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THE WHITE HOUSE

Office of the Press Secretary


For Immediate Release October 23, 1995
                       ROUNDTABLE BUDGET DISCUSSION
                                    BY
                       CHIEF OF STAFF LEON PANETTA
                                     
                            The Roosevelt Room

2:20 P.M. EDT

MR. PANETTA: Today, as all of you know from the packets in front of you, we are releasing two reports today on the impact of the Republican budget on children. And let me just give you a summary of the two documents that are before you. One is one of the national documents that basically gives you the nine key areas of the budget impact, in particular on children, and there is a comparison between the Republican budget and President Clinton's budget that's laid out in a side-by-side, as well as a general summary of each of the primary areas that we're going to try to summarize.

There is also a very interesting chart that we have that's after Section 3, I think, that basically paints the picture better than any words. This basically shows that families with children, under the Republican budget, that are going to get hit hardest by the cuts in both benefits as well as the health care cuts, impact most significantly on the lowest percentile, 20 percent, of families in this country. That, incidentally, is about -- we estimate about $3,200 per family in terms of the impact. That chart is particularly significant.

The other document --

Q Is that for one year or seven?

MR. PANETTA: Gene?

MR. SPERLING: It's one year.

MR. PANETTA: It's one year.

Q One -- each family would lose $3,200?

MR. PANETTA: About $3,200.

Q Each family?

MR. PANETTA: At the --

Q This is at what level?

MR. PANETTA: It's basically your families at the 20th percentile. What level of income is that?

MR. SPERLING: It's about an average of $13,000.

MR. APFEL: It's the lowest quintile, in other words.

MR. PANETTA: That's correct.

Q This includes EITC?

MR. SPERLING: No, it doesn't.

Q This does not include EITC?

MR. PANETTA: And it does not include the EITC which, if you add that, obviously it would increase the impact that much more.

Q It is figured, though, on a value of Medicaid cuts, is that right? That's the lion's share of that amount, isn't it?

MR. PANETTA: Probably. It's a big chunk.

Q A family defined as three, or four?

MR. PANETTA: The other document is the state-by-state, which we're also providing in terms of what we've been doing in looking at the cuts and the impact of the state-by-state approach.

In terms of what we're doing today, the First Lady, as you know, visited babies in Children's Hospital in New York, and gave a speech on this issue there today. The Vice President and Mrs. Gore will discuss this issue tomorrow. We have about a dozen Cabinet members -- I know Secretary Rubin earlier spoke on this issue in our focusing on it today. Some are traveling around the country and some are here in Washington. And there are some 20 governors, mayors and other local officials that are holding events in the country as well, to focus attention on children's issues.

Just a quick summary, if I can. I think all of us know that in confronting the whole challenge of budgets that -- the main point of any budget and the real test of any budget is ultimately how it impacts on the future and impacts on our children. And budgets are about the future, they are about our children. And here, when you're comparing the budgets, there's a pretty clear choice between, I think, the Republican budget, which basically takes the attitude that you have to harm children in order to save them as opposed to the President's budget, which is that we should continue to invest in our children for the future.

There is -- as the President has been saying and all of us have been saying, this is -- I think these budgets do mark a significant point in this country's history where we have to decide what direction we're going to go in. And they both represent two very distinct paths in terms of the future. And one, I think, clearly represents -- the President's path is to try to represent the basic values that this country is all about, in terms of what families are about and what they want for their children.

As I've said, my parents came to this country as immigrants because they really believed in the American Dream, that they could give their children a better life. And that, fundamentally, is what is at issue here is, which one of these budgets ultimately can give our children a better life for the future. We don't think there's any question about that. When you look at the substance of the report that we're putting out today, the Republican budget is basically going to set back our children for the future. It's going to diminish that dream rather than improve it.

There is no question that balancing the budget, as the Republicans have been pointing out and the President's been pointing out, that balancing the budget, reducing the debt that we pass on to our children and to their children, is important to their future in terms of economic opportunity, in terms of capital investment, in terms of relieving them from the burden of that huge debt. There's no question that that's important.

But investing in our children is equally important, and you don't have to sacrifice one goal to reach the other. I think that's really the fundamental point in the President's budget; you don't have to hurt our kids in order to save them.

Ultimately, as I've said, I think these are about broader priorities. One of the things in the time that I've worked on budgets, both here as well as on Capitol Hill, one of the things that we have always learned from programs particularly directed at children, is that for every dollar of investment, we save funds in the long run in terms of that investment. WIC is probably the best example of that -- Women's Infants and Children's feeding program, where it's been documented that for every dollar we spend on Women, Infants and Children's programs saves $4 in health care costs in the future.

