Bill Clinton photo

Background Briefing by Senior Administration Officials

December 07, 1995

Room 450

Old Executive Office Building

12:40 P.M. EST

MR. MCCURRY: The ground rules for this briefing again, embargoed for any broadcast or wire transmission until the conclusion of the meeting that Chief of Staff Leon Panetta and the White House negotiating team will have today on the Hill with congressional negotiators.

Is there anyone in the room that's got a problem with those ground rules.

Q: When is the Chief of Staff going to do his statement?

MR. MCCURRY: The Chief of Staff plans to have a press conference with Senator Daschle and Congressman Gephardt at the conclusion of the meeting they have today. So you'll know when that press conference occurs -- it will be whenever the meeting is concluded. The meeting is at 3:00 p.m. The press conference will follow that meeting.

Q: Is this because the Republicans objected to you having a press conference here?

MR. MCCURRY: No, it was at our request and our decision, and we felt it was more appropriate.

Q: When it's usable it's usable with their names?

MR. MCCURRY: No. This is ON BACKGROUND. This is a BACKGROUND BRIEFING, senior administration officials. And you'll be hearing on the record from Chief of Staff Panetta later today.

I turn it over to our senior administration officials.

SENIOR ADMINISTRATION OFFICIAL: Ladies and gentlemen, the way we'd like to do this is when -- I'd like to walk through some of the key people here to present a summary of what we are going to present in the seven-year budget and make their comments. And then what I'll do is when the paper comes here is walk you through the particulars in each of the areas because we have a comparison chart that basically compares what we've done -- what we had in our 10-year budget estimated on a seven-year basis, what we're proposing in our seven-year budget, and compares that to the coalition budget and to the Republican budget on a seven-year basis.

So you'll be able to compare lines across the board on that, and that will, I think, be the basis on which we can walk through the elements of our seven-year plan.

Briefly, the status of this is that, as all of you know, we agreed in the continuing resolution that we would try to achieve two goals, essentially. One would be that we would try to see if we could balance the budget in seven years; and secondly, that we would do it in a way that protected our basic priorities. We have always, from the beginning, operated on the basis that we had two goals to achieve, not just one -- that we wanted to achieve balance and try to do it in seven years, but do it in a way that protects our priorities.

The problem that we have now is we had a Republican budget which did it in seven years, but did not meet our concerns about protecting our priorities, and that was vetoed yesterday. We have a ten-year budget on the table that essentially protects our priorities, but does not meet the seven-year goal. So the objective here in presenting a seven-year budget by the administration is to show how we can achieve a seven-year balanced budget and do it in a way that in fact protects our priorities. And that's what we intend to lay down today and hope that that can move these negotiations forward.

The purpose of this is, one, to address the seven-year issue which we feel that it's important to try to achieve balance in that time frame; two, to protect the priorities that we feel very deeply about in terms of Medicare, Medicaid, the environment, education, and ensure that there are no tax increases on working families; and, thirdly, make a good-faith effort here in the negotiations to move these forward.

We have not made very much progress in the time we've been in negotiations. We've had several discussions with the negotiating teams. We have been urging that. We have tried to move at issues, to look at each issue area, to look at Medicare issues and what are the differences between the different positions on their side, coalition, and what we're presenting -- look at Medicaid, look at the discretionary budget, look at defense, look at the issues related to agriculture and veterans and each of the areas that are involved in putting together a budget.

They do not, for whatever reason, want to go in to specific issues discussions. They had initially said we were waiting for a CBO update. They thought they would have that last week. We then found out that that would be delayed until next Tuesday in terms of a CBO update because it is a complicated process to, in fact, do that kind of update. And so the result was that we essentially, we were in a stage where we did not have the CBO update. We urged that we go to issues and try to walk through issues. They did not want to do that.

And so in an effort to try to focus this discussion again, this negotiation, we want to lay down the seven-year plan, go through the specifics of what we've proposed here and hope that that will move the negotiation forward towards trying to develop a balanced budget that, again, protects our priorities.

Let me just summarize very briefly what we are presenting, and then, as I said, I'll go in depth through each of the elements that we have when we get the paper. First, as I said, this is a proposal that does balance the budget in seven years. It essentially moves $141 billion in additional savings in the direction -- that's what you have to essentially move in order to get to a seven-year budget.

The additional savings come from several areas that we will go into in particular. One is the discretionary spending area where we are basically acknowledging the adjustment that we have to make in '96, where we're at with appropriations right now and how that plays out over seven years, which gets us approximately another $50 billion to $60 billion in savings that we can include in discretionary. This number does not in any way inhibit our ability to meet our protection of the priorities in education and the environment, as well as law enforcement and high-tech and some of the other investment areas at inflation. We think we can protect all of those areas at inflation, but it will mean some small reduction in the non-investment areas of the budget.

We achieved some small additional savings in welfare reform. We were approximately at about $35 or $38 billion with our proposal. The coalition on the House side adopted a welfare reform proposal at about $49 billion. We think we can get to about $46 billion and basically meet our welfare reform requirements in protecting kids and trying to do some real effort at trying to protect the work incentive.

We do additional savings out of other entitlements which are basically fees and asset sales, and I'll walk through the particulars of that. But we pick up about an additional $15 billion there. We pick up additional savings on the sale of the Spectrum auction that we think we can achieve. And we also incorporate into the baseline the Bureau of Labor Statistics Adjustment on the CPI. They're assuming that we will be able to reduce the CPI by .2 percent, beginning in '97. We have incorporated that in the baseline, and that gets us savings I think of somewhere in the vicinity of $30 billion.

