Press Briefing by OMB Director Leon Panetta and Secretary of The Treasury Lloyd Bentsen
The Briefing Room
2:40 P.M. EST
SECRETARY BENTSEN: Good afternoon. There's nothing I like better than delivering good news, and we sure have it today. We've been telling people all along that we're getting that deficit down and getting it down faster than we thought possible. And now we have an independent validation of that number.
Let me quote just briefly from the news report from the nonpartisan Congressional Budget Office on its latest estimates of the deficit. It describes the progress that has been made because of the President's deficit reduction plan as dramatic. And it says that the difficult step taken by the President and by the Congress in passing a major deficit reduction package last August seems likely to achieve the desired outcome -- significantly lower deficits than were projected just a year ago.
If you recall from the State of the Union, President Clinton said that our budget deficit estimate for Fiscal '95 will be less than $180 billion, and that it will be 40 percent below what we estimated for '95 when we took office just a year ago. The CBO estimate for '95 is even lower than ours, $171 billion. It also shows a 40-percent drop from their estimate of just a year ago. That's a very strong confirmation of our effort to get this budget deficit down.
That's not the only place that our estimates agree. Our numbers won't be out for a couple of weeks, so I can't get into specifics, but I can tell you they keep tracking together in the out years.
Let me tell you what those numbers do. For the next few years things look pretty good. Both the figures from the Office of Management and Budget and the CBO, those numbers drop off slightly through '96. But then they start going back up again toward the end of the decade, but only assuming no health care reform. And that's a very important point to make here.
The CBO deficit numbers, which don't factor in health reform at all, explode upward beyond the year 2000 because of sharp increases in Medicare and Medicaid spending. They shoot right up to $365 billion by the year 2004.
Now, if you look at those numbers with health care reform, the deficit starts coming down, not up, just like we said it would. So if anyone thinks there's not a crisis over health care, just ask the fellow who has to write the checks that cover the deficits. Let me tell you, there is a fund crisis brewing here unless we get health care reform.
The message is simple: With health care reform we get that deficit headed down, and without it, it shoots right straight up. There are two conclusions here: First, we've made substantial headway on the deficit since President Clinton took office. We're
ahead of schedule. We're making a bigger dent than we thought, and we're getting important confirmation of that. Secondly, it is imperative that we enact comprehensive health care reform to prevent a funding crisis and to keep that deficit headed down.
With that, let me turn it over to Leon Panetta to fill in the details on the rest of that substance.
DIRECTOR PANETTA: Thank you, Mr. Secretary. It's always nice when you work hard and get a plan in place and then have CBO confirm the progress that we've made, and that's essentially what's happened today.
From the day that the economic team was put together by President Clinton it was always our goal and our commitment to use credible numbers and to be as honest as possible with the American people, to shoot straight with the American people when it came to budget numbers. This country has seen too many rosy scenarios, has seen too many gimmicks, it's seen too many phony budgets in the past. And I think all of us felt very strongly that if we were to restore the credibility of government to the American people we had to begin by restoring the credibility of the budgets that we submitted to the Congress and to the country.
We've already reported, and the President has already indicated, our estimates for Fiscal Year '94, which will be about $235 billion. They were initially projected to be under the baseline deficit of $305 billion for 1994. Our projection is that we'll be at $235 billion. CBO is at $223 billion. Deficit for Fiscal Year '95, which originally was supposed to be projected for $302 billion, under our budget will be at less than $180 billion. CBO indicates $171 billion.
Before the President's economic plan was adopted, we were looking at a deficit track that was headed straight up, $300 billion in deficits per year heading to $400 billion by the end of the decade and as much as $500 billion to $600 billion by the time we got into the next century. Having enacted the deficit reduction plan last year, we have reversed that path in deficits. They're headed downward.
Today, I think CBO, the Congressional Budget Office, has essentially confirmed the credibility of the numbers that we have provided not only in our budgets, but as part of our economic plan and as part of the budget that we will submit this year. CBO, in fact, thinks that the deficit will be less than the administration's projection for at least four of the next six years. Like the administration, CBO confirms that the '95 deficit will have fallen by 40 percent.
I think the most important thing is that CBO really says that the principal credit here belongs to the deficit reduction legislation, which the President proposed and which the Congress enacted last year. There's a lot of speculation out there as to why we're seeing a smaller deficit. But the reality is that we would not be seeing these deficit numbers, we would not be seeing the strength in the economy were it not for the passage of the economic plan. I think it's that simple.
It didn't take any gimmicks, it did not take a constitutional amendment, it took basically leadership of the President, courage of the President, courage of the Congress to enact what had to be done -- to make the cuts that had to be enacted, to enact the revenue increases that had to be enacted once we put that plan in place. CBO has confirmed where we're at in terms of the deficit.
I think the continuing good news in the economy only confirms the success of the President's plan thus far. Today, for those of you that follow economic news, we've got two important announcements to -- new unemployment insurance claims dropped last week by 56,000. New orders for manufactured durable goods increased by 2.2 percent last month. That's the fifth straight increase. And the increase was widespread. It was particularly strong for investment goods such as industrial and electrical machinery.
