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Press Briefing by Chief of Staff Leon Panetta, Chairman of National Economic Council Dr. Laura Tyson, O.M.B. Director Alice Rivlin, Secretary of Treasury Bob Rubin

June 13, 1995

The Briefing Room

6:50 P.M. EDT

MR. PANETTA: What I'd like to do is to give you a broad summary of the approach that the President is going to be announcing tonight in terms of the balanced budget. And then I'll have Alice Rivlin, the OMB Director, present the specific numbers with regards to each of the areas that I touch on. Then I'd like Laura Tyson to talk about the economics of the 10-year plan that the President will be presenting, and then have Secretary Bob Rubin speak to the larger issues of the importance of doing this particularly as we approach Halifax.

Tonight the President will present to the nation his economic plan for balancing the budget. Unlike the plans that we've seen so far in the Congress, this plan is intended to put people first.

It builds on the economic plan that the President proposed in 1993. It's a plan that, obviously, is already reducing budget deficits over a period of seven years by a trillion dollars, while it increases our investments in education, in training, and other key areas. That's a fundamental.

The fundamental goals of the President and the consistent goals of the President have been that we ought to achieve deficit reduction, but we ought to do it in a way that maintains our key investments to people in terms of improving their incomes and maintaining the American Dream for our children.

The plan that the President will be announcing tonight takes his '93 even further, balancing the budget by 2005, while, again, as I said, maintaining his key investments. It takes the first serious steps towards health care reform while strengthening the Medicare trust fund and protecting beneficiaries. And it targets tax cuts in -- his tax cut proposal that was presented earlier this year, it is included in the budget and targets those tax cuts only to working families.

There is no area of the budget other than Social Security that is immune from savings and from cuts.

There are three fundamental differences that the President addresses in his budget that he is presenting tonight. And those differences represent the concerns that we have about the resolutions, the budget resolutions that are currently being dealt with by the Congress -- resolutions that have passed the House, passed the Senate and are now in conference.

The first major difference is in health care. There are obviously concerns that the President and all of us have indicated in the administration with regards to the deep cuts in Medicare and Medicaid, particularly without taking any steps with regards to reform of the health care system. So the result has been that we would essentially be putting anywhere from $1,500 to $2,000 in annual costs for the average elderly couple as a result of the proposals that are up there. Our concern is that this essentially turns Medicare into a second-class health care system, all of this being done largely for the purpose of providing the tax cut that was included particularly on the House side of the budget.

The President will propose about half the level of Medicare savings, and about one-third the level of Medicaid savings that are included in the plans, the budgets that are on Capitol Hill. For Medicare beneficiaries, there will be no benefit cuts; we protect Medicare beneficiaries. Medicaid coverage would be protected with a per-person cap.

Savings in these programs would be achieved in the context of taking the first serious steps towards health care reform. These reforms will include expanded coverage, especially for small business employers and employees. They will include coverage for six-month coverage for the unemployed and for those with preexisting conditions.

Help will be provided in curtailing costs in the health care area. We will establish important new Medicare benefits, and we will protect choice of physicians that is so important to that whole health care side of the budget.

Second difference is in the area of education and training. And, really, this gets down to what budgets are all about. Budgets are not just about numbers, as I've said time and time again; they're about people and they're about investments, and they're about our future. We should not balance the budget to hurt people or simply to make two numbers match. The reason the President wants to balance the budget is to essentially increase private investment and ultimately raise the living standards for all families in this country.

Nothing is more critical, obviously, to increasing living standards and improving the future of our children than education and training. And so the President believes it is absolutely essential as we balance the budget to maintain our investments in education and training so that we, in fact, continue the investment that he thinks is so important to the future. The budgets on Capitol Hill cut education by about $50 billion in real terms in seven years. We essentially provide for inflation increases for education in our budget and training.

The third significant difference is the President's tax cut which, as I said, is targeted to working families to invest in their future. You know the various ingredients that we have in our tax cut proposal. I won't repeat those, but the essence of it is that we want to target a smaller tax cut to working families, particularly to assist in education. And that's maintained in this budget. As I said, Alice will describe the particulars.