We protect all of our priorities. This is the second point. We do not take a dime out of Medicare. Our Medicare number is a net $98 billion, because we do in our Medicare savings put much of that into health care reform issues, which I will describe more in depth later. Secondly, we do not -- our Medicaid number is exactly the same. We protect the entitlement in Medicaid and we ensure that each state is held harmless in terms of what they receive in the Medicaid number.

On student loans, we're providing what I think is a very imaginative approach which basically allows every university and college to have free choice as to whether they take the direct loan program or they take the guaranteed loan program. And that protects the direct loan program and it protects the student loan program with regards to the students that we care about.

Education is protected, as I said, at inflation as is environment. And we raise no taxes on working families. We eliminate the repeal on the EITC. We also do some protections on agriculture and veterans. So our priorities are protected in this budget.

With the surplus that we get at the end of seven years, the President protects his tax cut to working families at $98 billion -- net $98 billion -- which includes the tax credit for children. And as I said, we specifically target not raising any taxes on working families, which we thought was a serious failure in the Republican budget. It is real welfare reform which protects children, and that is key as well.

And on the assumptions, we basically use the assumptions that we have always thought represented where the economy should be headed with a balanced budget; assumptions that are supported by the Wall Street Journal and Business Week. And we are prepared to develop and enforcement mechanism that assures that we reach balance by 2002, so that we basically moot this debate between CBO and OMB. We think OMB is right. We're prepared to develop a mechanism that, in essence, backs up our claim with regards to our assumptions so that it's scoreable by CBO.

In addition, we are going to suggest that we, as part of this proposal, that we agree on a continuing resolution and a debt ceiling extension into January -- I think our target right now is approximately January 26th -- in order to avoid the possibility of any shutdown of the federal government while we're moving forward with these negotiations. We will also request that we try to include a line-item veto in the reconciliation bill because that's an important budget tool for the President. And we will also suggest that minimum wage ought to be included as part of reconciliation because it is effective in terms of dealing with the -- putting people to work and taking people out of poverty.

The point that I want to make in summary is that this is a proposal that balances the budget in seven years and protects our priorities. This is what the Republicans have said they wanted. They want to get a balanced budget. They want to do it, they say and they've agreed to in the CR, in a way that protects our priorities. The President has continually said, yes, let's balance the budget, but protect our priorities. The proposal we are laying down is a scoreable, enforceable balanced budget in seven years. We are doing what the parties say they're interested in doing.

So the question then becomes how do the Republicans respond to that, and what is the need for getting additional cuts in Medicare or Medicaid or education or the environment when, in fact, we achieve a balanced budget in a way that protects our priorities.

We think this is a positive step forward. We think this is a way to try to resolve our differences, and try to ultimately get the kind of balanced budget that the country is interested in having, and one that protects working families in this country.

Let me introduce my colleague.

SENIOR ADMINISTRATION OFFICIAL: I think this is a very important step in getting to a balanced budget that we and the Congress can agree on. We've been shadow-boxing for quite a long time. We are very eager to get these negotiations going. We tried hard in the last few weeks to get the Republican negotiating team to sit down with us and walk through what it would really take to get to balance, to look at the particular areas -- what should be done to Medicare, what effect would that have on people; what should be done to Medicaid; how can we get savings in student loans without making it impossible for young people to get an education.

For reasons that are somewhat mysterious, they didn't want to talk to us. They said we couldn't engage in those kinds of negotiations until we had put a seven-year plan on the table. Now, frankly, we never thought that seven years, nine years, 10 years was a very important aspect of this. The important thing was everybody wanted to get the budget to balance over a finite period, and when we did it we didn't aim for some particular end point in terms of the numbers of years. We tried to figure out what policies would be the right ones to protect people and to protect the important government functions we think must go on, and how quickly could we get to balance.

But the seven years has become some kind of a mantra, and so we set ourselves the second task, okay, if seven years is what is required, can we still put together a budget that will get to balance over seven years, but will protect the people that depend, rightly, on government programs to finance their medical care, to get an education, to live better lives in the future. And this budget is our answer to that question.

It is based, as my colleague said, on our OMB assumptions, for two reasons: One, we think they're right; and the other is at the moment there's no alternative. The CBO is rethinking and we don't know where they will come out. The only change that we made that is an assumption change is when to reflect something that has happened, namely that the BLS has announced that they are changing the methodology of computing the Consumer Price Index and we estimate that the lower number which they expect, they estimate, will save about $32 billion over the seven-year period.

As you look at these numbers, which my colleague will walk you through in a minute, it may be a little confusing as to what we changed and what we didn't because when you're used to our nine-year budget and see seven-year numbers they look a little different. But basically we have not changed our Medicare proposal that we put forward in our June budget; we have not changed the Medicaid.

The big changes are in discretionary spending. And there we had to look very carefully, could we protect our priorities and still get an increase in the cut in discretionary spending. We believe that we have done that.

So I hope this is a first step to a fruitful negotiation that gets us to a balanced budget pretty soon, because the American public is tired of this game.


I'll be very factual, this is on the taxes -- Les is going to do a briefing over at Treasury at three o'clock and that's I think where you really can get what you'll need in this area.

