The Briefing Room
10:14 A.M. EDT
MR. MCCURRY: Good morning everyone. As required by law, the President's economic team has now sent to Congress a supplemental summary of the federal budget, containing revised estimates of budget receipts, outlays, and budget authority for Fiscal Years 1996 through 2002, affectionately and also known as the Mid-Session Review. In no small measure, the numbers that we will brag about today are due in part to the leadership of Leon Panetta, former Director of the Office of Management and Budget and now Chief of Staff to the President. I'm delighted that he's here. He will be followed by Dr. Joe Stiglitz, Chair of the Council of Economic Advisers; Dr. Laura Tyson, the President's National Economic Adviser, a key member of his team is here as well, the Chair of the National Economic Council; and Jack Lew, who's the Acting Director of the Office of Management and Budget is here. Representing Secretary Rubin, who is out of town today, Josh Gotbaum, the Assistant Secretary of Economic Policy at the Department of Treasury; and Donald Lubick, Acting Assistant Secretary for Tax Policy at Treasury. We're delighted to have them and other members of the President's economic team here. Leon will kick it off. He has to leave for another session. He'll be followed by Dr. Stiglitz and then by Jack Lew.
Leon, congratulations and welcome. (Laughter.)
MR. PANETTA: Good morning. Today the administration is releasing the Mid-Session Review. As those of you who follow these things from year to year, the Mid-Session Review is the report that the Office of Management and Budget does to basically inform the public where the budget stands at this point in time in the fiscal year.
Obviously, the main goal of the President when the President entered office was to make reducing the deficit his first priority. When those of us in the economic team gathered around the table in the Roosevelt Room to work on the budget plan, we were working at a time when the national debt had virtually quadrupled over the past 12 years, when deficits had skyrocketed to near $300 billion. And we were looking at annual deficits that were basically leveling off at $300 billion and then rising to $400 billion, $500 billion, and by the early part of the next century going to as high as $600 billion a year.
The economy was sluggish, job growth was obviously anemic. As a result of that, unemployment was at 7.5 percent. The President made a promise to the American people that he would address these fundamental economic issues, but the first and foremost priority being the need to cut the deficit. And that was obviously the principal focus of the economic plan that was developed and presented to the nation.
There were very tough choices contained in that economic plan. And there were tough votes by many in the Congress who had to ultimately stand up and vote for a tough deficit reduction plan. But the results of that plan are proving themselves today. The results not only of that plan but of the continuing fiscal discipline that's being applied by the President, by savings in the Congress and by the performance of the economy, all of which have contributed directly to the announcement that we are making today.
The announcement that we make today is that the Office of Management and Budget projects that the deficit for the fiscal year, this fiscal year of 1996, will drop to $117 billion. As you can see from the chart here, we began at $290 billion, which was the projected deficit that we faced when we came into office, and as a result of the plan we put into place, we brought it down to $164 billion in 1995, and we are now projecting -- you may recall, we stated we were looking at probably a deficit that would range somewhere between $130 billion to $140 billion for '96. We are now looking at a deficit of $117 billion for Fiscal Year 1996.
That represents, as I said, about $173 billion reduction from what the -- from when the President took office. The deficit has not just been cut in half, it has been reduced by almost 60 percent. This means that the deficit is going to decline four years in a row. And as the President has stated and as all of us take pride in stating, this is the first time since before the Civil War that the deficit will have gone down four years in a row.
The deficit is lower than at any time since 1981. And as a percentage of the economy, it is lower than any time since 1974, more than 20 years ago.
The fundamental reality of the deficit is this -- that we think the budget as a result of the performance of the economic plan and where we are on the deficit, would be well into surplus were it not for the interest that we pay on the debt that was accumulated during those 12 years prior to when the President took office. Despite that handicap, we are, as I stated, nearly 60 percent of the way toward achieving a balanced budget.
This President is determined to take us the remaining 40 percent of the way. His plan that we have presented would achieve a balanced budget and a surplus under OMB's new projections by 2001. The surplus would be $61 billion by 2002.
