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Office of the Press Secretary

For Immediate Release February 14, 1994
                            PRESS BRIEFING
                          The Briefing Room 

4:05 P.M. EST

MS. MYERS: In a day of wall-to-wall briefings, this one is on the Treasury report on the balanced budget amendment -- the state-by-state impacts. It will be on the record, the first five minutes for sound and camera. I mean, the statements plus the first five minutes for sound and camera. So, we'll start with Bob Rubin, who you all know is Assistant to the President for Economic Issues, followed by Roger Altman, Deputy Secretary of the Treasury, and, finally, Alicia Minell, who is Assistant Secretary for Economic Policy. They will each make a presentation and then take your questions.

So, Bob Rubin.

MR. RUBIN: Thank you, Dee Dee. Let me make a few brief introductory remarks.

The reason we're doing this today is the economic report for the President and the Treasury analysis are both being released. Last week, as you may remember, Alan Greenspan, Chairman of the Federal Reserve Board testified -- this is not an exact quote, it's a paraphrase, but something to the effect that the foundations of the economy are better than they've been the last two or three decades. The President has put in place a powerful deficit reduction program. The deficit was projected to be something like 5 percent of GDP, 5 percent of the economy at the end of the Bush administration. It is now projected, in 1995, to be 2.3 percent of GDP, 2.3 percent of the economy.

The President and Congress have been exceedingly serious, disciplined and effective with respect to the deficit. We think a balanced budget amendment -- and we are unanimous in this within the administration -- we have all sorts of meetings and all sorts of debates and we have disagreements about all kinds of things; this is one thing we had no disagreements about. We were unanimous in the view the balance budget amendment is terrible, terrible economics. We very much agree with Alan Greenspan. We think the country is back on the right track. We think the foundations are in place to do well economically both in the here and now and in the long term. And then you think to yourself, what could derail all this? And the thing that most comes to my mind is a balanced budget amendment.

Toward the end of this decade, with the deficit at 2.3 percent of GDP, the then-President -- hopefully, President Clinton, but if not, someone else -- will be in a very good position to decide to do what -- what kinds of actions to take next to then move the deficit down to whatever level they then decide to move it to. But once again, as President Clinton did, it will undoubtedly -- it should be done, and presumably will be done, in a carefully phased, well-thought-through fashion so that the deficit -- the

contractionary impacts of the deficit reduction program are properly counterbalanced by the effects of lower interest rates. What you don't want to do is have to step over a cliff, and that's what the balanced budget amendment would do. It would force the administration and then Congress, at the time, to jump -- to fall over a cliff in one particular year.

The macroeconomic impact would be horrendous -- most likely would be negative, and could possibly be horrendous. It would force either increases in taxes or cuts in programs that would be enormous. And, since you have no idea what the circumstances would be at the time, it might force Congress and the administration to do exactly what is wrong given the economic consequences of the time.

There is only one answer to deficit reduction that makes sense, and that is to have the kinds of discipline that the President, the Congress exhibited with respect to last year's budget and this year's budget -- to do it in a aggressive but phased fashion, where you thoughtfully and carefully weigh the macroeconomic contractionary impacts of deficit reduction against the expansionary impact of lower interest rates. What you do not want to do is undermine what has been accomplished in the last year and a half, what will be accomplished this year with this budget. For all of those reasons, we think a balanced budget amendment is a truly horrible economic idea.

With that, let me turn the podium over to Roger Altman.

Other than that, we tend to be opposed to it. In some ways, I think I've understated my personal view, in the interest of being statesman-like. (Laughter.)

MR. ALTMAN: Speaking of truly horrible -- Bob said that the Treasury is releasing just now a state-by-state analysis of the impacts of the balanced budget amendment. And I want to make just a few prefatory remarks before handing this over to Alicia Minell who is the Assistant Secretary of the Treasury responsible for having done this work.

The point here is to have an honest debate about specifics. There would have to be approximately $600 billion of cumulative deficit reduction by the year 2000 to meet the requirements of this amendment. And our point was to illustrate the impacts of that on a state-by-state basis. Because there are only three ways to achieve deficit reduction -- raise taxes; cut Social Security, Medicare and other entitlements; and cut other spending on the discretionary side, particularly defense. Those are the only three ways that you can get there. And we're releasing this report not just to illustrate the impacts of this, but to try to lay down a challenge to the proponents of the balanced budget amendment. Namely, for them to explain to the people how -- step by step -- they would actually bring the budget into balance in compliance with this amendment.

And let me quote, for just a moment, or paraphrase at least, Bob Reischawer of the CBO who said recently that any discussion of a balanced budget amendment must be in the context of an honest discussion about the program cuts and the tax increases necessary to achieve such a balance.

