some -- a form of coordinated system in the source country got the first

bite of tax, whether there was a residual tax afc, countries could decide. so the question then, when you have i want p being a main driver of value, where is it appropriate to tax those ip profits? that's something i don't quite understand, and i'd like the panel to help me with. i think john is telling me destination, but i have a funny feeling about that. if you say a company developing ip in the united states, and then all their business is exports to other countries, does that mean all other countries tax it, because that's where their sales are? i'm alternates -- i need some help. historic concept is where is the income earned? i'm thinking about source in, where is the product consumed? when i think about ip, the only thing that protects it are

patent laws, so maybe it should be -- if there weren't patent laws in different countries, then the -- in other words, if you invent something in the u.s., and if somebody in france -- we didn't have treaties, somebody in china could copy in and earn it, the rents would disappear quickly. part of it is the country for laws that are protecting the rents where is the ip income is earned, at least in a conceptual you will sense. but net net, i can move my factors of production, i can move my residence, i can move where i do my r&d -- not as mobile as people think. the one thing i cannot move is my customer. i cannot move my customer, which is why a v.a.t. or destination-based tax, that's the only ultimate answer to tax, i think. >> i think what you need is a careful review of that very

question, because i'm not convinced that it's an either/or answer. i'm not convinced there's one answer to that. for example my instinctive response is where are the deduction being claimed? this they're allowing the deductions, they'll want at least some of that income. i think 2 begs the question, in terms of where it is consumed, what is the value? there would be components of value. >> there a residual, or is it all somehow transferred and divided up to the consumer. just to reinforce a point i made earlier, what if one country follows david's approach and looks to where it's developed.

and don't you have multiple incidents? >> you do. >> the reason for preferring residence taxation, if you get away from selfishes in is that the residence country is in a better position but there's been a silt shift. the money tern is a double -- it's double nontaxation. so yes, the shift will be accompanied by international double tax ace, but i don't think you can stop that. i think we have to come to terms with the reality of what's going on. some of this discussion puts new a posture of being a following

country. we're not the leaders anymore. i sound like donald trump. >> if we're not leaders, do we pack up our toys and go home? >> put in a plug for coming back -- >> income is earned where the economic value is contributed. >> there's value in various different points, but -- but -- i guess i still believe in the fundamental pricing concept, that you can see what were the concepts to value, and where were they made? and the income earned should be divided among that. so i continue to be grateful for the work that bob sack did at the oecd in defending the

transfer pricing rules. was that the right choice? or should they have looked at a different paradigm? >> well, i have tipped my hasn't. >> i think it is the right choice. i recognize that every few years there's a call for apportionment, and i think knit -- arbitrary. so we're having this decision. i can't imagine how countries could great deal both on the formula to apply and more importantly and fundamentally on the day-to-day implementation of that formula consistently over the years, so i come back to transfer pricing, that it's

complicated, but grounded in an economic truth, where is the contribution to economic value, and i think that any agreement needs an anchor like that. >> but eric, to your question about transfer pricing between a parent and it's wholly own subsidiary, can that ever be ample's length? the treasury just told us up have -- almost -- between your parent and wholly owned subsidiary. this whole notion of transferring risk in the captive -- you don't get away with that. you can't do it. it's around's lengths, so i think that i would respect the foreign entity, but might need some tough guidelines around

arm's length when i'm dealing with a wholly owned -- >> i think it's a false dichotomy. there's a whong bunch of steps along the way, include presumptive rules. i no longer think the brazilian are nets. they're not as nuts as i thought they were. they have basic formulas. they're very ridge i had in their application, and they don't bed in treaty negotiations, which i don't like, but it does seem you could go a long way with presumptive rules.

i think -- it doesn't matter what the rules are if you don't have anybody to enforce them, seriously. that's where we're headed. >> well, on that note, i think i'll throw this open to the floor. so the question -- following up, which is context matters, and let's start with first principles, or at least the business tax system. you talked about making up revenue, and the debate we're here now, it's not exactly what we're talking about about big tax reform.

they have a progressive fine, when you good et into an auto accident. you pay more the wealthier you are. of course wealth taxes you see around the -- >> hire a well-paid chauffeur then. >> exactly. so what role for all these other changes, in particular lard on the individual side. first of all, what stunned me a bit through this conversation, we keep talking about corporations like they pay tax. they don't pay tax. i learned that from you guys. not only we don't pay it, if

we -- we wouldn't pay it. it's borne by people. you want to tax what's not mobile. people are not mobile we don't let you move to bermuda. we have figured that one out. the real -- our top rates are getting to be about as high as they can get and they're as high as the rest of the worlds are not any higher. it's where they kick in. the -- the middle class in this country is getting a preright. the very top rates kick in around about 120, 150,000, and that's where the money is. if you look at the -- and it isn't really capital gains, though you can tax -- if we raise the rate, we have to tax gains at death. otherwise the long-in would be