We've documented that nutrition program, so when we provide kids with a decent breakfast, decent school lunch, that they learn better in school and that you save dollars in terms of their health care costs in the future. That's true for Head Start, it's true for the health care programs that are directed towards children.

These are investments that pay off in the future, that save money in the future. They're not just good investments morally; they're also smart from a fiscal point of view because you save money by investing in kids up front.

I'm always amazed that Republicans will, when they turn their budget microscope on programs, that they always turn their microscope on programs that are targeted at the most vulnerable. Very frankly, these programs -- many of these programs work, they work effectively. WIC program works; Head Start works. These are programs that basically have been proven to work, and we've continued to invest in those programs. Frankly, both Republicans and Democrats have continued to invest in these programs because they do work. I wish they would take the same kind of microscope and apply it to programs like capital gains proposals that they're working with, Star Wars, and for that matter, some of the tax cuts that they have incorporated in their quarter-of-a-trillion-dollar tax cut that they want as part of their budget.

I want to quote from Bob Herbert's column today in The New York Times, because I think it's something that really does make the point with regards towards budgets impact on children. Let me quote: "When the budget cutters smile in your face and tell you how much they love your children, ask to see that ugly and arcane region known as 'the fine print'. You'll need a guide and a strong stomach. What they do to children is not to be believed."

Well, it isn't such fine print, as you'll see from looking at the report. It's obviously pretty clear-cut as to the impact that we're looking at here. Let me just summarize the worst cuts that we see in the budget. There are nine areas. The first is on health care. And, incidentally, when you look at a program like Medicaid, one of five kids is on Medicaid in this country, one of five kids.

Now, you're looking at as many as 4.4 million children nationwide being eliminated from the Medicaid coverage program in 2002 -- 4.4 million kids. That's about a 20-percent cut. As you know, Medicaid pays for immunizations, regular check-ups, intensive care, particularly from emergencies for kids. It serves about 18 million children in America right now, and about 4.4 would be eliminated. It obviously jeopardizes the immunization of kids and it also denies about 1 million --

Q Excuse me. Can you tell us what you base that on?

MR. PANETTA: On which, the --

Q On 4.4 million children being eliminated from Medicare.

Q What do you base that on?

MR. PANETTA: Gene?

MR. SPERLING: Yes. The Urban Institute did an analysis of the budget resolution -- $182 billion in the budget resolution. Their assumption was, if 50 percent of the savings came from providers and 50 percent came from beneficiaries, they found that 6.3 million either children or parents would be denied coverage in the year 2002 -- 900,000 elderly Americans and 1.4 million disabled.

The 4.4 million is, the HHS tried to break down the 6.3 million into which would be the parents and which would be the children. So the 4.4 million is an HHS extraction from the Urban Institute, and I wanted to make that clear. The Urban Institute was the 6.3 million taken from the budget resolution, and that's an HHS extraction of that. So the 4.4 is not an Urban Institute number itself, it's our interpretation of that.

Q Do you know if you count, then, the state -- how do you figure the state maintenance of effort? At current level?

MR. SPERLING: I'm sorry -- on the --

Q The state's share. Do you discount it?

MR. PANETTA: In other words, are you asking whether the state's share -- is the state picking it up, or --

Q Yes, in your underlying assumption --

MR. PANETTA: Is the assumption that the states --

MR. SPERLING: You mean like a federal cut. This is just doing the federal cut.

Q Okay, so you're not counting -- okay.

MR. PANETTA: The second area is the impact of kids with disabilities, and as you know, you're looking at about 755,000 disabled kids that would lose SSI benefits in 2002 under the House version of the Welfare Reform Bill.

Q How many would lose it under the Senate?

MR. PANETTA: It's approximately about 170,000, but that's a provision we hope to -- we're focusing on in the conference to try to get that approved as well. That's the difference.

Q In this case, these numbers could be -- no one knows what the state's commitments would be?

MR. PANETTA: That's correct.

Q So this is --

MR. PANETTA: In this instance.

Q Okay.

Q When there's differences between the House and Senate bill, how do you work those out to come up with these figures?

MR. PANETTA: This is strictly the House version on welfare reform, which is the most egregious with regards to kids.

Q Why are the numbers so specific? I mean, you've got here -- down to the single person -- 4,892 and very, very specific numbers. How are you calculating that down like that?

MR. PANETTA: Well, the kids, on the safety net programs for kids, you can go through the House bill. They cut foster care; they cut child care assistance; they basically deny child care assistance in their version of welfare reform.