The plan essentially achieves its savings in the following areas: Savings in the domestic discretionary area are achieved while we maintain our investments. We are probably looking at somewhere between a 20 to 30 percent cut in what I would call the noninvestment, noninitiative areas of the budget over that period of 10 years. We do maintain the priorities that we put into the '96 budget; those are largely maintained. But that means that we do, in fact, then cut other programs that are nonpriority programs, and that represents part of the savings.

Medicare and Medicaid savings represent another part of the savings that are achieved here -- as I said, one-half of the number on the Hill. Welfare reform, we achieve about -- it's one-third of the number that we have now that Capitol Hill has put into their welfare reform package. We are about a third of the savings. And that represents compliance with the proposals that the Democrats have introduced on welfare reform. So we achieve additional savings, as I said, in that area as well.

Corporate contribution is made of $25 billion, which is the number was in the Kasich budget. We basically are taking that number and are urging that we engage in a bipartisan effort to include the closure of corporate loopholes and special interest tax breaks, the unwarranted corporate subsidies that are part of that area. We think we can come up with $25 billion to be able to represent those savings.

The extension from seven to 10 years gives us additional savings in terms of our ability to modify the cuts that are part of the budget. And then, obviously, the reduced tax cut also helps us as well.

Let me just say a word about why now, because, obviously, there are many that are saying why should the President confront this issue now. The reasons the President feels that it's important to engage now are really for three reasons. Number one, the concern is that if they, in fact, locked up the budget resolution that will lock up the numbers that are part of the appropriations process, as well as the reconciliation process. And while we can engage -- we've been urged to engage at the point of reconciliation or at the point of the appropriations process -- the problem is once those numbers are locked up in a final budget resolution, pursuant to the rules of both the House and the Senate, it is near impossible to break those rules in order to be able to engage on our priorities.

So the President felt that rather than wait until they lock up those numbers in their budget resolution it was much more important to present it now, and, hopefully, the conferees will take that into consideration in terms of their final budget proposal and meet the priorities that he's included in his budget.

Secondly, we're late in the budget game, as many of you know. We're talking about a budget resolution that has not been completed yet. It's almost two months past due in terms of the legal date when they should have completed a budget resolution on April 15th. What that raises is, obviously, the prospect that if they don't conclude this budget resolution soon that we will, in fact, be backing up on appropriations bills.

They're now talking about not doing reconciliation until September, and the Speaker himself has talked about the possibility of setting up a train wreck that would bring us to October 1st with the real prospect of shutting the government down and not passing a debt ceiling increase, which the President believes would be devastating to the economy. We are not in the situation where we can afford to bring down the government, to shut it down, to prevent checks from reaching people, and to prevent the kind of borrowing that needs to be done as a consequence of lifting the debt ceiling. So, for all of those reasons, the President feels that it is extremely important that we make every effort now to resolve this budget issue, not wait to hit the wall in October, but to try to resolve it now before we reach that point.

The third reason for doing this is that the President is going to Halifax; he's meeting with the other G-7 leaders. It's extremely important that we make clear to these leaders that we are working to resolve the budget issue, that we're working to balance the budget, and that we are engaged, hopefully, in a bipartisan process to be able to set a course for this country in the future that makes sense not only in terms of our fiscal discipline, but makes sense in terms of the priorities that are important to our people.

The announcement that the President is making tonight is an act of optimism. It's an act of cooperation and leadership. He believes that this is the best way to achieve the outcome that he desires, and he believes that it is the outcome that the American people desire. A Congress and a President working together to resolve their differences in order to achieve a balanced budget really does put people first.


MS. RIVLIN: Thank you.

This is a bold plan to balance the budget over 10 years. It's also a sensible moderate plan that the President believes will brighten the economic future for average Americans. As Leon has said, a budget is not just dry numbers. It embodies choices in priorities, and the President has made different choices and has different priorities from the congressional Republicans. They want to get to balance by 2002. He wants to reach balanced more gradually by 2005. They want to finance a huge tax cut that benefits high-income people. He wants a more moderate tax cut that will make it easier for average people to raise their kids, pay for education, save for the future.

