Press Briefing by the President's Budget Team

The Briefing Room

4:30 P.M. EDT

MR. MCCURRY: Good afternoon, ladies and gentlemen. Before we break out the champagne in Erskine's office, I thought you would like to talk to some of those who directed and conducted the very successful negotiations on behalf of the White House that have resulted in this historic balanced budget agreement.

I think all of us here at the White House right now are paying an extraordinary tribute to Erskine Bowles, the President's Chief of Staff, who really, on behalf of the President, ran and directed both our negotiating team on the Hill and then the economic team here at the White House that set the negotiating instructions and really reviewed the issues.

Some of the members of the team are here, and I'd like to just pay tribute and tell you more about the people, both with me here and some who are not here. In addition to Erskine, Frank Raines, the Director of the Office of Management and Budget, is here with me to brief you. The Secretary of the Treasury, Bob Rubin. Janet Yellin, the Chair of the Council of Economic Advisors. And of course Gene Sperling, who is the Director of the National Economic Council. In addition, because they can't be here, I would also pay tribute to John Hilley, are extraordinarily gifted Director of Congressional Affairs, who had to leave town but who would otherwise be here, and also Larry Summers, the Deputy Secretary of the Treasury, and Jack Lew, the Deputy at OMB have both been part of this team that almost on a daily, hourly basis has been working with the President and the negotiators to produce the successful outcome that we're all proud of today.

I turn the podium over now to the President's Chief of Staff, and say congratulations, Erskine.

MR. BOWLES: Thank you very much, Michael. I think, as most of you know, one of the things I said when I stood at this podium a couple of months ago is that the only way I could rationalize coming back to Washington was to have a chance to work on truly a historic agreement to have what would be a bipartisan balanced budget. And that we have achieved today, and I cannot begin to tell you the pride that this team has in what we have accomplished.

This is something that many, many people have worked at, many, many people have tried to do in the past, and we have actually achieved it after many, many hours of long and intense and arduous, but I must say very fair, negotiations with the other side.

I think this bipartisan balanced budget that we have achieved, too, is a direct reflection of how far we have come over the last four years. If you just remember four years ago, when President Clinton was elected to office, we were looking at annual budget deficits of $290 billion a year, and those budget deficits were forecasted to go to $400 billion to $500 billion by now.

We were looking at annual deficit-to-GDP ratios at that time of almost 5 percent. We had one of the highest deficit to GDP ratios in the industrialized world.

During the last four years, this team behind me has brought down those budget deficits not once, not twice, not three times, but all four years -- from $290 billion down to $107 billion. And we now have the lowest deficit-to-GDP ratio of any of the G-7 countries. That is remarkable progress to bring that deficit down 63 percent in just four years. And just yesterday we announced that we believe the budget deficit this year would be about $75 billion, marking the fifth straight year of deficit reduction.

So through a lot of hard work and a lot of real practical approach to fiscal discipline, this economic team, through the President's 1993 plan, has brought real fiscal discipline to this country and we have come a long ways towards balancing the budget. Now we're going to take that last step towards achieving a balanced budget by the year 2002.

Let me tell some of the things that are going to be in this balanced budget that we are particularly proud of. Not only will this budget be balanced but it will reflect the priorities and the values of this President. And there will be in this balanced budget health benefits for 5 million kids, kids who are currently uninsured. There will be the restoration of benefits lost in welfare reform for legal immigrants. There will be funding for food stamps. There will be funding for welfare-to-work so we can move people from welfare to work. There will be the largest education funding increase in over 30 years. There will be funding for major increases in Pell Grants. There will be funding for America Reads.

And the education tax credits and the education tax deductions that the President talked about that will be so beneficial to the middle class, they will be included in this balanced budget. And there is also a huge victory in there for American people, on the nondiscretionary domestic spending side, where we were able to protect the President's priorities.

We are very, very proud of this balanced budget. We believe it is the final step in bringing us all the way towards true fiscal discipline in this country, and I am delighted to have had a chance to be a part of it.

Now let me introduce you to Frank Raines, the Budget Director, who really did all the heavy lifting, along with John Hilley and Gene Sperling, to make this happen.

MR. RAINES: Thank you, Erskine. What a great day this is for all of us and everyone in the nation who believes that we need to have a strong and sound national economy to benefit our people. What tremendous news. First we get the news that for the first time since 1973 the unemployment rate has dropped below 5 percent. Many of us thought we'd never live to see that happen again. And now we've got the news that we are going to -- we have an agreement to balance the budget for the first time in three decades.

So incredible things continue to happen in this economy and in our effort to try to preserve the economic growth that we are seeing. And I have to tell you, I'm very proud to have been able to be part of a team that the President and Erskine have put together to try to reach this result. It hasn't been easy, but for all of us, we knew that there were few things more important that we could do in our lifetime than to try to help bring sane economic policy back to this country after a decade when that policy almost brought us economic ruin.

You know, immediately following the President's election, he announced that his first priority was to try to reach a bipartisan agreement to balance the budget. And we've been working on that ever since.

In February, he sent up his budget that outlined his plan for how we might balance the budget by 2002. And in this agreement, what we have is an agreement that essentially adopts the President's proposals regarding defense, adopts the President's proposals regarding international affairs, adopts the President's proposals regarding domestic appropriated spending.