terrible or maybe carryover basis so the lubic tax, gains at death. the answer is yes, if we can tax what's not mobile. i know you all think it's the greatest thing in the world, but i'm not convinced it's so pro-growth once i read alan auerbach, and it cal i cough? is that his name? all gains are from the double tax of accumulated wealth. once that's gone, not so sure it's any different than any other tax. and not the full spectrum. even if you go to the individual tax and says as compared to the -- they pay higher income

taxes, but also getting a significant amount of services and other benefits. so if we were to compare the full spectrum of impact, financial impact on individuals and other countries, it's a -- >> i think they have a v.a.t., too, but their public sector -- their government has a much bigger piece of the economy than we do in this country. we're catching up. i don't think we ever know how a tax system in another country applies in full. in the actual application, we tent to impute to the country our own understanding and our own practices i just saw, for example, just read a paper done by i think it was some economists in asia on the effect of japan moving to territoriality. this paper came to the

conclusion that territoriality in japan didn't make much of a dimples on corporate behavior. that's fine. it's final for japan, but to take that conclusion and apply it outside japan is crazy. i mean, japan, i've dealt with japan, to know it's the most tax compliant country in the world. you can't take a study of japan and the conclusions you have reached are applicable to us, to our country. it's not true. >> japan's territorial system looks very different, to make them all -- >> i think that would be true in every country. i mean in the uk, i don't know the deals that are made by the tax inspectors. i would be very suspicious of any comparison of a part of a tax system. i lived through all of that, but how the japanese were more gen with us than we, when they had a credit system. sure they were more generous, but their credit system only

went down one tier. companies would pick and choose, taxpayers would pick and choose, cherry pick from other systems and say let's adopt this and that, but i think the overall comparisons are fallacious. >> i find myself agrees with david up here -- >> david's going to change his views. >> it's really important we understand what other countries have chosen to do and why, because as a part of the global economy, all of those choices affect the u.s., but it doesn't mean that any of those choices are right for the u.s. our choices just need to be informed by what's happening in the rest of the world. >> i wanted to address the point that john made a while back. he was talking about, you know, it's not a race to the bottom, looking at other countries.

i guess the question is, isn't -- i would argue that headquarters taxation is -- and the remnants of a residence-based system is really a way of collecting rent from the rest of the world, right? you get your company head quartered in someplace, you take advantage of treaties to reduce source-based taxation, and you collect a sliver, whether a small amount of residual based taxation, or just the tax on the salaries of people who moved because you're a headquarters company. so if you view residence-based taxation through that lens, isn't it not true that the u.s. is like every place else? because we're bigger? and so we can benefit from rent from other places less than they can benefit from renting us? >> there were so many double negatives there, i'm not sure i followed you, but the answer is i don't think this is about

headquarters or inversions. i think they're a symptom of the problem. i think the real issue is assets want to be owned in the hands of someone who -- where they produce the highest after-tax rate of return, after-tax rate of return. so if somehow we could just stop all acquisitions of u.s. companies, cross-border merger, cross them, that wouldn't stop capital from flowing out of this country. it would flow out of the portfolio level, assuming our rates were higher and we had a worldwide system, shareholders would sell ge stock and buy siemens. u.s. companies would sell divisions. it was a global business buy a german company bea procter & gamble in the bid. china was the big potential market for this. a buyer could bid -- and assume it was only the chinese rate.

p & g had to bid assuming it would pay the u.s. rate. so the assets, it's startups. it's what i call creeping acquisitions slow loss of market share by u.s. firms. charlie kingson, some of you may know him. he's a great new york tax lawyer years ago said the biggest mistake we made is when the u.s. had all the capital in the world and all the headquarters in the world and we should have dropped our corporate tax rate to 20%, adopted a territorial system and not let these other places nibble us to death. and we would have had a higher tax base today, more headquarters, more investment. you really in a global economy can't keep mobile capital in a place taxed at a high level when other countries aren't taxing. maybe when it was bermuda or the

bahamas or barbados you could but not when it's the uk. not when it's developed countries. you just can't do it. source meaning where the income is earned? we did our r & d in six different places and scientists talking to each other on the internet. raw materials is one place. it's a different components are made in different countries. the marketing is somewhere else. you tell me where that income is going. >> you know, if you were looking at that question and instead of being -- sitting here in washington, d.c., you were in new delhi and doing it for the indian tax administration, you'd identify the various components of source and you'd say we want all of them. we're going to tax all of them.

>> right. >> and that's probably the way we should at least start out thinking. >> but that's where the product is sold or consumed. >> well, not necessarily. you think that the indian software is developed in india and exported? they're not taxing it on a source basis? they're finding a way to tax it, trust me. we ought to be thinking -- i'm not saying i would conclude on any one of these things. i certainly agree with your proposition that destination is part of the source inquiry. and i'm not saying this is easy either. but i'm saying that conversation is a conversation we haven't had in this country in 50 years. >> and i'm being pragmatic. what we have left in this country is a huge market. so let's use it. china -- china is throwing its weight around and india. why not we use our huge market? >> more questions? >> thank you. you always see as the main topic

