Press Briefing by Alice Rivlin, Director, Office of Management and Budget and Laura Tyson, National Economic Adviser to the President

The Briefing Room

1:21 P.M. EDT

MR. MCCURRY: Good afternoon, ladies and gentlemen. Yesterday when I made the observation that the Republican budget proposals have a disproportionate impact on people of lower and middle incomes. At least one correspondent in the front row expressed astonishment. So I thought it would be useful if we had some folks walk through that case in a little more detail today. We've done some analysis that we can make available to you today that's contained in part in some of the paperwork you're getting. And I'm delighted that both Dr. Laura Tyson and Dr. Alice Rivlin are here, from the National Economic Council and the Office of Management and Budget, respectively, to brief.

Alice, or Laura, are you going to start? Laura, thank you.

DR. TYSON: Thank you. Good afternoon. I just wanted to set the stage for the analysis. Dr. Rivlin has really spearheaded an effort, an inter-agency effort to put together the numbers here. But I thought we should put the numbers in some context. I recently had a very interesting experience. I appeared on a radio talk show with three other economists who had also been Chair of the Council of Economic Advisors -- two Republicans, two Democrats.

And there was a surprising degree of unanimity in this group of professional economists. There was unanimity on the view that the U.S. economy was enjoying a sound expansion; that we were operating in a low inflation environment. But there was also unanimity that we had a substantial problem. And the problem was stagnation of income for the majority of Americans and an increasing degree of income inequality.

Today we're going to look at the cuts that have been proposed by the Republicans in their budget proposals. And we will see a pattern whereby a disproportionate share of those cuts, clear in the graph up here, are going to the economically vulnerable -- those families that have not shared in the economic expansion over the past two years or over the past 15 years. And I think that what we want to make a case here is that, in thinking about budgetary policy and budgetary priorities, it's important to keep in mind incomes for the majority of Americans have been stagnating; the distribution of rewards is becoming increasingly unequal; about one-fifth of the nation's children today do live in poverty.

And when you're making budgetary choices, it seems to us that you should make choices that both address and ameliorate these problems. Our concern is that the Republican budget proposals do exactly the opposite -- they would aggravate the problems that we are living with today. So with that as an introduction, let me turn it over to Alice Rivlin.

It's very appropriate that she do this analysis with you. She has a long reputation in this town for wanting to balance the budget, but for wanting to do it in an equitable way.

DIRECTOR RIVLIN: Thank you, Laura. As Laura has said, we're dealing today with the two basic problems that face the American economy: The stagnation of incomes, which goes back 20 years or so, and the growing inequality in the income distribution.

Just to give you a few numbers on the latter, in 1969, the lowest 20 percent of households, ranked by income, received 4 percent -- 4.1 percent -- of real income. By 1994, that percentage had dropped to 3.6 percent. It's appallingly small to begin with, it had gone down.

By contrast, in 1969, the highest 20 percent of households received 43 percent of the income, and by 1994 that had increased to 49 percent, the highest in the history of that statistic. And perhaps more shockingly, if you look at the top five percent, their share of income had gone -- over that same period -- from 16.6 percent to 21 percent.

Now, there may be lots of reasons for this. And economists have been struggling with why is the income distribution getting more unequal. One of the big reasons is that the demand for people with high skills and high levels of education has simply out-run the supply.

The Clinton administration's budget strategy from the very beginning has been designed to address the two problems -- to raise the standard of living of average Americans using the tools that the federal government has, and to try to reduce this growing gap between the bottom and the top.

One of the things that contributes to raising average standard of living is obviously bringing the budget deficit down to release more saving for investment in productivity, improving investment and skills and knowledge. We have gone at the problem more directly by shifting expenditures, the things that the government does toward training and retraining, the School-to-Work program and other opportunities for people who would otherwise have low skills to move up in the income distribution. We have concentrated on making work pay by expanding the Earned Income Tax Credit, the supplement to low wages by advocating an increase in the minimum wage.

This program, so far, has been remarkably successful at least in part of its efforts. The budget deficit has plummeted. We've reduced the deficit over three years from $290 billion to $160 billion. We have succeeded in moving money even in the context of a falling deficit into programs designed to increase skills and opportunity. We have increased the Earned Income Tax Credit considerably.

The President's plan for the -- for balancing the budget over the next nine years continues that emphasis, on investing in the future, protecting working Americans and vulnerable people and targeting tax relief on those who need it most.

