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Press Briefing by Chief of Staff Leon Panetta

January 09, 1996

The Briefing Room

5:35 P.M. EST

MR. PANETTA: Let me just try to add a little bit to what the principals decided today. If you will recall, we've probably been in discussions now close to 50 hours between the principals when we first began the debate over the budget issues that were involved here.

And a number of proposals have been discussed over that period of time. And we've basically walked through almost all of the major areas of the budget in policy terms, plus, over the last few days, as the President indicated and as the Republicans have indicated, there have been proposals that have been put on the table and discussed by both sides.

There obviously has been, I think, a narrowing of the differences, and, yet, there do remain some fundamental issues that still separate the parties. The principals felt that it was an appropriate time to basically have a recess and reconvene -- incidentally, our tentative date for reconvening is next Wednesday, the 17th of January in the morning, if we can -- late morning. And that during this week break that essentially the budget advisors or budget team would work together to try to continue to focus on the following -- on again getting the governors back in town to work on Medicaid and on welfare reform recommendations. As you know, the governors have been here and have actually met and discussed proposals that they are working on, particularly on Medicaid. And we're hoping to get their recommendations on welfare reform as well.

Secondly, that the staff would prepare some options with regards to Medicare to look at the recommendations that have been made with regards to both reforms, as in the President's proposal, and some of the structural changes that the Republicans have advanced and see whether there are ways to try to implement these proposals in a way that would be acceptable to the President. And, also, to review some of the tax options that were put on the table as well.

Thirdly, that we would ask representatives from the Appropriations Committee, along with administration representatives, to discuss through the discretionary area, particularly related to the '96 appropriations budget, to see whether or not agreements could be made, both with regards to the numbers as well as the legislative riders that have been attached to a number of these appropriations bills, and hopefully make recommendations on that.

There are also a number of what are called policy riders on the reconciliation bill itself that have been discussed during the course of the discussions with the principals. And it was asked that the staff try to see if we could pursue recommendations that would hopefully resolve the policy rider differences on reconciliation.

And then, lastly, that there was agreement by the principals to try to achieve somewhere in the vicinity of $66 billion in savings on what are called "other mandatory entitlements." And the effort by the staff to basically try to finalize those recommendations could be made during this period. So those are essentially the areas that hopefully we will be working on during this upcoming week.

The primary areas, just to give you a sense of what we've kind of walked through, obviously, what we've discussed are the whole issue of balanced budget in seven years, CBO which was done very early on. And then we have the area of discretionary spending, generally, and, specifically, the issue of what you do did '96 and '97 in terms of whether or not we could try to decide on a number for those two years as well as, obviously, what the seven-year number would be on discretionary.

Medicare, obviously, was a big area; and there the discussion is not only on Medicare and the numbers, but also on the policy differences that divided the parties. On Medicaid, the same issue -- both numbers as well as policy. The President has been very strong about the need to protect the entitlement on Medicaid, and this has been the recommendation to the governors that they try to work on a proposal that protects the entitlement, and at the same time, tries to provide some additional flexibility to the governors.

Welfare reform is the next area. And there I would kind of include both EITC as well as safety net issues, other safety net issues that relate to programs like food stamps, nutrition, as well as child protection and child care.

The next area are basically the policy riders that I discussed. There are -- once you've gone through the numbers, and if the principals can basically work out an agreement on numbers, you should know that there are a number of policy riders that have been added here -- what I would call legislative language.

An example of that, for example, is the whole issue of Davis-Bacon, or what's the -- ANWR, striker replacement. Those are some of the issues -- abortion issues, obviously, that have been added on appropriations bills as well. It gives you an example of some of the differences.

In addition to that, in the tax side, I should point out, there are a number of what we used to call in the old days, rifle shots in which there are specific proposals that are aimed at providing technical, so-called technical corrections, that benefit specific companies. And we've identified a number of those in their tax proposal and have asked that those not be included, that we try to have a clean reconciliation bill and a clean tax bill.