that everyone is heard about is country by country reporting and disclosure and david you talked about a force being lacking in the country. do you see that the overseas disclosure and all g-20 countries like china and india have adopted or going to adopt, will that enhance enforcement and allow countries to better deploy their resources? and will it maybe negate thin cap rules by increasing disclosure? >> i think it's going to lead to a pretty chaotic situation, myself. i think for a while, maybe even for a long while, the greater amount of information available is going to lead countries to what someone called earlier as revenue. i think that's pretty much inevitable. there are going to be countries doing some strange things. and our companies, because they're president ebent around d are going to suffer from. that i'm not concerned about the

enforcement abroad. i'm concerned about the hollowing out of the revenue service in the united states. just to put -- this isn't what you asked. let me just make this one point. we have in the revenue service, there is now 85,000 employees. that's 15,000 less than we had six years ago. of those 85,000 employees in the internal revenue service, there are 250 of them that are under the age of 25. they're not getting new people. they're not hiring. it's not the most attractive place to work. people don't want to work in a place where you got a bunch of bozos yelling at you all the time about what a terrible job you're doing. it's not the most attractive career path for young person. and in addition, they don't have the money to hire people. this is not good. this is not good.

i any we need more and better resources at the irs. >> you need more resources to help navigate all the disputes that will arise in the incompetent just to defend competent authority cases and so forth. >> there's that, too. >> do you have a question? >> mike? >> of all the people that need tax cuts in the u.s. these days, i'm not sure multinationals should be first on the list. you're falling into the trap. think about the consequence of that is. don't answer them. don't make them people. they're not. >> and the other thing is we live if a world where you set up shop somewhere in a low tax jurisdiction, pretend that's where your residence is and then you enter into sales around the world and you have arrangements

every. where all the places you're selling stuff and making a tiny sliver of profit. and all the real profit is going to tax saving instead of shopping with a few people. and it's not surprising under that system that every country wants more than their little sliver. i mean, unless we do something -- you say well, sources where the research takes place and maybe that's right. ultimately, i think you have to go to where the sales are whether it's based solely on sales or something like that or else it's not surprising all these countries around the world are saying they're being cheated out of taxes. they're not getting any taxes. >> so that's what -- i would form a portion based only on sales sounds like a destination based income tax. and, sure, that's -- you can think of the dpt as sort of that. the answer is, yes. >> they're complaining about that. >> i'm not complaining. i'm thinking it's maybe the only solution. david? i'm following david's lead. >> i would not limit it to that

though. i'm not -- if, for example, if research is done in the united states, sales are made around the world, i'm not saying necessarily i would give up on the u.s. claim to some of that revenue. on a source basis. in other words, i'd be prepared to have a multilayered interpretation of sorts. >> that's not source. that's a deafifferent definitiof source. >> it's not residence, for sure. a source country in my experience typically looks to whether they have to bear a deduction. if it bears deduction, the reaction is if we bear the deduction for something, we're going to tax the income. i don't think that's a crazy way of looking at it. >> we're wrestling with the problem of an income tax in a world of mobile capital. if you have a value added tax and r & d here and product sold outside the u.s., we couldn't collect a nickel of money on that. we would -- the export would be exempt. we collect the tax. we're trying to do something

that is really impossible which is catch a light beam that's moving around the room much faster than any of us can see it. income taxes don't work in worlds with mobile capital. we need some kind of destination. there was a great piece. his modern corporate nchl taxes, it's not an income tax at all. it's a consumption tax. he calls it an income tax. and we're in the death throws of the income tax. >> i say since we have all these smart people together, the reason we're having this conference is to figure out how question do a corporate income tax. >> at the individual level. >> at least whether we should have a vat as more of a revenue is another issue. but even if you believe that, we still are going to want to retain an income tax. [ inaudible question ]

>> if you want to tax the income capital, you have to tax where it's not mobile by the owners. >> i'm not taking a position. any other questions? yes? [ inaudible ] >> it seemed to me you came around. >> no. i'm saying administratively. i was suggesting that every economist will tell you oh, that's because it doesn't tax savings. it's going to create a lot more economic growth. and that it's much better than income tax for growth. i'm just saying i'm not sure i fully agree with that. >> look what it did for italy. >> right. >> i understand that when they

can tax something twice, like the wealth, already income tax is paid on, there is a nice bang for the buck. over time, i don't know why if a government takes money out of the economy in one form either as a vat or as an income tax, it makes a lot of difference to me. i don't have it in my genes to spend. so that's my only point. >> okay. i have one more question. time for one more question. going once? going twice? yes. >> we have a lot of high powered former international tax counsels or deputy secretaries for international taxing. i look at the double taxation treaties not from the developed countries' perspective but from

developing countries. i've come to the conclusion that most of the double taxation treaties should be terminated as mongolia did. and maybe countries should start is a simple rule. if you deduct it, it has to be someone's income and domestic income. you're reaction? >> i think it was really unfortunate if all the network of world tax treaties were torm natured. they serve really important purposes. one of them is to allocate taxing jurisdiction. but they also serve significant administrative purposes and provide certainty. and i think that certainty is the benefit of developing countries and developed countries alike. so it might be that you'd like to see different provisions in some treaties. but i think a world without treaties would be a much more complicated place. >> i sort of half agree with that. i think treaties with developing countries are a bit of a calm.