In this agreement, we adopt essentially the President's economic outlook for the next five years. In this agreement, the President's plan to reduce entitlement spending over the next five years while investing in important programs for our people has also been adopted.

There are new benefits in the Medicare program at the same time that we restrain the growth of the program, modernize the program, and ensure that it will be fiscally sound into the middle of the next decade.

The Medicaid program, we restrain growth in the program while at the same time investing in kids, restoring benefits that were wrongfully stripped from legal immigrants in this country, and restoring some of the benefits that, again, wrongfully, we believe, have been eliminated for some of the most vulnerable citizens in the food stamp program.

Now, we have a large expansion of health coverage for children that many people would only have dreamed of several years ago. And in the program, we have a tax program that the Secretary of the Treasury will be talking about that is one that makes a great deal of sense for Americans and it reflects the priorities that the President has been talking about ever since he first ran for office.

So for me, as someone who worries about the budget, who came from the financial area, who is very concerned about having not only a balanced budget but one that reflects our values, this could not -- could not be a better day. And it is one that I am very proud to have been a part of this effort.

Let me just finish by saying one thing, in putting this into perspective, and how difficult this process was -- the negotiations were essentially about how we would allocate $9 trillion of taxpayers' money over the next five years. It's not surprising that that takes a little time and that you want to be careful about how you do that. And we think that this agreement is a careful use of taxpayers' money, investing it in those things that the American people believe in the most, and that will bring them the kinds of benefits in the future by investing in human capital that will provide growth and opportunity for all Americans.

This will provide, for the United States, the soundest fiscal policy of any nation in the world -- of any industrialized nation, we will be far and above. As I've said to some of you many times, the effort in other countries has been how to get their deficits down to 3 percent of GDP. This year, we'll be at 1 percent of GDP, and the deficit will be at zero -- one of the only major industrialized nations -- the only major industrialized nation that has any hope of achieving that.

And by doing that, what we're going to do is to extend this economic expansion that's providing so much opportunity for the American people and that we believe is what the American people have really sent us here to do for them.

Thank you.

SECRETARY RUBIN: Thank you, Frank. As I was listening to Erskine and Frank, I was thinking to myself, if you go back to the transition -- not this transition but the original transition before the first term -- and Gene and I were both there. We met with the President for about six hours -- well, then President-elect down in Little Rock. And he talked about education and the importance of all the things we needed to do for the future of the country. And then he said, but threshold priority right now, after 12 years during which the federal debt has quadrupled, is that we must get back to fiscal responsibility.

And who would have thought -- and out of that, of course, came the powerful deficit reduction program of '93, which brought down the deficit well over 60 percent, that in my judgment is absolutely central to the good economic condition we've had in the last four years. But who would have thought back then in Little Rock we would now reach a day where we entered both a balanced budget agreement and had 4.9 percent unemployment and, as Frank just said, had a deficit in the current year that's likely, A, will be the fifth year in a row the deficit is down, and is likely to be in the neighborhood of 1 percent of GDP. It really has been a remarkable period ,and I think today is a truly remarkable accomplishment.

Having said that, within that context, let me comment very briefly on the tax package. What we agreed to was an $85 billion net tax cut over five years, which is a tax cut that we can now afford because of the economic growth and economic success of the past five years. Within that context, there is a provision that protects the education programs that the President proposed in his original budget, the tax credit and the tax deduction. Most of that $85 billion on a net basis will be used to fund programs that will benefit middle income people. And as the President said in his own remarks in announcing the budget arrangement, there is protection against an explosion of tax cuts in the second five years, which is extremely important in terms of making sure we don't get back into an era like we had in the 1980s.

So I think that we have really reached an agreement overall that is very good for the American people and will continue the kinds of economic conditions we've had over the last four and a half years, and, within that context, a tax segment which is also good for the American people and will do its share in promoting the kinds of economic conditions that we've enjoyed for the last four and a half years. And I think we now have taken a major step toward continuing for the years ahead.

Gene Sperling.

MR. SPERLING: Well, I can say without reservation, today is a great day. It is a good day, it is a very good day for the White House. It's a good day for Democrats. It is a good day for Republicans. It is a great day for the American people and for the American economy.

As Bob said, when we came here, we didn't just have the challenge of balancing the budget and bringing the deficit down; our vision was that we could both bring the deficit down and increase private sector investment while also increasing public sector investment at the same time in key areas of education, protecting the environment, Medicaid, programs that helped poor people like the earned income tax credit.

In the first four years, we showed that could be done through our '93 deficit reduction plan. But in '95 and '96, we did spend more time warring with each other on the budget than working together. And the fact that 1997, already in the first few months, has been a year of working together and getting a balanced budget that protects key priorities like education for the American people makes this a very, very great day indeed.

I have been very blessed with the people I have had a chance to work with on our first economic team and our current economic team. It was a very good time to be NEC Director and to have Erskine and Janet and Bob, Frank, and everyone as a team, because our instructions were very clear from December on: We were supposed to try to put the partisanship behind us and work together with Republicans and Democrats to get a bipartisan balanced budget agreement. We have done everything from toning down the rhetoric to making gestures when appropriate to have a new atmosphere that will allow us to work together.