The President, as you know, has proposed a $98 billion tax cut, and you're familiar with the specifics of it -- but, as I say, Les will go over that at 3:00 p.m. There is also $28 billion of corporate subsidies, loopholes and the like. It is a very technical subject. There is a complete list of them here. Again, Les will go over those with you.

Let me just contrast these, if I may, though, with what the congressional majority did with respect to the same title of corporate -- they call it corporate welfare; we call it corporate subsidies. They had the low-income housing tax credit, for example, and they had the pension reversion, which you may remember.

Ours are truly measures that go to the corporate tax code and what we believe are, in a policy sense, non-desirable aspects of that tax code. And a lot of it really does consist of things that developed over the years that are loopholes, that are subsidies. And all of them are measures that relate solely to corporations and that we believe are, in a policy sense, undesirable.

The net tax cut, as a consequence, would be $70 billion -- the $98 billion that the President has provided for, and then we have a $28 billion corporate subsidy, loophole and the like.

Very briefly, as you know, as my colleague mentioned, we do not increase taxes at all on lower-income working Americans. They increase taxes on 7.7 million lower-income working Americans by virtue of what they've done to the earned income tax credit. Secondly, roughly 47.5 percent of their tax cuts go to people earning over $100,000. In our case, it's about 15 percent of the tax cuts. So ours is very much focused toward the middle class. Theirs is very much focused toward the most affluent members of our society.

I think a very serious problem in their tax program, particularly for people who are as much focused as we all are on bringing the deficit down, is their tax cuts explode after the seven-year window. They have roughly $245 billion of tax cuts in the reconciliation bill, that becomes something over $400 billion on a 10-year basis.

The reconciliation bill wound up with a whole series of special tax cuts for special interests, and we do not think that that's sensible tax policy, and we're opposed to it.

And finally, there's the size itself. They have a $245-billion tax cut. We have a $98-billion tax cut. We think the size in itself is inconsistent with the focus that we all have on, number one, cutting the deficit; and number two, doing the things the country needs for its economic and social future. And the consequence of having the extra tax cuts is they've had to make far greater cuts than we have in Medicare, other areas.

I think that covers the tax area succinctly. And, as I say, the Assistant Secretary of Tax Policy will be having a briefing at Treasury at 3:00 p.m. Thank you.

SENIOR ADMINISTRATION OFFICIAL: I'll just bring your attention to a couple of other things that are noteworthy today. We're going to be releasing a document called, President Clinton's Health Care Initiative. Yesterday we released the details of our Medicare plan. Today, for the first time, we're releasing our details of the Medicaid plan and also of the other health care reforms that we had in our June budget which we've carried through to this budget.

Let met just say a couple of words about the Medicaid which is, I think, a very critical difference between our budget and the Republican budget. Of course, the President's plan, the Medicaid plan being announced today, preserves the guarantee of coverage for eligible populations; that is, eligible populations -- the elderly, the disabled, poor children and their families -- while continuing to guarantee coverage to maintain the guarantee. The plan being proposed today would save $54 billion over the seven-year period on projected Medicaid spending. It does that not by block grant -- obviously not, this is a guarantee system -- but by establishing a per capita limit to constrain the rate of growth in federal spending per beneficiary. So it's a per capita cap approach.

It's designed to limit the growth of federal spending per beneficiary without risking the loss of health care coverage when the beneficiary population grows. We care about coverage. We respond to the reality that people are being dropped in the private sector, that beneficiary growth is one reason why spending increases. We want to have a per capita cap that limits the rate of growth per beneficiary, but does not risk covering eligible beneficiaries. And I think that's a key difference.

We also include in this Medicaid package additional flexibilities for states. We call for repeal of the Boren Amendment and we would allow states to require enrollment in a choice of certain kinds of managed care plans or provide home and community-based care at their option without a federal waiver. So the flexibility comes from easing the waiver process or eliminating it altogether in the case of certain types of managed care plans, and also flexibility from eliminating the Boren Amendment.

And, finally, as we have criticized the Republican plans, clearly we maintain in our Medicaid plan quality protection on federal standards for nursing homes and institutions for people with developmental or mental disabilities. And we do maintain financial protection against impoverishment for spouses of nursing home residents, and we retain the guarantee that Medicaid pays for the Medicare premiums and cost sharing for the poor elderly. So we've designed a Medicaid reform which does have some significant changes in it but maintains the guarantee which refuels an essential part of our health care system.

In addition, let me draw your attention to one other document today, in case you want yet another thing to read. There was a speech this morning by the CEA Chair, Joe Stiglitz, at the Center for National Policy, making the case for the administration's OMB economic assumptions. And I would refer you to copies of that.

We feel strongly that our economic assumptions are credible and conservative. There has been a lot of private sector statements to that effect that they are credible and conservative based on the best information and best knowledge currently available about how the economy will behave over the next seven years. And that is treated in detail in Joe's speech. So I refer you to that.

Thank you very much.

Q: What's the chance of the CR being --

SENIOR ADMINISTRATION OFFICIAL: Well, we were hopeful that we can get a CR. We had some interest from the Hill that I've gotten from the appropriations committees to try to see if we can develop a CR that would avoid the problem with the 15th. I guess our concern is that we ought to try to extend it into January as long as we are making progress, obviously, in the negotiations and avoid the possibility of a shutdown. But it's difficult to say right now. I think we could probably get Senate concurrence in that approach. It's hard to say whether we'd get House concurrence still.

Q: Could you talk about the enforcement mechanism in a little more detail? How would it work? And also, what makes you think that this thing wouldn't fall by the wayside the way Gramm-Rudman enforcement mechanisms did in the 1990 budget -- killed by a future Congress?