but i do think that avoiding double taxation and exchanging information maybe couple of the other provisions of the typical treaty are useful. useful in appearance and maybe even useful in practice. i do think that i can see why developing country treaties, i sat through a bunch of lectures and the likes of argentina on this subject that why developing country treaties are from their standpoint are really revenue loss, net revenue loss as we tend to go and tell them you got to sign it in a particular way. i sort of see that point of view. on the other hand, barbara is right. a world without treaties, you're adding to what is inevitably going to be a pretty chaotic situation in the world. >> i think that's a pretty chaotic situation is a good last word. so let's end it here.

and i want to thank the panel for a very stimulating discussion. [ applause ]

bernie sand serz in kentucky today. c-span has live coverage in louisville at p 7:30 eastern. indiana voters go to the polls today. that state has 57 rendell gapu delegates. c-span will be live with results, candidate speeches and your reaction. >> madam secretary, we proudly give 72 of our delegate votes to the next president of the united states. ♪

recently our campaign bus made a visit to pennsylvania during the primary. stopping at grove city clothe, slippery rock university, washington and jefferson college and harrisburg area community college where students, professors and local officials learned about our road to the white house coverage and resources covering the campaign trail found at c-span.org. visitors were able to share thoughts with us about the upcoming election. our bus ended the week in warrington, pennsylvania, where they visited a middle school to honor seven ninth graders for their winning videos. a special thanks to our cable partners for their help in

coordinating the community visits. you can visit all the videos at studentcam.org. >> the senate arms services committee recently held a confirmation hearing for nominees to head u.s.-european command and allied supreme command europe and u.s. northern command and north american aerospace defense command known as norad. this is about two hours. good morning. the senate arms services

committee meets this morning to consider the nominations of general curtis scaparati and supreme allied commander europe and general lorie robinson to be commander of u.s. northern command, commander of north american aerospace defense command. we thank you for your service to our nation and your willingness to service once again. of course we know today would not be possible without the support and sacrifice of your family and friends. some of whom are with is this morning as is our tradition we hope you will take the opportunity to introduce your family joining you today. when vladimir putin invaded crimea for the first time in

seven decades, general breed also love led with purpose. he had the seriousness of the new strategic reality we face in europe. that will be the urgent and unfinish tasked left you to. vladimir putin has been learning from bloody experience in ukraine and syria that military adventurism pays. that diplomacy can be manipulated to serve his strategic ambitions and that worst refugee crisis since world war ii can be weaponized to divide the west and weaken its resolve. the only deterence we seem to be establishing is over ourselves. they don't have the legal assistance they need to defend themselves and which the

congress authorized for fear of provoking russia. this fear of escalation only encourages the dangerous bee hafror we saw last week when russian fighter jets conducted simulated attacks within 30 feet of a u.s. navy destroy eastern performed dangerous maneuvers within 50 feet of a u.s. surveillance aircraft in international airspace. this is a positive first step to re-estabilsh deterence in europe but it's just that, a first step. russia is building an advanced anti-access area denial network russian submarine activity is the highest level since the cold war. the modernization and expanding operations demand a comprehensive review of u.s. force posture in europe and the

resources necessary to support it. but a strong response to putin's aggression cannot come from america alone. with a revenge russia on the doorstep and flood of refugees pouring across the borders, nato has to step up. our nato allies need to honor their pledge to reach the 2% target within a decade, they must also invest in critical military capabilities that further alliance interoperabili interoperability. our allies have sacrificed blood and treasure fight ago long side us for 15 years. now the balance of our shared mission and indeed the fate of afrg hangs in the balance. the president has announced he intends to reduce u.s. forces in afghanistan perfect the current level of 9,800 to 9,500 by the end of the year. such reduction will have

profound consequences, especially lit end of the u.s. train advise and assist mission but the highest levels of the afghan military. this is at the same time isil is now on the battlefield. al qaeda is resurge enlt and the taliban is on the offensive. just this week the taliban conducted a suicide bombing in kabul that killed over 60 people and wounded more than 300, most of whom were civilians including women and children. the president has a decision to make. maintain or increase the current level of u.s. troops given conditions on the ground or continue with a counter base withdrawal. the right answer is clear. whatever his decision, the president needs to make it as soon as possible. the uncertainty surrounding america's commitment to afghanistan encourages our enemies. nato's force generation

conference is in june. and the nato summit in warsaw is in july. at stake is whether nato forces will remain in western and northern afghanistan or whether those areas will be seated to the influence of iran or criminal drug ring drug rings. it's up to the president of the united states to show that leadership. general robinson, the committee looks forward to hearing your assessment of the threatsst u.s. homeland tasked to defend, especially the development of missiles capable of carrying nuclear pay loads by russia, iran, and north korea. we'll be interested to hear your views on the importance of the u.s.-mexico security relationship. heroin largely produced in mexico, continues to ravage communities across our nation and demands a renewed effort to combat, discourage both in our streets and at its source.