There's obviously more to accomplish. We can take great pride in what we are announcing today, but there's more to accomplish. We need to make continuing progress towards a balanced budget. This moves us, obviously, much closer to that goal. We need to keep working for more jobs and higher wages. We need to increase educational opportunity for our children and make sure that workers are up to the challenges of a changing economy.
And we have to take action, obviously, to increase the security of working families with health care and pension reform. Those are all challenges that we will continue and that the President will continue to work towards.
But today's announcement, I think, reflects an enormous achievement of the past three and a half years. I want to express my personal thanks to the economic team that was involved in putting the economic plan together and in implementing it. We have many of them here today, but in addition I would like to acknowledge the contribution that Lloyd Bentsen made as Secretary of the Treasury; Bob Rubin is not here today -- acknowledge his contribution; and certainly Alice Rivlin, who was my deputy at OMB and then became Director of the Office of Management and Budget, and the contribution that she made as well; as well as Laura Tyson, Joe Stiglitz and all of those at the Office of Management and Budget who worked on this plan.
I want to express my deepest thanks to them. Those of us who have been budget wonks for a long time fighting on the battle of trying to reduce budget deficits fight an awful lot of battles that we don't always win. But this is one battle that we did win, and it is a victory not only for the President and for those that work with the President, but more importantly for the American people.
Q: Before you go, Leon, why do you think the market is -- seems to be in such turmoil when things are so great?
MR. PANETTA: I suspect that the market will enjoy the news that we're presenting today, along with the CPI.
Q: Do you think that -- do you expect that once this is announced that the market is going to get back on track? And how worried are you about it?
MR. PANETTA: Well, as Bob Rubin often says when I ask him that same question, markets go up and markets go down, but I suspect that this will be viewed as good news by the American people.
Q: Do you still that it's possible to get a balanced budget this year with the Republican Congress?
MR. PANETTA: The President remains hopeful. Obviously if we can make some progress with regards to welfare reform, as well as Kennedy-Kassebaum and we can make some achievements, there's no reason why we shouldn't be able to go further in terms of achieving a balanced budget. The reality is here. If somebody had asked me whether or not by 1996 after we implemented the economic plan that we would be at a deficit of $117 billion, they would have said that's not possible; if we can get to somewhere around $150 billion, that would be doing well. And we thought our target at that time was to try to cut the deficit in half. We've done better than that as a result.
And so I think if people are willing to sit down, I think the reality is that we could achieve the rest of -- complete the rest of this job with a little cooperation and a little hard work together, I think we can do the rest of the job. Whether that can be done this year remains to be seen, but we're continuing to be hopeful. We continue to talk about it and hope that we can try to put those pieces together.
Q: What will rising interest rates do to these budget assumptions?
DR. STIGLITZ: I'm going to talk about the economic assumptions, and then Jack is going to talk about some of the data on outlays and revenues. For the past three and a half years, this administration has built a record of conservative, credible economic forecasts. Comparing our earlier projections with the economy's actual performance shows that while our forecasts have been remarkably accurate, we have consistently erred on the side of being conservative. This is appropriate for budgetary purposes.
In keeping with our past practice, the economic assumptions presented in this Mid-Session Review are similarly credible and conservative. I should also point out that in keeping with past practice, our economic forecast assumes the implementation of our budget proposals.
Now, let me turn to the numbers. The administration assumes that real GDP will grow 2.6 percent over the four quarters of 1996, compared with 2.2 percent in the budget, which reflects in part the economy's strength in the first half of 1996. In the first part of this year we have seen extraordinary job growth and strong private sector investment.
The administration projects that unemployment will average 5.6 percent during the second half of this year, down from the level of 5.7 percent that the budget assumed. And inflation over the year, as measured by the CPI, was reviewed to 3.2 percent from 3.1 percent.
Beyond 1996, the assumptions are similar to those of the 1997 budget. The administration assumes the economy will expand at a rate of around 2.3 percent. We expect the unemployment rate to remain around 5.7 percent and inflation to measure about 3 percent a year.