We've had a great team here. The people who worked with us up on the Hill, I have to say, Senator Lautenberg, Congressman Spratt, their top aides have all worked well with us, but I have to say that it has been particularly excellent experience to have worked with Senator Domenici -- Chairman Domenici and Chairman Kasich and Bill Hoagland and Rick May, their top aides. They worked with a real sense of decency and good faith with John Hilley and Frank Raines and myself for many, many weeks, through many, many long meetings -- that we had pre-briefs here and then post-briefs afterwards. It's been one continuous budget meeting.

But I also want to say, John Hilley is not here, at the nexus of congressional knowledge and budget knowledge, there are not many people who can compare with him. And I know he's not here, but he played an incredible role in this.

I also want to mention Chris Jennings, our health care expert, who has had to go through the most technical and difficult elements.

MR. MCCURRY: He just went to get the paper for you -- (Laughter.)

MR. SPERLING: I want to just mention real quickly what you're probably very interested in, which is some of the facts and some of the things that we've got an agreement to. On Medicare, we have $115 billion in savings. This will put the trust fund out to the year 2008. That is a very significant accomplishment for the country and, just as important, it gives us time to now work together, hopefully through another bipartisan process, to take care of the long-term Medicare.

Q: Are these savings or cuts?

MR. SPERLING: These are $115 billion --

Q: In cuts?

MR. SPERLING: They are -- you can use any term that you want to -- (laughter) -- because you can say, you're slowing the rate of growth. You can say cuts. You can say whatever. The important thing is, we felt it was good policy. We started at the bottom and we looked at what was good policy, and I'm happy to say on Medicare, we never went a penny above what we thought was good sound policy.

Q: How do you get it --

MR. SPERLING: What's that? Let me just -- some of the benefits that are in there is the mammography and diabetes and colo-rectal preventative benefits. We also have reduction in the outpatient co-pays.

One thing that we think is very important is, as the President mentioned, as we did put home health care in Part B, we are counting that as part of the premium, but we are phasing it in over seven years, so that the average recipient would only see their monthly payment go up around a single dollar next year and about a dollar more each year after.

At the same time, we've made an excellent policy improvement by expanding the number of Americans who are protected from paying any additional premium, which is -- and we have increased those so that instead of everyone being protected 125 percent and below poverty, it's 150 percent and below poverty.

On the President's discretionary spending -- pardon me?

Q: Is that an income --

MR. SPERLING: It's more about $15,000, because remember, this is poverty level for older Americans.

Q: You're saying -- that makes over $15,000 will pay this extra premium?

MR. SPERLING: That is right.

Q: Are you saying it's $12 a year for the first year?

MR. SPERLING: That would be the amount additional that you would pay, is about $12 a year -- about a dollar more a month in your monthly premium.

Q: And then a second dollar more a month in the second year and a third dollar more --

MR. SPERLING: Yes, right, right. And we feel that by -- most things that are in Part B are covered under the premium. This keeps the policy consistent. But this policy is good for the Medicare program. This is not like situations in the past where one was just having a premium increase as a way of savings. This was to facilitate a shift that allows the Medicare trust fund to help be protected to the year 2008. And by protecting everybody 150 percent below and having to be so marginal and phased in, we think this is sound policy and we are very happy that we have the support for this proposal that we do.

On discretionary spending, the President's proposal, with the improvements we had today which was another $8 billion for highway and transportation, the discretionary spending is only about $12 billion lower over five years, or about a little over $2.5 billion a year than the President's initial proposal. To give you a sense of the magnitude, in the last two Republican budget resolutions there was usually a $40 billion to $45 billion difference per year. So in terms of the area of our government that protects education, fighting crime, drugs, the environment, medical research, we have come extremely, extremely close to the President's budget. And that is a very significant and important fiscal achievement for the President.

In education, we are very happy that they agreed to our America Reads proposal, one of the President's key initiatives; to the education tax cuts of $35 billion for a $10,000 deduction and a HOPE Scholarship tax credit. Additional presidential priorities that are in this are our welfare to work program, both the tax cut -- up to $5,000 for hiring a long-term welfare recipient -- plus the $2 billion welfare to work jobs initiative; $16 billion in a new children's health program that will allow us to cover up to $5 million more children who are not covered.

On the environment, our brownsfield initiative, our Superfunds initiative that was announced in Kalamazoo. I think, over all for us, this was extremely close to the budget that we set forth with the priorities we have. We had to make a few compromises on a couple of tax provisions that were not our priorities, but other than that, I think this is very, very close to the budget that this team put together and I think we're very, very happy with this agreement. And we will work our hearts out now to pass it.

Q: How did you crack the welfare provisions on immigration and children and so forth with the Republicans? Weren't they going to stand pretty firm on that?

MR. RAINES: Well, let me take a crack at that. You know, when the President signed the welfare bill he had a series of things that he said needed correcting in the bill and vowed that he would correct them. We made proposals to do that. And as you may know, the first reaction from the other side was to stand pat and to defend these provisions that we thought were outrageous. But over the process of discussions with them and really reasoning with them on the facts, we found that it was possible to persuade them that these provisions were unreasonable. And over a period of time and, I think, very good and healthy discussions, they came to agree with us that these provisions went too far.

