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THE WHITE HOUSE

Office of the Press Secretary


For Immediate Release May 10, 1995
                             PRESS BRIEFING
                                   BY
                      CHIEF OF STAFF LEON PANETTA,
                       OMB DIRECTOR ALICE RIVLIN,
                    SECRETARY OF HHS DONNA SHALALA ,
             AND DR. LAURA TYSON, NATIONAL ECONOMIC COUNCIL 

The Briefing Room

2:27 P.M. EDT

MR. PANETTA: Good afternoon. As you know, the Republican congressional leadership has now presented their budgets in both the House and the Senate. We've asked you here to present our initial assessment of those proposals based on the best information we have. Let me just make a preliminary remark that, as a former chairman of the Budget Committee and as former OMB Director, I have a lot of respect for the kind of ugly and difficult task that the chairmen of these committees had to assume. Unfortunately, that respect does not extend to the budgets that they produced in both the House and Senate Budget Committees.

The Republican budgets confirm our worst suspicions about the direction that they want to take this country. In the campaign, when they became a majority in the Congress, the Republicans really promised the following: that they could provide a huge tax cut, with the majority of that tax cut going largely for the wealthy in this country; that they could balance the budget by the year 2002; and that somehow they could accomplish all of this without harming working families or the elderly, or certainly without raising taxes.

I think it's clear from the budgets that they have presented that those were false promises to the American people. In trying to fulfill their Contract, Republicans have broken our nation's contract to working families and to their parents. The most glaring evidence of this broken contract are the massive cuts that are proposed in both Medicare and Medicaid.

For Medicare, the House budget contains about a $282- billion recommended reduction. The Senate budget contains about $256 billion in a cut. For Medicaid, the House would provide a $183 billion cut, and the Senate, $176 billion cut. When you add all of this up you're looking at very close to almost a $500 billion cut coming out of just these vital health care programs alone.

For Medicare, the cuts really begin the process of making Medicare a second-class health care system for our seniors. You cannot believe the myth that Medicare is growing more rapidly than the private health care system. It's not. And that somehow slowing it down can be done without involving any pain for senior citizens. Both of those assertions are false, and both Alice Rivlin and Donna Shalala will go further into the reasons why that's the case.

Furthermore, the cuts in Medicaid would not only harm, obviously, the poor, but would have a direct impact on long-term care for our senior citizens. Medicaid today is a safety net for long- term care for middle class families. That's really what it's become. Two-thirds of the costs go for long-term care for seniors. These cuts would impose dramatic costs on thousands of families whose parents will not be able to afford long-term care.

Taken together, these cuts will obviously impose a major burden and, I think in some cases, an impossible burden on working families who will have to bear the larger share of the costs for their parents' health, for their parents' long-term care.

Why are they making the massive cuts? Clearly, because they promised that they would provide this huge tax cut. Don't forget that the Speaker just within the last few days made the commitment that every penny of Medicare savings would go into Medicare. That certainly is not the case in these budgets.

They promised that Medicare would be considered separately from the budget. That, too, is not the case with these budgets. It's clear that they need the cuts in Medicare and Medicaid to meet their budget goals. In fact, the Medicare cuts are going directly to pay for the huge tax cut that largely benefits the wealthy.

On the chart to my right, what you're seeing there is the connection between what comes out of Medicare, the level of cuts that come out of Medicare, and the fact that you're looking at almost a $3,500 increase in costs per elderly individual under Medicare over these next seven years, going directly for the tax cut that is being provided under their process. It is almost a direct correlation for what they have to pay in order to meet their tax cut promise.

No matter what gimmicks they use, whether it's a reserve fund, a commission, the promise of separate legislation, their unwillingness to reveal the specific cuts that they want to make, the fact is these Medicare cuts are being used to fund the crown jewel of the Contract, which is their huge tax cut for the wealthy.

Now, the one promise that I truthfully never expected, and I don't think anyone else ever expected that they would break is the promise not to raise taxes. The Republican budget raises income taxes on more than 12 million working families -- 12 million working families. That's a tax increase of almost $21 billion, resulting from the severe changes that they've recommended in the earned income tax credit.

What you have here is an approach that basically says, for 12 million working families, we're going to send you a bill. For the top one percent in this country earning over $300,000, we're going to send you a tax cut of almost $20,000 per year. That's the trade-off here.