SENIOR ADMINISTRATION OFFICIAL: Let me speak to that. Let me walk through the chart, and then I'll speak to the enforcement mechanism. Every budget -- suffice it to say that every budget that I've worked on, and particularly the '90 budget, had enforcement tools that were part of it that involved pay-go, that involved requirement that you couldn't develop programs unless you paid for them, that had caps on discretionary spending that were

enforceable caps. And these are important enforcement tools to assure that you meet the targets you lay out in any budget resolution.

I think we can achieve the same kind of enforcement mechanism here, and I think it's doable, and I think both sides ought to work towards it and make it enforceable. Now, people can rely on the fact that somehow assumptions that we project out seven years, whether it's OMB or CBO, might in fact happen. I just think that if we're serious about trying to achieve balance in the year 2002, you want to back it up with an enforcement mechanism that ensures that we can make adjustments in order to guarantee that we arrive at balance.

I think it's doable. These enforcement tools have worked in the past. Some haven't, admittedly, but some have, particularly the ones we developed in the '90 budget agreement. And I think those are worth looking at as a tool to ensure that we meet the target here.

Let me just draw your attention if I can to the first chart in the pass-out. Could I have one of the pass-outs just to make sure I'm working off the same damn numbers? Let me describe on the chart, because what we tried to do was compare, as I said, basically what we're doing today in the seven-year budget to what we did in our 10-year budget scored on a seven-year basis. In other words, the numbers you see there are basically where we would have been in savings in seven years in these areas -- although, as you know, our budget took us to balance in 10 years, this is where we would have been in 2002.

Compare that with the coalition budget, which is a budget that gets to balance by CBO assumptions that was voted on on the House side, and the conference itself, the Republican budget -- which is in the last column -- the budget that was vetoed by the President yesterday.

Now, let me walk through the comparisons on each of these so you know what we're doing and how we achieved the numbers that get us to balance in seven years.

On discretionary -- discretionary, incidentally, includes both non-defense and defense spending when we use this number. This is not just non-defense discretionary, it's both. The conference had a $440-billion reduction over seven years. The coalition had $361 billion. We were at $186 billion. What this number does is it acknowledges what's likely to happen in the appropriations process for '96 -- still a little bit up in the air. But our hope is that we are going to be able to add about $7 billion back in terms of increased allocations for Labor-HHS, for State-Justice, for VA-HUD, and for Interior -- to try to move those up to levels that we think at least protect our investments.

If we do that -- and don't forget, even at $7 billion, we had about a $21-billion proposal in the President's budget; we're now down to roughly about $7 billion in terms of where we have to be. If you take that reduction into account and play that out over seven years, it gets you roughly $50 billion to $60 billion in additional savings over that period of time. So what our goal is to try to increase our level about $7 billion in '96. We would like to slightly increase it again if we can in '97, and then flatten that line out, so you basically have a hard freeze on all discretionary spending for the seven-year period.

Now, doing that, we believe, allows us to protect our investments on education, environment, law enforcement, high-tech and research. There are some urban area programs that we care about. We can protect those at inflation. What does that mean for the non-investment areas? It's roughly off the '95 number, about a five-percent reduction, below the '95 levels that you have in the non-defense area.

We think with some imagination in reinventing government that we ought to be able to do this in a way that protects those kinds of services even in the non-investment area as well. But they are going to take a cut, and that's what gets us to the $250 billion number, which is in our proposal. So we've gone from $186 billion to $250 billion in savings over seven years in the discretionary account.

On Medicare, Medicare is exactly the same proposal that we had in the June budget. The proposal as you see there from the -- in the Republican budget was $270 billion in savings; the coalition had $168 billion in savings in their proposal. Both of these proposals went after beneficiaries in one way or another -- the coalition on means testing; the conference on a whole series of not only premium increases, but deductibles and copayments.

Our proposal is a net number at $98 billion. That means, for those of you that follow this, we will get about $124 billion in savings out of the Medicare program, but we reinvest a chunk of that back into health care reforms. We protect beneficiaries. There is no premium increase. What we do protect is the 25 percent of cost premium on Part B, the Part B premium. We went, for those of you that followed it, we went from 31.5 percent down to 25 percent. We're at 25 percent now.

Our proposal is to hold the 25 percent through the seven years. That 25 percent would basically go out of the law -- when? '97 or '98? '98. And so, rather than have the 25 percent go out of enforcement, we basically extend the 25 percent rule for the period of the seven years. And that's, as I said, that does not represent a premium increase, but it holds the 25 percent that is currently in law. We do no deductibles, no co-pays and no means testing as part of the beneficiary side. We basically protect beneficiaries in our proposal.

On the reforms, the reforms are a basic package of reforms that we have always felt should be part and parcel of any effort to deal with health care. It provide for the temporarily unemployed. It provides an effort to try to increase the self-employed deduction to roughly 50 percent. It protects portability. It provides for long-term care grants, and it provides a package of preventive care from mammography to Alzheimer's. Those are the key reforms that are part of it.

So that is a net number of savings of $98 billion that would be part of the package. We have not -- that is, as I said, the same proposal that we had in our initial budget.

The savings themselves, just to complete the picture here, would come from -- in hospitals, we basically would extend things like the update reductions on hospitals. We do protect teaching in rural hospitals as part of this package. On physicians, we basically implement the reform of the physician payment policy which is consistent with what experts have been advising us to do with regards to physician payments. On managed care, we basically go to specific reductions in fee-for-service without just targeting the kind of direct incentives that they tried to do with managed care which we think was bad policy.