So we want the American people to understand the degree of hardship which would result from this step; and believe me, it is major league. If you ask people if they're for a balanced budget, the easy answer is yes. But if you take the American people through the impacts that we are releasing today, they would realize those hardships which would be imposed. And I think, most of us think that their attitudes toward this would change and change radically.

Now, the proponents are not taking the American people through this because they don't want them to know. And most of the proponents are opposed to the types of steps on the tax side and on the spending side that would be necessary to actually conform to the amendment. Most of them are opposed to it. So you have, in some respects, the ultimate sham -- a considerable number of people in the country and in the Congress favoring the amendment, virtually all of whom opposed the specific steps necessary to bring about compliance with the amendment.

I want to just tell you a quick story which illustrates this. A few weeks ago I was on the road with a senator, whom I happen to like very much, who is a supporter of this. And we were walking between meetings, and he spent the first five minutes of the walk explaining to me the importance of the balanced budget amendment, how we needed this discipline, the country finally had to get this type of rule and how important it was and on and on. And he spent the second five minutes telling me that what we need in this country is an old-fashioned public jobs program -- a big public jobs program, a big, expensive public jobs program.

And naturally, I said to myself, what kind of credibility do his views on the balanced budget amendment really have. But you find that time and time and time again.

Q How do they expect to get it? What are they proposing?

MR. ALTMAN: They're proposing alchemy, Helen, alchemy.

Q Did you say it to him? Did you challenge him?

MR. ALTMAN: Well, we're friendly, so yes, I did.

Q And what did you tell Simon? (Laughter.)

MR. ALTMAN: Well, actually, it was the other Paul Simon. You know, I'm very friendly with him. (Laughter.)

But release of these state-by-state numbers which we do from time to time on major policy issues is intended to try to bring this debate around to the specifics, explain to the American people what's really involved here and, particularly, challenge those supporters of it to release their own proposals -- their very specific proposals, as to how they would actually achieve this change in fiscal policy.

So, with that, I'm going to introduce Alicia Minell, who with her staff did the work and who can explain the methodology and the details.

MS. MINELL: Thank you, Roger. I have to laugh. We're all quoting Reischawer here. My quote would be the one that ends the summary on the latest economic and budget outlook and it says, "It would be particular folly to pass a balanced budget amendment and ignore the need to expeditiously enact legislation that would offer some hope of complying with it."

And it was to meet that goal that we did this exercise. And what we did is propose five alternative ways of reducing the deficit by the year 2000. We selected 2000 because a date associated with the amendments keep changing. But the picture would remain unchanged. And that is that you need large tax increases and large spending cuts, no matter how you do it. And the more that you move to exclude some programs like Social Security or defense, the larger the cuts come in other programs.

The exercise that we did was very conservative. It's really just the first round of tax increases and spending cuts without any feedback on the economy. Our sense is that tax increases and spending cuts of that magnitude would have a contractionary effect on the economy. We do not think that we'd once again enjoy the same kind of interest rate reduction that we did as a result of the legislation passed in 1993.

That legislation really broke the back of the psychology that deficits were ever going to be increasing, and I think we really got a one-shot benefit from that so that we would effect some decrease in economic activity, some decrease in DDP growth, and some decrease in employment. But those are not included in the numbers that we put before you today. They're just very simple, straightforward numbers that you get by looking at how much lower the deficit has to be in the year 2000, distributing that by state based on data that is published by the Census Department for the year 1992.

So, there's very little guess work involved in this. And as I said, it's just to drive home the point that it will require large spending cuts or large tax increases and, for the most part, it's going to touch programs like Social Security and defense. And if you're in favor of a balanced budget amendment, it's incumbent upon you, it seems, to come forward and explain how these cuts are going to be made.

Q How much support do they have in the Senate for this?

MS. MINELL: I'm not exactly -- you'll have to talk to the political folk, but I know we're concerned that --

Q But I mean, when you're rolling out the big guns, you seem to be concerned.

MS. MINELL: I think we're very concerned that this legislation would pass. It would be very harmful for the United States if it did.

Q A two-part question -- since you mentioned you're assuming you need $600 billion in deficit reduction, I assume that your study assumes that you're accomplishing that over three years?

MS. MINELL: Well, actually, we do it over five years. And we phase it in very slowly.

Q Then why in the sheets does it talk about $200 billion a year?

MS. MINELL: It's $200 billion in the last year.

Q So, $600 billion over five years?

MS. MINELL: Yes, and we do it sort of linearly.

Q And why, if last year's $500 billion five-year package was marvelous, why wouldn't a $600 billion five-year package also be marvelous?