Now, the key question is, will we continue to address those problems or will we reverse course? The Republicans are proposing to reverse course. As I looked at what was actually involved in the cuts that are being -- that are moving through the system on the Hill, I became more and more appalled at the extent to which the burden would, under the Republican proposals, be shifted to lower income families, to vulnerable families and to families with children and not much income.

We decided to work together across the administration to look at the cumulative impact of the cuts on those families. OMB worked not only with Treasury, but with the Department of Health and Human Services, with the Department of Housing and Urban Development, with Agriculture and with others to pull together an analysis of the impact of those cuts.

Now, we didn't -- we weren't able to analyze everything. What we did was to take the cuts that are being proposed that would directly impact families whose income we could estimate, especially families with children. We looked besides at the House tax proposals, we looked at the cuts in AFDC, in SSI, in food stamps, in WIC, in child nutrition, in housing programs, energy assistance, the summer work programs for youth. We looked at the changes in federal employee health and pension plans, and the changes in Medicare and Medicaid which directly impact beneficiaries. We did not try to allocate the other cuts in Medicare and Medicaid to beneficiaries. These are the ones that hit them directly. We did not try to allocate by income the cuts in education or job training or public health or transportation or other spending programs that are more diffuse across the community. So this is sort of a minimal estimate.

What did we find? We found that the cuts in the Republican plan would disproportionately affect low- and middle-income families, especially families with children. And that comes out very clearly in the charts that we have here.

This one shows the impact on families with children by income group. The lowest 20 percent, the 20 percent with the lowest incomes would lose an average of $1,500 in income and $1,700 in health coverage. Those cuts are very large, and they dwarf any benefit that families would get from a $500 tax credit. And many of these families would not get that.

This chart, I think, is very dramatic, and it shows the concentration of the cuts in the lowest 20 percent by income and the next 20 percent with the cuts, tapering off as income rises.

The contrast is very stark with the tax benefit proposals. You've seen those numbers before -- the distribution of the benefits under the Republican tax plan. And we won't reiterate them today, although I think one has to remember that under the House tax proposal, half the benefits would go -- about 52 percent -- to families with incomes of more than $100,000. That's an average tax break for those families of about $4,000 per family.

One more comparison here that takes the aggregate tax benefits under the Republican bill for the wealthiest 5 percent of households and aggregates those dollars and sets them against the cuts to families with children -- all families with children, although as you can see from this other chart, they're disproportionately low-income families with children. And these numbers approximately match the dollar sum of the amounts that high income taxpayers would benefit about equal the cuts in benefits and in income and in health benefits that families with children would bear.

We think that's very dramatic, and it illustrates the point: Do we as a nation want to continue an effort to raise the incomes of average families and to reduce the disparities, particularly by rewarding work for people who have a low base of income? Or do we want to move in the other direction, cutting benefits, cutting the reward to work for low income working families and giving a tax break to people at the high end of the income distribution. That's the choice.

Thank you.

Q: Mrs. Rivlin, your -- the health cuts just set up the -- an improved way like that -- assume, I guess that there are utterly no savings to be made in direct compense of doctors and hospitals and health providers, but that all these cuts are coming right out of the hide and the flesh of the low income and poor. And if so, why do you have the President proposing health cuts of his own?

DIRECTOR RIVLIN: No, no. As I said in introducing these numbers, we did not consider here the provider cuts. What we are looking at here are the direct hits on beneficiaries, not through provider cuts but those -- this would -- this is primarily the cuts in Medicaid which hit low income families.

Q: And it's assumed that all the Medicaid cuts then flow directly into reductions in services?

DIRECTOR RIVLIN: No. That's exactly the opposite of what I just said. I just said we ignored the cuts on providers. We are looking here at what we think are the direct cuts to families.

Q: Ms. Rivlin, the Republicans say that their $270 billion cut in the projected growth of Medicare, if you use CBO estimates, would compare to about a $200 billion cut on the administration's part -- if you use CBO estimates. Is that correct?

DIRECTOR RIVLIN: No.

Q: What would be the number of your Medicare cuts if you use CBO estimates?

DIRECTOR RIVLIN: We think that they would be the same as ours, that we are proposing $124 billion total in Medicare cuts. We have every reason to think that CBO would score them approximately the same. We don't know that for sure because we haven't scored ours and -- but all of the evidence that we have from past experience with the OMB and the CBO scoring the same cuts would lead us to believe that we do it approximately the same.

For example, when we had Medicare cuts, the extenders of the cut provisions in our January budget, we scored those, I think, at $27 billion, and they gave us $30 billion. So they were a little bit higher on the same set of cuts than we were.