We do home health care, basically moving home health care and nursing care to prospective payment system which is what we have now for hospitals. And it's not only in Medicare, but the veterans area as well we've gone to prospective payment. So the industry understands that that's where we have to move for the future. And then the rest is in fraud and abuse. So those are the pieces that make up the Medicare savings.

On Medicaid, as my colleague pointed out, the budget that the Republicans had had $163 billion in savings. The coalition had $85 billion. We were at $54. This is the same proposal that we had in our June budget at $54. It protects the entitlement in Medicaid. It provides for a per capita limit with regards to care so that we do protect the level of care that people receive on Medicaid. We provide additional flexibility to the states, and we also try to protect the states to try to hold them harmless in the formula so that they do not fall below what they currently receive on Medicaid payments.

I should point out that if there's any area where the President is particularly concerned, it is to in any way move away from the entitlement on Medicaid. He wants to protect the entitlement in this area.

Welfare reform. The Republican budget was at $107 billion. The coalition budget was at $47 billion. We began at $38 in our budget. For those of you that followed the Senate version on welfare reform that produced about $67 billion in savings, our proposal here would basically be to move towards the coalition proposal on welfare reform which is, as you see there, $46 billion. What this essentially does, it does not raise taxes on the EITC and it basically protects the food stamp and child and nutrition programs that we care about in the welfare area. We think this is a proposal that allows us to get welfare reform that is very similar to what the House supported as an alternative, but failed to pass.

On student loans, as I mentioned, we're very concerned about protecting the direct loan program. We provide a process of free choice that allows every university and college to select whether they go with direct loans or guaranteed loans. The savings from that is $3 billion. We think that that compares to the $5 billion in the Republican proposal, which eliminated the direct loan program -- which we strongly oppose.

On agriculture, the conference proposal had $12 billion in savings. We began with $4 billion. We basically moved to the coalition number of $5 billion. In agriculture we essentially would achieve these saving through proposals like triple-basing increasing, percentage on triple basing, some payment reforms and some marketing reforms, as well.

On civil service retirement, the civilian retirement side, the conference report had $10 billion in savings, largely through increased contributions by employees and by the agencies. The coalition had about $11 billion, using the Post Office and what they now admit was basically a scoring gimmick. We went to $2 billion, which basically involves continuing the -- or extending the current law in the three-month COLA delay that we built into our '93 budget that was adopted. There are no contributions -- additional contributions required by individuals or agencies.

Military retirement, which is not here but needs to be commented on, we do not change in any way. But you just need to know that -- some will ask about military retirement -- it's zero. We do not do anything out of military retirement.

On veterans, the conference was at $7 billion, the coalition at $5 billion. We initially began at $9 billion because we extended all of the savings that were part of our budget that was adopted in '93. What we've done now is reduce the number of extensions and took that number to $4 billion, and it basically does not -- it protects veterans from additional co-pays on drugs.

On Spectrum, Spectrum auction is something that was incorporated in the budget. It has produced, actually, additional savings than what were projected initially. This involves additional sales on the spectrum. The Republican budget had $15 billion in savings thee, the coalition had $21 billion. We believe by speeding up the sale with regard to the analogue spectrum that we can, in fact, achieve about $28 billion in savings. That's a proposal that we think is doable. And since we were able to achieve significant savings on the Spectrum auction in our initial proposal, we think that this makes sense.

Other mandatory -- this involves basically savings from other entitlements areas. Initially, what was in the Republican budget was about nothing. The coalition budget had $15 billion. We basically moved to $9 billion in additional savings there. This basically involves asset sales which -- I mean, things like selling the defense, parts of the defense and energy stockpiles, Governors Island in New York, and additional thrift assessments, user fees on the NRC, concession fees at parks -- not entrance fees; we rejected that proposal -- and patent fees. Those are some of the proposals that would give us the savings there of $9 billion.

On corporate subsidies, this is $28 billion. The conference was at -- the Republican budget at $26 billion, the coalition was at $29 billion. Here we have additional proposals to try to eliminate what are termed "corporate subsidies" or "corporate welfare." We have a specific list of proposals, and Treasury will go through each of those proposals. But this is an area that we think ought to make a contribution as part of a package in trying to achieve a balanced budget.

All of this basically produces a surplus for us of about $98 billion, which the President continues to use for the purpose of providing a tax cut for working families. This would be our tax credit, our education tax cuts, plus the IRA. And, again, it's based on the fact that the President feels strongly that part and parcel of what is happening in the economy requires that we try to at least target some tax relief to working families in this country.

The assumptions, as was pointed out here, are the assumptions that OMB has used, it takes us somewhere between where CBO and where blue chip is. They are assumptions that have been supported, as I said, by the Wall Street Journal, Business Week and others. We think the CBO update, as a matter of fact, is moving towards OMB assumptions. The estimate that we have is that they move anywhere from $50 to $200 billion. We don't know what that number is because, obviously, we're waiting to see CBO produces.

But clearly, what's happening in the CBO update is that they're recognizing that the assumptions that we used are valid. They're moving in that direction. And so we basically are using those assumptions and, as I said, we would propose an enforcement mechanism to enforce the effort to achieve balance by 2002 in order to basically provide a support system to assumptions that we think are very valid and very enforceable.

