Press Briefing by the Budget Team

The Briefing Room

3:57 P.M. EDT

MR. BOWLES: Let me say, to say the least, that we are very, very pleased to have come to this point in what has been truly a long and arduous process that began during the transition that was exemplified in our first move on January 21st as it relates to the budget, and hopefully on Friday will culminate with a truly bipartisan balanced budget that will be good for all Americans.

The President gave us just a few charges when we set out on this path. He wanted to make sure that we truly did do the fiscally responsible thing, that we did balance the budget. But he over and over again stressed to each one of us on the team that it had to be a good budget, a budget that truly did reflect our core Democratic values. There were about five basic guidelines that the President went back to over and over and over again, over the last seven or eight months. Let me tell you what those were.

He said, bring me back a budget that truly does invest in education, in training, in early childhood programs so that our kids will be prepared to enter school ready to learn. Well, we got the largest increase in Pell Grants in over two years. We got a budget that truly does provide the HOPE Scholarships and the tuition tax deductions so every kid in America will have a chance to go to the 13th and 14th year of education, and so that 200,000 more kids will have a chance to go into Head Start so they really will be prepared to enter school ready to learn.

The President told us, secondly, that he wanted to make sure that we extended the life of the Medicare Trust Fund for at least a decade, and we did it. The President told us that he wanted to make sure that under every single circumstance that we provided health insurance coverage for at least 5 million uninsured kids, and we did it. And we not only provided the money, but we provided the right kind of benefits for these kids.

The President also wanted to make sure that we enacted all of our welfare-to-work proposal so that we truly did move children's parents from welfare to work to give them a real opportunity. He also asked us to address the needs of legal immigrants, and we did that. He asked us to make sure that we implemented our key environmental initiatives, including the Brownfield proposal, and we did just that.

We couldn't have done any of these things without each one of the people up here. Our team, which was composed of Bob Rubin, Frank Raines, Gene Sperling, John Hilley, Janet Yellen, Jack Lew, Larry Summers, and Rahm Emanuel, could not have done more work. We worked truly as a team, and I think that's what brought us here today.

I'm proud to have had a chance to work with this team. And now let me just turn it over to you all for questions. Bob Rubin will answer tax questions, and we'll turn to Frank Raines for spending side questions.

Q: Erskine, how do you feel about the fact that the Democratic leader in the House of Representatives declined your invitation to come join this celebration today?

MR. BOWLES: The leader asked Charlie Rangel if he would represent him and the caucus here, and he did just that. We hope that the Leader will take a look at this budget after he has a chance to review it and will also support it.

Q: Mr. Bowles, the Trade Representative's office says that the President has been making some efforts today to try and restore something to the budget bill that has to do with free trade in the Caribbean. Can you say whether the President has made any calls on that, and whether that's something you hope to get in before the bill is introduced?

MR. BOWLES: We'll that's an issue I'm recused from. I'll have to let somebody else answer that.

Q: Could you tell us what he's talking about? (Laughter.)

MR. HILLEY: Yes, we're trying here at the last hour to really get the Caribbean Base initiative in this bill. The President is active on this today. There are a number of phone calls by senior administration officials to the trade and tax-writing committees. They are ongoing. And so we're trying very hard. It's not in yet, but we're trying to get that in right now.

Q: Is it -- can you say whether it's appropriate -- the Senate is saying, why are you doing free trade on a budget bill, it's not germane and they're probably going to challenge it. Why is that appropriate?

MR. HILLEY: Well, if germaneness were the test, we would all have to take a deep breath on this bill. But actually it's an opportunity, it's something that the President cares deeply about. It's time to do it, it's something he's been committed to for a long time. This is an opportunity -- in many of the tax bills, trade issues have been combined, and so there is precedent for this, and it's something he wants. Again, we're not sure if it's going to actually happen, but we're trying very, very hard.

Q: Secretary Rubin, what is the 10-year revenue loss from this tax bill? By how much more did you exceed the $250 billion --

SECRETARY RUBIN: We are still doing final revenue estimates, but it will be within a relatively small amount of the total. I think one of -- when this thing -- the formation of a tax bill started, a lot of people said that there would be a race to put all kinds of additional provisions into the tax bill. It's going to turn out -- we kept our discipline. It was originally supposed to be a net tax cut of $250 billion over 10 years, and my guess is it'll be not more than $265 billion or $270 billion, which is, I think, an extraordinary adherence to the discipline and it's really protected the fiscal position of the country.

Q: What about discipline beyond the first 10 years, with the backloaded IRAs, with the 18 percent top capital gains rate -- aren't you having an explosion after 2007?

