Press Briefing by Treasury Secretary Lloyd Bentsen, O.M.B. Director Leon Panetta
The Briefing Room
5:39 P.M. EDT
SECRETARY BENTSEN: Good afternoon. I was thinking about how I had been spending my day other than lobbying the Hill -- I've been spending it writing $800 million worth of hot checks a day. I was thinking, if you took all the personal income taxes that will be paid this year by the states of Alabama, Arizona, Georgia, Louisiana, Nevada, Oklahoma, and New Jersey, I have written as much hot checks in 74 days as the personal income taxes of all of those people.
And I must say, I've had enough of it. And that's why it's important that we pass this kind of a budget. What we're doing here is restoring fairness to the tax system.
Let's make one point straight. When they talk about an income tax on middle income America, if you're making less than $180,000 a year as a couple in your adjusted gross income, you don't pay one dollar more of income tax. Not one. You're looking at a situation where approximately 80 percent of the taxes paid will be coming from people that are making over $200,000 a year.
And we talk about the gasoline tax at 4.3 cents a gallon. We're talking about approximately $3 a month. We're talking about a dime a day in the way of taxes being paid to bring about the biggest deficit cut in the history of this country.
In doing the things that have restored the lowest interest rates, long-term interest rates in over two decades. Doing the things that are helping create jobs in our country, where we've created in total employment approximately 160,000 jobs a month; where we've created approximately 80 percent of the jobs that were created in the four years of the Bush administration.
And that's why I'm convinced that this budget is going to pass in both the House and the Senate -- because of the kind of support that the American people, as they understand the realities and the truth about this package, are supporting. And we're going to see it go through to completion, to move this economy forward and to create jobs.
I'd like to defer to my friend, Leon Panetta.
DIRECTOR PANETTA: Thank you, Mr. Secretary.
The Secretary and I have really spent the last few weeks working with the Hill and working with key chairmen in getting this conference completed, and I think it's appropriate for us, first of all, to commend the chairmen -- particularly, Chairmen Moynihan and Chairman Rostenkowski -- for the yeoman work they had to do with regards to the Ways and Means and Finance portion of reconciliation.
We also want to commend all of the chairmen of the numerous other committees that have now completed their work on this conference. We expect that the conference will hopefully be filed this evening or tomorrow morning, and that they will then seek a rule in the House, hopefully later tomorrow afternoon, and that we have a very good chance of bringing this to the floor of the House for a vote on Thursday, followed by a vote on the Senate sometime Friday.
So we're very much on track and feel very confident about the direction that we're heading in with this proposal.
I was interested to read this morning that President Reagan in a op-ed piece was advising that there be a no vote on the Clinton plan because he was concerned about providing a better life for our children and that he then recommended what was essentially an additional dose of trickle-down economics as necessary for the country.
The reason we are taking on this challenge, the reason the President of the United States is taking on this challenge is because we've had 12 years of trickle-down economics, and we have paid a great price in this country for those policies, not only in the recessions that we've experienced over the last 12 years, not only high unemployment, not only the worst deficit and debt records in the history of this country, but more importantly, because the dream of a better life for our children has faded as a result of those policies.
So that's the reason we have taken on this challenge. And the plan basically reverses -- let's understand -- first and foremost, reverses the policies that we have seen over the last 12 years. That's the principal point of this plan, and to try to provide a new direction for this country in terms of our economy and our future.
This is not the time for any more trickle-down economics, and it's certainly not the time for any more excuses as to why we can't take on this challenge. The conference has concluded. It basically has affirmed what the President presented in his economic plan. We have $496 billion in deficit reduction; $255 billion in spending cuts; $241 billion in revenue raisers. It will be assigned -- all of it will be assigned to a trust fund to protect it for deficit reduction.
It has specific spending cuts in a number of areas. There's a hard freeze on discretionary spending, but there are very specific cuts in Medicare, in Medicaid, in agriculture, in veterans programs, in retirement programs, as well as improvements in student loan programs that involve savings. It's also fair because in asking everyone to share in this we have also asked that the top one percent of all income earners also pay their fair share as part of this deficit reduction effort.
In addition, it provides important investments. And I might point out that this is really a very key distinction from what we saw in the `90 agreement. The fact is we have made very important investments here, both in business and in people in our country. In business, particularly with regards to the expensing provisions and targeted capital gains. With regards to people the earned income tax credit, I think, is truly a very important endeavor that we have seen. In terms of working families, probably the most important step that's been taken for working families in the last 20 years.