And so, with regard to legal immigrants, we were able to fundamentally change these provisions so that elderly disabled immigrants will not lose their benefits and be without protection even if they'd been living in the country for years and years and years and worked and paid taxes. So that was a product really I think of persuasion more than anything else.

Q: A question about the tax cuts -- $85 billion for the first five years. What's the figure for the second five years?

SECRETARY RUBIN: The outside figure for the second five years -- it goes to a total of $250 billion, so the --

Q: Inclusive --

SECRETARY RUBIN: Inclusive of, yes, inclusive of. So it would be $165 billion. And we'll, in addition, have a side which will say that the leaders are committed to not having tax cuts that are explosive in the second five years.

Q: Does that mean this is double the revenue drain from the first five years? Doesn't the $165 million already explode, versus the $85 billion in the first five years?

SECRETARY RUBIN: I think not because I think if you go through an analysis of the various types of tax cuts that you're likely to have, I think -- we spent a lot of time on this and we originally had some disagreements and we kind of narrowed it and reached agreement on a number that all of us felt was reasonable protection given that you're going to have growth in the economy, don't forget, so the economy of growth, the revenues and everything gets larger as you get into a second six years.

Secondly, a number of these tax cuts will phase in a little bit, so you'd always expect to have a larger number in the second five than the first five.

I'll tell you, we spent a lot of time on this. The President was very, very focused on not having an explosive second --

Q: Was this five plus the capital gains and the estate provisions?

SECRETARY RUBIN: There are no specifics with respect to capital gains and estate tax. It is expected, since the Republican majority is very interested in both that there will be provisions on both. We do have protection with respect to the President's education program.

Q: What's the mechanism to make sure that the tax cuts don't balloon? You can write a letter but what's the mechanism?

SECRETARY RUBIN: Well, in the agreement it will say that the aggregate over 10 years -- the net for the first five years is $85 billion, and the aggregate over the 10 years will be $250 billion. So you're protected by the agreement and then the scoring that will take place by the JTC. And the letter will also say that if there are differences between JTC and Treasury, then we'll have consultations with each other to iron out differences.

Q: But if the law on cap gains is changed, wouldn't the law need to be changed again if the projections start to come in higher than they currently are?

SECRETARY RUBIN: Well, all of this is based on initial scoring at the time that the tax bill is enacted. Obviously, once the tax provisions are put in place you get all kinds of unexpected effects. Right now, for example, revenues are much higher than anybody expected -- well, not higher than we expected because we had actually had, I think, pretty real -- in fact, very real projections --

Q: Mr. Secretary, there's a lot of attention being paid in the media and on the Hill to -- CBO apparently recalculated its estimates and you came up with a $200 billion extra windfall, $40 billion extra a year to spend. When did you find out about that and how much difference did that make in being able to reach this final deal?

MS. YELLIN: We recognized, have been recognizing that the economy has been doing very well, the tax revenues have been pouring in at a faster rate than CBO assumed, that it looked as though the economic assumptions built into the OMB baseline which we have always been proud of our record in forecasting -- this administration has consistently had conservative forecasts and used those as the basis for its budgets. We believe the assumptions in our baseline are quite conservative, and I believe that CBO, over the last several weeks or months, has come to a similar conclusion and decided to come closer to --

Q: When did you find out about the number that you're going to have $40 billion more a year to spend, and how much difference did that make in being able to get the final deal?

MR. RAINES: Well, there's a little more drama here I think in what people think than is what occurred. We have been talking really since we introduced the President's budget about what are the appropriate economic assumptions to be used. And throughout the negotiations it has become clear that we were going to be able to move the Republicans closer to the administration's economic projections. And so for a long time we've had that underway, and that was in talking to the budgeteers. We had not been talking to CBO on this.

And I believe that what has happened is essentially the CBO, in an effort to bring their economic projections into line with the reality that all of us were seeing in the revenue, came to the conclusion that they ought to update their numbers. But in terms of the negotiations, we have always assumed that to balance the budget over this period of time, we would have to move to the more realistic OMB economic assumptions.

In the end, the difference in 2002 is not very great in its impact. It did provide some -- probably the ultimate validation of our point. And when we had the ultimate validation of our point, we said, now that you recognize our point would believe those resources ought to be part of this deal. And so we did have some efforts in the last day or so to try to recognize that remaining resource. But in 2002, the important year, it wasn't a lot of money, but it was enough for us to make some adjustments.

Q: -- $10 billion, $20 billion?

MR. RAINES: I think in the last year it was down to about $11 billion or $12 billion difference between where our number was and what the CBO final number was, and so it --

Q: Some people are suggesting it's not that hard to balance the budget when you find $200 billion extra. Would you like to confront that suggestion?

MR. RAINES: Well, I recall when we introduced our budget, that lots of people said, this is totally unrealistic, you'll never get anybody to agree to these changes that you're proposing in Medicare, changes -- the reductions you're proposing in discretionary spending, the policy changes. And sure enough, here we are, just several months later, and we have a bipartisan agreement on that very budget.

So balancing budgets is never easy, because the one thing you shouldn't do in attempting to balance a budget is not to reflect reality. And the reality is that we have seen this economy grow faster than the models that they've been using traditionally has shown -- not projections, just the fact -- with our much better estimating record, we nevertheless underestimated the performance of the budget by $50 billion on average. And I'm proud to announce, we underestimated again in 1997.