MS. MINELL: We were very fortunate that when we passed that $500 billion deficit, we really changed expectations about the demand for credit in the markets by the government, and we got a big decrease in long rates. That decrease in long rates really spurred the interest-sensitive parts of the economy and have contributed to an investment-led recovery.

I do not expect that we would have that same type of interest rate reduction if this were passed.

Q Why?

MS. MINELL: There are two reasons. One, I don't think anybody would believe just by passing an amendment we would really get the cuts. And two, if we got the cuts, I don't think that people any longer expect ever-increasing deficits. So, I think we have broken the back of spiraling deficit psychology already, and I don't think we're going to get another hit of benefit from it.

Q With the premise of the amendment discipline, how do you assure that the discipline that you claim was exercised last year will continue?

MS. MINELL: There's nothing better than -- talk is cheap. Actually proposing deficit reduction, tax increases and spending cuts is hard. And we did the hard thing and actually got $500 billion of deficit reduction. It wasn't easy. It was painful, but we did it.

The next area we are tackling is health care. And that we're tackling for -- one of the main reasons we are tackling that, is that contributes to spiraling deficits. So, we are taking the logical steps that you need to reduce that deficit. Putting in some arbitrary deadline and saying you've got to reach zero balance by the year 2000 or 1999 or 2001. It's not a sensible policy. And it's detrimental to the economy.

Q Secretary Altman, can I ask you a question? Given the President's and other administration officials' rhetoric about the use of filibusters against legislation the administration was supporting, how would you all view an outcome of this where it was blocked in the Senate by a filibuster by Senator Byrd or others who agree with you?

MR. ALTMAN: Well, I'm not a legislative tactician. My answer would be we need to save the country from this disaster. And I hope we just beat it fair and square. And I believe it will be close but that we can. But I'd rather reserve as to whether or not a filibuster might be an intelligent legislative tactic, I don't know.

Q But if it came to that, if that was the only way the administration thought it could be stopped, you wouldn't have -- the administration wouldn't have any problem with that?

MR. ALTMAN: We want to stop it.

Q Where does the administration stand today on possible trade sanctions against the Japanese? Have any decisions been made about that? And how soon can we expect some action in regard to that?

MR. ALTMAN: I'll only say that there will be -- there's a cellular telephone matter coming up, and there will be an announcement by Ambassador Kantor on that tomorrow. And I'm going to leave it to him to make that announcement and the details of it. But in the most basic sense, we are reviewing our options on this and we're not planning to rush forth with some rapid-fire set of retaliation. We will -- we're in a phase of being deliberate and measured and when we have reviewed these options fully and when we are prepared to take any unilateral steps, well obviously, we'll announce them.

Q Just to clear something up, this balanced budget amendment, as all amendments, require 67 votes. You're not seriously considering a filibuster which needs 60 votes to stop it, are you?

MR. ALTMAN: I want my answer on this to be very simple. The amendment requires 67 votes. The objective is to be sure that 67 senators don't vote for it, and that's what we're aimed at. Our efforts are aimed in that direction.

Q Why would you pursue a filibuster?

MR. ALTMAN: I can't think of a reason either, but I'm not a -- it doesn't seem to fit to me.

Q Do you think, are you going to set up --

MR. ALTMAN: Or how that would work.

Q Are you going to set up a war room type operation to combat this? Are we going to be seeing these figures used the way you used figures in the NAFTA fight?

MR. ALTMAN: Well, one person's war room is another person's concerted effort. (Laughter.)

There is no war room per se, no. But there's a very organized program -- and this is just one phase of it -- to try to explain to the American people and to the Congress what's involved here and how bad this would be.

Q Do you feel the majority of the American people at this point favor the amendment?

MR. ALTMAN: Well, as I said, if you ask people in the abstract whether they're for a balanced budget, the easy answer is to say yes. People tend to say yes. But if you then say, are you in favor of these Social Security impacts, or these tax impacts, or these impacts on defense, people tend, in my experience, to think twice and to change their view.

So when you just take a poll on the balanced budget amendment, it's just half the debate.

Q How did you derive the number $728 billion in additional annual taxes per taxpayer? How many -- is that a year 2000 figure as well?


Q How did you arrive at that?

MS. MINELL: I wish this were more sophisticated and I could brag about it, but basically there are -- we have totals for the year 2000 that come out of the budget and the commitment to balance the budget. We have spending by state for 1992 and we basically applied those percentages to the year 2000 and come up with these numbers.

Q Is that a cumulative number?

MS. MINELL: No, that's an actual 19 -- the year 2000 number.

Q Then why was the number not progressive, which is your own philosophy of taxation? Did you follow your own philosophy toward rates? I mean, where's the incidence here?