we must reckon with the mu fundamental drtruth. while it is clear that mexican government must do more within the borders, our government needs to finally get serious about border security. as former kouj come john kelly recently testified about our southern border, and i quote, "the border is, if not wide open, then certainly open enough to get what the demand requires inside of the country." while border security is ultimately the responsibility of the department of homeland security, i'm deeply concerned about the lack of coordination between dod and dhs along the border. during a recent visit i made to an army base in sierra vista, arizona, i observed the army conducting training missions with its uav fleet despite the aircrews flying along the

border, the training missions were not coordinated with the department of home land security to surveil the border for drug trafficking activities. this is unacceptable. not only does military training benefit military readiness by providing realistic training and a real world. operationally relevant environment and it can also provide a vital secondary benefit to dhs counter drug and border security operations by increasing situational awareness. they may be ensuring training missions for the squadrons, ground censor platoons and other units are fully integrated. general robinson, i look forward to hearing your views on how northcom can contribute to enhancing international cooperation, interagency cooperation along our borders. senator reid? >> thank you very much, mr. chairman. i want to welcome the nominees and thank both of them for their

scared servi extraordinary service to the nation. i have known you for many years. thank you, cindy. and general robinson, your father george was a career air force pilot, thank you, sir. and your husband was born in rhode island. so you got already got some momentum behind your nomination. thank you. >> the nominees before us today, as i've indicated, he's currently commander of the united nations command, commanding the united states forces career. previously served as director of the joint staff, manneder of the international service, on and on including manneder of the 82nd airborne division. so thank you, sir, for your distinguished service. now the air component for the u.s. pacific command, she has been air combat command and a list of other important assignments. thank you. general, if confirmed, you'll be the commander of u.s. european command and the supreme allied

commander. you'll be asked to consider challenges in the european security environment including foreign fighter flows emminating from the conflicts in the middle east and north africa, the on going refugee crisis and potential to stabilizing he vek effects and aggressive behavior in russia which the chairman pointed out. you'll have a shift in u.s. efforts in europe in addition to the on going assurance efforts of our nato allies and partners. we'll be adding strategic investments to deter further russian activities. the committee looks forward to hearing your views on these and other complex issues. the committee would benefit again from your views in this regard. and general robinson, if confirmed, your responsibility will comprise defending the

homeland which is the most important mission we have including crews and ballistic missiles, you'll have to support civilian authorities in this mission. not only in terms of potential conflict but natural disasters. you have to maintain close ties with our neighbors. again as the chairman pointed out, mexico in particular. and you will also be duel header as commander of norad. our command with canada which is an initialive in to have aerospace warning, aerospace control and maritime warning. it is becoming another area of operational activities for the russians and for many others. so we look forward to hearing your views on all these issues. thank you very much, mr. chairman. >> as is custom of this committee, we need to ask some formal questions for the

witnesses and just respond by yes or no. in order to xoer size this oversight responsibilities, it's important that which committee is able to receive testimony, briefings and other communications of information. have you adhered to apolitical laws and regulations governing conflicts of interest? >> yes. >> i have. >> do you agree when asked to give your personal views even if these views differ from the administration in power? >> yes. >> yes. >> have you assumed any duties or undertaken any actions which would appear to presume the outcome of the confirmation process? >> no. >> no. >> will you ensure that your staff kbliz with dad lines requests for communications including questions for the record in hearings. >> yes, sir. >> will you cooperate witnesses? >> yes. >> will those witnesses be protected from reprisal for their testimony or briefings? >> yes. >> yes. >> do you agree if confirmed to

appear in testify upon request before this committee? >> yes. >> do you agree to provide documents including copies of electronic forms of communications and n. a timely manner when requested by a committee or to consult with a committee regarding the basis for any good faith delay or denial and providing such documents? >> yes. >> yes. >> general robinson, we'll begin with you. welcome. >> thank you, sir. good morning chairman mccain, ranking member reid and distinguished members of the committee. i'm honored to meet with you today as the president's nominee to be commander of the united states northern command and north american aerospace defense command. i'd like to thank you president obama for nominating me as well as secretary carter and the chairman for the trust they place with me. it's my privilege to be sitting next to my dear friend and colleague, incredible leader. it has been an honor to work with him in the pacific the last 18 months. i also wish to thank my good friend admiral bill gourtney leadership and 39 years of

dedicated service to our nation f confirmed, it will be a tremendous honor to build on his efforts in this extremely important position. i'd like to introduce my father. george howard from new hampshire, a 30 year air force veteran and r-4 pilot. he also flew in vietnam. i looked up to my father my entire life. >> i take it his landings matched the numbers of takeoffs. >> sir, he's here. >> also my amazing sister carol and incredible nurse, mother and wife. my full of energy niece megan and her husband brian is here. megan works here on the hill. and finally, the love of my life, my husband david. a retired two star reservist, fighter pilot, thunderbird pilot and retired airline pilot. i can tell this committee without hesitation that without his constant love and support, i would not be sitting here before you today. today we face a rapidly evolving and growing threat environment