One other element that we picked up in savings is that we took -- as I said, the Bureau of Labor statistics indicates that we're going to reduce the CPI by about .2 percent. They've already made that announcement. What were doing is basically incorporating that provision into the assumptions, the baseline assumptions. And that gets us about $32 billion in additional savings. We are not enacting any change to the CPI. This is basically adopting in the baseline the announcement that has already been made by the Bureau of Labor Statistics.

My understanding, incidentally, is the CBO will also build this into their baseline. It's .2 percent change, as I understand it.

As I also mentioned, there are other elements that we're going to request. We are going to request the CR and the debt limit be extended to January 26th so that we can give ourselves some room to try to complete these negotiations. We are going to ask for the line-item veto, because this is obviously -- both Republicans and Democrats have acknowledged that this is an important enforcement tool that ought to be included. It has been delayed up on the Hill. We ought to try to get it into reconciliation. We would also like to include the minimum wage proposal as part of this because we think it's an important adjunct to both welfare reform as well as trying to help people get back to work and out of poverty.

To summarize, this is, we think, an enforceable seven-year balanced budget proposal. It protects our priorities and basically the challenge will now be for the Republicans to submit a counteroffer that shows us how they can move towards protecting priorities under their proposal. That's something they have failed to do so far. We're hoping that this at least begins the debate on a serious basis to show how we can try to develop a budget that meets our priorities.

Q: Could you tell us a little bit about the assumptions --

Q: -- where you get the $250 billion in discretionary savings. Could you be more specific about that? And do you take more out of defense than you were taking under the nine-year budget?

SENIOR ADMINISTRATION OFFICIAL: The defense number is basically the defense budget that we've pretty much laid out, which has an increase but then flattens out in the out years, in terms of the defense budget. So we haven't gone after additional defense savings as part of that amount.

What we do have is additional savings on what are called the non-defense, non-investment discretionary areas. And as we've said, we estimate that to be an additional five percent below the '95 level that we would take from those programs. In order to meet this number, it basically gives us the room then to protect education, environment and our other investment areas at roughly inflation.

Q: Could you tell us about the assumptions? You said your budget on the assumptions you've used all along. If I understand these figures correctly, the other two budgets are not measured on the assumptions you use. They are now based on other assumptions. Is that correct? And if it is correct, isn't this not apples and apples, and doesn't the measuring stick you use make your numbers look smaller?

SENIOR ADMINISTRATION OFFICIAL: Let me refer you exactly to the language that was in the CR that both sides agreed to. The language in the CR says that the balanced budget agreement -- balanced budget agreement -- will be scored by CBO after consultations with the Office of Management and Budget and outside experts.

The purpose of that is to ensure that CBO scores the final product as having reached balance. We believe that if you have an enforcement mechanism that ensures that we will reach that point that CBO will, in fact, score that. And in the end, that's what you want. I mean, the purpose of this is you want a scoreable effort that gets you to balance. We can fight over OMB and CBO and the differences there, although we think we've got legitimate assumptions that are part of our economic assumptions. But in the end, for purposes of the Republicans and the Democrats on Capitol Hill, as well as the country, the point is you want to be able to achieve balance on a scoreable basis by CBO. We do that.

Q: Just a follow-up. We have to -- there's going to be sore temptation to run this chart, and I just want to be sure. Is it fair for us to say to our editors, and therefore to our readers, that this is an apples-to-apples comparison? What you've just said addresses how we get to the bottom line. But, for example, is it fair to say that your Medicare numbers and the conference Medicare numbers and the coalition Medicare numbers are all measured on the same basis? Because otherwise it's not --

SENIOR ADMINISTRATION OFFICIAL: The answer is, with regard to Medicare, on the Medicare numbers the specific policies that we have that achieve are $98 billion in net savings would be scored very close to that by either OMB or CBO. That's not a scoring difference. Our policies will get us the same savings under either analysis.

But the answer to your argument is that -- do we use a different set of assumptions in terms of where we're going with growth, where we're going with unemployment, where we're going in terms of estimating health care costs? The answer is, yes. But what we do in the end is ensure that we reach a balanced budget because we have an enforcement mechanism that assures that.

Q: If our editors ask us is this apples-to-apples --

Q: Describe the enforcement --

SENIOR ADMINISTRATION OFFICIAL: The numbers that you have here, incidentally, on the coalition and the conference are the CBO calculations. Is that what you were asking? Those are the CBO calculations on the coalition and conference chart. And the numbers that we have are basically the OMB estimates, but most of these I think are pretty close to where CBO would be, with the exception of Medicaid.

Q: Are the OMB estimates that you used this time the same estimates, assumptions that you used on the nine-year plan?

SENIOR ADMINISTRATION OFFICIAL: I mean, what we basically did was use the same set of assumptions as we used in our initial plan, again in the absence of any kind of CBO update and because we believe these are credible assumptions.

Q: What enforcement mechanism?

SENIOR ADMINISTRATION OFFICIAL: With the exception of the BLS provision.

Q: What enforcement mechanism? Can you explain --

SENIOR ADMINISTRATION OFFICIAL: The enforcement mechanism is one that we hope to develop with the negotiators. It would be a proposal that obviously would develop an enforceable mechanism that would assure that we achieve the guide path that we need to achieve in order to get to balance. That's the key.

Q: Well, like what?

SENIOR ADMINISTRATION OFFICIAL: Well, there are a number of ideas out there that we obviously would be considering -- has some ideas. We've used some past ideas on enforcement. We hope to work out with the negotiators an effort to do this.