Also there's real enforcement that going to be involved here. We've provided caps on spending. There will be sequester or cuts across the board if they fail to meet those caps, and we will ultimately include an entitlement budget as well to try to provide that additional discipline with regards to that area of the budget.
I think the point is this: There's a lot of talk about, and criticisms about this aspect and that aspect of this plan. There is no alternative. There is no alternative. The Republicans have suggested that there is an alternative. Theirs falls $100 billion short of the $500-billion target. In addition to that they provide few specifics as to how you get there. Even Mr. Perot, who suggested that this plan falls short, has failed to provide specifics as to how you achieve savings that are necessary.
And those who propose a summit -- for Lloyd and I who are veterans of the last summit, we spent six months in a summit and came out with less -- less in terms of deficit reduction. And that's what would happen if we engaged in another summit. And everybody knows that.
So this is -- this is the one plan that this country has to try to reverse the policies that we've seen in the last 12 years and try to provide a better future for our children. It's the right plan and for that reason we feel confident that it will be passed by the Congress and signed into law by the President.
Do you have any questions?
Q: Mr. Secretary, do you know which Senate Democrat who voted against the package the last time it came up will this time change his mind and vote for it?
SECRETARY BENTSEN: No, we're going to let him announce that. (Laughter.)
Q: Are you sure you have the votes?
SECRETARY BENTSEN: We're confident that we're going to have the votes. It's going to be a close one.
Q: How close?
SECRETARY BENTSEN: About that close.
Q: With the Vice President, you mean, breaking the tie?
SECRETARY BENTSEN: Well, we don't know about that. But we would -- we think it's obviously going to be close. We think we have the votes. If we, frankly, if we hadn't felt so, we wouldn't be bringing it up.
Q: Mr. Panetta, you mentioned both the entitlement cap and the deficit reduction trust fund, both of which have run into problems under the Senate rules. I know there have been a number of options that you've talked about for how to deal with those. What are you going to do? How are you going to resolve that problem?
DIRECTOR PANETTA: Well, we are pursuing an option to put both the trust fund and the entitlement budget that was adopted by the House into place, and I will let the President make those announcements tomorrow.
Q: Mr. Panetta, several years ago you were up on the Hill and said similar things about the 1990 budget deal and it never met its targets and now you're saying this is a great deal. Why should Americans believe that? And can you specifically say what the deficit will be reduced to? Or is this, again, not going to happen if health care isn't passed? In other words, is there a concrete, absolute number you're going to come to a couple of years down the road?
DIRECTOR PANETTA: Well, first of all, in terms of the 1990 budget agreement, and I've said this before, the fact is with regards to the targets on spending savings that were established in the 1990 agreement, they were achieved and they were achieved because the enforcement tools that were a part of that plan are incorporated as here as well. They worked. They worked effectively to try to achieve those savings. There are a number of other reasons, obviously, why that plan did not achieve its deficit reduction goals. A lot of those related to the economy and what we faced at that time.
There are, I might point out, some very key distinctions with regards to this agreement compared to the 1990 agreement. First of all, it's very important to understand that this is a plan that involves great fairness in terms of the tax system and also of our society. The '90 agreement, for all it tried to do, doesn't even begin to compare to the kind of fair distribution of burden that's involved in this 1990 agreement. We've tried to go after the upper income individuals in the '90 agreement, the administration at that time refused to go along with any increases in the rates and we wound up with luxury taxes that, very frankly, did not work very well.
This obviously targets the top one percent of income earners -- those principally over $200,000 in income -- and it doesn't even begin to compare, as I said, to the distribution in the '90 agreement.
Secondly, there are investments here. The '90 didn't have key investments -- investments in business, for small businesses in particular, and investments in people. Of the earned income tax, credit helping working families, family preservation, the other programs -- enterprise zones -- those are key investments aimed at trying to help people and trying to provide the incentives for growth and jobs that are part of this plan.
Lastly, this is a credible deficit reduction plan. The fact is that even in the '90 agreement there were some rosy scenarios about where the economy was going. There were rosy scenarios about projections as to how much we would reduce the deficit by. As a matter of fact, in the very first year that we put the plan in, the Treasury Department indicated that we were dropping about $114 billion off of what we had projected because those numbers were not real.