Q: You don't claim that this is an income distribution for the entire Republican budget, do you -- because --

DIRECTOR RIVLIN: No, only the things that directly affect families with children. There will be much bigger numbers for other things that are cut that are spread across the whole population.

Q: So, for example, the corporate -- you don't distribute to corporate tax -- the cutbacks on corporate tax breaks; you don't distribute the provider cuts, presumably would --

DIRECTOR RIVLIN: Right, yeah.

Q: -- do you have any sense of what that chart would look like if, just taking these benefits programs, you distributed the provider cuts.

DIRECTOR RIVLIN: The reason we didn't do it was, we didn't know how. You could reason that those would be distributed equally across the income distribution, or you could make some other reasoning about that. But we didn't have any basis for doing that, nor did we distribute things like cutting a grant program to cities, for instance. That might disproportionately affect the poor, because the poor live disproportionately in cities. But that's not considered in this set of numbers.

Q: Dr. Rivlin, what assumption do you have for your green block? Is that with the cap at $200,000 for the child credit? And how would it change --

DIRECTOR RIVLIN: Yes, this is the House bill.

Q: Okay. And how does that green block change approximately if you were to scale the cap to $100,000, $90,000, as some moderate Republicans have proposed?

DIRECTOR RIVLIN: I couldn't give you that estimate. It would scale it back slightly. The dominating factor, however, is the capital gains tax. We have Treasury representatives here. I don't know whether Eric Toder would like to say a word on that.

MR. TODER: It's mostly the capital gains cut and the corporate. The child care credit change would not change the figure very much --

Q: Could I ask you or Dr. Tyson to describe where the administration is in its thinking on the idea of the downward revision of the consumer price index?

DIRECTOR RIVLIN: Yes. I think we can, either of us, address that. We're both economists, and we would share the view of a great many economists that there are some upward biases in the CPI in the sense that it may overestimate to some extent the rise in the cost of living for a variety of reasons. There is unanimity on what I just said. There is not much unanimity beyond that on how large it is or what to do about it. We believe that this is something which ought to be taken into account by the technicians who estimate the CPI. And BLS is, indeed, working on the problem.

Q: Is the administration analyzing it and will it reach a decision based on the economic or politics of the issue?

DIRECTOR RIVLIN: Do you beat your husband? (Laughter.)

We're analyzing it, and we -- but what I just said is the answer, I think. I mean, we think this is a technical economic question to be resolved by the technicians.

Q: But if there is a downward revision, might it not be seen as a back door way of reducing benefits further?

DIRECTOR RIVLIN: Oh, that's too speculative a question for me.

Q: Let me follow up on that. There are limits to which the technicians can correct some of these flaws --

DIRECTOR RIVLIN: Yes.

Q: -- and are you saying that you do not think that either the White House or the Congress should make a judgment call on how large the upward bias is and correct the indexation? In other words, if the BLS is unable to make technical revisions that it knows are in the ballpark, simply for technical reasons, that no one should make a judgment call?

DIRECTOR RIVLIN: Can't give you an answer to that. What we regard this as a technical and statistical problem, and a problem of some importance.

Q: Director Rivlin, a group of about 20 moderate Democrats, led by Charles Stenholm, this morning announced a compromised budget proposal that would essentially split the difference on Medicare/Medicaid cuts, go by the CBO estimates and postpone any tax cuts for some years into the future. They said they talked to the White House about it. What does the White House think of this? Is it a basis for a possible compromise?

DIRECTOR RIVLIN: Can't tell you. We haven't examined it yet and we're not in a mode of negotiating. We'd certainly take the views of that group of Democrats very seriously.

Q: Your chart there -- on the lowest 20th percent -- what would that figure be in the administration's budget plan? -- thousands of dollars --

DIRECTOR RIVLIN: Can't give you an answer to that, but it -- the cuts would be much smaller and much more even. I mean the things --

Q: So you analyzed the House plan, but not your own plan?

DIRECTOR RIVLIN: -- the things that make the difference are certainly EITC, the depth of the Medicaid cuts and a number of other things.

Q: With all respect, what kind of useful comparison is it for us if we can get your analysis of the House plan but not your own plan that you offered?

DIRECTOR RIVLIN: Well, the House plan is the one that's -- and the Senate plan as well -- are the ones that are being debated. And I thought as journalists, you'd be interested in knowing what analysts thought the impact of those plans were.