So this is a very consistent pattern, but it's not unusual in Washington for there to be a little lag in reality meeting up with the policy process.

Q: Can you describe exactly what you did on CPI?

MR. SPERLING: Can I just add one thing on that? We had a plan -- we had a plan negotiated, and we were in the process of discussing that plan -- the three of us were -- when we found out about this yesterday evening, that there was an improvement. So this was not funds or sources that were needed for us to have a bipartisan budget agreement. I think what it did do is it gave a little bit of room to make some adjustments that some in the Democratic Congress thought would help get some support and I think help solidify this as a truly bipartisan budget agreement.

And I think there was a certain logic in saying that, if the numbers were better, that something like on the Medicaid per capita cap, where you have a program that is for health care for poor Americans where we were being rather -- we had a Medicaid per capita cap, we thought there was legitimate argument with the better numbers, that if that would help get more support to not have that in the plan, that that was a reasonable concession to some people who had some honorable differences and some honorable concerns with us.

So, in the end, it may have helped increase some of the support, make this more bipartisan, increase the chance of it passing, but the major outlines and construct of the entire agreement were well, well in place before we knew about this information.

Q: Erskine, could you map out how do you get from here to a Rose Garden ceremony?

MR. BOWLES: How do you get from here to a Rose --

Q: How are you going to get it passed -- map out your strategy?

MR. BOWLES: I think we will have -- I think we'll get there and I think we'll get there as you do in most things; we'll have to work hard to get the votes. We're going to have to spend a lot of time in consultation with folks on the Democratic side to explain exactly what's in there. We'll have to do the same with the Republicans. But we plan to do that missionary work, to make sure that people fully understand what the cost and what the benefits of this program are. And once we have done that spade work, we believe we'll make it.

It's going to take some selling on our part, but we think once people understand what's in this package, they'll realize it's a good package and it does bring true fiscal discipline to this country.

Q: What are your assumptions on CPI?

Q: Are you going to require a separate vote on taxes?

MR. BOWLES: Just whatever would be in the normal course under BLS.

Q: Are you going to require a --

Q: What's that mean?

Q: You're assuming some change --

MR. BOWLES: It's our assumption.

MS. YELLIN: The Bureau of Labor Statistics has announced a number of changes that it intends to make in its CPI program. One of those changes is an adjustment for what's referred to as lower level substitution bias, starting no later than January of 1999. And we've built an estimate of that effect into the baseline, along with a few other things that BLS has announced that it intends to do in the CPI. And there's nothing else.

Q: What's the estimate?

Q: The change on the CPI index?

MS. YELLIN: Well, a number of things --

MR. RAINES: There was a difference between the administration and CBO on estimating into the future. In taking into account what BLS has said, and also -- recently and in the past -- there will be about a .3 difference in the CBO estimate, but it's going to make it comparable to our estimate, as we've always had in the budget. CBO didn't have all of the things that we had put into the budget, but also BLS has made a change. So there has been a convergence in the actual estimate.

MR. SPERLING: I think, though, just to make clear, in terms of what people had read in the paper over the last few days, what you had read was that this experimental index that Janet was speaking of, that BLS would incorporate into their automatic CPI was going to bring .15. In addition, there was another change that BLS, from our understanding, thought would be completely appropriate and good policy in making a more accurate cost-of-living index that would have been another .15. That .15 would have required some authorization from Congress.

There was a decision made by, I'd say, leaders on both sided of the congressional aisle, that this budget would have a better -- and the good things in it would have a better chance of passage if that .15 and other things like it were dealt with in a different context, outside of this budget.

So in terms of that .3 that you heard, it's just been .15 that would have required some congressional authority has been taken out.

The other .15 is something that would happen in the normal course of BLS' affairs. Though even as Janet would tell you, .15 is just an estimate of where they will come out.

Q: So are you including a change in CPI or not?

MR. SPERLING: No.

Q: It's only .15 in this budget?

MR. RAINES: There's no legislated change in CPI in this budget.

Q: -- you're assuming just .15, that's all.

MR. SPERLING: That is right, though according to several Congressional budget experts, they think that there may have been some past BLS adjustments made that they may not have fully incorporated. So that may help in the baseline sum. But in terms of what you've been hearing and thinking -- in terms of what .3 -- the .15 that had been at times considered during the negotiations has been put -- is not in the balanced budget agreement. Even though there is indication from BLS that they do think that might make for a more accurate Cost of Living Index, there was consensus on both sides that particularly with the stronger numbers and the need to get a true bipartisan budget agreement, it would be better to deal with changes like that in a different context.

Q: Gene, what are the total domestic discretionary cuts, and where do they occur?

MR. SPERLING: Well, as I said, it was only -- ended up being about 12 off our baseline -- off our budget -- or, as I say, about 2.4 a year, which we are very, very happy with. And Secretary Rubin, who of all of us, fought the hardest to keep our domestic discretionary baseline -- and that had nothing to do with the fact that he's the only one of us who actually runs a department, I assure you. We're very, very -- we're very pleased with that number.

MR. RAINES: In terms of the number off the baseline -- it's 58 or 59 -- with most of that -- was already reflected in the President's budget, obviously as part of the President's balanced budget plan.

