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Press Briefing by Chief of Staff Leon Panetta and O.M.B. Director Alice Rivlin

March 24, 1995

The Briefing Room

11:41 A.M. EST

MR. PANETTA: Ladies and gentlemen, what we wanted to do today is to present some additional facts regarding the concerns that have been raised about the direction of the Republican proposals contained in the Contract. As you know, the American people, the more they've seen about the fine print in the Contract With America, the more troubled they've become. Their concerns are reflected in the polls and in the growing reluctance of even some of the Republicans in the Congress to be dragged by their leadership into supporting some of the key elements of the Contract.

I think the basic concern is simple. The concern is that we should not take from the most vulnerable in our society --our children -- in order to give benefits to the most privileged in our society; that that's fundamentally wrong, it's unfair and it undermines the dream that all of us have in this country to give our children a better life.

The facts are also very clear. Looking at what is currently going on, particularly in the House of Representatives, the cuts that are taking place for middle-income, low-income Americans, whether it's in education, school lunch program, the efforts at fighting crime, safe and drug-free schools -- that all of these are being used to fundamentally pay for a huge tax cut that largely goes to the nation's wealthiest taxpayers.

Today what we are presenting -- information from the Treasury Department, the Office of Management and Budget -- further confirms that what we are looking at here is essentially a proposal, a reverse Robin Hood kind of approach to dealing with policy in this country.

First and foremost, on my right -- this proposal basically -- or this chart basically focuses on the OMB study which Alice Rivlin will go into, which deals with the welfare reform proposal that is currently before the Congress, and that the savings from that welfare reform proposal are going to be used principally to pay for the tax cuts. They've had a number of votes on this issue and they continue to vote to ensure that all of the cuts contained in this proposal will, in fact, go for tax cuts.

What you see here is that the annual impact of the proposal, once it is fully phased in, for those under $50,000, they will be facing an $11.5 billion hit, and that comes largely in cuts in school lunch, school breakfasts, women's, infants and children's feeding programs, food stamps, other nutrition programs. That totals $11.5 billion. That savings is transferred up into the tax benefits for those making $200,000 or more.

And on the right-hand side, you see exactly where that goes. It is not going to cut the deficit. It is not going to the middle class. It is going not, certainly, to the poor. But it is going straight to the wealthiest taxpayers in the country. When it is phased in, $31.1 billion in benefits will go to those with incomes over $200,000. As I said, that's largely funded by these cuts, particularly in the nutrition programs. What you have here is, obviously, a major redistribution of income in the wrong direction. If anything, instead of trickle-down, it is trickle-up to the wealthiest in our society.

The second group of charts on my left are from the review of the distribution of the tax package that the Republicans will be moving on the House floor, we assume, within these next two weeks. Earlier this week, we commended the 102 House Republicans who wanted to modify the Contract tax package. They certainly were trying to go in the right direction. But in analyzing their proposal, I think it's clear that we should not exaggerate the impact of what their proposal would mean in terms of both the cost and the distribution of the tax cut.

Treasury's analysis has produced two charts here that I think are particularly interesting in terms of analyzing the impact of the proposals. The first chart shows the 10-year deficit impact. As we've said, the total cost of the Republican tax proposal, tax cut proposal is $630 billion over 10 years. If you enact the cap, the $95,000 cap with regards to the tax credit proposed by the 102 Republicans, you still are exploding the deficit to the tune of about $617 billion. So you're only, in that instance, saving about $13 billion. Not much of an impact.

The second chart goes to the distribution. As we've pointed out in the past the distribution that we've indicated with regards to where the bulk of the tax cuts would be going is that 52 percent of the benefits of the Contract would go to those earning over $100,000 per year. Now, if you enact the proposal of the Republicans to try to cap it at $95,000, the end result of that is a dramatic 51 percent of the benefits still flowing to those over $100,000. This is not a very impressive before and after for the middle class in this country.

The point is that even with the proposals being recommended by the Republicans, there are virtually no changes in the cost of the tax cut proposal and virtually no changes in the distribution impact in terms of favoring those who are earning over $100,000. With or without these amendments, the Republican policies here are wrong. There's still a chance today on the welfare, on a motion for recommittal, to try to do what's right and to try doing, in the very least, try to take it, instead of having this massive distribution from the poor to the wealthy for the sake of the tax cut, to at least put it to deficit reduction. That will be in a motion that will be presented today we hope that in the very least that carries.