There are these other entitlement areas. By other entitlement areas you're talking about veterans, agriculture, the area of what we do on retirees, plus a number of user fees that have been put on the table. This is the area where, frankly, we are closest in terms of agreement.

Then there is the whole issue of taxes, and what we do about taxes as well as the area of what's been called corporate welfare -- how much we try to achieve in savings on corporate welfare.

And then lastly, what I would call the area of enforcement and so-called triggers that, in terms of whether you trigger something on or off at the end of this process.

Now those are the general areas that have been discussed. And as I said, proposals have been made from both sides that encompass recommendations.

Let me just conclude, and then I'll take your questions, with this -- that I think in the end, it's pretty clear that this is no longer a question of whether or not there is agreement to balance the budget by CBO. Clearly, we have a proposal on the table that can achieve over $600 billion in policy savings and provide for a modest and targeted tax cut, that CBO will score as getting us to balance. And that does involve, obviously, some very significant savings with regards to a number of programs.

What's clear here, that -- and I think this is obviously a point of greatest friction -- is that it is clear that the Republicans continue to try to push for a tax cut in excess of $200 billion. And once you've arrived at a balance and once you've provided for a modest tax cut, then it you want to provide a larger, much larger tax cut, over $200 billion, then obviously the question is, how do you pay for it? And to pay for it, at that point, you have to go back, add additional cuts, either in discretionary or Medicare or Medicaid or welfare reform, and that is the point of greatest friction here.

And this has always been, I guess, the fundamental difference between the President and the Democrats and the Republicans. And that continues to be the fundamental difference that divides the parties as we try to hopefully work towards a balanced budget agreement.

Q: What about, Mr. Panetta -- what about the old-fashioned notion of just simply splitting the difference on the numbers between the two sides since both sides have come so far, and in the big scheme, the differences are relatively minor?

MR. PANETTA: There have, in fact, been proposals that would split the difference in some areas. But you also have to understand that there are some areas that just are not subject simply to splitting the difference, because there are some fundamental policy differences, Medicare being the best example of that, where the policies that get us to our number are policies that we think are going to protect senior citizens, that are going to protect the system. And if you just simply say, oh, well, let's split the difference between what's out there, that is, I think, an irresponsible way to try to approach that area. So those are the kind of differences that the principals are talking through.

Q: -- the President put on the table at the end of the meeting? What was the offer the President put on the table at end of the meeting? Could you describe -- was it something that is his alone? He said it didn't come from any other Democrat.

Q: And he said it would bring it to a conclusion.

MR. PANETTA: The principals decided that we would not talk about the specifics of offers and counteroffers within the Oval Office. And so I'm going to protect that position by the President.

Q: Wait, wait, wait, a follow --

MR. PANETTA: Let me just say, what the President himself indicated, I think, stands for itself. He basically -- we made an offer going in today that made some movement from where we were -- I think significant movement.

Then in addition to that, the President, in an effort, really, to try to see if there wasn't a way to try to bring these discussions hopefully to an agreement today, offered some additional modifications on that proposal that, I think, represented a real good-faith effort to try to put a deal together. The Republicans did not counter with anything. It was at that moment that they requested that we have this recess.

Q: They didn't turn it down, right? They did not turn it down?

MR. PANETTA: Pardon me?

Q: They did not turn it down.

MR. PANETTA: No, no. They did not turn it down.

Q: Mr. Panetta, the Republicans are saying something completely different. They're saying that they won't reconvene until you have come forward with something serious. They didn't mention next Wednesday --

MR. PANETTA: Well, I heard that from some, but I have to tell you that the President did put this offer down. And we feel that if we're going to make progress in these discussions, this cannot be, again, challenge and counter-challenge or threat and counter-threat.

Q: But that's what Dole said --

MR. PANETTA: Well, we have made good progress so far. And it seems to me the best way you make progress is by having the principals continue these discussions as they have been. So we stand on the basis that the President has put something down. We hope that that can be the focus of discussion when we reconvene.

