THE WHITE HOUSE

Office of the Press Secretary

                            PRESS BRIEFING
                                  BY
        OFFICE OF MANAGEMENT AND BUDGET DIRECTOR LEON PANETTA

                              West Wing

5:47 P.M. EDT

DIRECTOR PANETTA: Basically, why we wanted to call this together because there's been a sense that somehow there's been a move away from the principles that the President enunciated. And I wanted to make clear that that is not the case; that the President enunciated four key principles and is adhering to those principles, one of which is $500 billion in deficit reduction and it has to be real and has to be set aside for deficit reduction purposes. Secondly, that it has to be progressive -- the overall approach -- and that we want to maintain the progressivity and not return to the '80s so that the principal burden falls on those in the upper income brackets. Thirdly, that we want to insure that the investments are there. And those key investments are the ones we saw on the House side -- investments such as empowerment zones, family preservation, immunization, the Mickey Leland hunger relief bill as well as the other initiatives that they were a part of the House bill. The President feels very strongly about maintaining those.

We do have a problem with the rules on the Senate side. There is the Byrd rule, which prevents some of those initiatives from going forward. However, the President intends to fight for those, if not in the Senate because of the Byrd rule, then certainly in the conference.

Lastly, that the President is committed to, again, a broad-based energy tax, that that was essentially what passed on the House side, and he will continue to work towards that, one that promotes energy efficiency and one that promotes conservation. Those principles are still there.

Now, the concern, I think, that's developed, as you go through this process, obviously the legislative process is a tough one to watch as the different changes are made. There were a significant number of modifications on the House side; that's the nature of the process. And we expect that the same thing will be done on the Senate side.

On the House side, just to remind you, we had major changes with regards to the ITC, the investment tax credit, which was done away with. There were changes in the energy tax. There were changes with regards to almost all of the spending proposals in some way in each of the committees. And, nevertheless, 90 percent of the President's plan was held together. We achieved the savings there, and we achieved the policies that we were after, and it passed the House.

We expect the same process to take place over in the Senate. They've basically got to work through the challenges that they face there in terms of getting the votes together that they need to move this forward. And so as a result of that, clearly the Senate is now in the process of trying to find out what modifications need to be made for that purpose, and they will have to -- clearly, they're going to make some modifications here as the process goes forward.

We think the bulk of the program is on track. I have to deal with all of the committees -- not just the Finance Committee, but all of the committees. We've got 12 committees over on the Senate side, have been in discussions with the chairmen and the members of those committees. Most of the proposals are on track. We expect that each of the committees will meet their targets that will achieve the $500 billion in deficit reduction.

Obviously, the principal focus has been on the Finance Committee and there, clearly, there are going to be negotiations on what, if anything, they can do on the energy side. Clearly, the votes are not there to pass a Btu tax, and I think that's essentially what Secretary Bentsen was acknowledging last night. I want to make that clear. That was basically an acknowledgement of what is the fact on the Senate side, not what the administration position was.

Q In the Committee, or overall Senate?

DIRECTOR PANETTA: Yes, in the Committee. That the votes were not there in the Committee to get a Btu tax out, and obviously the sense was we need to try to move a proposal through the Finance Committee to get it to the floor. Obviously -- whatever they do to replace that, they've got to make up the cuts in some way so that we get the deficit reduction.

At this point, while the administration has not endorsed any proposal that is being worked on, on the Senate side, we are obviously encouraging them to try to put a package together that, hopefully, can make it through the Senate and get us to conference. We've got to move this process forward.

But I want to make very clear for all of you, because I think there have been a lot of interpretations during the day that concern me. I just came from the House, having met with the leadership and members of the House -- their policy committee -- that we want to make very clear the President has not changed any of his positions, not changed his principles. We're still going to fight for the basic policies that we believe in. And if we can't, for whatever reason, make that fight on the Senate floor, we will make it in conference.

Q to a compromise that would include just a tax on transportation fuels and maybe on electricity, too? Isn't that what's in play right now?

DIRECTOR PANETTA: They are obviously looking at other alternatives to a Btu. It was discussed in various terms where either some kind of transportation approach, as suggested by John Breaux, or possibly going to a gas tax or, even beyond that, looking at an ad valorem again. But those are the ones that are being discussed on the Senate side.