Now, the combination of those two choices -- the faster track to balance that the Republicans want and the bigger tax cut that they want to finance -- forces them to slash Medicare and Medicaid without any semblance of health care reform. It also forces them to cut deeply into all programs, including education and training and other investments that raise incomes in the future. We think that's just self-defeating.

The President's plan, by contrast, protects education and training particularly, but also investments in science and technology -- things that grow the economy in the future. And it proposes health care reform with less drastic cuts in Medicare and Medicaid, plus expansions of coverage and benefits.

Now, how do we get the arithmetic to add up? How do we get to balance? What we're proposing here is the equivalent of a seven-year budget resolution which can be compared to the House and Senate resolutions. We're not going to give you all the gory details of a complete budget here, and I think for comparison's sake, it may be most useful to look at the seven-year numbers. We balanced over 10 years. They balance over seven years. So we don't get to balance in the seven years, but the comparisons are most usefully made that way.

You have, in the smaller handout, a set of three tables, the last of which is a comparison table that shows a side-by-side of the President's plan with the House and the Senate.

Now, how do we get there? First, we're proposing to cut about $200 billion from non-defense discretionary programs while providing inside that number for the highest priority investments. We actually allow education and training as a whole to continue growing with full compensation for inflation. And we have increases in science and technology, the environment, violent crime control and defense.

Most of the cuts that are in the non-defense discretionary were already made in our 1996 budget; we are not adding very much, net, to the cuts over the seven-year period, although we extend those cuts beyond that.

Second, we take a serious step towards health care reform, and we save about $125 billion in Medicare and Medicaid, net, of the amount we are spending to expand coverage.

Q: Is that over seven years?

DIRECTOR RIVLIN: That's seven. We can give you 10-year numbers, too, but those are the seven-year numbers. Our cuts in Medicare are about half of what the Republicans' are, and for Medicaid they're only about a third. On a seven-year basis, the congressional plan -- so they differ somewhat -- cut more than $400 billion from Medicare and Medicaid without any reform.

The health care reform is a serious new proposal. The Clinton administration is back to health care reform. We started it, we're back to it. And there will be a more extensive briefing, especially for those of you who are health care aficionados and for the health trade press tomorrow that Donna Shalala will give.

But briefly, there are reforms in the insurance market that we are proposing so that Americans can keep their coverage when they get sick. There are reforms to allow small businesses access to affordable group purchasing options. We have a new program of subsidies for unemployed people to allow them to keep their insurance. We expand the self-employed tax deduction. We eliminate the co-payment on mammograms under Medicare. And we have a grant program to expand long-term care and a new respite program for Alzheimer's Disease.

The Medicare programs proposals save $99 billion over seven years, excluding the extenders that are already in our budget, and they ensure the solvency of the trust fund, the Medicare trust fund through 2005. In Medicaid, we have savings, but we believe that there will be no cutbacks in coverage in Medicaid.

We save $67 billion in non-health entitlements in reforms in welfare, in farm programs. The welfare proposals move people from welfare to work. The savings are primarily in changing the rules for immigrants and the benefits that they can collect, but we do this in a much less drastic way than the Republicans do. We also propose a $25 billion package of corporate subsidies that we will work out with the Congress to reduce.

And finally, as you know, we target tax relief to middle-income families and we lose much less revenue in doing that than the Republican plans do.

Q: How much is the tax relief?

DIRECTOR RIVLIN: It's the same as -- well, the 63 was a five-year number. Our total revenue number here is 96. That includes the tax relief and a few other things.

Q: Is that seven years?

DIRECTOR RIVLIN: The table I'm waiting for is a seven-year number.

Q: -- ten-year total on the revenue?

DIRECTOR RIVLIN: We'll do that in a minute. Why don't we let Laura proceed now. We'll find it.

DR. TYSON: Well, I just want to make a couple of comments about why this plan is good for the economy. First of all, just to go back to the logic of deficit reduction or balancing the budget and economic growth, the primary reason for balancing the budget from an economic point of view is to increase national savings; that, in turn, increasing national investment in physical, human and technological capital; that, in turn, increasing productivity growth and growth in incomes for all Americans.