The EITC clearly recommends -- their rollback on the EITC represents a tax increase on 12 million working families earning less than $27,000. And obviously, for those over $300,000, they're going to get the benefit of a tax cut. It's okay to raise taxes if you raise taxes on working families.

The Republican budget is wrong for working families. It is wrong for the elderly. It is wrong for our economy. And I think it's wrong for the country. To do this is what the President has continually spoken to when it comes to the budget -- there's a right way to do this and a wrong way to deal with the need for further deficit reduction. The right way is what the President has done and continues to work for: First, that we reduce deficits without placing the burden on seniors or on working families. Secondly, that we target tax cuts to the middle class so that they can help educate their children. Thirdly, that we reform Medicare in the context of overall health care reform, so that it does not just simply place new cost burdens on working families and their parents, but tries to deal with the real problems that are out there that families have to confront in the health care area. And lastly, that we can accomplish all of these goals in a way that does not harm the essential investments that are crucial to economic recovery and to long-term economic growth.

The President is ready to work with the Congress, ready to work with the Congress to achieve these goals. But he wants it done in the right way, not the wrong way.

Let me have Alice Rivlin up here next.

MS. RIVLIN: Let's talk about Medicare and Medicaid for a minute. The Republicans have implied that Medicare is somehow not part of the budget. Indeed, last month, House Speaker Gingrich said the following. He said, "What we want to do is create an environment over the next three or four months where, standing by itself, there is a bill to save Medicare. That bill moves focused on Medicare. It has Medicare related ideas. It is not tied up in the budget. It's not tied into getting to balance by 2002."

Now, I've been working with the federal budget for a long time; I have no idea what that statement could possibly mean. Medicare is a federal program. The checks are written by the Treasury and it is in the budget, like any other program. And, indeed, the two plans that have come out of the two budget committees in the last couple of days illustrate very clearly how heavily the Republicans are relying on Medicare cuts to get to balance.

The Medicare cut in the Senate Budget Committee mark is the largest of any programmatic cut. And as Leon has shown, they need the Medicare cut to pay for the tax cut for the wealthy. If you add Medicare and Medicaid together, they account for more than half of the programmatic savings in the Domenici budget, as you can see very clearly on this chart. There are large other savings, but the big -- more than half of it is Medicare and Medicaid.

Now, the Republicans have also said, or at least implied, that Medicare and Medicaid are growing much faster than the rest of the health system; that they are out of control. This is simply not factual. The Medicare program per person is growing at about the same rate as private health insurance. As you can see, these two lines are very, very close together. The Republican plan would lower that rate of growth for Medicare alone.

Now, what's going to happen if you do that without changing anything in the rest of the health system, seniors are going to get second quality health care, or else less health care. But you can't lower Medicare by itself.

Medicaid even worse. The Medicaid program, per person, is already growing much slower than the rest of the health care system. They want to cut that rate of growth very, very drastically. They want to cut out the rate of growth. That is a recipe for very serious injury to the most vulnerable populations that we have -- older people in nursing homes, as Leon has said, and low-income people. Either those people are not going to get care, or the states are going to have to pick up the check -- one or the other. We can't just lower that rate of growth.

But let me turn it over to the lady who knows more about health care, the Secretary of HHS Donna Shalala.

SECRETARY SHALALA: Alice, I don't need this anymore. We've grown in stature since this budget came out. (Laughter.)

There isn't anyone in this room that doesn't know someone who is on Medicare and Medicaid. And let me talk a little about who's on Medicare and Medicaid in this country and what the real impacts on individuals that we know will be.

First, let me say that Medicare cuts will make elderly and disabled Americans poorer. There's no question about that. Three-fourths of the people who are on Medicare today -- three-fourths of the elderly and disabled people have incomes under $25,000 a year. We're not talking about rich people. To be old in America, to be disabled in America means to be not very rich in America. It means really to be very poor in America.

By the year 2000, if these cuts go through, and if they're split between the providers and between the beneficiaries -- and I'm just assuming a 50-50 split, though I noticed in the paper that Senator Packwood said that he thought all of the new costs should go on the beneficiaries -- but let's assume a split between the providers and the beneficiaries, the elderly and the disabled, those people who make under $25,000 a year, in the year 2000 would pay almost $1,000 more for their health care.

That would make them poor. And in fact, technically, most of it would be deducted from their Social Security check. I actually have a chart that shows you in the annual report the people on Social Security get, we deduct their Medicare Part B payment from that Social Security check. The impact on their Social Security would be to cut their cost of living increase in half over that period. You cannot cut Medicare by the staggering numbers that they're proposing we take that cut, and say that you're taking Social Security off the table. You are, in fact, putting Social Security on the table.

