Statement on Deficit Reduction in Fiscal Year 1990

On February 9th, after only 20 days in office, I submitted a budget that would have reduced the fiscal year 1990 deficit to $91.1 billion. On April 14th, we reached a bipartisan budget agreement with the Congress. We were encouraged by the prospect that, if fully implemented, the agreement promised to reduce the FY '90 deficit to $99.4 billion. Unfortunately, the bipartisan agreement has not yet been implemented. As a result, we find ourselves having to use the fail-safe deficit reduction measure that the law requires: across-the-board spending cuts, known as sequester. Clearly, this approach would not be a first choice for any of us. It is, however, a necessary discipline in the absence of more satisfactory action.

If the across-the-board cuts remain in effect, sequester would produce $16.1 billion in budgetary savings for fiscal year 1990 without any increase in taxes. These are more substantial savings than in either the pending Senate- or House-passed reconciliation bills.

By our scoring, the Senate and House bills would save only $8.3 billion and $1.9 billion, respectively, after adjustment for payment date shifts and accounting changes. (If the House bill were adjusted to drop capital gains, as the Democratic leadership wishes, it would actually increase the deficit rather than decrease it.) If the Senate bill's savings were adjusted for the pending repeal of catastrophic health insurance, as in the House bill, total savings in the Senate bill would drop to slightly more than $2 billion. In the face of deficits of well over $100 billion, $2 billion in net savings is far from enough. We must -- and we can -- do better.

We have tried to work constructively and cooperatively with the Congress in a true spirit of bipartisanship. I deeply regret the tone of partisanship that has entered the economic policy debate. I would very much have preferred a fair and balanced debate -- and vote -- on the merits. But the congressional process has bogged down. Now the stalemate must be broken. So, having consulted with the Republican congressional leadership, I am calling upon the Congress to do three things:

First, the Congress should pass a truly clean reconciliation bill that produces real deficit reduction without new taxes, without spending measures that increase the deficit in the future, and without scoring gimmicks. Any such reconciliation bill should achieve at least the $14 billion in reconciled deficit reduction agreed to in the bipartisan budget agreement, after adjusting to offset any new spending measures.

I will not accept a reconciliation bill that fails to do the job that should be done. If the Congress cannot agree upon a clean reconciliation bill that fully meets the test of fiscal responsibility, we are prepared to manage the Government under sequester. That is, we will continue to impose $16 billion in across-the-board spending cuts, as the law requires, for as long as it takes to reach agreement on a fiscally responsible bill.

Second, consistent with the Senate's expressed interest in a clean reconciliation bill without what it terms extraneous issues, the Congress should separate from the pending reconciliation bill such issues as child care, catastrophic health insurance, section 89, and capital gains. It should do so without applying its standard arbitrarily in a way that discriminates selectively against such issues. Congress should present to me for signature such legislation as may be mutually agreed on these subjects.

If we can reach agreement quickly on any of these issues, such as repeal of section 89 or catastrophic health insurance, I would be prepared to sign a bill dealing with these promptly, provided it is not a reconciliation bill. If other issues -- such as child care and capital gains -- prove more difficult to resolve, we will continue to pursue them until satisfactory legislation is enacted. I remain firmly committed to both capital gains and a child-care bill consistent with the principles embodied in my proposed legislation. I am confident that there is a majority for capital gains in both the House and the Senate and will continue to seek every opportunity for the majority to express its will.

Third, the Congress should pass a debt limit bill immediately, to assure that the United States does not default.

Fortunately, the economy continues to grow. It is now in its 83d consecutive month of growth, the second-longest such period of growth in all of America's history. But there is as much reason as ever to seek to reduce the deficit, to pass a long-term debt limit bill, and to advance legislation that can keep the economy growing.