Q: Leon, help us clear up this confusion, though, because the Republicans, who you graciously let go first, said, we're waiting to hear something from the White House. The President came and said very unmistakably, yes, just as the meeting broke up, I laid something on them that I thought could fix it. Well, so what's the deal?

MR. PANETTA: Well, I guess --

Q: Did they not hear it?

MR. PANETTA: I'm as confused as you are because, frankly, the President did make that. I think it was clear to all the parties. They did not, as I say, reject what the President offered at that point. And, basically, it was at that point that the parties decided, the principals decided, that a recess would be a good idea.

Q: How much did he give on that --

MR. PANETTA: I can tell you --

Q: -- big concession apparently.

MR. PANETTA: My view is that every proposal the President made continues to protect the priorities that he's been fighting for. He continues to say, you know, if we're going to provide a tax cut, it ought to be targeted to families that need it; it ought to be much smaller than what you're talking about; and it ought not to hurt Medicare or Medicaid or the investment areas of education, the environment, that we care about.

I mean, those are our fundamental principles going into this negotiation. And, you know, I think having said that, I understand that the Republicans have their fundamental principles. They want a seven-year budget. They want it scored by CBO. They want a tax cut. And they have to recognize that if we're going to get an agreement, it involves just the inherent process of some give and take from both sides. That's what the principals have been going through.

Q: How much time was spent discussing the President's latest proposal? How much of the four hours was spent discussing this latest proposal?

MR. PANETTA: Well, as I said when we first convened this morning, I basically presented a move on the board that showed some movement, and that was the subject of discussion for almost four hours.

Q: The Republicans said that the -- said their proposal on Saturday night was constructed from elements that could win a congressional majority, each one -- it was taken from various proposals, each one that would win a congressional majority. Did they threaten to take a new budget, crafted with the blue dogs and the moderates, to the floor?


Q: Was that discussed? And, if so, do you think -- if they did do that --

MR. PANETTA: They did not -- they did do that in the room. They talked about the problems. Obviously, as we discussed proposals, there was a discussion about, you know, what kind of votes do you get for a proposal, and there were obviously differences about, you know, what votes you can get.

Look, let me just repeat what is, I think, important here in terms of the ability to get an agreement. That when you're putting this kind of difficult agreement together, both sides have to win some important issues and both sides have to give on some important issues. That's the only way it comes together. We believe that we want a proposal that can enjoy support by, you know, at least a large number of Democrats on the floor of the House, as well as a majority of Democrats in the Senate. And we know that they want to have a proposal that can enjoy a majority of support by Republicans. We understand that.

But there is clearly going to be, in any kind of compromise in terms of working towards a balanced budget here, there is going to have to be an agreement that is more at the center than at the extremes.

Q: -- with the talks resuming on January 17th, and that's about nine days before another -- a third possible government shutdown, do you feel confident that you can get an agreement with the philosophical differences about policy being so wide at this point, that you can avoid another shutdown?

MR. PANETTA: Well, I guess, you know, obviously we have to see how the discussions with the -- with the budget team go, how they go over these next few days, and what kind of progress we can make. I think that, you know -- let's understand that we're talking about a seven-year budget that, in their bill alone, their reconciliation bill was over 3,000 pages long. There's a lot of policy involved in 3,000 pages. It isn't just numbers, and it isn't just slicing numbers. It's also the fundamental policy that goes behind the numbers and how it affects people. And that is not -- you know, the principals oftentimes could talk about numbers, but when you get into policy, we've got to provide a lot of backup as to what it means, what does it represent. You can have a certain idea, for example, in health care as to whether it works or doesn't work, but you've really got to test it, and you've really got to look at it, and you've got to have staff analyze it.

And so I think to be fair to the principals, that, you know, there is a point after 50 hours of discussion where you do have to let the staff do some backup work to see whether or not some of the ideas that have been discussed in fact work or don't work. And that's where we're at.

Q: Leon, you said one of the agreements the principals made was to try to achieve $66 billion in savings on other mandatory -- .

MR. PANETTA: That's correct. Other mandatory --

Q: Are you talking about Social Security, or are you talking about CPI? What is the basis of that?