Balancing the budget is not an economic end in itself. It's a means to the end of greater investment and higher living standards. This logic, the logic that it's a means to an end, not an end to itself, has two important corollaries: first, to evaluate the economic benefits of balancing the budget, it's important to know what programs are being cut and by how much. The composition of the cuts, in addition to the magnitude of the cuts, matters to economic well-being, squeezing worthwhile national investments in education and training, in science and technology as the Republican plans proscribe is the wrong way to balance the budget from the economy's point of view.

Our proposal safeguards and preserves these investments in our nation's future productivity. That's the right way to balance the budget, from an economic point of view.

A second corollary of thinking about balancing the budget as a means to an end focuses on the reality that balancing the budget makes room for additional private savings and investment. But in the short run, cutting government spending to balance the budget has a direct contractionary effect on aggregate spending and, hence, has a direct contractionary effect on the economy's growth rate. This is a basic tenant of economic models; it is built into all the models that are used to analyze the effect of balancing the budget on the economy, that in the short run the direct effect is contractionary.

So the policy challenge is to balance the budget on a gradual but credible path that will allow interest rates to decline sufficiently fast and sufficiently far enough to offset the direct contractionary effects of balancing the budget. And I want to point out, even the most carefully designed path will always carry some contractionary risk because both the size and timing of interest rate changes and their effects on private economic activity are difficult to predict with precision. So balancing the budget always involves some risk to the economy in the short run.

The benefits, however, are clearly there and they are long-run benefits. Now, one way to reduce the risk is to extend the period for achieving balance, to spread the cuts in government spending out over a longer period of time to reduce the size of the cuts in any given year, to give financial markets more time to adjust interest rates along the way, and to give the private sector more time to adjust its behavior to a steady series of cuts in government spending.

Moderating these contractionary risks from debt reduction is one policy reason why the administration has proposed a 10-year plan for bringing the budget to balance, rather than a seven-year plan as the Republicans have proposed; that's one policy reason for the longer period of time.

Another important policy reason is that a longer path to balance allows us to avoid deep and more punitive cuts in government programs, particularly those that serve education and training, serve children, serve working families, serve the elderly.

So in point of fact, we looked at policy reasons and we got a date for a path out of our policy analysis. We did not allow an arbitrary date to drive our policy; rather, we looked at the tradeoff, we looked at risk to the economy, we looked at programs we wanted to maintain and preserve, we looked at the pace of cuts that we thought were sustainable over time, and we came up with a 10-year plan which we believe will give us all of the benefits of deficit reduction in the long run for ourselves and our children, while moderating the short-run transition risks from balancing the budget.


SECRETARY RUBIN: Let me start by identifying with something that Laura just said, and then I'll make a comment or two as we go into Halifax -- and that is that I believe what Laura said is exactly right. What this process was -- and all of us sat with the President for many weeks as he went through it -- was to make judgments about tradeoffs as to what would best increase jobs, best increase standard of living in this country over the long-term. When you take that approach and you put a heavy weighting on deficit reduction, you then came out to the 10-year path, in contrast with starting with an arbitrary date, which led you to arbitrary cuts without regard to policy effects.

When we went to Tokyo in 1993, President Clinton was the first President in a long time that could deal with other countries from the moral high ground of having dealt with what we were told was our primary economic problem and a problem that had not been faced in a long time, and that was the deficit. And if you were there -- and probably some of you were there -- you know what difference it made in terms of the President being able to talk to other countries about the kinds of things we thought they should be focusing on.

When I speak to finance ministers -- and I do it a fair bit -- from the G-7, what you hear about consistently, whatever it is that I might want to discuss, is, why aren't you all dealing with your deficit? We have dealt with our deficit, and dealt with it very powerfully, starting in 1993. But this is a major step forward, and I think without question it puts the President again in exactly the same position that he put himself in in 1993 with the powerful deficit reduction then.

He is once again dealing with what the world thinks is our primary economic problem. There are a lot of very important issues to deal with in Halifax, issues that will affect us critically as we go forward. I think the President once again is exerting leadership and putting himself in a leadership position to deal with the other nations in the G-7.

Q: Can we get the 10-year effect of the tax cut?

DIRECTOR RIVLIN: Jack, do you have that? Bob Rubin said $170 billion. Let's see how close he is -- $176 billion. That's the 10-year number. The House tax cut over that -- pretty good -- the House over the same period is $630 billion.