Elderly and disabled Americans have one income; some of it is spent for health care, some of it comes in through Social Security. If they get less in health care, if they have to pay more for their health care, that's going to come out of their Social Security check. And so the two programs are inextricably linked for 37 million Americans who participate in the Medicare program.

Finally, let me say a couple of things about Medicaid and then the impact on the health care system in general. The Medicaid cuts are simply outrageous. Two-thirds of the money that we spend on the Medicaid program -- which is often called the program for the poor, but it's not quite that when you look at how we spend the money -- we spend two-thirds of the money on the elderly and on the disabled. These are people that have no resources.

A very high percentage of people in nursing homes in this country are people who have spent down their incomes. All of you know and have relatives who have spent down their incomes who are sitting in a nursing home because the family can't take care of them because they need a nursing home at this point in their lives, or they're getting home care to allow them to stay at home. But two- thirds of the money we spend on Medicaid are really spent for the elderly and the disabled -- either for nursing homes, for other kinds of long-term care, for home health care.

Medicaid in some ways protects middle-income Americans because so many people have an elderly relative who is in a nursing home which is paid for by Medicaid, and that, in fact, is a subsidy for the middle class working family who couldn't possibly afford a $38,000-a-year bill for a nursing home.

So, again, these are not programs that are isolated for poor people that aren't related to the vast majority of Americans. They are, in fact, parts of families. And these programs are part of the overall program that we have in this country for our elderly and disabled relatives.

If we took the cuts that they would like to take in Medicaid and distribute them in quarters -- I split it four ways to see what the impact would be on the Medicaid cuts by the year 2000 -- a quarter of the money would eliminate coverage for dental screening services for kids, for hospice and for home care. We would eliminate coverage for 7 million American kids for whom they have no other health care available to them. And Medicaid would be eliminated for them. We would eliminate coverage for one million elderly and people with disabilities. And we would reduce provider payments, payments for hospitals and doctors by almost $13 billion.

When you cut these programs you cut real Americans. You cut families. You cut elderly aunts and uncles and parents. You make them poorer, and you cut back. And as Alice has said, you turn a health care system that -- a public-private system that was once the envy of the world into a two-class system, a poorer system for the elderly and the disabled, and a system that is increasingly in trouble because of what we've done to the public part of the system. And let me talk about that a little bit.

The impact of these cuts also occur on different parts of the health care system. Rural America is very dependent on Medicare and Medicaid. Think of who lives in rural America today, who stays in rural America. Elderly people and poor people, for the most part. Elderly and disabled people end up staying back in their communities as young people have moved off the farms and moved to big cities. Their health care has been increasing jeopardy in this country because we have not been able to pay rural doctors enough to stay out there. And almost every rural health care provider in this country, every hospital, is very dependent on income from the Medicare and Medicaid program.

I have lists of hospitals from one end of this country to the other that are on the margins, that are just making it, and we're underpaying them in Medicare and Medicaid. But in Medicare in particular, if we slash this program we're going to put at risk access to health care by 10 million Americans, 25 percent of recipients of the Medicare program -- 10 million Americans who live in rural America who would have their health care at risk.

This is also true of big, urban public hospitals in most of our major cities and of the great academic health centers who, again, are very dependent. Many of the big urban hospitals -- you've heard the stories about the public health in hospitals corporation in New York, about the big hospitals in other big cities -- the Los Angeles County Hospital -- are really teetering on the edge. And these really would be the final blows because of these cuts.

So not only would we make unstable the infrastructure of health care for rural Americans, for vulnerable Americans -- the aging and disabled and poor population, particularly children in large cities -- but we simultaneously will make every elderly American and every disabled American much poorer and make their health care second-class. I consider it outrageous and irresponsible for anyone even to consider that.

DR. TYSON: I will be very brief. You've heard a lot. When we made our budget we asked ourselves a question: What's best for the economy, and what's best for working families in the economy? And that was our approach to trying to figure out how much deficit reduction to achieve in a certain period of time, and how to balance that objective with the objectives of needing to maintain our health care system, to address the problem of an increasing number of Americans who did not have access to health care, to safeguard our Medicare system, to deal with the appropriate amounts of investment in education and training. We were always looking at what's the right balance in terms of deficit reduction over a certain period of time and other objectives to achieve the ultimate goal, which is a good economy for the average American.