Let me conclude by saying the growth-oriented economic policies enacted by this administration have clearly paid off. The administration's 1993 deficit reduction plan helped create the climate for the current strong economic performance. And this strong economic performance has helped reduce the deficit. We have provided a solid foundation for sustained economic growth and rising living standards.
Let me turn it over now to Jack.
MR. LEW: If I can just go back and review a couple of the things in terms of where we came from, in 1992, the actual deficit was $290 billion. The projected deficit for 1996 was actually $298 billion. Over the past 12 years, before President Clinton took office, the deficit had been spiraling and, in fact, but for the increase in the deficit over those 12 years, we'd actually be showing a surplus this year. The remaining deficit is entirely attributable to the amount of interest on the debt built up over the prior 12 years. There would be a small surplus.
One small correction, the reference to John Tyler, that was the last time that there were four consecutive years under a single president that there was a deficit reduction -- declining deficit. So it goes back to the 1840s and it's under a single president.
To put it -- the news that we're announcing today on the deficit in the context of the 1993 deficit reduction plan, the policy reductions are attributable for $101.6 billion of the reduction in the '96 deficit. The balance is attributable to improved economic conditions and to technical re-estimates.
To put it in the context of what we were looking at in 1993, at the time we were projecting that over five years -- it was a five year deficit reduction bill --there would be $505 billion in deficit reduction. Well, we've already, in a shorter period of time accomplished $477 billion in deficit reduction.
Since March, the numbers have improved. That's the most immediate news. In March, the deficit we were projecting was $145.6 billion. It's a reduction of $28.9 billion, bringing the total to $116.8, actually. Of the reduction, the $28.9 billion, $26.6 billion is due to changes in receipts, and $2.3 in outlays.
Something to keep in mind in addition to the fact that the deficit reduction is good -- that there's been a lot of other good news and a lot of other good policy accomplished since '93. The '93 policy gave tax cuts to 15 million working families; it gave 90 percent of small businesses an opportunity to get tax relief. There have been 10 million new jobs in the economy. And to underscore the point that Joe Stiglitz made, our out-year projections are based on the President's balanced budget plan, so it continues to show that it is possible to balance the budget ahead of schedule even and to do it while protecting Medicare, Medicaid, education and the environment.
To look for a moment at the out-year, since we focused mostly on 1996, the deficit that we're projecting ends in the year 2000, at 11.3, and we have a surplus in 2001 of 25.8, and in 2002 of 60.9. That in each of those years it's an improvement from March.
That is an overview of where we are.
MR. LUBICK: Okay, we've got a brief comment or two from Laura Tyson and then the economic team, obviously, will be happy to take your questions.
DR. TYSON: I just wanted to make a couple clarifying points. One, on the growth estimates -- I just want to underscore what Dr. Stiglitz said, which is we really -- these are forecasting assumptions. We believe it's important to be conservative in making budget forecasts. We enjoy a nice record of positive surprises -- that is, we conservatively forecast and the economy has consistently done better than we've forecast.
Our ambitions for the economy, our goals for growth in the economy are different from our conservative forecasts. We think that with the right policies implemented, which we have been trying to do and will continue to try to do, the economy can and will do better. So I just want to make a distinction between a forecast and a goal.
The second point I want to make, which is really in response to the question that Rita Braver brought up about the stock market, it's important to keep in mind that, as of the end of yesterday's closing day in the stock market, the stock market was up 62 percent since January of 1993. And the stock market has increased faster under President Clinton in real terms than any president since World War II. It's been expanding at a rate of about 14 percent per year in real terms.
Finally, just from the beginning of this year through the end of yesterday's closing day, the market was up 4.5 percent, 4.5 percent between the beginning of 1996 and the end of yesterday's closing day. Markets do go up and markets do go down. The point of today's briefing is that we have good news about the economy.
Q: Dr. Tyson, what can you say to the Republican naysayers who said this wouldn't happen? And also, what possible can Bob Dole present in his economic plan -- (laughter) -- that you think might be better than this?