MR. PANETTA: No, no. This is what I would call an area of entitlements that would include areas related to, as I said, user fees in some areas, the area of spectrum and what we would try to get in savings from spectrum, the area of veterans, the area of federal retirees, agriculture, those areas.

Q: But not Social Security?

MR. PANETTA: Not Social Security. It's not Medicare. It's not Medicaid. And it's not welfare reform.

Q: Can you say how many billions you moved today? You said you made a movement in their --

MR. PANETTA: I'd rather not say. Again, it was --

Q: (inaudible)

MR. PANETTA: It was significant. I mean, look, we are well over -- we are well over $640 billion on savings on the table -- over.

Q: They put out these charts today when you were arriving that indicated how much they had moved --

MR. PANETTA: Well, I understand that. We've done our run. We're going to pass it out. According to our analysis, the President has moved almost -- close to $250 billion in these discussions, and the Republicans have moved about $190 billion.

MR. MCCURRY: We've got this available, by the way --

MR. PANETTA: I mean, you have to understand, I mean, you know, we have moved from what was a nine-, ten-year budget to a seven-year budget. We have moved from OMB to CBO. And now we've moved in these areas. We think we've made significant movement. I think, you know, again, I don't think it serves much purpose to always argue, you know, who has moved more. We think we've moved more, but the real question is: How are we going to come to an agreement to get final --

Q: The President's Saturday proposal didn't include any capital gains. Did the President indicate he'd moved closer to the Republicans today on that issue?

MR. PANETTA: Actually, capital gains was not discussed today.

Q: Are you saying that your differences are more on policy than numbers now? And could you talk about what you might do to prevent another shutdown if this suspension period doesn't prove to be fruitful?

MR. PANETTA: Well, I think the hope of all of the principals was that in the end we could finally arrive at an agreement, which obviously would resolve the problem of what happens with regards to January 26th. There was, in fairness to the principals, though, a discussion that, regardless, we had to make an effort to try to see if there was a way to resolve these issues so that we would not confront, hopefully, another government shutdown.

Q: On Medicare, the President spoke very favorably about some of the Republicans' proposals on some of the structural reforms. And I think he was speaking about the ability of beneficiaries to enroll in private plans. Is that an endorsement?

MR. PANETTA: I think, you know, the President, in the context of health care reform, had made many of these suggestions with regards to trying to get to health management organizations and other approaches that would be offered to people, but it was in the context of health care reform. The fundamental danger you have in the proposals here is that there are these recommended changes that would go to, for example, MSAs, mandatory savings accounts, and other proposals like that. That outside the context of full health care reform, the fear of the President is that it would really inhibit and destroy the ability of people to be able to have the security that they can remain on Medicare as it is. That what would happen is you would have this split in which you would drive people who could afford the programs under HMOs or the private fee-for-service programs, and that those would be the individuals that could afford it, would be healthier, and that you would then develop a second class system on Medicare. That's the concern.

The President is willing to try to, you know, say to the Republicans, you know, we're willing to look at your ideas, but we're not willing to do it on the basis of threatening the security of those that are currently on Medicare. We're willing to provide demonstrations. We're willing to look at ways to test those ideas, but let's not do it on the basis of a drastic change in the existing Medicare program that would challenge the security of the system as we know it.

Q: Did you misspeak on taxes, Leon? You said the Republicans want more than $200 billion in taxes, yet their last proposal was $177 billion; and even in your own document you're saying their last proposal was --

MR. PANETTA: Let me tell you, we've gotten into this discussion about gross versus net taxes. The $177 billion is a net tax number. If you, in fact, then add the corporate reforms that they have, which are about $26 billion, we are again over $200 billion in terms of their fundamental tax proposal. So when you look at their gross proposal, in terms of what a gross tax cut would be, it remains over $200 billion.

THE PRESS: Thank you.

END 5:58 P.M. EST

William J. Clinton, Press Briefing by Chief of Staff Leon Panetta Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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