That is not the approach that the Republican budgets represent. They are budgets that are in search of fulfilling an arbitrary campaign promise. The arbitrary campaign promise is to achieve balance in the budget by 2002, with no economic justification for why one wants to achieve that goal by that date.

Is that good for the macroeconomy? We've heard how it isn't good for working families, it isn't good for the health care system, it isn't good for a number of investments we will talk about later, but is it good for the macroeconomy? I think the answer is, no. It exposes the macroeconomy to considerable downside risk.

If you think about it for a minute -- and this is lost much too often in discussions of balancing the budget -- any effort to reduce government spending takes a dollar out of the economy. And when it takes a dollar out of the economy that dollar means a dollar of reduction in demand in the economy. So it increases the contractionary risks on the economy.

It means when the economy is slowing down, as this economy does slow down occasionally, or when the economy encounters recessionary pressure coming from the global economy or from domestic private sources, that what the federal government is doing is adding additional contractionary risk, downside risk. So if we hit a recession between now and 2002, the attempt to continue to balance the budget irrespective of the state of the economy exacerbates that risk and could aggravate the recession that the economy finds itself in.

Now, most economists will agree with this and they would agree as well that there's a particularly disturbing scenario in which if the federal government is trying very hard to contract its budget and the state governments are trying to contract their budgets, and local governments are trying to contract their budgets, and you hit some recessionary pressure coming from the private or global economy, that that's really a situation of really reinforcing all actions acting to make the recession worse. So most economists would agree that this risk is there and that deficit reduction of this magnitude increases the risk.

What people will say is they pin their hopes that the financial markets and monetary policy will make adequate adjustment in the right amount of time, and that the private sector will respond to those financial market adjustments and adjustments in monetary policy with the right amount of flexibility, so that these strains never come to fruition.

Now, I just want to say two things about this. Number one, as I think anybody who works with financial market forecasts well knows, it is very dangerous to predict what happens to long-term interest rates. Those are the parts of the economic forecast which are subject to the greatest degree of uncertainty. So to say that one can predict with certainty that long-term interest rates will respond exactly as needed at exactly the right time, and the private sector will respond exactly the right way so that this strain, the danger of contractionary pressure is automatically offset, to make that assumption is to make a very heroic assumption, and one which involves a prediction on a market whose behavior is inherently unpredictable.

What about monetary authorities? What about assuming that there will be action in short-term interest rates which does exactly the right of offset? Well, the point is we live in a system where there's both fiscal policy and monetary policy, and if we go down this road where fiscal policy becomes, year after year, a net contractionary force on the economy, there's only one actor left in the system to keep the economy out of recession, and that is the Federal Reserve. So we're taking one whole possible instrument and essentially putting it on a contractionary course year after year after year.

So I conclude that this approach, the Republican budget approach, is not good for the American economy in the macro sense; it's not good for the American economy in all the other senses that you have heard. There's a right way and a wrong way to make a budget that's good for the American economy, and the Republican budget is the wrong way.

Q Can I ask a question about your chart here? You all say you just looked at the details of the Senate plan and yet you come up with these figures which make it sound as if children are going to get thrown out in the street, the elderly people aren't going to get their medicine. What's the basis for these types of figures?

SECRETARY SHALALA: We know a great deal about how money is spent in states on Medicaid. And what they have assumes is they could slow the rate of growth. I would suggest to you a rate of growth in the Medicaid waivers that no governor has ever suggested to me, Republican or Democrat -- in fact, all of them have basically said, well, we've tried to negotiate tough growth rates with them -- that if we went down that low it would be a disaster for their programs.

What we did was we took the growth rate that they recommended and made some assumptions about what the states would do. Now, the states have some choices, and what we did was we were fairly even-handed and assumed that they would share the pain, so to speak. They have a certain number of elderly and people with disabilities on the program -- that they would not lay it all on them, even though -- because those in many ways for them will be their worst cases, and they have huge institutional investment in nursing homes in their states. So we just assumed that a quarter of whatever they had to take would be taken from the elderly and disabled, that a quarter would be taken from the kids, that they'd try to push some of it off on provider payments, that they would eliminate some of their coverage. So we simply made some assumptions.

It could be more of one or more of another. It is not possible, though, not to do some of this for these states. Those -- rates do not take into account the growth of eligible people; they don't take into account health inflation.