DR. TYSON: You know, I am an advisor. This team decided what it thought was the right thing to do three and a half ago, and we did it without any Republican support. And I think it's important in thinking about who to thank today, I think we should think about several members of the Congress from the Democratic side who took very courageous votes in August of 1993, and partly as a result of those votes lost their seats. They did what was right for the American people, they did what was right for our future prosperity. They did it at a time when people predicted, when the Republicans predicted, and there are amazing quotes about this, that this plan would be a job-killer, that it would lead the economy into recession. And we felt at the time that we were doing the right thing, and the numbers today really do confirm that.
Q: Is the lesson from all of this -- these past three and a half years, is one lesson that raising taxes works?
DR. TYSON: I think the lesson here is that fiscal responsibility works, that the U.S. was on an unsustainable course, it was recognized to be unsustainable by group after group in the private sector, it was recognized to be unsustainable by our trading allies around the world.
Another point to emphasize today, of course, is that we have managed to reduce the deficit as a share of GDP to the lowest level among the advanced industrial countries. We've done what was right for our own future prosperity, but also, it was right for the global economy.
DR. STIGLITZ: Can I just make one comment on that? The reason that deficit reduction is important is partly that it enables there to be more room for private investment, that -- and the economy has responded in the way that we thought it would, that reducing the deficit has led to a boom in private investment. And so that, in some sense, some of the big dividends that are going to come from this deficit reduction program really lie out in the future, beyond the current four years, it's really setting the foundations for a stronger economy. And it's reflected, in part, in the level of profits, which at 8.8 percent of GDP are the highest as a percentage of GDP that they've been since 1969.
Q: Why shouldn't the Fed -- I mean, you've got inflation going up a little and growth going up more. Why shouldn't the Fed raise interest rates?
DR. STIGLITZ: We don't comment on the Fed, but let me -- (laughter) -- let me just say that this morning's CPI numbers confirm what we've been saying all along, which is that there are really no inflationary pressures in the economy. The Consumer Price Index, for those of you who didn't get the numbers, was up .1 percent in June, and the core CPI was up only .2 percent, and this means that over the 12 months ending in June, the core CPI rose at the rate of 2.7 percent.
And of course, inflation, which is the inflation taking out the volatile energy and food prices, has remained stable at around 3 percent now for two and a half years. And this is a reflection of the strength of what we said before, the strength of the underlying foundations of our economy.
Q: What do you see as a floor for unemployment now, before we're going to see wage pressure? You're projecting sub-6 percent through next year. It used to be that would cause wage pressure. Where do you think there's going to be some wage pressure --
DR. STIGLITZ: We've consistently said that there is obviously some uncertainty about exactly what the level of NAIRU, which is the rate of unemployment at which inflationary pressures start to be realized. But as we said in the Economic Report of the President, the fact is that we have now experienced two and a half years of low levels of unemployment without seeing any incipient -- without it seeing any inflation.
The inference that we make from that is that some of the changes that we've made into our economic structure have allowed us to run the economy at fuller employment, lower levels of unemployment without inflationary pressures showing up -- opening markets, what we've done in telecommunications, a whole number -- it's not just deficit reduction, it's the whole economic program together has helped make the economy run more efficiently.
Q: So at what point are the alarm bells going to go off if we have new levels? What sets off the alarms in your office?
DR. STIGLITZ: What would set off alarms is when we would start seeing overall inflation, like CPI, going up significantly faster than it's been going up. Before that, you would look for things like the ECI compensation, which is the employers' cost of compensation, a more comprehensive, going up substantially faster than it's been. And you have to look at these numbers in relationship to what's happening to productivity. If productivity goes up, if output per worker goes up, then there can be wage increases without there being any inflationary pressures.
Q: Laura, are you concerned that the stock market's volatility may overshadow all this good economic news for the President as he goes into the campaign?