SECRETARY RUBIN: No. In the period that Erskine talked about, the very beginning when the President outlined what he wanted to do and what he was concerned about, he said one thing that we must not let happen is to have the fiscal discipline that we've restored since 1993 be undone in the outer years. And so we have kept a very careful eye on the potential for explosion and we are satisfied that with the IRA having been constrained, with indexing having been eliminated, with the individual AMT relief provisions having been eliminated, and with the estate tax, which are the four drivers, that this will not explode in the second 10 years.

The capital gains tax would actually not create the exploding problem. The only problem there that created explosion was indexing, and indexing was taken out of the bill.

Q: Why are the Democrats and Republicans celebrating it separately?

Q: Erskine, can you tell us what the administration will do now, in the way of entitlement reform? Should we expect something shortly? And, number two, does the administration share the belief that unless we do something in terms of Social Security and Medicare that all this could be for naught?

MR. BOWLES: David, the President has always been very straightforward on this matter. He said it is a two-step process, that we first had to solve the short and intermediate term problems associated with the Medicare Trust Fund. We have done this in this balanced budget.

As you know, one of the things called for in this budget is a commission, a bipartisan commission which will be appointed. This commission has to be named by December 1st of this year, if I remember correctly, and it has to report back no later, I think, than March 1st of 1999 on Medicare.

The President also plans to take on Social Security. He has been very candid that we have solved the short-term problems, we have not solved the generational problems. We have the budget on a steady path now, but we must address the generational problems and I expect you'll hear from him on that in the future.

Q: Sir, if this budget is a celebration of bipartisanship, why are there separate celebrations here and among the Republicans?

MR. BOWLES: I think you'll see when we actually have a signing of a bill that you'll see a very bipartisan celebration.

Q: Mr. Secretary, you were very concerned -- alluded to it a moment ago, about backloaded IRAs and the budgetary effects in years to come. What caused you to change your views on that?

SECRETARY RUBIN: We had long been in favor of back-ended IRAs and IRAs that were generally savings incentives. You may remember in the budget we prepared in 1994 -- I believe it was, for 1995 -- we had an IRA that was both front-end loaded and back-end loaded and we felt was a good savings incentive. The question was how was it structured. And we were concerned in the Senate bill that the structure that was -- and in the House bill, for that matter -- that the structures that they had, had the potential at least, for driving up the deficit in the second 10 years. By virtue of the changes that we worked out with the Republicans and with Senator Roth, who was a great and very forceful advocate of IRAs and I think very thoughtful in the area, I'm satisfied that the IRAs that we now have constructed fit within an appropriate fiscal framework and will not create the kind of problems we're concerned about.

Q: Do you have any distributional tables or sense of how these tax cuts are going to spread out?

SECRETARY RUBIN: We don't even have full revenue estimates yet as drafting is still going on. But I'm satisfied based on the very preliminary work that we've done that if you look in the first 10 years, which is the period that we're looking at, that the predominance of the benefits will still go to the child tax credit and education, which are, as you know, predominantly if not wholly middle income programs.

Q: Mr. Bowles, politically speaking, after all the confrontations over the past couple of years -- the government shut-downs, name-callings, if you will -- why do you think, again politically, it came together at this point?

MR. BOWLES: I think the answer is truly easy: This budget is truly good for America. It is a win-win budget. It does reflect the priorities, the things that the Republicans fought very hard for. It does have a capital gains tax cut in there. It does have an estate tax cut. Those are things that the Republicans -- it does have a corporate AMT -- those are things that the Republicans fought very hard for. It also has the things that we believe in very strongly. It does have a strong cut in the cost of education to make that available for all people. It does have the health care programs for young kids that we believe in so much.

So I believe we were able to come together at this particular time and see a solution that perhaps wasn't there a year or so ago.

Q: There is a lot of talk about the goodies that the tax payers are going to get in the form of increased spending programs that they might like or tax cuts that they might like. There's been no talk at all about --

Q: Does that person mind speaking out so that we can hear him from the back of the room?

Q: There has been a lot of talk about the benefits to the tax payers, but no talk about sacrifice that the tax payers might or might not see. Is that because there is no sacrifice required of the tax payers truly in this plan, or is it because we're simply not talking about it?

MR. BOWLES: Well, I think this is the administration that brought the budget deficit down from $290 billion down to less than $50 billion, and we did that through a lot of hard work, and there was a sacrifice on a lot of people. Going forward, there's over $900 billion worth of savings in this plan. There will be plenty of sacrifice and we will have to slow the rate of growth in a number of programs in order to achieve this budget.