Q: What assumptions are made about interest rates to get the 10-year interest savings which I added up as $477 billion? I don't know if it's the right number.

DIRECTOR RIVLIN: We have two kinds of interest savings. We have the usual kind that when you reduce the deficit, you have less debt and so you get interest savings. Then we also did what both the plans on the Hill have done; namely, assume that a lower deficit will bring down the interest rates themselves. The assumption in the Senate was 170 over seven. We have 110 over seven because, clearly, we're bringing down the deficit more slowly.

Q: What's the ten-year figure on that?

Q: On Medicare, Medicaid, as a policy matter, what keeps the cutbacks that you're willing to accept linked to the reforms that you want to make? And as a matter of politics, why shouldn't Republicans simply take your cuts and run?

MR. PANETTA: The fact is they're asking for a hell of a lot more cuts, and I think -- we would be pleased if they would take our recommended cuts, take our policies, take our overall number and that would resolve the issue. But I think the concern that somehow the Republicans are going to take this number and run is not there because they're asking for so much more in terms of reductions in Medicare and Medicaid. We don't know the specifics, obviously. We don't really have a clear plan either from the Senate or the House as to how they achieve those savings. We will, obviously, be happy to present more specifics about how we get to our number.

Q: Mr. Panetta, you said that you wanted to effect a budget resolution. Since the President can't veto the budget resolution, what possible reason would there be for the Republicans to adjust the budget resolution to match this?

MR. PANETTA: Look, I think it comes down to this -- it's really a question of whether or not the Republicans want to engage in gridlock, whether they want to engage in just partisanship here, or whether they're really serious about trying to resolve the budget issues for the future. That's what it comes down to.

Now, if they simply march forward and say, okay, it's fine that the President's presented his 10-year plan, but we're going to march forward with our proposal. Then the President is not going to accept their priorities. He's made that clear. We have real differences with regards to where their budget's going. And very frankly, I think when people look at these issues, there is a consensus here that we can achieve a balanced budget over a more rational period of time, that 10 years represents that kind of period. I really think that there is a consensus out there that we ought to reach for, both Republicans and Democrats.

Secondly, you've got to have some investments in a budget. It can't all be about cut and slash. You've got to have some investments in people.

Thirdly, on Medicare and Medicaid, you're not going to get the cuts that they're talking about in Medicare and Medicaid. It has to include reforms in the health care system.

And lastly on their tax cut, make no mistake about it, they will not get the tax cut that they're talking about, certainly on the House side, and the numbers that they're -- or the targeting that they're looking at in terms of the tax cut. That is not going to happen.

Now, the President is basically saying, let's recognize this. Let's recognize this, and let's try to work together to resolve it now. Admittedly, he doesn't have a veto on their budget resolution, but I can assure you he's got a veto on everything else that follows.

Q: Well, to follow up on that, then, if that's the case, what in here is non-negotiable from your point of view?

MR. PANETTA: Look, the President has laid down a proposal now to achieve a balanced budget in 10 years. I think that's a significant step for the President. We're saying, look, we're willing to move towards a fixed date in terms of achieving a balanced budget. We want to do it on the basis of meeting the concerns he has about the priorities in the country.

Now, is there some give-and-take here as we go through this process? Sure there's a little give-and-take. But the reality is that we are not going to accept a budget that doesn't maintain our investment in education. We are not going to accept a budget that doesn't include reforms and reduces the hit on beneficiaries with regards to Medicare. And we're not going to accept their tax cut. If they want to talk, if they want to sit down and talk on that basis, fine. If they want to fight, then we, frankly, are reaching a point where we could jeopardize the economy.

So, in the spirit of what happened Sunday, why don't the Republicans and the Democrats try to work together on a budget rather than just try to establish partisan posturing?

Q: The health care initiative, how will that go up to the Hill? Some of these things are really new legislation as opposed to budget issues.

DIRECTOR RIVLIN: We've said from the beginning that we want to work with the Congress on health care reform, and we do. We do not have these proposals now in legislative form. Our hope is that they will start a dialogue with the Congress, and that they can come into legislation fairly quickly.