I mean, I have to tell you that this is basically the Majority Leader and the Chairman of the Committee trying to do yeoman work in trying to see what they can do to try to build their votes together, and that's what counts. I mean, that's what we're after. We want to move this process forward. But not every move they make -- I want to make very clear -- is endorsed, necessarily, by the administration.

Q And so reports to that effect that you've agreed to a program are wrong?

DIRECTOR PANETTA: That's right. What we're trying to do is to give them the room they need. We want to give them the room they need to try to put a proposal together that can get out of the Finance Committee and pass the Senate to get us to conference. That's --

Q And conference is where you're going to do --

DIRECTOR PANETTA: Conference is where we have to do the work. That's right. And it's where we're --

Q And fight for a Btu tax in conference?

DIRECTOR PANETTA: Pardon me?

Q You would fight for a Btu tax?

DIRECTOR PANETTA: I think we would fight for a broadbased energy tax in conference. And it's obviously going to be somewhere between -- you know, we have to see what the Senate passes. I have to tell you, I know the Senate's talking about it -- some form of transportation or gas tax. That's not going to be easy. And --

Q Well, the question --

DIRECTOR PANETTA: I commend them if they can pull the votes together, they're --

Q Because the -- question seems to be on the House side over what the President promised House members as to his commitment to the Btu tax, they seem to feel that he said he would stay with them through the Senate fight, and that now he's pulled the rug out from under it.

DIRECTOR PANETTA: The President made very clear to them -- and I was at the caucus -- he said I am for a broad-based energy tax; the Btu tax represents that on the House side, and I intend to fight for that. And I think that's where the President is. We'll have to fight for that position in conference.

Q What about the size of the tax? It was going to be $70 billion in the House plan; now you're talking about much less. You've got Rangel up there saying you're going to take it out of programs for the poor, which he's all bent out of shape about.

DIRECTOR PANETTA: Well, obviously we would share Congressman Rangel's concern if that were the case. We know there's going to be modifications here. They are going to obviously reduce the amount of taxes and increase the amount of spending cuts. That has not been resolved, obviously, they're still working on that.

But the key for us right now is to make sure that in the process of doing that, a, they replace the revenues that are lost so that we maintain at least $500 billion in deficit reduction; and secondly that it's done in a progressive way, that doesn't put the burden, again, back on either the middle class or working families or the poor.

Q Would the President accept a $35-billion hit on Medicare?

DIRECTOR PANETTA: The President -- one of the things we've made very clear is that any reductions in Medicare above and beyond what's there have to be modest and have to target providers and cannot undercut what we're trying to do on health care reform. Those are key --

Q That sounds like no.

Q That sounds like a no from here.

DIRECTOR PANETTA: Again, whether it's $10 billion, whether it's $15 billion, whether it's $20 billion, those are areas that we have to look at what they're proposing and obviously how they would try to get those savings.

But again, it's very important that when we try to get the savings out of the Medicare area, that you can't do so much in terms of savings there that you undercut our ability to get health care reform.

Q I understand that. So what do we report, then? That the President would not accept a $35 billion cut in Medicare, as has been proposed?

DIRECTOR PANETTA: A $35 million cut in Medicare, I think, would be looked at as undercutting what we're trying to do on health care.

Q What is the limit, do you think?

DIRECTOR PANETTA: Again, I've got to look at the pieces, obviously, on what makes up that $35 billion. But from my own experience at looking at health care reform and where the savings would be, I think it would be very difficult to achieve $35 billion and not undercut health care reform.

Q That's spread out over five years.

Q not undercut what?

DIRECTOR PANETTA: Not undercut health care reform.

Q But that's spread out over five years, right? So it would be $7 billion a year, let's say. Is that too much?

Q Are you trying to offset the --

Q Is that too much?

DIRECTOR PANETTA: -- $35 billion?

Q Yes.

DIRECTOR PANETTA: To get there I think the concern we would have is that you'd almost inevitably have to do something that would impact on beneficiaries.

Q you're going to fight it out in conference anyway.

DIRECTOR PANETTA: Yes. That's right.

Q Why does it matter what they do?

DIRECTOR PANETTA: Well, I think that to some extent, that's why we are kind of standing aside from the process. I mean, I think if they feel that that's what they have to resort to, even though the administration might not embrace it, then let them move it through the Senate and we'll fight it out in conference.

Q Do you know what's being announced on the Hill, and are you trying to offset it?

DIRECTOR PANETTA: No. What I'm trying to offset is at least the viewpoint that somehow the administration has changed its position with regard to these principles.