Q But these are projections out to 2002, based on inflation rates. I mean, you're getting very specific.

MR. APFEL: Well, basically, for the SSI kids, we had projections from the Congressional Budget Office, and the Social Security Administration actuaries assume the number of kids that are coming off. When we make projections based upon how many per state of that 755,000 -- basically what this is, is the state-by-state breakout of the actuaries' projections of the number of kids that are going to be taken off the rolls.

Q Does this assume that the SSI and the drug abuse beneficiaries are in or out of the program, the disabled -- and some of them are getting both. Some are claiming disability because of alcohol and the drug abuse --

MR. APFEL: This is not the drug addicts and the alcohol. This is simply -- this is solely the SSI kids program.

Q Is this the "crazy kids" program? I mean, I know you don't like that name, but that's --

MR. PANETTA: That's -- yes --

Q Why does the President -- since you acknowledge there is some abuse implicitly on the SSI program, that is, some kids are getting it that probably shouldn't, why does the President grandfather abuse into the system?

MR. PANETTA: Well, the President -- one of the things we want the conference to do, frankly, is to provide a better transition and focus with regards to this reform in the conference. This is one area where we think that, frankly, the conference has to pay some attention to it, because there is concern about kids that legitimately need this help under SSI.

Q What number would you like to see there? You said under the Senate version now, 170,000 would. What would you suggest in the conference --

MR. APFEL: About 50,000.

MR. PANETTA: About 50,000.

Q And what's your reasoning for that number?

MR. APFEL: That's basically looking at the development question over here, looking at creating a definite -- taking down the definitions of now and after behavior. So, a much more modest targeting of eligibility definitions that are in the House bill -- vastly in the House bill -- but also in the Senate bill.

So, basically, we've been proposing somewhere around 50,000.

MR. PANETTA: The third area is obviously on the tax increase that -- the impact on working families. We've been saying a lot about this. But obviously, for the $43-billion increase that would happen on working families as a result of reducing the earned income tax credit, families with two or more children in America would face an average tax increase of about $483. And, obviously, that tax increase for those families to have to pay that additional tax is clearly going to impact on the families and on their kids.

Q Does that factor in the $500 tax credit?

MR. PANETTA: That's tax credit --

MR. SPERLING: This is -- doing an analysis of the EITC, is the -- I think the Treasury estimates that about one in three of those children will benefit from the $500 child tax credit, but I should mention that we have a $500 child tax too, that does not require adding this tax increase on top of it.

Since most of these people, by being on the earned income tax credit, by definition do not have as much taxable income, very few of them benefit from the Republican child tax credit since theirs is non-refundable.

Q On the other hand, though, they're not paying taxes and the Republicans say, well, you can't call it a tax increase when they're not paying taxes to begin with.

MR. SPERLING: Well, first of all --

MR. PANETTA: Wait a minute. The Republicans are, frankly, using doubletalk. You talk to any Republican on any other tax credit and say you're going to take it away and I will bet you money that they will call it a tax increase in that instance.

Q Even if it's refundable?

MR. PANETTA: The reality is, when you take away these tax credits, it means that those families are going to have to pay more in taxes. That's the bottom line.

Q But many of them are at the bottom of the income rolls and don't pay taxes, regardless.

MR. PANETTA: If that's the case, then why are we raising $40 billion?

Q By cutting the refund.

MR. PANETTA: Well, that goes to families.

Q But what you're saying is that the bottom line is that they'll have less money.

Q Which is different than paying more taxes.

MR. SPERLING: For 20 years, this was called the earned income tax credit. It was called the earned income tax credit because Gerald Ford put it through and passed it. It was expanded by Republican administration after Republican administration. Ronald Reagan called it the best anti-poverty program that we had.

There was never anybody who has -- no one has ever questioned this was a tax credit. The whole idea was that we always had a problem with tax cuts, which is tax cuts tended to not benefit the poorest because if you didn't have taxable income, and what people realized was these were people who are paying taxes; it's refundable. It doesn't mean it's not offsetting taxes.

These people are paying payroll taxes, they are paying state and local taxes. The EITC is meant to offset not just the income tax, but state and local taxes they're paying and the payroll taxes they're paying. So this is designed to encourage people to work because all of those are taxes on their work. Payroll is tax on the work, state taxes are taxes on the work -- this was always the way Republicans thought you should help people get off welfare. They always said, don't do minimum wage, don't make welfare look better; you should have an earned income tax credit; use the tax system to reward people for working more.

Only this year, when they needed to find money to pay for their tax cut and balance the budget did anybody challenge that this was a proper tax cut.