both in the number of those who wish to do us harm and the complexity of tools at their disposal. our country faces many challenging threats from within and abroad. ranging from threats such as homegrown violent extremists, cyber attack, trafficking of drugs and other products by trans national criminal organizations. two threats posed by nation states such as russia, north korea, and iran. in my experience as the pacific air force's commander and air component for admiral harris, i'm intimately aware of the tenuous situation on the peninsula and throughout the region. and understand the potential threats posed to the security of our homeland. defense of the homeland is a sacred responsibility and the number one mission of the department of defense. if confirmed, i will work passionately to uphold the faith of the american people have placed in these commands and ensure we remain vigilant and postured to outpace any potential threat. if confirmed, i'll also continue to develop strong relationships with our home land partners and we're -- so we're prepared to

provide defense support to federal, state, and local authorities as requested when the american people need it the most. and if confirmed, i'll further strengthen our outstanding friendship with canada as well as growing our partnerships with mexico and the bahamas. i am deeply honored and humbled to have been nominated for this position. if confirmed i look forward to address the many challenges we face to defend our homeland and provide defense support for civil authorities. i look forward to providing candid views on issues and challenges and plan to provide you my best military advice. i seek to establish a trusted relationship with each member of the committee. in closing i would like to thank you for your unyielding support you provide the men and wimt in uniform and civilian servants who protect our nation. they're motivated by duty, honor and call to service and deserve the very best our nation has to offer. thank you for supporting them

and recognizing the invaluable role they play in safeguarding our nation and our way of life. mr. chairman, thank you again for the opportunity to be here and for the committee's consideration. i look forward to your questions. >> thank you and welcome to your family. >> thank you. >> general. >> general mccain, senator reid, other distinguished members of the services committee, i thank you for the opportunity to appear here today and i also wanted to thank you for the support that you provided to our service members, our department of defense today and their families who selflessly serve in the defense of our great nation and defense in our way of life. i would also like to thank the secretary of defense and president for their trust and confidence and for nominating for me to be the next commander for united states european command. in particular, i would like to thank my wife cindy who is here with me today. she has been by my side for 37 years and been an essential part of my service.

cindy has supported me during multiple deployments, carried ak -- cared actively and raised our children. like so many other military families they've given much so that we can serve. i'd also like to extend my sincere thanks to republican of korea and united nations command for contributing state for confronting a serious global threat in north korea. without doubt, my experience leading and working within this great alliance in the midst of security concern have prepared me for this next command, if confirmed. finally, i would be remiss not to acknowledge the general's leadership as the president yukon commander. his leadership has been critical in meeting the many challenges in nato and europe and posturing the force for the tu which you are. the closest allies reside in europe and uphold the sured democratic. they constitute over half of

the world's gdpf confirmed, i'll work diligently to protect these vital allied interests. this is a pivotal moment within the european command area of responsibility. as it faces numerous threats and strategic challenges, first resurge enlt russia is contesting for power with increasing aggressive behavior that challenges the international norms, noven violation of international law. furthermore, terrorism poses an immediate threat as a world witness with the recent tragedies in brussels, paris. this resulted in humanitarian crisis that are testing the social fabric of europe. i'm confident that our unity will prevail. if confirmed, i will do all that i can to leverage the full

spectrum of military political and economic capabilities of our alliance. if confirmed, i commit to service members and dod personnel that i will do all i can to ensure readiness for the mission and to provide the support that they and their families deserve. i look forward to working with km this committee and with congress to realize this commitment. i'm honored to appear before there committee with general robinson. we've been serving together in the pacific for some time and she's a great senior leader and friend who supported me and our forces. >> general robinson, our

senators will talk you to more at length about this issue of the epidemic of manufactureded heroin that san emergency in their state and in other states that incidents of drug manufactured heroin and drug overdoses is in the view of some an epidemic. this is coming from mexico. i was stunned down that we're flying uavs but we're not flying them along the border. we're not coordinating with the border patrol. it's insane. so i hope that you will look at the whole situation of this border situation and the whole challenge above this manufactured heroin that is killing americans in larger numbers to the point where i

believe the governor of new hampshire said it's an epidemic. is that correct? all right. so we've got to do a lot more on the border. and we all know and understand we're not seeking military action on the part of our arms services. >> senator, i commit you to that i doll that and if confirmed, i will go down and look at the border so i understand it and put my eyes on it. >> i'd be glad to escort you. >> i'd be honored. >> thank you for your great work

in korea. we're proud of what you have done and we have every confidence in you in your new assignment. there is the nato force generation conference in june. shouldn't we make a decision what our trop strength level is before the two conferences? >> sir, i believe we should come to terms with before we enter the conferences and if confirmed, i'll do my best and do an immediate review and present my best military advice. in your assessment, is the security situation getting better or worse now that we have isis and al qaeda and declaration by the taliban that fighting season has begun?