Q The President was asked about the transportation tax at the Marriott this afternoon --

Q House who are -- tonight than they were before you met with them --

DIRECTOR PANETTA: Pardon me? Yes. Yes, they are. Thankfully I think they're a little calmer. I think the concern, obviously, on the members of the House was that, in fact, there had been a reversal in terms of the position, and that was just not the case. And I made that clear. I said we -- the President has made those principles clear and he stands for those principles and they've accepted that. And they understand the process over in the Senate. They know what has to be done over there.

Q Well, Mr. Panetta, if they understand the process, who or what raised the alarm bells that there was this feeling that the President --

DIRECTOR PANETTA: I think there was -- the feeling when the headlines indicated that the Btu tax was dead that somehow that that was a reversal of the administration's policy. I think what Secretary Bentsen was doing when he made that comment is basically acknowledging the vote problem over in the Senate.

Q When the President was asked this afternoon about Breaux's transportation tax proposal, he said --

DIRECTOR PANETTA: Breaux's?

Q I'm sorry, Breaux's -- that he said it would have some economic difficulties even if you raise less money. Can you explain to us what he meant by that? (Laughter.)

DIRECTOR PANETTA: No. (Laughter.) I can't explain it. I mean, I don't know what the President said at that point and I just can't --

Q There you go again. (Laughter.)

Q The President seemed to be leaving open the option that the Btu tax would be perhaps revived in conference.

DIRECTOR PANETTA: The Btu tax is going to be in conference. It's not a question of reviving in conference. It will be in conference. It passed the House.

Q Will you try to get a vote on the Senate floor?

DIRECTOR PANETTA: Pardon?

Q Will you try to get a vote on Btu on the Senate floor -- whatever comes out of --

DIRECTOR PANETTA: That's really a call -- again, I think the indication from both George Mitchell and Pat Moynihan -- and I trust their opinions with regards to where the Senate's at --is that a vote on the Btu would lose not only in committee, but perhaps on the floor. And it's based on that that they're looking at these other alternatives. I accept that.

Q The Btu tax -- Senate conferees will be members of the Finance Committee, and the Senate conferees almost assuredly would not go along with a Btu tax since it couldn't pass in the first place. Would the administration still stand behind a Btu tax in conference even though there's no way it could get out of conference?

DIRECTOR PANETTA: I have seen diametrically opposed positions go into conference and through the wonders of the legislative process, they find a way out. And I suspect that that will be the case here.

Q As a practical matter, how much difference is there other than the label between the Btu tax and the sort of tax that they're talking about in the Senate this afternoon, which would be a transportation tax plus a tax on electric utility generation. That would seem to cover most forms of energy? Is there a real practical difference there, or are we just talking about the label because, people have been conditioned to say we can't vote for this thing called the Btu tax, so we're going to vote for something else called --

DIRECTOR PANETTA: You know, I've always -- and I've said this -- is that there's always a feeling that somehow the tax that's not on the table is easier to pass than the tax you're dealing with. And I think they're looking at other alternatives to the Btu tax. And if they can pull together the votes to pass those other alternatives, God bless them. But I think the bottom line here is that we need to have some kind of energy tax as part of this proposal, not just for the purposes of deficit reduction, but because it's right for the country.

MS. MYERS: One more question --

Q Isn't it fair to say, though, that --

MS. MYERS: -- and then the Director has to go.

Q Is it accurate to say, then, that whatever this alternative is to the Btu, that you're not necessarily -- you won't object to it, you just won't specifically endorse it; but if it's what it takes to get it out of committee, then so be it --

DIRECTOR PANETTA: You've got it. Our key -- the key right now is to move the process forward, and whatever it takes to move the process forward, we would encourage. We don't necessarily opt to endorse it. And we are going to fight for the principles that the President expressed in conference one way or the other.

MS. MYERS: Thank you.

Q Are you talking to the Congressional Black Caucus right now as well, which is concerned that -- apparently enough to cancel tomorrow's meeting about entitlements?

DIRECTOR PANETTA: Obviously, they have some of the same concerns, and that's why I'm making clear to them the same points I'm making to you.

Q Did you offer -- did you contact Congressman Mfume?

DIRECTOR PANETTA: I -- we're going to be doing that.

Q Has this meeting -- might this meeting happen, or is it --

DIRECTOR PANETTA: I don't know --

END6:02 P.M. EDT