Q: Dr. Rivlin, just to follow up on that, I mean, if you made a chart of what each of these quintiles get right now in annual benefits and health coverage, would it be a complete mirror image of that? In other words, the lower you go, the more they get?

DIRECTOR RIVLIN: -- clearly the reason that this chart looks this way is that for very good reasons, policy reasons that have been accepted by both parties for a long time, benefits are related to income under a number of programs. And in some cases it's the whole point. I mean, the point of the Earned Income Tax Credit is to reward work for people who earn low wages. It's not to reward work at the top. But when you cut it back, you necessarily cut those people.

Q: Just to follow in retrospection, could you provide a chart like that, could you prepare one for your own plan. Can you get that --

DIRECTOR RIVLIN: I think we probably could, but our own plan is -- only pieces of it are in great detail at the moment in the public domain. So I think I can't give you that right now.

Q: Could you give us technical assumptions later, or some paper showing exactly how you assess the Medicaid distribution --

DIRECTOR RIVLIN: Yes, we can do that.

Q: -- and the other assumptions -- that go into this calculation?

DIRECTOR RIVLIN: Yes, we'd be happy to do that, and we have a galaxy of stars across the room here, including Wendell Primus from HHS and Eric Toder from the Treasury Department, and our own -- OMB's own Ken Apfel. And they'd be happy to talk about the technical pieces of it.

Q: With respect, ma'am, if, as you say, your plan is -- has only pieces of it are in great detail at this point, how can you realistically --

DIRECTOR RIVLIN: In the public domain.

Q: In the public domain -- how can you realistically ask Republicans to move towards your plan if you don't have any details for them to move toward?

DIRECTOR RIVLIN: I'm not asking Republicans to do anything at the moment. I'm asking the journalist -- the journalist community to focus on what we think is a very disturbing set of statistics about the Republican plan that, as we've pointed out long before and are pointing out again tangentially today, the tax cuts go disproportionately to the wealthy, but the spending cuts fall very heavily on low-income families with children. And we're just asking that you consider this statistic.

I think the most remarkable statistic that does fall out of this is if you take all families with children and you array them by their income, the size of the income cut plus the cut in medical care for those families at the bottom of the income distribution, is very large and it dwarfs anything that they could get in terms of a tax benefit. Now, there may be a Republican rationale for that. We just want to -- we just want to draw attention to the facts. That is what is happening up there.

One more?

MR. MCCURRY: Two more. We had one right here --

Q: Dr. Rivlin, both Congress and the White House have been accused of playing numbers games. And if we were to buy into these assumptions that you've got here, what can you tell us to establish their credibility?

DIRECTOR RIVLIN: Oh, I don't think these have any doubts at all. I mean, you could all play around with the green book yourselves if you want to -- and many of you have. But these are what a set of analysts who work with these numbers all the time estimate would be the impact on families with children of cutting back those programs in the ways described.

Now, as somebody pointed out earlier, it's not all that remarkable because those programs are designed to help people at the low end of the income distribution. But it's cumulative. We had not put together -- and we were shocked ourselves, I think, to see what the magnitude of the cuts were for those families when you aggregate all of the things that are being done.

Q: Dr. Rivlin, could we not let you off the hook so easily about this comparison to the administration's plan, because when you say you're plan would be flatter, would it still look like that? How much flatter? I mean, would it still follow in that general line --

DIRECTOR RIVLIN: The point of the administration's plan is that the cuts are much less. Now, there are two reasons for that. They are that we are not trying in our plan to finance a very large tax cut for the wealthy, and we are taking more years to get to balance. So the cuts are much more moderate and they are not directed toward -- in the health care case -- toward beneficiaries. The provider cuts are much smaller, and we haven't distributed those for either plan.

Q: Dr. Rivlin, given your concern for preserving a social safety net, why isn't the White House more open to some downward adjustment in the CPI since that would have an across-the-board affect?

DIRECTOR RIVLIN: We don't think -- well, the CPI would have an across-the-board affect on lots of families, including poor families, if you legislated a change in the CPI. As I said earlier, we think that you shouldn't politicize the CPI, that it is a technical statistic, a measure of the cost of living. And if it isn't measuring it accurately, we should move to make sure that it does.

Q: Wouldn't that kind of adjustment ease pressure on the type of targeted cuts --

DIRECTOR RIVLIN: Oh, there are all sorts of other things you could do other than this. The subject today was to focus on the contrast between the tax breaks for the wealthy and the hit on low income families in the Republican plan.

END 1:50 P.M. EDT