Q: Can I follow up on that?

Q: What sort of programs --

Q: What specifically?

Q: Yes, you have $140 billion eliminated, I think, over the next five years in discretionary accounts. Where do you see that falling?

DIRECTOR RAINES: Well, it's very clear that both the defense side of the discretionary budget as well as the non-defense side will see a slowed growth. In fact, there will be a real decline in spending, 10 percent over the next five years in real terms. So this is a continuing tightening of the spending in the federal government. We've had a reduction in our overhead costs, in the number of employees that we have, the amount of space that we're occupying. I mean, we're doing the same things that families do when they tighten their belt. They spend less money, but they don't decide that they're not going to have a car, they're not going to have a house; they just spend less money in trying to meet their needs.

So this is a budget that has significant constraint. As Erskine said, $900 billion over 10 years, which is made up of over $1.1 trillion of spending reductions from what we would have spent otherwise, and about $250 billion, $260 billion of tax cuts. So that the spending reductions dwarf the size of the tax cut, and it will bring the budget into balance and leave it into balance going into this period.

Q: But could you just talk about some of the programs?

Q: Yes. How will the American people feel these spending reductions, or won't they feel a thing?

DIRECTOR RAINES: The American people will feel this spending reduction the exact same way they've experienced the ones since 1993. They'll have a low unemployment rate, they will have low inflation, they will have low interest rates. If what you're looking for is, can you outline for me each and every budget that we're going to introduce between now and 2002, I think I'll have to disappoint you and have you wait until we introduce the budgets. But the example is the budget we have for 1998. In 1998, we reduced a wide range of programs and reduced their spending, and we invested some of that money in new initiatives and some of that money in reducing the deficit.

This isn't about finding one program and then eliminating it; we have a budget of $1.7 trillion. You have to do this the hard way. You've got to slow down spending across the board in order to balance the budget.

Q: If you can't enumerate the spending cuts in the budget, can you at least enumerate the tax increases -- how much in tax increases, where other than airline tickets and cigarette taxes are we hiking taxes today?

SECRETARY RUBIN: There's approximately -- and these are approximate numbers, but there is approximately -- in a gross tax cut of about $140 billion -- these are still rough numbers because we're still doing revenue estimates and cost estimates as the final drafting is being done -- there is a net tax cut of a little over $90 billion and there are raisers of probably a little bit over $50 billion. The airline tax is obviously the principal one, there's the tobacco tax, and then there are a lot of smaller and more technical tax changes that affect securities and various other areas. We can get you a list of them if you would like. There is a long, multipage list. I actually can reel them off, but I think you would find them quite technical.

Q: How high is the airline tax? Do we know yet?

SECRETARY RUBIN: The airline tax was the conference agreement, I believe. I don't think there were changes in the conference agreement. Is that right, John?

MR. HILLEY: Correct.

SECRETARY RUBIN: Yes, it was in the conference agreement.

Q: The child credit, as proposed, for families at the top end of the 15 percent bracket, because of an interaction with the alternative minimum tax, families with a large number of children would receive either only a portion of or none of their child credit. Was that fixed in this final agreement? And if not, why not?

SECRETARY RUBIN: There is an AMT problem, I believe, out about four or five years. There is none right now. Let me give you my understanding -- you're in a very technical area. My understanding is that the issue that you've addressed -- or you've identified -- doesn't begin to bite now but at some point out about five years, for some families, there will be an interaction. Some time between now and then, that's a technical issue that's going to have to be fixed.

Q: Mr. Bowles, can you tell us if there's anything else that the President is trying to change today besides this trade provision?

MR. BOWLES: I think there are three or four open issues that remain. I'd rather not get into a discussion of those now because we hope to resolve them in the same manner we have all of the others, in a truly bipartisan manner. We do have a few open issues, but we think there's no significant stumbling block to getting a deal finished.

Q: Mr. Bowles, with the legal immigration issue, you were able to take away the retroactivity clause. How does that apply to the new immigrants after August 22nd? They are not eligible to get --

MR. BOWLES: Let me get Gene Sperling to answer that, because he's better at that than I am.

DIRECTOR RAINES: Well, let me take a crack at it. For immigrants after August of last year, they would not be eligible for benefits under the SSI program. The current law would continue. What we are trying to do is for immigrants prior to the enactment of that law, to ensure that benefits continue for the disabled and the elderly, and we were able to achieve that.

Q: Mr. Bowles, could you explain the President's intention and plans with regard to tackling Social Security in terms of timetable? Is he first going to tackle Medicare, in other words, await the report and recommendations of the commission; or is he going to get into Social Security reforms prior to the beginning of '99?