This plan is real, it's credible, and it's doable.
SECRETARY BENTSEN: Let me make another point, too, insofar as the difference between the 1990 budget agreement and the current one. If you go back and look at the numbers as we were considering it, we were receiving numbers from OMB, from Mr. Darman, and the projections from Mr. Darman presented to us was that we would have earnings in the GDP, in the Gross Domestic Production, of 4.1 percent at the very time that you had the blue chip indicated -- a consensus of over 50 economists -- saying that the number was 2.6.
Now, to avoid that kind of a problem this time, we went the other way -- we chose the more conservative of the assumptions and projections as to what was going to happen to the economy to see that didn't happen. The great difference, too, is the way we treated the income tax.
In this one, if you make under $180,000 a year as couple, you don't get one dollar increase in your income tax rate. And on the other side of it, the others, you have 1.2 percent covered by the other group, too, that is making over $300,000 a year. That's on the 39.6. That is a tremendous difference -- what we've seen since the '80s, a situation where middle-income people have actually seen their taxes go up while their standard of living when down. And so we have restored fairness to the tax system in this one.
Q: I'd like to ask about the economics only of this package, leaving aside the social aspects and the fairness aspects, but the economics only, from someone who is not a financial writer here. What is the benefit to the economy that this package provides that the 1990 package doesn't provide? From a distance, it appears that in four or five years we're going to end up with roughly the same amount of deficit right now. It appears that this is simply just a holding action to prevent things from getting worse. Is there something that it will do to aide the economy to make it better?
DIRECTOR PANETTA: I think both Lloyd and I can comment on that. But first and foremost, because we are targeting real deficit reduction here of almost $500 billion, what we're doing is reducing that debt burden off our children and beginning a path of moving the deficit to GDP ratio, cutting that in half. I mean, this is the beginning of a process to bring the deficit down permanently, over a period of time. Obviously, health care reform is the second step. There are other steps as well. But this is the first important step towards reversing what is otherwise a trend in the deficit going straight up to $400 and $500 billion.
Secondly, by doing this we are sending a major signal to our own economy and to the world economy that we're serious about disciplining ourselves in terms of the debt. More importantly, that signal will help keep interest rates at a low level, which will continue to pump money into our economy. It already has begun to do that. Obviously, if we fail to pass this plan, we'd have just the reverse of that.
Thirdly, we're making major investments in business, by giving targeted capital gains, by providing expensing, by providing the tax credits on R&D. We're providing real incentives to businessmen to go out there, knowing that we've got a better discipline in terms of where the deficit is going, and begin to invest without worrying that we're suddenly going to walk off a debt cliff.
SECRETARY BENTSEN: Let me make the point -- you had asked about in human terms. When we're talking about interest rates that have come down this far in this short period of time, if you have the average family making $40,000 a year with a $100,000 mortgage and paying it at 10 percent rate and bringing it to current rates, that family has saved $175 a month. That is a major saving for that family. And that puts more money in their pocket to do with what they want to do.
So again, what you're seeing, as compared to the rest of the world -- you think back just five years ago when the cost of capital in this country was far, far above the Japanese. You had a rate of, say, one percent. And then they'd have warrants out there with a few conversions at the end to convert to a stock that was selling at 100 times earnings, and their effective interest rate was one percent. At the same time, the Bundesbank in Germany had interest rates far below ours. It was a most uneven competitive field insofar as capital costs for our country and the creation of jobs and the modernizing of factories.
Q: Mr. Secretary, have you ever seen one party be as solidly against a major piece of legislation, oppose the President, since World War II?
SECRETARY BENTSEN: No, I have not. A major -- a major, major piece of legislation.
Q: Why is this? Why has this happened?
SECRETARY BENTSEN: Well, I think it's most unfortunate. And really, this kind of gridlock where they vote as a solid block makes it very difficult and, frankly, very disappointing.
Q: What is the reason?
SECRETARY BENTSEN: Well, one of them, as I understood, said he wanted to close down the Clinton administration and turn off the lights.
Q: Mr. Secretary, how much will an individual filer earning $140,000 a year have to pay more in taxes if the plan passes?
SECRETARY BENTSEN: If he is making over $140,000?
Q: As an example, someone making $140,000 a year.
SECRETARY BENTSEN: I don't have the number, but he would be paying five percent more than he is paying now.