These policies are fundamentally unfair. They are fundamentally bad for the economy, and they are bad for the American people. This is really like parents who are taking their kids' lunch money in order to have a night on the town. That's not something we ought to be doing in this country. Parents don't want to do that. This President does not want to do it. These are unacceptable proposals for this country and for the American people.


DIRECTOR RIVLIN: Let me just add a few words. Leon has talked about the tax cut proposals of the Republicans and how even with the change that some of them propose to make, they would go very heavily to upper-income people. Now, how are they going to pay for this loss in revenue to the federal budget, which would otherwise exacerbate the deficit? We don't know the full answer to that, but we know part of it.

The House is voting today on the Personal Responsibility Act of 1994 welfare legislation that provides part of the answer to how they are proposing to pay for this tax cut. They would pay for that tax cut by cuts in child nutrition, including school lunch; in jobs programs for welfare mothers; in child protection and child care; and in benefits for disabled children and legal immigrants.

Now, who are those people? Those are people -- the most vulnerable people in the population. Of those benefit cuts, we calculate 84 percent of them would fall on people in the zero-to- $30,000 income group, and 95 percent of them would fall on those with incomes less than $50,000.

The chart illustrates here, as Leon has pointed out, that at the very top we would have, when it's fully phased in annually, $31 billion in tax benefits to those over $200,000 paid for in part by $11 billion in benefit cuts to those with less than $50,000.

Now, those welfare cuts don't come close to paying for the full tax bill. We will see what other things they come up with -- other benefit cuts that have to come from somewhere will come from the rest of the population. But we know part of the story, and the part we know is it is very much reverse Robin Hood. It is taking from the most vulnerable, especially children and low-income people, to pay for benefits for high-income people.

MR. PANETTA: Questions.

Q: Leon, of course, the Republicans say that they just want to put these things into block grants and let the states take care of these same programs, particularly things like child nutrition. And they seem to think that states will do that.

MR. PANETTA: We heard exactly the same promise in the early '80s when I was in the Congress at that time and we faced a proposal at that time to cut the school lunch program. And the argument then was we shouldn't provide benefits to upper-middle- income families in the school lunch program. The result was a cut in the school lunch program, and what happened was a thousand -- roughly a thousand cafeterias shut down in this country, and about two million to three million kids -- two million to three million kids -- were cut off of the school lunch program as a result of that.

We're heading in the same direction with these proposals, because ultimately what happens when you block-grant it and you put a flat funding -- or you put, essentially, a flat number into a block grant is that as kids expand as you try to provide the additional school lunches that are necessary, and particularly if states go into recessions where you really have to dramatically respond to kids and families that are facing that kind of impact, then the ultimate cost is going to be that cafeterias are going to shut down and they're not going to be able to provide this funding.

We know what happens. This is not a mystery. And I know the Republicans are struggling to put the best light on it, but the fundamental fact is they're cutting school lunches.

Q: You don't trust the states to do the right thing?

DIRECTOR RIVLIN: These calculations are made on the basis of assuming that the states will go on spending what they are spending. We have not assumed that the states are going to cut back. The cuts that we are analyzing here are the cuts in federal spending which are in the bill as proposed. So, in a sense, Leon's right. We have not assumed state cutbacks in these numbers.

Q: Leon, two questions. One, the President would certainly veto a bill that did what that chart suggests, would he not?

MR. PANETTA: I found that it's smart not to get into comments about what the President will or will not veto on every bill that comes up, but I can assure you that he is strongly opposed to the welfare proposal that is currently before the House, and his hope is -- his hope is that the Senate will exercise the right kind of judgment and work with us to try to implement the kind of welfare proposal that the President can sign.

Democrats in the House, to their credit, every one of them, voted for a substitute that we thought was a much better alternative on the House floor. We hope that the Senate can work in the same direction.

Q: If I could follow up on that. That leads to my second question. If you're hopeful he can work with the Senate, is that why, despite these horrible numbers you're putting out here, the President is not here delivering them himself, for he would prefer to remain above the politics of the issue so that he can retain some negotiating room?

MR. PANETTA: The President, at the current moment, I don't want to get into particulars, but he's having a health check. (Laughter.) Listen, I'm trying to give you guys news.

Q: Wouldn't it strengthen the hand of those who are trying to change these proposals both in the House and the Senate, and perhaps in conference, if you were able to say that the President would not accept this and would limit the chances of whatever pass? I mean, wouldn't that -- wouldn't coming out and being strong about that now help? I don't understand, why are you so reluctant to say he'll veto this?