DR. TYSON: I think that, again, markets do move around a lot and I think people recognize that markets move around a lot. I think that what we have tried to do is put the economy on a sound course of sustained growth. And I think that there are numbers that the economic numbers on employment -- for example, the unemployment rate, the inflation rate, homeownership, consumer confidence -- there is a whole list of numbers, all of which tell the same story, a very sound economy, an economy on a solid foundation of growth. And I think that story comes through in the numbers.
Q: Dr. Tyson, you beat the drum often and say, if it weren't for the past 12 years we would be in the black, as opposed to the red, the total black. The average layman may see that as an awfully partisan comment. How do you explain in the simplest of terms that this is not the fault of a Democratic Congress, but the fault of a Republican President that we are in the red as opposed to the black?
DR. TYSON: I would interpret that comment somewhat differently. I think that what we're saying is that basically this administration has been running a set of policies which essentially mean that our expenditures are fully paid for by the revenues that we bring in, that we have actually brought government spending -- we have slowed government spending dramatically. We have cut the size of the federal work force. We have reinvented many of the operations of the federal government. We have made it more efficient. And as a consequence of that, in terms of our own programs that we are funding today, we're bringing in more revenues than we -- we're bringing in adequate revenues to cover our expenditures.
To say that we inherited a debt from the past is just a reality. We do inherit a debt from the past, and all of us, whether we are Democrats or Republicans, have to deal with paying essentially the interest burden on that debt. So I would interpret the comment to mean something about our own fiscal responsibility.
Q: Dr. Tyson, I wanted to ask you -- the document predicts the deficit goes up in '97, which would be the first of year of Clinton's second term. Receipts drop, spending goes up, and the deficit goes up. What is the general explanation for why that occurs?
DR. TYSON: I'm giving this to Jack. Jack is the expert on these numbers.
MR. LEW: There has always been a little bit of a blip from '96 to '97. It's actually smaller than it has been. The projection we have for '97 right now is that the deficit will go up to 125.7. So it's fairly modest. There are a number of factors that it's difficult to say which one is the principal cause, but there are some one-time receipts in '96. For example, we have sold some spectrum and that has brought in one-time -- not one-time for all spectrum, but one-time for the portion that was sold in '96. In subsequent years, there will again be spectrum sales but not in '97.
There was an increase in non-withheld tax payments last April that we don't yet whether that's going to be repeated or not. The folks from Treasury might want to address that more.
Those are the two most significant factors, but frankly the change from 117 to 126 is fairly narrow, and the pattern that the numbers are showing now shows it turning down very nicely after '97 to be 94, then 55, then 11.3.
So we think it tells a story of very gradual, very steady deficit reduction, and this year-to-year from '96 to '97 is actually very small right now.
Q: Outlays go up slightly because of --
MR. LEW: Outlays do go up slightly from '96 to '97. Receipts go up slightly, as well. The reason that there is a little bit of a blip is the differential between the two.
Q: What about the percentage of GDP? What happens to that between '96 and '97.
MR. LEW: I actually don't have -- it stays the same, 1.6, yes. And one point, in response to the previous question, the comparison of the deficit as a percentage of GDP going back to 1974 and saying that it's the lowest since then, I think really tells the story that what we have done is we have restored the deficit as a percentage of the economy to what it was before the big build-up in the deficit, which happened after 1974, without attaching any labels as to who or why. That really was the purpose of the '93 economic plan, and we feel that the facts speak for themselves, whatever one wants to do in terms of attributing responsibility for the increase that occurred after '74.
MR. LUBICK: We'll take one more and then the team will be happy to hang around informally off camera. Last question.
Q: If Chairman Greenspan sees the CPI differently than you all and raises the interest rate, how will that affect your $117 billion prediction? Won't that go up a little bit because the costs would --
MR. LEW: The thing about '96 is that we're close to an actual. We're well into the fiscal year so I think that the question may be more relevant in terms of the out-years. But '96, we feel we're pretty well on track. There are always little bits of puts and takes between July and October 1, when we get to the next set of numbers. The fiscal year is mostly over.
MR. LUBICK: Thank you, folks. Thank you.
THE PRESS: Thank you.
END 10:40 A.M. EDT