Alice's point about private health inflation is very important, because if our programs are not, in fact, growing as fast as the private sector, and we cut them down even further, that means that we're not paying the actual costs of what these services cost, which means that people have to cut back on the individuals.

Q I think with Dr. Tyson's presentation we may be coming very close to an honest drawing of the lines of debate here. Do I infer that it is the White House policy that it is not sensible economically to strive for a balanced budget by the year 2002, or maybe not to necessarily strive for a balanced budget thereafter?

DR. TYSON: Well, I think we have said pretty clearly that we think the effort to achieve balance by an arbitrary date is a campaign promise. I think that what we're -- we approach it a different way. We approach it from what are the problems confronting the economy, and what is the appropriate thing to do to address those problems -- and then, with the notion that one of the things we need to do is continue down the path of significant deficit reduction.

So we have said very clearly we put additional deficit reduction on the table, and we have said that we are interested in achieving even more deficit reduction, but in the context of addressing other problems like reform in the health care system. So at the end of the day, you get additional deficit reduction as essentially coming out of trying to solve a complicated economic problem, not you start with you want this number by this date and you force in all the other changes in the system just to achieve that.

Q But by the end of your data and according to your projections, you're still at about a quarter of a trillion dollar deficit by the year 2002.

MR. PANETTA: Well, but look, the difference is this. There's a right way to do it and a wrong way to do it. You don't just pick a number out of the air. You don't just pick a year out of the air. They're tied to their Contract because it happened to say 2002. Well, it's nuts to say we're going to pick this year to achieve a certain goal when you're dealing with the kind of economy that we're dealing with. There is a rational way to do a deficit reduction path. We have shown that in the President's economic plan. The President is prepared to engage in further deficit reduction. But it has to be a rational, common-sense path. It can't just be tied to an arbitrary goal if it's going to make sense for the country.

Q you were not going to engage in any effort to fix the Medicare system and the problem of solvency until the Republicans had produced their budgets. You've got the budgets. What are you going to do?

MR. PANETTA: Look, this is the beginning of their process. The problem we've seen is that they have essentially rejected what the President has stated in terms of important goals that have to be achieved if, in fact, we're going to get some kind of plan established. They've got to drop this tax cut for the wealthy. They haven't done that. They've got to -- in the context of Medicare and Medicaid savings. They've got to do it in the context of health care reform. They haven't done that. And lastly, they've got to have a rational deficit reduction path that isn't just tied to an arbitrary date. They haven't done that.

And so, we'll see what they do with their budget. We'll see what kind of response it gets on the floor. But at this point, they have not moved on the key principles that the President has laid down.

Q Is that a new mark, you will not meet with them or talk to them about Medicare reduction until they've dropped the tax cut proposal?

SECRETARY SHALALA: We have said that consistently.

MR. PANETTA: We have been saying in the letters we've sent up there; we've been saying it on the questions that we received; the President has made very clear these are the principles upon which we have built our budget. They're the principles they've got to move toward if we're going to engage.

Q Mr. Panetta, you know as well as anyone that nothing concentrates the mind like a hanging. Why is their 2002 deadline any more or less arbitrary a campaign promise than your Middle Class Bill of Rights is in fulfillment of a, ultimately, sort of arbitrary 1992 campaign promise?

MR. PANETTA: Look, you're talking to -- I'll have Laura speak to this as well -- but you're talking about developing a budget for the United States of America in the context of the economy that we're dealing with. We have always said we ought to move toward further deficit reduction. But it's one thing to promise that and to promise some kind of arbitrary we're going to balance the budget by a certain date, and it's another thing to deliver on that.

What you're hearing right now are promises that can't be delivered on. Make no mistake about it, they cannot do $300 billion in cuts in Medicare ; they cannot do the kind of level of cuts in Medicaid in the context of what they're talking about. They cannot do this. It doesn't serve the American people to make these kind of promises that they can't deliver on.

What we're saying is let's engage on a rational basis in terms of a common-sense approach that will help this country for the future. I think people have heard enough false promises in this area dealing with the budget.

Q In the absence of comprehensive health care reform are there any Medicare savings that you think are advisable or that the White House could tolerate?

MR. PANETTA: The President in last year's health care reform bill presented some savings that can be achieved in both Medicare and Medicaid, but it has to be in the context of health care reform.