As the Secretary has pointed out, lest we be complacent about where we're headed with the deficit, CBO also confirms a dire warning which we have provided, which is that while we are on a downward track with regards to the deficit towards the end of this decade, that if we fail to deal with health care, if we fail to deal with the issue of controlling costs in the health care area, deficits will begin to increase again.
CBO expects the deficit to rise to $360 billion 2004, from a low of $166 billion in 1996. And the primary reason for that happening, as they indicate, is rapidly increasing health care costs. I think the message is clear. Number one, this country, the Congress has to stay on track with the economic plan. And the budget that we will present on February 7th does exactly that -- it stays on track, it stays within the caps, it keeps us on a deficit reduction path.
The second message is that we have a responsibility to deal with health care reform this year -- not next year, this year -- deal with it in a comprehensive way and establish the discipline, the same kind of discipline in the health care area that we've been able to establish with regards to government spending generally under our budget. We think that CBO today is ringing the bell, saying please stay on track with the direction that we set last year.
Q: It was CBO estimates like these that the President based his projection of a middle class tax cut during the campaign. Why are these any more reliable than those and why are they not subject to the same kind of trickery that he blamed Dick Darman for?
DIRECTOR PANETTA: I think, on the contrary, the President has basically said that CBO has had credible projections. As a matter of fact, the budget we presented last year, rather than using some of the projections that we could have dreamed up, we basically used CBO projections because of their credibility.
Let me just tell you a little of the history here. If you look at the history over the last 12 years in terms of where CBO was and where the administration was, CBO's projected deficit was on an average each year, $47 billion higher in terms of the projections. Over five years, CBO's projected deficit was $235 billion higher than what the administration said their budgets provided in that same period of time. Here, on average per year, they are projecting that we are $3 billion lower -- lower -- than what we're saying. So you're seeing a dramatic change in terms of the credibility of what we're presenting to the American people.
This is an issue now where you see CBO and OMB basically marching together in terms of where we're headed with the economy. I think that ought to be comforting to the American people, that we're not playing games with these estimates, we're not playing games with these numbers. We've got to face up to the tough decisions on spending cuts. But if we do that, the numbers will be real and will work for us.
Q: If the President -- his health care plan is phased in more slowly than the 1998 that's called for in his plan, what would be the impact on the deficit numbers that you're projecting?
DIRECTOR PANETTA: Obviously, it depends on the period of phase-in and when you actually put a comprehensive plan into place. I might point out that one of the reasons that the President believes so deeply in comprehensive health care coverage is because, even according to CBO, you can't begin to control health care costs unless you develop a comprehensive universal plan for the American people. That's the key. The sooner you put that into place, the better chance you have to control costs. And the longer that takes, then, obviously, the longer it takes to discipline those costs.
Q: Mr. Panetta, how dependent do you see these estimates and-or yours that you will have in the budget on a steady monetary policy from the Federal Reserve? -- concerned that a change in policy will grossly affect these numbers?
DIRECTOR PANETTA: I think they ought to be a very positive signal to the Federal Reserve. I'll let Lloyd speak to that.
SECRETARY BENTSEN: I would think the Federal Reserve would certainly take comfort in these numbers. And we share the view that what we're looking for is positive growth with low inflation. That's the administration's view, and I think that's the Federal Reserve's.
Q: So you're not concerned whether the Fed would be tightening policy this year in any way that would be negative to the budget process that you foresee?
SECRETARY BENTSEN: Well, certainly from these numbers, I don't see anything that heightens the fear of inflation.
Q: Mr. Panetta, is it your position that if we --given the deficit reduction law that has been passed, that if the Congress adopts health care reform this year, that that's it, we've cured the deficit, and we have no longer a deficit reduction problem?
DIRECTOR PANETTA: I've been in this business too long to ever make that kind of blanket statement. I think you can say pretty clearly that if we continue to stick to the economic plan and to the deficit reduction plan in terms of each year's reduction that has to be met, we stick within the caps, that we clearly have set the deficit on a downward track.
If we can enact health care reform, we can continue that track into the next century. Are there going to be other things that we have to deal with? Are there other things that we're going to have to face as we go through it? I'm sure. But the two principal factors we need to deal with right now are, a, controlling federal spending -- and we're doing that with the caps that have been established in the budget pack, and dealing with health care costs that are out of control.
CBO, in its book, basically confirms that if you're looking at the entitlement areas alone, that most of the entitlements are growing below GDP except for Medicare and Medicaid. So those are the principal culprits that have to be dealt with.
Q: What is the main reason you're asking for the --
SECRETARY BENTSEN: Let me add to that, that I think that over the years to come, we'll be looking for additional cuts in that deficit. But you cannot forecast those beyond what we have already done. We're making significant progress, but depending on the conditions at the time we're talking about in the future, we'll be looking and seeking for additional cuts.