Q: Where is it?

MR. RAINES: I'm sorry, where is it?

Q: Where is it?

MR. RAINES: It's -- well, it's the other way around. Well, in terms of the $12 billion, we haven't allocated the $12 billion yet across programs, but it's a very small number out of --

MR. SPERLING: Most of it's from the Treasury Department, I think. (Laughter.)

MR. RAINES: I mean, we basically have $1.2 trillion to work with to come up with the $12 billion, so I think we'll be able to find it.

Q: What about Medicaid? Can you tell us what happened on Medicaid when you took out the per capita cap?

MR. RAINES: Oh, sure. Again, when we were mentioning the -- as we began to win more and more of this discussion on which were the most appropriate economic numbers, it became clear that with the resources that were available that we could begin to look back and say, of all the changes we've made in this budget necessary to balance, where could we direct resources that would have the biggest impact on the most vulnerable people in our society. And we looked at the Medicaid program where we were already investing. But we said, let's also look at the per capita cap. And that was a proposal we made to keep the Medicaid expenses from exploding. But it caused a lot of concern among advocates and governors -- there might be unintended consequences. We still believe it was a good mechanism in making hard choices. But when it became available -- it became apparent we didn't have to make that particular hard choice, we were very happy to eliminate the per capita cap as a proposal.

Q: So what do you do instead? Is there any other modification to Medicaid to --

MR. RAINES: We continue with our proposal with regard to disproportionate share hospitals. And so, there's still savings in there related to that.

Q: Mr. Bowles, to what do you attribute this sweetness and light now with the Republicans? Was it the government shutdown? And who made the most concessions in this?

MR. BOWLES: Oh, I think it's just that we're all such really nice people, and this is such a pleasant place to work in. (Laughter.) And everybody gets along real well. And so, it was no problem. (Laughter.)

No, I think really, the truth is there was extraordinary good faith on both sides of the aisle in trying to put this together. The meetings that were -- where John Spratt and Senator Lautenberg and where Chairman Kasich and Domenici and where our guys were in negotiating the deal it was very positive. All of us wanted to balance the budget.

So, instead of trying to find ways to break up the deal, we tried to find ways to put it together. We had tremendous leadership from the President, from Senator Lott and from the Speaker. All of them were very positive. We tried to work together. We tried to resolve our differences rather than spread ourselves apart.

Q: In 1990, when we went -- the first day the deal looked pretty good, then the distributional tables came out, and things started to fall apart. Do you have tables yet that show which incomes levels benefit the most from these?

MR. BOWLES: We don't have tables yet. We will have tables eventually, but I assure you we have spent a good amount of time thinking about it. And we believe that once we have a chance to explain this budget to the American people and the benefit this has to the middle class that we will go a long ways --

Q: Are you saying the lion's share goes to the middle class?

MR. BOWLES: No, what I'm saying is, I think when we have a chance to explain the benefits of this budget to the middle class that we will go a long ways toward getting the votes we need to pass the budget.

Q: A question on the tax cut, though --

SECRETARY RUBIN: We don't have distribution tables yet. In the fullness of time, we will. But I think what Erskine said is exactly right: if you take the gross or net tax cuts, either way you look at it -- although we don't -- there are no specifics yet other than the protection of the President's education tax credit -- the preponderance of that money is going to be spent on tax cut that are oriented toward middle income people. I don't think there's a question about that, because you're going to have a large child tax credit and an education credit, and those will be the two largest pieces of the package.

Q: Can I take out the --

MR. SPERLING: Mara, we don't have it, but let me just give hypothetical. If it ended up being around 130 gross and you have $25 billion or $30 billion -- I don't know, we haven't agreed. But just as an example, the estate tax and capital gains would be in that range. When you look at the children's tax credit, which -- if you did their plan -- ends up being $15, $20 billion -- we don't know -- plus our $35 billion, the overwhelming majority -- 70, 80 percent of these are either for education tax cut or children's tax cut, which the President proposed. So, the overwhelming amount of the tax cuts would benefit working, middle class families.

Q: And just one more question about the tax cuts. This side letter that says that the tax cuts will be kept to a certain amount in the second five years --

SECRETARY RUBIN: Yes, actually, the agreement will have a provision that the $250 billion I mentioned, which is $165 billion -- that will actually be in the agreement. There will be a side letter which will also say -- from the leaders -- saying that the tax cuts will not explode in the second five years.

Q: Does that mean that there's --

SECRETARY RUBIN: That's in addition to the protection in the agreement itself.

Q: Does that mean there's a mechanism that they trigger down to the $165 billion?

SECRETARY RUBIN: No, it's really just a statement of -- we have the protection of the $250 billion number over ten, and then in addition, there's a side statement in a letter which will have the content I mentioned once a moment ago. But all this has to do with the initial tax program, and its scoring.

Also, Gene validated my comment on the other. (Laughter.) And illustrated it.

Q: Are you going to require a separate vote on taxes?

SECRETARY RUBIN: There will be a separate vote on taxes on the balanced budget, yes.

Q: Can I ask you a tax question about the children's tax -- what will be the rules for that?