Look, even if -- whether you use CBO or OMB, my argument to the people at the table is, ultimately, you need to have an enforcement mechanism that assures that we don't go wandering off in different directions because the assumption is whether they're OMB or CBO don't meet the targets that we've established. We've got to have something that makes this credible. An enforcement mechanism, as we've developed in the past, does that.

Q: We need an example.

Q: What credible enforcement mechanism --


Q: What makes it an enforceable --

SENIOR ADMINISTRATION OFFICIAL: When you, in fact, say that if you do not achieve a certain target that you put in a process of either across-the-board cuts or some enforcement mechanism that assures that you achieve those savings. That's doable.

Q: -- CBO basis.

Q: Revenue raisers also?

SENIOR ADMINISTRATION OFFICIAL: That's right. I mean, I think you can look at a whole series of things that include revenue raisers as well as cuts across the board.

Q: On the discretionary savings, the non-defense discretionary savings on things that are not your favorite investment priorities, you cut them by five percent below '95 level across the board, so that at the end of seven years they are five percent below where they were in '95 in inflation adjusted dollars?


Q: I'd like to ask you a question on the assumptions.


Q: When we talked to Joe Stiglitz this morning he indicated to us that there was going to be some adjustments to the long-term interest rate forecasts based from August, I thought. Are there any changes to the interest rate forecast in this?

SENIOR ADMINISTRATION OFFICIAL: There are no -- well, I have some OMB people back here. As far as my understanding is right now, the only change to the underlying forecast is the BLS anticipated change.

Now -- but there is a following. As you understand, the argument about deficit reduction is that deficit reduction works through the channel of lower long-term interest rates to affect the economy. So we have always assumed, and we assumed in our nine-year path that the result of deficit reduction would be lower long-term interest rates.

I believe, and perhaps my colleague can tell us the amount, I believe that what we've done is as we've moved from nine to seven we've taken some more of that long-term interest savings in the seven-year period than we did originally in our nine-year path.

Is that not right?

SENIOR ADMINISTRATION OFFICIAL: The CBO bonus that's scored in the reconciliation bill is about $190 billion. Ours is about $177 billion.



SENIOR ADMINISTRATION OFFICIAL: Okay. So there wasn't a change in -- it basically is the assumption of how policy would affect interest rates during that seven-year period.

Q: Do you have year-by-year deficit figures showing which -- I mean, this is just --

SENIOR ADMINISTRATION OFFICIAL: Do we have a year-by-year breakdown?

Q: Yes. What happens year by year for each of these accounts, as well as at the bottom --

SENIOR ADMINISTRATION OFFICIAL: Yes, I think we do have that breakdown. Do we?


Q: Does the deficit go down every year, or is there a point where the deficit goes up a little bit, like the Republican plan?

SENIOR ADMINISTRATION OFFICIAL: The deficit goes up slightly in 1997 under both the administration's program and the reconciliation program.

SENIOR ADMINISTRATION OFFICIAL: And then down from there. I'm sorry, the question was on a year-by-year deficit reduction breakdown, does it go up as the Republican budget did slightly in '97. And the answer is, yes, it goes slightly up in '97, but then comes down on a steady path. I think we're at, what, $170 billion-something?

SENIOR ADMINISTRATION OFFICIAL: It's $154 billion in '96, $158 billion in '97.

Q: Continue.

SENIOR ADMINISTRATION OFFICIAL: $137 billion, $114 billion, $93 billion, $45 billion. And then, minus two. Get a surplus in the end. (Laughter.)

Q: Are you simply giving them this, or are you giving them --

SENIOR ADMINISTRATION OFFICIAL: We have the bill, itself, that basically provides our budget, and that's a document that's yea big and we will present that.

Q: On welfare, you're insisting -- or you're asking the entitlement be continued on Medicaid, but not asking that the entitlement be continued on AFDC?

SENIOR ADMINISTRATION OFFICIAL: Well, on welfare reform we are basically, at this point, hoping that we can negotiate welfare reform in the context of reconciliation. Our proposal is to ensure that we have a guarantee that protects kids. We think there are ways to do that that are short of the entitlement. But, on the other hand, we haven't given up totally on the entitlement either.

Q: There's no block-grant of AFDC in here?

SENIOR ADMINISTRATION OFFICIAL: There is no block grant of AFDC in here.

Q: When you talk about the enforcement mechanisms, is there any provision for --

SENIOR ADMINISTRATION OFFICIAL: I normally would do that in an enforcement mechanism. Incidentally --

Q: How would you propose doing that?

SENIOR ADMINISTRATION OFFICIAL: Well, we had -- in the initial formulas we've used in the past we've always said that if you have two quarters and, I think, less than one percent growth, that that would kick off the provision. And that's been, actually, I think that, in fact, was used one year, if I'm not mistaken, because of where the economy was.

Q: What process do you now see taking place when you meet with your counterparts on the Hill? Will you break into subgroups and work these issues individually, or will you continue to meet on a --

SENIOR ADMINISTRATION OFFICIAL: Well, my hope would be that we could begin to discuss each of the issue area breakouts. In other words, that we begin a discussion on what are the differences on Medicare, what are the differences on Medicaid, what are the differences in each one of these areas, so that the members there, the negotiating team has an understanding of where these differences are.