MR. PANETTA: The President has made very clear his strong opposition to the bill. He says in very clear terms that this is weak on work and tough on kids. And it is unacceptable. And the President wants to continue, however, to work with the Senate to see what a final product will be. Let's -- he's made very clear his opposition to this proposal. I just don't want to get into a game of saying that, you know, every proposal out there is the subject of a veto until we see what the final product is going to be.

Q: Why not? I know, but you could affect the final product, couldn't you, by doing that?

MR. PANETTA: Let me make very clear we are talking about a bill that the President strongly opposes if it passes the House.

Q: Do you think you are making headway, though, in terms of public perception of this?

MR. PANETTA: Yes, we are--

Q: Are you talking about polling and the --

MR. PANETTA: Yes, we are. And as a matter of fact, I think there's a -- I guess it was Senator Breaux made very clear that this proposal is dead on arrival on the Senate side, and I think it is.

Q: Well, you've talked about the distributional effects of the tax cuts. Is there any way for you to estimate what the distributional effects, the net effect by income class would be if you combined the spending cuts that they're talking about with the tax cuts?

DIRECTOR RIVLIN: Remember that we've only seen part of the spending cut, so that would really be quite misleading. The tax cuts are many times larger than this particular set of spending cuts for which we have the full information or at least information on which to base the estimates out of the welfare bill -- welfare reform bill. We don't have the full analysis of where the other cuts would come from.

Q: Do you expect -- is there any way for you to even largely expect that the middle class is significantly hurt or helped or --

DIRECTOR RIVLIN: I don't think we can guess about that at the moment, but in order to make up the rest of the difference, they will have to cut benefits for just about everybody, especially -- and the middle class is the large group in the population, so it stands to reason that most of those benefits will come from programs that benefit a lot of people.

Q: How do you read the rebellion on --

MR. PANETTA: As an example, just -- the example is that, I think in the proposal that the Budget Committee reported out last week, one of the proposals is a $5 billion cut in the crime bill. Most of that $5 billion cut in the crime bill would come out of the middle class.

Q: How do you read the rebellion on the Hill now with the 100 congressmen who want to lower the --

MR. PANETTA: Well, as I said, we commended them because they took an important step in trying to see if they could modify the tax proposal. We think much more needs to be done. As pointed out here, it isn't going to -- what they're even proposing is not going to make much difference either in terms of the cost or the distribution. But the very fact that they were willing speak out is important. And we hope that there are others that are willing to speak out, and that we can, in fact, modify this bill to move it closer to where the President is, which is a bill that's targeted at the middle class with a cost of about $63 billion over five years.

Q: Since even the Contract proposal caps the child tax credit to families making $200,000 a year, how do all these benefits get to families making over $200,000? Is that because of capital gains cut?

MR. PANETTA: The principal problem you're looking at is that -- let me describe the -- we're looking at the combination of the capital gains tax cut that still is here, and they haven't recommended changing that -- the corporate depreciation write-off is another piece of it; and the repeal of the alternative minimum tax, plus some of the cuts in estate and gift taxes -- all of those really are tilted towards these upper income levels.

MS. TERZANO: We'll take one more.

Q: Conservative Democrats have been talking about coming up with a proposal where the effective date for any tax cut would be pushed until after spending cuts sufficient to balance the budget would be enacted and passed into law. Is that an approach that the White House might support?

MR. PANETTA: Well, we presented our budget. We think our budget is right in terms of the proposals that we presented in terms of spending cuts. Eighty-one billion-plus goes for deficit reduction; approximately $63 billion goes to pay for our targeted tax cut. We think that's the right balance. But, as always, we're prepared to work with the Congress. What we would like to do is to see the Congress come forward and put a full budget on the table.

We're now approaching, within a very few days now, April 15th, under the Budget Act, the House and the Senate should complete a budget resolution. We don't even have a budget resolution out of either committee, either the House Committee or the Senate Committee, that lays out their budget and how they're going to pay for this tax cut, and how they're going to reduce the deficit or balance the budget; we don't have that. And we're just within a few days of the deadline here.

Put the budget on the table. And, as the President said, we will provide very careful consideration of those proposals, and most certainly we would work with our Democratic colleagues to see what we could do to improve their priorities.

THE PRESS: Thank you.

END12:00 P.M. EST

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

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