Q: A question to Mr. Rubin. Can you explain some reports that financial markets do not appear to be alarmed either way, whether or not this plan passes or fails?
MR. RUBIN: Well, there was an article to that effect in one of the papers this morning. That's a world I think I know reasonably well and I've kept in touch with it pretty well. I don't think that that's the prevailing view. I think there's a broad-based view that if this -- long term rates are down by about 1.2 percent, as Secretary Bentsen said. It's about a 20-year low in the loan bond. I don't think there's any question that the financial markets reacted in this way because of the Clinton economic plan.
I think if it doesn't pass I think you'll see interest rates reverse a good portion of that, and I think that's the prevailing view on Wall Street. I think it also a very substantial risk to stock market. And I think you have a tremendous chill in the economy because I think consumers and business would simply feel that government can't deal with its problems. I think interest rates would spike back up. And I think that is the prevailing view in the street.
Q: So this report was misguided?
MR. RUBIN: I would say that it doesn't reflect what I think is the prevailing view. In that sense, I suppose you could say it was misguided.
SECRETARY BENTSEN: Let me make another point that was asked a while ago as to the difference in the tax rates and the 1990 plan. In 1990, 36 percent of the tax increase went to people making over $200,000 a year. This time 80 percent, not 36, 80 percent goes to people making over $200,000 a year. Quite a difference.
Q: Mr. Panetta, can we go back to my question you did not provide the concrete number the deficit will be reduced to and which talks about the $500 million reduction of the deficit makes you think it's going down by this huge amount, which it is, but still, the deficit itself seems to be very high. What is the --
DIRECTOR PANETTA: We're assuming that, obviously, the economic projections pretty much stay in place as we've placed them, and we've used the most conservative projections of the economy. Our target, we think, by 1998 is to have an annual deficit somewhere around $170 billion. We have now a projected deficit that's approaching almost $300 billion.
Q: But $170 billion is so large, how are you -- I know health care is a big role. If health care doesn't come on line the way you want it, is it going to be much larger than $170 billion?
DIRECTOR PANETTA: Our goal, obviously, is to reach that point in 1998. What happens is you've got a spike that starts to climb back up if we don't pass health care reform. That's why it's very important to pass health care reform as the next step. And, admittedly, you can't -- this plan is a first step. There are other steps that need to be taken. We've got to pass health care reform. Obviously, you've got to have interest rates remain low. We've got to expand our trade base so that we are competitive in the world marketplace. I mean, there are a whole series of steps. But the key is this: You can't begin to take those steps unless we pass this deficit reduction plan. This is an essential first step towards trying to improve our economy.
MS. MYERS: One more question.
Q: Leon, in terms of economic growth, the President from the beginning has been concerned about applying the brakes too hard. And so you want a short-term stimulus and long-term stimulus. You didn't get the short-term, you didn't get as much as you wanted on long-term. Is there a risk, if this package passes, and with the economy sputtering as it is, that you're not going to get as much stimulus as the President had initially envisaged and, therefore, more than ever you're mortgaged to what the Federal Reserve is going to do?
DIRECTOR PANETTA: Well, I have long been a believer that if the country is convinced that the President and the Congress can get their act together and get something done to deal with this issue, that that represents a major signal to this country that we are, in fact, on the right track in terms of trying to deal with this issue. My view is that if, in fact, we enact this plan, first of all, you've got retroactive tax cuts. Everybody talks about retroactive taxes. We have retroactive tax cuts that are involved here. People that have invested know that they're going to get some tax breaks. They're going to continue to invest based on the fact that we've put this plan in place. I think that represents a major investment in the economy to keep us in the right direction.
The earned income tax credit is going to affect a tremendous number of working families in this country. They are suddenly going to find that they don't have to live in poverty. They, too, are going to feel that working is a real incentive now in terms of the future. So there's an incentive there.
In addition to that, it seems to me that if we keep interest rates low, we continue to provide that source of financial incentive as well to our economy.
I think there are reasons to be very hopeful that if we put this plan in place, that our economy can move forward again with a lot more strength than what we've seen. The Republicans were wrong on the stimulus package. We should have had the stimulus package. The Republicans were wrong in taking a position in opposition to that. They're wrong now in opposing this plan.
THE PRESS: Thank you.
END6:00 P.M. EDT
William J. Clinton, Press Briefing by Treasury Secretary Lloyd Bentsen, O.M.B. Director Leon Panetta Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/269217