MR. SPERLING: What the President has been very clear with us on is that he wants to tackle long-term Medicare and long-term Social Security during his second term. He wants to take them on and he would like to pass legislation in both of those areas.

I think the very difficult decisions that we have to make -- and we will probably have to make it working together, certainly together with members of Congress on both sides of the aisle -- is what is the best process for going forward, what is the best way of getting a bipartisan process.

On Medicare, in this bill, there is a Medicare commission -- 17 members, eight Democrats, eight Republicans, a chairperson jointly appointed by the President, the Majority Leader and the Speaker that, as Erskine said, would report back in early 1999. That does not mean that we cannot take on Medicare reform earlier than that. As you know, we have a proposal to do high income means testing on the premium on Medicare. We've made that proposal and support that. There are many things that could be worked on before a commission reported.

The President has always been clear that we want to do Social Security. I think he will speak on this in the near future. And there are -- it may be very difficult to try to do both legislatively at the same time. But I think we think you need a process where both are being considered, and then we have to figure out which is the first one to try to actually come up with legislative recommendations on first.

There are a lot of good arguments for looking at Social Security, in the sense that there have been very well-defined options by the Social Security Advisory Commission. But those are still the kind of decisions we have to make. And as you see by this -- what happened here, coming up with the right type of process, the right type of bipartisan process in which people trust each other and can work together was as important as anything in getting the legislation done. And we've got to be hopefully as smart in figuring out how to do long-term Medicare and long-term Social Security.

Q: Can you estimate what this will mean to the gross domestic product estimates, what it means as an actual change in percentage of the growth rate, what the budget deal as a whole will mean?

MS. YELLEN: I think over the long term, as long as we have an economy that continues operating as we are now, close to full employment, that the growth of domestic product in our economy mainly depends on how fast our labor supply is growing and how fast productivity is growing. And I see this budget agreement as, over the long term, certainly being helpful to productivity by making investments in education and in children that are important to long-term economic growth. Those things, of course, do take a long time -- as long as it takes a child to grow up -- to see the pay-offs from those investments. So, over the next five years, I think one shouldn't expect to see something extraordinary, but I regard this as a very pro-growth budget.

Q: Mr. Bowles, could I just return for one moment -- I think you said there were about three or four open issues still. I'd just like to come back to that. This is obviously a very big public event you're having here spotlighting the big budget agreement. So I'd like to ask you if you could give us a little bit of an idea what these three to four open issues are?

MR. BOWLES: No. (Laughter.)

Q: Mr. Raines, could you explain the pattern of deficits that you foresee as a result of this agreement between now and 2002? You have a chart here that indicates that after this fiscal year, the deficits still go up and you don't get surplus until 2002. Is that under the framework agreement and the numbers are going to change when the reconciliation bill actually comes out?

DIRECTOR RAINES: Well, the pattern, I think, will look very similar to the pattern that you saw in the original budget agreement except the numbers will be somewhat lower.

Q: Lower?

DIRECTOR RAINES: The deficit will come down a little faster.

Q: Even though your tax bill is more generous?

DIRECTOR RAINES: Yes, but it's very small. You're talking -- one of the things that we've got to keep here is a little perspective. This agreement covers $10 trillion in spending -- well, actually it's more like $13 trillion in spending over the next five years -- no, $10 trillion in spending over the next five years. So, when the Secretary said that the tax bill might be $6 billion more, that's not very fundamental in a $10 trillion stream of spending. So the pattern will be very similar to the pattern that you saw published in the budget agreement except a little better.

Q: Mr. Sperling or Mr. Rubin, would you explain for middle class -- middle income Americans who don't have children, who aren't -- who have completed their education, who don't have a lot of assets -- is there anything in this budget deal that would -- help that group -- (laughter) -- or does that group just get left out?

DIRECTOR RAINES: No assets, no kids --

MR. SPERLING: I think you described me. (Laughter).

DIRECTOR RAINES: Yes, Gene, what's in it for you? (Laughter).

MR. SPERLING: I'm the only person I know who fits that description -- done with their education, no assets, no children, not married. (Laughter). The IRA -- (laughter.)

I think that when the President put forward his Middle Class Bill of Rights in December of 1994, it had three components: an IRA that allowed people to save and then have penalty-free withdrawals for first time home, education, even long-term health care; and then an education deduction and then child tax credit. And part of the spirit of that tax cut that was incorporated here was to make sure that you had a broad base of tax relief opportunities for people in different situations.