>> sir, from what i've seen from my vantage point, it appears to be getting worse. if confirmed, i look forward to the opportunity to go back to afghanistan and talk to general nicholson who is doing a review, as well, and provide my advice. >> i thank you for that. so if we go down to 5500 as is the present plan, will there be no presence? >> i'm not sure about that plan at this point. but i know that at some point in time that was a part of the plan and i think that the lack of our presence in the critical areas in the north and west that provide assistance and training to both the army corps headquarters and afghan national police are very important. >> four of the most senior officers in our military testified russia is the greatest threat to america. do you agree? >> chairman, i do agree. >> and "new york times" story this morning, russian submarine threat mediterranean north atlantic, are you concerned

about sea lines of communications in the atlantic and suez? >> i am concerned. >> russian fighters made passes inside of 50 feet. you heard my opening statement. what should be our response to this gross violation of international law? >> chairman, i believe that from a military perspective, we should sail and fly wherever we are allowed to by international law and we should be strong, clear and consistent in our message in that regard. >> this may sound a little tough, but should we make an announcement to the russians that if they place the lives of our men and women on board navy ships in danger that we will take appropriate action? >> sir, i will that should be known, yes. >> i thank you.

general breedlove said in march that less then 10% of surveil and isr requirements are being met. if russia is our greatest threat, does that make any sense? >> sir, the actual allocation of intelligence surveillance and recognizance assets is a complex one. compared to what is -- looking at what is going on day to day. but i would say that given the threat in russia, it's obviously a very high priority. and if confirmed, i'll review that and request the appropriate assets. >> i thank you, general. these are very interesting and challenging times. and this view of this member that you are obviously very well qualified, but i hope that this your present position you will demand that decisions be made

that enable you to carry out your mission which is not the case in my view today. senator reed. >> thank you very much, mr. chairman. let me begin by seconding the point that the chairman made that the decision should be made soon, not later. simply because there are operational considerations that will stretch over many months once that decision is made. and based on my visit in january, it seems that a stronger force rather than a smaller force would be more appropriate. that's a view that i think you and general nicholson will consider. the issue of russia is obviously central, general scaparrotti. and the ukraine is an area of proxy conflict between the two. and my position is that we have to succeed there because if we

succeed there, it will be the most effective way to dissuade any further we hope aggression or designs on others. your position on what we can do, what we're got doing? >> we've provided both training and assistance and defensive means to ukraine. we've supported our allies in doing the same. if confirmed, it will be my task to, one, review the situation there, but secondly, i believe that we should continue both assistance and aid in the kinds of assets that they need in order to defend their country, their sovereignty and we should continue building partnership capacity to help them do that on their own. >> one of the other aspects that you will confront, there are so many and mr. chairman touched on many of them, is the evolving hybrid warfare. activities from difficult to determine sources together with regular forces together are obviously conventional weaponry and traditional military forces.

i presume that as you enter your responsibilities, you're going to be able to -- or begin to retool nato to be superior in this hybrid warfare? >> yes, senator, i will. it's an important area, one that we're obviously challenged in today, not only in ukraine, but throughout three of the four flanks basically within europe and also globally. >> thank you. and general robinson, again, you have many responsibilities. one is you are responsible to the operation of the ground, national missile defense effort. we had testimony recently about the need to fly before you buy, to test these vehicles, not simply to just put them up and hope they work. also to invest in additional capabilities to discern targets and the concentration being at least initially on the west coast.

is that something that you would support? >> yes, senator, i would support his priorities. >> thank you very much. the other issue, too, and it goes to so much of what you do as coordination of other federal agencies, particularly the department of homeland security. and one of the issues we all face will be this trying to unwind sequestration, but the effects i would presume on your mission would be very difficult if not only d.o.d., but dhs was not released from the bound of

sequestration, is that correct? >> the effects of sequestration if it came back especially on the department for readiness and across the board would be concerning. >> one other of your responsibilities since your dual hat is a norad commander is advanced warning and the readiness to protect ourselves from any type of missile. you can give us a preliminary notion of norad's activities? >> as we defend with the canadian partners to the north, i would continue to understand if confirmed where they are and what technologies and things we are thinking to the future so

that we can ensure both air and maritime warning to defend the homeland. >> thank you. thank you very much, mr. chairman. >> thank you very much, mr. chair. and thanks to both of you for being here today, as well. and i want to thank your families for joining us and being supportive and we appreciate your achievements, as well. so thank you for joining us today. general scaparrotti, i am glad to see an enhanced effort with eri in the president's budget request as i do believe russia is one of the greatest existential threats to our nation. but i am concerned that rotating an armored brigade team through europe instead of permanently stationing one there fails to show our optimum level of commitment to our allies and to russia, as well. and furthermore as you know the

national commission on the future of the army has suggested and made the recommendation that we include a forward armored bct in europe and i would like to know from you if you believe that rotating and armored brigade team through europe is the right level of commitment or do you believe we should is one permanently stationed there? >> i understand the service's challenges in light of today's resources to provide a permanently stationed brigade at this time. but i personally believe a permanently stationed army brigade in europe would be best. >> we have heard differing opinions on that. but i appreciate that. and also we did speak yesterday and thank you for coming by the office, i do appreciate it. in our meeting, i stated that i am concerned that putin and the

assad regime has been weaponizing the migrants coming out of syria. and they're being used to destabilize the european union. and we have heard those comments from general breedlove, as well. and i admire him. over the past couple of years, it's been pretty easy for terrorists to negotiate. they have lines of communication through turkey who is a nato partner. and to plan attacks in europe and syria. do you think turkey is doing enough to stem that flow and cut the lines of communication to refugees and terrorists in to europe and can turkey did more and if so what do you believe they should be doing? >> senator, turkey as you stated is an important ally. a nato member that sits on the