SECRETARY SHALALA: Let me explain that a minute, though, because the point is that we did, in fact, lay out some slowing down of the growth. But it was tied to coverage. It was tied to insurance reforms. It was tied to some other things, so that at the end of the day you don't have less people covered in this country with insurance, you haven't destroyed the infrastructure of the health care system, and you have contained costs. And that's why we can't simply have a narrow discussion about Medicare and Medicaid without discussing insurance reforms, coverage, some cost containment. It's why you can't just cut the public side when the private side is going through the roof in terms of increasing faster than the cost of living.

Q There's been a lot of focus on health care, but these budgets also have about $400 billion or $500 billion in cuts in discretionary spending, in calling for elimination of Cabinet agencies and that sort of thing. Are these the sort of things that you support?

SECRETARY SHALALA: These are very serious cuts, and we will be having additional press conferences to talk about those. (Laughter.) We just didn't want to overburden you here. But make no mistake about the discretionary cuts, as I think Leon said in his introduction. The discretionary cuts are very serious. They would mean approximately 30 percent across the board.

Now, we don't know what will be cut exactly, but we do know these would be very serious. They would affect programs for all Americans, for average Americans, for low-income Americans -- everybody.

Q The President submitted a budget that, as Dr. Tyson said, relies heavily debt spending, but invited, when he sent that up to the Republicans, to come forward with more proposals for deficit reduction. So they take him up on his invitation. Do you not give them any credit whatsoever for political courage of any kind? It will never get solved unless somebody shows some nerve.

MR. PANETTA: As I said at the top, I think the chairmen of both committees have had a very difficult task to implement. And of course, it's a tough task and a tough job. But that's a far cry from looking at the substance of what they presented and looking at the basic principles that they're advocating here. They are basically saying we're going to balance this budget on the backs of the elderly and on the backs of children.

We can't do that in this country. This country is built on a balanced approach to trying to meet the needs of our country and to trying to achieve, obviously, fiscal discipline within that context. But you can't sacrifice one group for the other. You've got to have a balanced approach.

I think what the Republicans did here was they simply went too far. They simply went too far. Instead of trying to find the balance that I think is important to passing budgets in the Congress, they decided to take an ideological trip to basically fulfill their Contract. And I think that's a mistake.

Q Mr. Panetta, if the outlines of this budget is what ends up in the reconciliation bill, what will the President do? Will he sign it? If the basic outlines of the budgets that they've presented is reflected in --

MR. PANETTA: The President strongly opposes what they've proposed in these areas. If it was contained in a reconciliation bill similar to what's in their budgets, then I don't think there's any question what the President would do.

Q Which is?

MR. PANETTA: He wouldn't be passing out any pens on this one, I can tell you that. (Laughter.)

Q This morning Representative Armey said that anyone claiming we are cutting Medicare is simply lying and that the Democrats are really just spreading fear. Do you have any response?

SECRETARY SHALALA: Professor Armey knows better than that. He knows as well as anyone that if you cut a program so that it can't accommodate new people coming into the program, if you cut it below what its actual costs are, that that is, in fact, a cut. What he's suggesting is by slowing down growth you're not making a real cut. If you slow down the growth of your income below the cost of living, that's a cut for you. And our argument is that if you're slowing down growth here, and that's below what's happening in terms of costs out there, it's a real cut.

And you have to think of it in terms of your wages. And he knows that, and to cut it below what the private sector is spending means that we're shifting some of the costs on to the rest of us who pay for insurance. It also means that we don't have enough money to pay for real costs for health care for the elderly and for the disabled who are, admittedly, the most expensive people to provide health care for.

MR. PANETTA: Don't ask Dick Armey about whether those are cuts or not, ask the elderly people that are going to be impacted by these cuts. They'll have, I think, a much more honest answer to that question.

Q You keep talking about deficit reduction and you'd be prepared for more deficit reduction. Now that we've seen the two Hill budgets, is the President prepared to come out with more possible cuts -- because there is a lot of deficit still in the administration's plan -- to try to say, no, we're not going to do it this way, but we are going to move more towards a balanced budget with this way?

MR. PANETTA: I've stated the principles that the President cares about and that he thinks the Republicans have to move away from. This is the beginning of their process. It's a long way towards conclusion. We'll see what the budget committees do. We'll see what the floor does. And then we'll look and see whether or not they, in fact, back away from the commitments that we think simply cannot be fulfilled.

Thank you very much.

THE PRESS: Thank you.

END3:05 P.M. EDT