There are very important fundamental policy differences that go below the numbers. I mean, I understand it's a tendency when you deal with these kinds of situations where everybody just kind of looks at the numbers and basically says, well, if you're here on this number and you're here on this number, what's the big problem. The problem is there are very fundamental policy differences when you look at the substance of what happens on Medicare, what happens on Medicaid, what happens with regards to agriculture and some of these other areas that have to be worked through by the parties there. And we've got to discuss it and we've got to understand what our concerns are with regards to those policies.

The reason the President vetoed that bill yesterday was not just based on numbers, it was based on the impact of those numbers on people in this country. And that's going to take some time to work through it. This is not something you can just slam-dunk in a few days. It's got to be worked through. So our hope is we can begin that process of beginning to look at issue areas.

Q: With all this stuff on the table, what do you think they're going to do about the CR? Will they -- you until next Friday, or do you think you could actually do something before the President goes to Paris?

SENIOR ADMINISTRATION OFFICIAL: I would hope that, with this offer presented in good faith, and with the ability then to start working through these issues, that we can make process with regards to negotiations so that they don't have to threaten the American people and innocent victims with a government shutdown, particularly at Christmas time.

I mean, it makes no sense. It's not necessary. It only hurts people that have nothing to do with the negotiations in this town. These are innocent people. We saw that last time. I think they were hurt badly by the last shutdown. To even threaten a shutdown near Christmas I just think is wrong and the American people will not accept that if they try to use it. So I've just tried to urge them, let's not get to that point; let's try to continue the negotiations, but for goodness sakes, let's try to keep the government running while these negotiations go on.

Q: It wasn't that long ago when you said that you could not do this. You could not eliminate the deficit by 2002. You couldn't protect economic growth in that time period. You couldn't protect the President's priorities. Why didn't you do it before? And what has changed to allow you to do it now?

SENIOR ADMINISTRATION OFFICIAL: It's a very, very important reason, because I think all of us who have worked on this have never believed that you ought to set an arbitrary date and then try to pack a balanced budget into so many years. I mean, the reason seven years has come out of the air is because it relates to the balanced budget amendment that a lot of members supported, and they put that date into the balanced -- constitutional balanced budget amendment. I understand that.

But it doesn't necessarily mean that when you're implementing good policy and you're trying to achieve balance, that you do it in a way that can transition in, so that you can achieve balance in a way that, frankly, strengthens the economy and protects people in that process. That's why the President presented a 10-year budget, because we thought that policies that we were implementing could basically achieve balance, but could achieve it within that time frame. We found out as a result of the success of that proposal that we could actually do it in nine years.

Now we understand that in the process of negotiation, in order to keep the government running, that we were willing to say, let's look at seven years, if we can do it in a way that protects our priorities. Is that our preference? Not necessarily. We like the 10-year budget. But now that we've agreed to try to do it in seven years, this is our way of saying to the Republicans, we're willing to show you how you can do it in this time frame in a way that protects our priorities. You say you're interested in balancing the budget in seven years. You say you're interested in protecting priorities. Here's the way you do it.

And I think that, if nothing else, this is a way to move them off the dime so that they begin to understand that this is not just a question of whether you achieve balance; it's how you achieve balance and whether you protect people in that process.

Q: Given the track record in this town of enforcement mechanisms, do you really believe that you can come up with an enforcement mechanism that's credible to financial markets?

SENIOR ADMINISTRATION OFFICIAL: We have had enforcement mechanisms that were built into the '90 agreement that were related to pay-go. I have to tell you that the pay-go proposal that basically said you cannot either add an entitlement program or cut taxes without paying for it worked. Anybody who wanted to come up with an entitlement program, anybody who wanted to come up with a tax cut, had to show how you pay for it so that the deficit doesn't increase. That worked.

We did a cap on discretionary spending. People said you can't enforce a cap on discretionary spending. Baloney. We enforced a cap on discretionary spending. And when we exceeded the cap, we sequestered. It was enforceable. It was doable. Now, smart people are in that room. We ought to be able to come up with comparable enforcement mechanisms to ensure that we reach a balanced budget under this proposal. I think it's doable.

My colleague just tells me the five percent off the '95 baseline is not quite correct, and I want to correct that if that's not the case. That's what I understood.

SENIOR ADMINISTRATION OFFICIAL: Five percent off the '95 level.

SENIOR ADMINISTRATION OFFICIAL: It's nominal. It's not inflation-adjusted is what we're saying.

SENIOR ADMINISTRATION OFFICIAL: It's five percent off the hard freeze.

Q: So what is the cut in real terms? It must be very much deeper than that.



Q: So you're cutting everything that's not a protected discretionary by 20 percent in real terms?


Q: So what does that include? What programs are in that category?

SENIOR ADMINISTRATION OFFICIAL: Well, you begin to get into programs -- I mean, transportation is one of those areas. There are programs related to housing, some housing programs that would fall into that category.

Q: Job training?

SENIOR ADMINISTRATION OFFICIAL: No, job training is one of our priorities.

Q: Could you give us more detail on that?

SENIOR ADMINISTRATION OFFICIAL: Well, there are some non-investment areas, obviously, with regards to -- give me some. (Laughter.)

SENIOR ADMINISTRATION OFFICIAL: Interior, Transportation, Energy and so forth. That's $200 billion --


SENIOR ADMINISTRATION OFFICIAL: That's $200 billion less of a cut than the conference report does.



THE PRESS: Thank you.

END 1:40 P.M. EST

William J. Clinton, Background Briefing by Senior Administration Officials Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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