southeastern flank really i think at the nexus of the challenges you talked about. you have an aggressive russia that they have encountered the escalation personally. counterterrorism, the isil threat, syria and the refugee challenge that you talked about. it's important that they work hard to secure their borders, that they take part in the security operations that are ongoing to reduce the refugee flow. and if confirmed, i will obviously make it one of my priorities to understand their challenges and what we can do to better help them in that regard. >> thank you, general. and i have been told that if the pentagon named operation atlantic resolve as an actual named operation, it could potentially enhance and make

more effective the support and capabilities provided to ucom. can you submit to me that you will look into whether or not the naming operation atlantic resolve as an actual named operation through the joint staff for -- would allow ucom to more effectively assure our allies in the near and long term? >> yes, senator, i can commit to that. >> and can you also commit that if confirmed you will provide feedback to us whether or not the national guard state partnership ram, another one of my favorite programs, could be expanded to more nations in the ucom aor to enhance our mail to mail cooperation and partnership between the u.s. and european allies? >> yes, senator, i'm a great supporter of the national guard program and i will report back

to you on that. >> thank you very much. finally general scaparrotti, do you think russia's use of hybrid tactics is making our life more challenging especially through briefly? just very briefly. >> yes, senator, they purposely keep it below the threshold that we would normally consider conflict. >> absolutely. thank you, general. thank you, general robinson. >> thank to you both of you for your service and congratulations on your nomination. and general robinson, i want to congratulate you this morning, too, for being named to "time" 100 most influential people in the world. we're very proud of you in new hampshire for your nomination for being named to "time's" list but also because you're a graduate of the university of new hampshire. and general scaparrotti, having had a chance to meet you in afghanistan, i am not at all surprised to see that you have

achieved what you have and very much appreciate that you are taking over at ucom at a very challenging time for europe. general robinson, i want to begin with you. what do you think are the greatest threats that are facing the homeland right now? >> ma'am, as general scaparrotti said, russia is the greatest threat facing the homeland, but if you look inside the united states, the concern becomes with homegrown violent extremists. so those would be things that if confirmed that i would continue to track closely. >> thank you. senator mccain talked about the challenge from the heroin

epidemic that we're facing in new hampshire. i had a chance to visit the southern border last year and talking to cvp agents about drugs coming across the southern border, they said those drugs are going up 35 to the middle of the country and interstate 95 to new england. and can you -- i very much appreciate your agreeing to look at that firsthand and to make a written report to us. but can you talk about some of the things that north com can do to address that heroin epidemic? >> yes, ma'am. the epidemic is absolutely heartwrenching. and if confirmed, i know that north com will support federal agencies to provide military unique capabilities to support the drug rob.

and to take a look and see can we partner there and look at that. so those would be a couple of things that early on that i would be looking at if confirmed. >> general scaparrotti, i want to make sure i understood how you responded to senator ernst. you said you do believe it would be preferable to permanently station troops in eastern europe. did i understand that correctly? >> senator, if confirmed, i have to look at the services situation. i understand -- i request -- if confirmed, i would request force brigade and they determine how that's provided. but if i had the option of that or rotational brigade, i would prefer permanently stationed brigade. >> i've had a chance to visit with finishes from baltic and eastern europe a number of times and clearly they are very anxious to see a very strong united states and nato presence on the eastern border. so can you talk about why you think a permanent brigade would be preferable to what we're currently considering with respect to rotating troops in and out? >> gentlemen, senator. i think a permanent brigade and i'm assuming if europe that we have the facilities that we could readily station those care for families, et cetera. but a permanent brigade gives you a brigade that establishes relationships with the supporting elements of all forces from the united states as well as a lasting relationship

with all of our allies that they work with day to day. and that can be done over time better than a rotational force can potentially do it. it also developments relationships and operating procedures with all of those allies and with the forces that are in europe. so primarily it's one that gives you a little more substance, a little more strength in relationship building and obviously a trained brigade with really less turbulence. >> thanks. my time is almost over, but at both senators mccain and reed have pointed out and as you know very well and said in your

testimony this is a very challenging time in europe, they have a number of threats from russia to the high grace crisis, can you talk about what else ucom can do to help reassure the europeans and help work with them to encourage stability there? >> senator, i think that ucom under phil breedlove is on the right track. he's emphasized collaboration, developing better information and intelligence sharing, close partnership with our allies where we assist each other in building capacity, building interoperability. and i think if confirmed, i'll

continue all of those things. >> thank you very much. >> general scaparrotti, in an interview this month a secretary general at nato said that nato has to be ready to deploy forces and to intervene again if needed. do you agree with that statement and how likely is it going to be necessary for nato forces to intervene and what is your assessment of the capability of nato forces to do so? >> the purpose of the alliance is to provide a collected defense. and it has to go agile in its movement of forces. so i agree it has to be able to deploy forces throughout europe