SECRETARY RUBIN: The tax program itself is now going to have to be worked out with the Finance Committee and the Ways and Means Committee in the ordinary course. The various provisions -- the constraints, if you will, or provisions that we mentioned in the agreement or in the side letter were intended to create a framework for that. But there are no specifics with respect to the child tax credit at this time. We obviously have, as you know, the President's proposal. Republicans have a proposal. I don't -- I think it's pretty easy to see what the parameters of this in a rough way will be.

Q: Secretary Rubin, if I could follow up on Helen's questions -- two years ago in February '95, the budget the administration presented did not forecast balanced budgets at all, much less within a set period of time. Do you accept the argument that Republicans deserve some credit for forcing -- even as they've had to accommodate to some of your priorities -- they essentially deserve credit for forcing this on the national agenda where it was not?

SECRETARY RUBIN: Oh, I think -- I'll tell you -- and I think -- I want to repeat something Erskine said -- I think the atmosphere around this negotiation really has been remarkably good. I really do. I've been here four and a half years, and I've watched people interact with each other. It has been a very good atmosphere, and I think everybody deserves a great deal of credit.

But if you want to talk about deficit reduction in this country over the last four and a half years, I think there is one person who has been heads and shoulders above everybody else, and that's the President. He took on this tough issue in 1993. As you know, he had -- he won by one vote in the House. He had a tie in the Senate, and the Vice President voted with him. (Laughter.)

And in 1995, we put in our budget what he said. And you can go back and take a look at the text as he said, this will take us another step toward deficit reduction, but we also have to deal with health care and other entitlements. And that was very much oriented toward continuing this program.

Q: Can you tell us what assurances you got --

SECRETARY RUBIN: I think the President has driven deficit reduction and has brought it to a reality in this country.

Q: What specific assurances did you get on education? As we understood it, Chairman Archer was reluctant to -- of the tax writing process, and that was one of the things holding this us in the final days?

SECRETARY RUBIN: Well, without going into personalities and all of the backs and forths, on the education tax credit -- if that's your question -- the agreement will say that the -- will have both a -- I think Gene or somebody may have mentioned this before --Frank, perhaps -- there will be a tax credit and a tax deduction modeled after what the President's proposed and will have --

Q: -- by five --

SECRETARY RUBIN: Yes, it does. And it will have at least $35 billion over five years.

Q: Is that one of the things that had to be worked out in these closing hours?

SECRETARY RUBIN: Well, it's in the agreement. (Laughter.)

Q: What's in the revenue raising package? It's $50 billion, you say, but does that have all of your --

SECRETARY RUBIN: There are no specifics, but there will be $50 billion that we've -- you have a gross tax cut in the first five years of $135 billion, of which $50 billion will be financed out of the code -- the airline tax credit -- the airline tax takes care of $30 billion, so then you have to get another $20 billion. We had made a whole series of proposals. And obviously, that's what we'll all be working together with the Finance Committee, Ways and Means Committee.

Q: Do you expect though to be proposing the same moves that hit Wall Street again?

SECRETARY RUBIN: We didn't hit Wall Street. What we did was to take a very sensible look at the tax code and look for loopholes. And I'm sure those will be the provisions that we'll be discussing with Ways and Means and Finance.

Erskine made a good point. We do have -- and we were told that we could say -- the leaders have agreed that the earned income tax credit and the low income housing tax credit, other programs like that that are designed for the poor will not be -- will not be part of the corporate raisers.

MR. RAINES: Let me add one point that goes back to this question on deficits. If you really step back -- and I wasn't here before, so I -- I can't -- I take no credit for the great progress that this administration has made in reducing the deficit -- but if you really look at the difference in policy that's represented in this agreement, the real difference is in the 1980s the theory was deficits didn't matter -- that all you had to do was to cut marginal tax rates, and the economy would perform well, and deficits didn't matter. But what everyone understood by the beginning of the 1990s was that deficits did matter. And what this represents is the triumph of the view that the President has been advocating that deficits matter and we ought to eliminate them.

And beginning in 1993, to today, he has been persevering in reducing this deficit and ensuring that it disappear, while at the same time, doing something again people said you couldn't do, which was move funds to invest in those things that are most important for the American people.

So, if anything, I would say this is the tide of Clintonomics in the 1990s, showing that if you have a disciplined fiscal policy with good investments by the government you can have an economy that performs better than anyone would have dared to have estimated in 1993 when he put this program in effect.

Q: Is there any means test for Medicare in this?

Q: With this economy and a plan, how soon do you think it would be in surplus? Sooner than 2002?

MR. RAINES: Well, our estimate is 2002, but given how well we've been estimating the deficit, and if you were optimistic you might say it could be better. But 2002 I think, given how hard we've had to work for this deal, we'll be very happy.

Q: -- deficit will be this year?

MR. RAINES: We believe -- we have not made a formal reestimate, but all the indications are from this very strong economy and steady growth that the deficit will be probably in the -- at least in the mid 70s, down from I think we were estimating 127 before this. So we're right there with our -- 127 estimate this year -- but we're right there with our $50 billion era again. (Laughter.)

Q: When you said you have a lot of selling to do, when do you think you're going to actually pass it?

MR. RAINES: Well, I believe that you're going to see this agreement move very quickly in terms of a budget resolution. The budget chairmen are determined to move quickly, to catch up. They're running behind in having a budget resolution. So I think you'll see that moving very rapidly in the next couple of weeks. And once that's adopted they will give their instructions to the other committees and they'll begin to move legislation and hopefully everyone who has planned a September vacation will be able to take it.