So, for example, included in here is the $500,000 capital gains tax relief for selling one's home. There are a lot of middle class families who may buy a home at $30,000 or $40,000, 20 or 30 years ago. It's one of their only assets. So being able to sell that and not have gains can be very important for their nest egg.

We have a 20 percent deduction for education at any time. So even somebody going back to school, taking something that's not -- just a hobby course or something, can take a 20 percent credit on that tuition. And that is specifically designed to help people throughout their lifetimes.

The IRA savings allow people -- singles, individuals --to put in savings that they can use for a variety of different things, so if they don't have a home, they could save the IRA and then use penalty-free withdrawal for first time homes. So -- are there other things?

DIRECTOR RAINES: The home office deduction --

MR. SPERLING: The home office deduction, something the President proposed and we're very happy it got into this bill. And I imagine there are quite a few other things.

But I do think for the majority of -- I think part of the philosophy of a targeted tax cut is to help people at those times when they have the greatest burden on their cash and their income. And that's often when they're raising young children, when they're trying to buy a first-time home, when they're trying to send themselves or someone else to college. And I think this will be very important in that regard.

You know, we all talk a lot and there's been a lot of serious discussion about the fact that working families have not, over the last 15, 20 years, seen the real disposable income increase as much as we'd like. If you look at real after-tax disposable income for a family making $40,000 with two kids, that going up $1,000 is a very significant increase and very much addresses that problem.

Q: How many families do you expect will lose eligibility for the EITC under the "belt tightening" that's included in this deal?

MR. SPERLING: We don't -- none. Zero.

SECRETARY RUBIN: The fundamental answer to your question is, nobody who deserves to get the EITC will lose the EITC because these are compliance programs. There's a small additional adjustment which is -- increase -- it's a very technical thing -- increases AGI, it will affect very few people. But the fundamental savings here are going to be done through better compliance and that will simply reduce the error rate; it will not take the EITC away from anybody who deserves it.

Q: Do you have any idea how many people, though, that will affect? I mean, there are people out there who are now getting the tax credit who won't any longer.

SECRETARY RUBIN: No, but they're getting it --

Q: That maybe never deserved it in the first.

SECRETARY RUBIN: -- they're getting it but shouldn't be getting it. And I do not know the number but --

MR. SPERLING: We do -- just to answer -- the Treasury believes that 40 percent of the problem is related -- and correct me -- to non-custodial parents inappropriately taking the ITC. And what this does is -- we have two compliances that really target this very much and it's very much by focusing on getting Social Security numbers. So through the HHS registry of child support enforcement, it would find all those Social Security numbers.

If somebody's Social Security number is listed as owing child support, that's a pretty good indication they're not living with their kid and deserving the EITC. That can be matched up and that can help us in a more comprehensive way reduce the error rate. It has already come down from 35 percent to 21 percent through the efforts that Treasury has done. And this would be, we think, very, very important effort to bring it down even further.

Q: Last year, Congress and the White House flirted with --

Q: Does the President plan to meet personally with Mr. Gephardt to talk to him about this?

MR. BOWLES: I don't know. I talked with the Minority Leader last night, I met with him today, and I would assume that the President will be talking to him any number of times in the next several days. They do talk frequently.

Q: Mr. Bowles, now that you've achieved what you said at the early part of your tenure as Chief of Staff was your number one objective of a balanced budget, what are your future personal plans as remaining Chief of Staff?

MR. BOWLES: Wolf, you're right. I have had a to-do list since I came to Washington. I still have it here in my pocket. I do hope on Friday that I'll be able to check off probably the largest item on that to do-list. I do plan to go to North Carolina on Friday. Unfortunately, I have a round-trip ticket. (Laughter.) And so I will be returning on Sunday and when I've --

Q: What is left on that to-do list?

MR. BOWLES: Some of the things we've talked about today. And as soon as those processes are set in motion, I do look forward to returning to North Carolina.

Q: Mr. Bowles, you mentioned the deficit would fall from -- has fallen from $290 billion to less than $50 billion. Is that $50 billion for this year? And can you give us a more accurate estimate of what this year's deficit will be?

MR. BOWLES: I'll leave that to Mr. Raines.

DIRECTOR RAINES: The budget agreement estimated it would be $67 billion. The Chief of Staff has estimated $50 billion. And I don't have a better estimate than that. (Laughter.)

MR. SPERLING: Wolf, I just want to say, in answer to your question, that today, when John Hilley noted the contributions of Chief of Staff Erskine Bowles in bringing this budget together, he got a very thunderous and long applause at which point Bob Rubin pounded the table and said, "Three more years, three more years." (Laughter.)

Q: Very good.

THE PRESS: Thank you.

END 4:25 P.M. EDT