MS. MINELL: This is definitely a first pass. What we did is just assume a percentage increase in the individual income tax. You could do it any way, if that's your point. I don't think that --

Q That's not the way the President approaches tax policy.

MS. MINELL: Yes, Gene wants to --

MR. SPERLING: We just -- what we're trying to do in this exercise was to lay out the magnitude of the choices and to invite people to come forward with more specifics. We're trying to elevate this debate so that -- and what we're trying to show is that if you have a deficit reduction package of the magnitude of the '93 -- I mean, in the same percentage of revenues and spending cuts as '90, '93, this is what the average would be per taxpayer. It's just an average. It could -- but that does raise some important questions. Having already raised taxes a significant chunk on people in the top 1.2 percent, it's not as clear where you can go if you had to raise this much money over such a short period of time.

Q During the presidential campaign, the President bragged about how he could balance the budget. Of course, Arkansas has a balanced budget amendment -- provision. Yet today, you describe the balanced budget as horrendous, horrible, terrible, it's going to derail the economic recovery. What happened?

MR. SPERLING: What happened? There were two administrations previous to us who took the -- quadrupled the national debt and left us with a very, very serious problem in terms of both the deficit and a lot of important needs that a lot of people care about. Remember that the Senate crime bill that passed 94 to 4 called for $22 billion in additional spending, and we also had a weak economy. So, we had to try to balance between the need to do more things like crime, have a strong economy and bring the deficit down; and we think we've succeeded in bringing it down. Nobody's against the goal of balancing the budget. We're trying to do it in what we think as an intelligent and balanced approach.

Q Can you spell out for us, Gene or Secretary Altman, what more you're going to be doing or are doing now as part of the campaign to defeat the amendment?

MR. SPERLING: I think we're going to try to do more to just simply do what really all of you have demanded of us on both the budget and health care, which is a very, very specific analysis. You're talking about amending the Constitution for the 17th time since the Bill of Rights. In a way, that would put the federal judiciary right in the middle of the Senate and House budget committees making policy. And we are going to try to have as honest a debate as possible.

We, obviously, are for bringing the deficit down. We -- the President risked his presidency on fighting for a package that brought the deficit down. But we've been serious about doing it with specific, tough choices. When we proposed our plan on February 17, 1993, the President went out there alone -- one person -- and proposed tax increases on the top 1.2 percent, energy tax, savings from every entitlement; and it was that specifics that gave us credibility with the markets and helped us bring down the deficit.

Our health care plan -- if we've been criticized for anything, it's for being too specific, or being so specific. But that is really the honest way to proceed on something as serious as balancing the budget. So, we will keep trying to have a conversation in every way we can about the specifics.

Q What, specifically, are you going to do to get the message out?

MR. SPERLING: We will meet with groups of people who have specific interests, let them know what we think is at stake. I

think that the -- I think that you'll find that the Pentagon is extremely concerned about the effect that this will have on national defense. I think that there are groups like -- certainly senior Americans, I think, have quite a lot to be concerned about with this. And I think that there will be people who care about the health care bill that will be concerned.

Every single health care plan relies on a significant amount of savings from Medicare and Medicaid growth to finance health care. So, if you take all of those savings away from the balanced budget, there doesn't seem to be any way that any plan could finance itself.

So, we'll be doing general outreach. I think that it's safe to say the Cabinet members will be calling, talking to senators and trying to make sure that they really understand what the full impact of this is. Many people expressed their support for this at a time when the deficit was out of control, when there was no sign that there would ever be presidential leadership; they wanted to make a statement. Now the deficit is coming down and people really have to think about what the consequences will be for the economic recovery. So, I think you'll see -- without having a war room -- I think you'll see the kind of all-out effort that you've seen by the administration in areas like NAFTA and passing the budget.

Q Is Janet Reno one of your main witnesses on this?

MR. SPERLING: Chairman Byrd invited her to testify tomorrow, and --

Q That seems an odd choice.

MR. SPERLING: I can't speak for Senator Byrd. But I'll tell you why I personally think it's very relevant is, that is an area where the American people are crying for us to do more. They're crying for us to put 100,000 more cops on the streets, and to do something, to build prisons. And that is the type of thing where it would be almost unimaginable that Congress would have to come up with a plan next year to cut spending, perhaps by $500 or 600 billion. Because if you ask, I think you'll find lots of the supporters on this don't want to raise any taxes. A lot of them don't want to cut defense. A lot of them don't want to cut Social Security. So, where is it?

With those things off the table, the discretionary budget, which is already going down, would be -- brutalized, I think would be a fair word. And the notion that you would add $22 billion in spending for law enforcement under those constraints -- maybe its possible, but it seems very hard to make the numbers add up.

THE PRESS: Thank you.

END4:33 P.M. EST