Q: Secretary Rubin, now that -- assuming you get this budget plan enacted into law, will the President then move on to address longer-term financing questions surrounding Medicare and Social Security?

SECRETARY RUBIN: Well, he has said on a number of instances that he believes that we need to have effective bipartisan processes on both those issues. And I think getting a balanced budget program in place does, in fact, clear the air so that we can more easily go on -- or more readily go on to deal with these issues. And a balanced budget agreement in and of itself is enormously important for our economy. But I think it has an additional benefit in that it does create a better environment in which to move on in a bipartisan basis to address these issues.

Q: Is the criticism of the Democrats valid in saying they were not in on the takeoffs and process at all, you were more in touch with Republicans?

MR. BOWLES: It's very, very difficult to negotiate any deal with 535 people involved. We tried to do the best we could in keeping all sides informed. Congressman Spratt and Senator Lautenberg were there from almost the very beginnings of these discussions. We tried to be inclusive, to make sure that they and their staffs were included in all of the serious negotiations. We worked hard to make sure that we kept people informed.

Could we have done a better job? Absolutely. I'll take the blame for that myself. But I think in the final analysis we will have, once we have a chance to fully explain it to the members, we'll get the support we need to pass it.

Q: Mr. Bowles, you started off this briefing in a somewhat celebratory mood --

MR. BOWLES: I am in a celebratory mood.

Q: Since then, at regular intervals, you've mentioned things where details haven't quite been worked out yet. What makes you think that it's okay to go ahead and crack open the champagne at this point? Why isn't there a good chance of --

MR. BOWLES: I think almost all of the major items have been negotiated. I think clearly there is work to be done; no one discounts that. The Congress always makes changes and modifications to any proposals that come over there. But I think we have done a lot of the heavy lifting and I think we can go forward and get this balanced budget done. I think we have a lot to be proud of. This is an historic day for this country.

Q: Anticipating the general capital gains tax cut that the Republicans would like to push through as they move forward in committee, what about your proposal on homeowners -- the tax break? Is that retained in the agreement?

MR. BOWLES: We expect it to be in there.

Q: Is the President going to insist that any cap gains break is targeted or goes to individuals or in some ways meets his priorities?

MR. BOWLES: In the capital gains?

Q: -- on a rate reduction or --

MR. BOWLES: We're just going to work with the committees on that and try to come up with a reasonable solution.

Q: You seemed very close this morning to an agreement, but there were some unresolved issues. What were those? Was it the side letter -- or just give us a flavor.

MR. BOWLES: I think we probably had 15 discussions this morning with all sorts of different people. We did have some additional clarification on the tax side today and we also had some additional clarification on some of the spending.

MR. RAINES: Can I add a little bit on an earlier question that got into inclusion in the negotiations. This has been a terrific process. Everyone now knows where Senator Domenici's hideaway is in the Capitol because we have been meeting there off and on over the last four weeks. We all are very familiar with the snack habits of Chairman Kasich and Chairman Domenici and Senator Lautenberg and John Spratt. We are well aware of the shortest route to John Spratt's office from that hideaway in the Capitol. We've gotten very used, over this period of time, of a skill that I think Bob Rubin has really brought to a fine point, which is how do you emerge and try to be responsive but say nothing about a topic -- (laughter) -- over a period of many weeks as others have found the hideaway. I mean, this is the most well-known hideaway in the history of the Congress.

Q: What's the number?

MR. RAINES: Well, I can show you directly -- it's right behind where the President was inaugurated. But this negotiation, which went on in mornings and evenings and where you had the members of Congress there. I mean, this was not a staff negotiation. I mean, Senator Domenici was there. Senator Lautenberg was there. John Kasich was there. John Spratt was there. People became experts on areas. John Spratt is now the reigning non-economist expert on the CPI in Washington, DC and gave a long explanation at the caucus yesterday about it.

And since the -- in the last couple of weeks, we've been meeting almost every other day with the Senate Democrats and they've -- big turnouts for those sessions. We had a -- we've had two meetings with the Democratic Caucus, the Democrat Budget Caucuses have been meeting. So that in terms of participation, lots of people have had input into this and in -- down to the last day, when we were still taking suggestions from members of Congress about how it could be improved.

So, we didn't get to the luxury of going out to Andrews Air Force Base, but we did have the opportunity to spend many, many hours with the principals in this matter -- people who have been working this issue for a long time. And on our side, as Gene said, coming back -- meeting first with Erskine before; getting our instructions; coming back after where he would judge how well we'd done with our -- in carrying out our instructions.

This has been a very intense process, but I think the important thing is -- a very human process. This has not been driven by numbers. I've said to a number of you for a long time that this was not a numbers problem. This was a problem of values and political will.

And we found with these people we were negotiating with the ability to put together an agreement that we could have mutually agreeable values and where we both demonstrated the political will to do the right thing.

Q: Two last questions please? One last question? What is the increase in the estate tax relief? From $600,000 to what?

MR. RAINES: There are no specifics on that yet.

MR. MCCURRY: No specifics on that yet.

THE PRESS: Thank you.

END 5:25 P.M. EDT