Q: How much do the new programs or the expansion in benefits as well as the 50-percent deduction for self-employed cost? All these new health reforms actually cost the government money. How much is that total? Because I did the math but I don't know if I'm right -- $56 billion?

DIRECTOR RIVLIN: I don't know what -- we'll get you that number. It depends on what time period --

Q: You mentioned differences, obviously wide differences with Republicans on priorities. But you're also making, with tonight's statement, creating some differences with Democrats. Aren't you concerned that you're going to attacked by Democrats for Medicare cuts and things like that, that you're opening a wedge within your own party with this?

MR. PANETTA: The President in making this proposal recognizes that there are going to be Democrats that don't like his moving forward and presenting a balanced budget approach. There are going to be Republicans that don't like it. But his message is to the American people, and it's the importance of trying to resolve this issue for the sake of the country. I think, speaking specifically to my Democratic colleagues, I would ask them to keep their powder dry and look at the priorities in this budget before they jump, because the reality is that these priorities do reflect what the President has been talking about for years and were included in his budget; reflects the important priorities that he cares about for the American people; and I think reflects the priorities that Democrats have cared about in terms of budgets.

So I would just urge them, keep your powder dry. And I would say the same thing to the Republicans -- keep your powder dry before you jump away from it. At least do us the decency of looking at the substance of what we're presenting here. This is a bold move by the President. I would just ask that everybody take a look at the facts and, ultimately, let's try to work together to try to resolve this.

Q: Does this reflect a judgment on your part that the Republicans are now not going to fail to come to an agreement on their own budget resolution? There had been talk around the White House earlier that you'd come forward with a budget at such time as they fail to come forward with one. Now you're coming forward with one. Does that mean that you don't think they'll fail?

MR. PANETTA: The President made the judgment that it was important to present this now so that the conferees would, in the very least, consider what he feels is a way to resolve this budget issue; that once they locked up their budget -- I mean, contrary to the kind of -- the run-of-the-mill discussion was, let them lock up their budget resolution and then we'll engage on reconciliation and then we'll engage on appropriations. The concern is that once they lock up their numbers, the rules in the House and the Senate prevent you from actually trying to establish different priorities at that point. You're basically cut out. And then you are facing the prospect of hitting the wall on October 1st, because the President is not going to accept the priorities that they have in that resolution.

So the President felt it was important to engage now, not wait until later, so that we could really have the conferees look at his proposal and hopefully include that proposal in their final resolution.

Q: You call on them to recognize some of your priorities. Are you in turn recognizing any of their priorities, aside from the fact that you both have boxes labeled deficit reduction, Medicare savings, welfare reform, et cetera?

MR. PANETTA: I think what we're recognizing is the reality that we're moving towards a fixed date on balancing the budget, and that a lot of the savings, both in discretionary as well as on health care, we're going to have to include some of those as we arrive at a balanced budget.

Q: Mrs. Rivlin, if you could just clear up this question about health care reform. It looks like your health care reform actually costs money -- $125 billion in seven years. Last year we were told that health care reform would save money.

DIRECTOR RIVLIN: Oh, no, this saves money. I was asked earlier what are the seven-year costs of the expansions. The answer to that is $29 billion. But net of that we have $125 billion savings to the deficit over seven years. That's a net --

Q: From the reforms.

DIRECTOR RIVLIN: Yes. Well, from the whole health care package.

Q: I'm talking about the Alzheimer's, the grants for --

DIRECTOR RIVLIN: Oh, those cost money. They don't all cost money --

Q: That's what I'm talking about.

DIRECTOR RIVLIN: No, the reforms cost money. They don't all cost money. Some of them are insurance reforms, for example, that don't cost the federal budget anything, but will make it better for people who have health insurance. But the ones that are expansions of coverage do cost money, and they cost $29 billion over seven years.

MR. MCCURRY: Okay, thank you.

THE PRESS: Thank you.

END 7:25 P.M. EDT

William J. Clinton, Press Briefing by Chief of Staff Leon Panetta, Chairman of National Economic Council Dr. Laura Tyson, O.M.B. Director Alice Rivlin, Secretary of Treasury Bob Rubin Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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