Q: What is the main reason you were high on the deficit short-term? Is it that the economy performed better than expected? Is that what you're saying?
SECRETARY BENTSEN: If you're looking at CBO's basis, I think if you saw their economic projections last year, they basically were much more pessimistic about where the economy was going. And I think the adjustment on economic assumptions has helped a great deal.
Q: Why might not that also be true in the out years?
SECRETARY BENTSEN: It obviously does have some impact in terms of the out years, but I think even CBO says that the fundamental issue here is the fact that we put the deficit reduction in place. That's the reason we've got the numbers that we're at.
Q: Why might not the -- if the economy is now growing faster than expected, why might it also not be performing better than expected in the out years, thus diminishing further and making more unrealistic the reality of the deficit in terms of your projections?
DIRECTOR PANETTA: I think the answer to that is the more we show the country that we can discipline federal spending, the more likely interest rates are going to remain low; the more likely interest rates remain low, the more investment you're going to get. That's the key.
SECRETARY BENTSEN: I think also that as you get these corrections made and they see they're doing better than anticipated, that is cranked into the future estimates.
Q: Mr. Secretary, do you have enough progress now in deficit reduction to prevent the Senate from passing the balanced budget amendment?
SECRETARY BENTSEN: I think that's going to be a close one, frankly. I don't know. I would hope so. This one's working.
Q: Secretary Bentsen, could you give us a little update on how you see the situation in Russia economically, and are you still as thrilled with Boris Yeltsin's economic team as you were when we were over in Moscow?
SECRETARY BENTSEN: Well, obviously, as I've stated, I was disappointed to see Gaidar and Fedorov are not a part of the government. Dubinin was the first assistant to Fedorov, as I recall, and he's been in meetings that I've attended. And my understanding is that he's a supporter of the reform, and I certainly would hope so.
But as I've said before and I want to emphasize again, the future of Russia is in the hands of Russians. And I think that you're going to find such assistance as we give and the multilateral development banks or the IMF or the World Bank will keep pace with the reforms in Russia. So the choice is Russia's.
Q: So watching what's going on there, are you concerned that perhaps some of the reforms that you thought were going forward may now not be going forward as quickly?
SECRETARY BENTSEN: Well, I don't think we have enough information to make that kind of a determination. I am pleased, if I understand Dubinin's viewpoint and looking at him there and dealing with him as the first assistant to Fedorov, my understanding is, he's a supporter of reform.
Q: Mr. Panetta, going beyond your efforts to revise health care, can you give us some forecast -- what kind of cut we can
look for in the budget that you will be putting out to try to keep this under control? Could you share a little with us --
DIRECTOR PANETTA: As the President said, this will be one of the toughest budgets that have been submitted in recent years, because we do have to meet some very tough caps that have been established in the economic plan.
Just to give you some indication, we're looking at probably as much as 7 to 14 departments that will have lower budgets than what they had in the last year or this year of spending '94. We are looking obviously at the 100,000 being eliminated in federal employees. We're looking at over 300 programs that are going to be cut below the '94 level. And we're looking at probably about 300 programs that will be frozen. There are a number of other areas, obviously that are going to be impacted, but I think it is a very tough budget.
And I might just say in reference to the balanced budget amendment that while I agree with the Secretary that it's a close vote, I also believe that those numbers that really face this issue honestly will see that if you exercise leadership and you're willing to make tough choices and you have the courage to make decisions on spending and revenues that you can reduce the deficit. You don't need a constitutional amendment -- that what it takes is real leadership in this country, and that's what has been provided by this President.
I think if anybody should see the shallowness of suddenly saying that we need a constitutional amendment to the balance the budget, just needs to look at these numbers and at what has been accomplished between last year and hopefully this year on the budget. If you're willing to make tough choices, you don't need to change the Constitution.
Q: Mr. Secretary, you said a moment ago that the pace of U.S. assistance and, in fact, global assistance to Russia would keep pace with the reforms. But can the U.S. and the rest of the world for that matter, afford to turn it back on Russia, even without the reforms, given the kind of economic security and political concerns that are involved here?
SECRETARY BENTSEN: Well, I think you're going to have to keep conditionality on such assistance as given to Russia. I think that's a discipline that will be helpful. It's an absolute imperative that they curb inflation; otherwise, it's devastating. What you saw at the beginning of last year was an inflation rate of 30 percent a month. They finally got that down to 12 percent, which still is horrendous inflation.
We have to, I think, impose such discipline as we can in encouraging them to keep inflation down. And unless you get that, I think you will find those institutions will be reluctant to make the advances.
Q: Well, without that assistance, don't you run the risk of killing the reform movement entirely?
SECRETARY BENTSEN: I think if you take the example of what happened in the Ukraine, what happened in Romania, where they didn't forge ahead with the discipline of reform, that that has to give them some concern.
THE PRESS: Thank you.
END 3:02 P.M. EST
William J. Clinton, Press Briefing by OMB Director Leon Panetta and Secretary of The Treasury Lloyd Bentsen Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/269660