Q What would be an acceptable level of reductions that would just target fraud or --

MR. PANETTA: We have, I think, targeted, what, about $5 billion -- $3 billion that we said basically represents what we had tied you know, to waste, fraud and abuse in the system.

MR. SPERLING: Leon, there's another very important point, which is that that's just the most recent proposal. The Treasury Department has already done significant things. And the Congressional Budget Office, in their mid-session review, now projects that there will be $18 billion less spent on the EITC over the next seven years, due in large part to efforts to tighten on fraud and error rates.

Mind you, none of the efforts, other than the $3 billion, none of this has to do with them tightening on fraud and abuse. This is like them saying to the self-employed that we think there's too much error rates on self-employed so we're just going to raise taxes on all self-employed people across the board or honest, hardworking people who are playing by the rules.

So we have taken an effort, and that's where you're getting real savings, and you get the savings not having to raise taxes on hardworking people who are trying to stay above the poverty line.

Q The $483 that -- against the House bill, the House bill is intact, right?

MR. PANETTA: On the EITC --

MR. SPERLING: It's the Senate bill.

Q Oh, I'm sorry, the Senate bill.

MR. PANETTA: This is the Senate bill which takes more out of EITC. It's about $40-something billion, as compared to the House, which is, what, about $23 billion?

MR. SPERLING: Yes.

Q So what you've done, basically, is gone through the House and the Senate versions and you've picked out what you consider the most egregious examples in both?

MR. PANETTA: We've assumed the largest cuts that come from -- you know, either of the budgets, which obviously, they could pretty much resort to those in conference, who just basically are out there --

Q So this is just sort of your nightmarish --

MR. PANETTA: Yes. It's looking at the House --

Q Halloween.

MR. PANETTA: It's looking at the House or Senate version. The bottom line is that kids are getting screwed in these budgets. That's --

there are a number of programs that are impacted, and obviously, this is the area that hurts the most in terms of kids' chances for the future. Head Start is cut by about 180,000 kids. And the Title I cuts by about 1.1 billion, almost a 17 percent cut, in '96, impacts about 1.1 million children in terms of the Title I program. Safe and Drug Free Schools is cut by about 55 percent, which impacts on about 23 million students now that are currently getting that kind of assistance.

On nutrition, that's the fifth area, and there, it's both the food stamp cuts on nutrition assistance that impact on about 14 million children, and the programs on WIC as well as School Lunch, the nutrition cuts that impact on about 32 million kids who could lose their nutritional support by virtue of that diminished assistance. That's one that I think we -- in particular, I think that it just makes no sense in the long term, in terms of kids because we have always determined that giving good nutrition to kids in schools and through the WIC program and the other nutrition programs is a real investment for the future with these children. I'm astounded that some of the Republicans that I've worked with time and time again to approve these nutrition programs would support these kinds of reductions.

Q Did you mean that 14 million kids would lose food stamps? You said they were impacted. What do you mean?

MR. PANETTA: It's reduced benefits for those kids.

The sixth area is obviously on public health and environmental cuts. And there I would just -- I want to point to one figure which is that, nationally, five million children under the age of four live within four miles of a Superfund hazardous waste site. And again, there are significant cuts not only in the clean-up of those areas, but as well as clean water and other areas that ultimately impact on kids.

Q Why separate out children, though?

MR. PANETTA: Well, when you look at the families, particularly those surrounding these hazardous waste sites, it is the kids who feel the most seriously the health impacts that flow from these kinds of environmental hazards. I mean, it's not to say the adults don't suffer; they do. But in particular, when you're focusing on children, they're the ones that we hope can be raised in a healthy fashion for the future. Why do this to kids? Why do this to families? It doesn't make sense.

Q It just looks like a bit of a stretch, doesn't it, because this is -- you know, when you talk about the polluted air, too, that is something that would impact everybody; isn't it?

MR. PANETTA: Yes, it does impact everybody, there's no question. But, you know, again, kids are the ones that are going to suffer the worst price to be paid because it's their future. I mean, you know, the adults are going to obviously get impacted, but so will kids.

We point out the seventh area is the impact of cuts again on the safety net for children. This is mainly, again, the House welfare program that we pointed to here which we think -- as I pointed out before, if the House welfare program, if they resort to the cuts on children's assistance, that the president would veto that approach to welfare reform because it is so bad with regards to kids.

Q But not the Senate version?

MR. PANETTA: The Senate version, we have said -- you know, they made a lot of improvements on the Senate side, but we're looking for additional improvements in the conference as well, particularly on the SSI issue that I mentioned.

The remaining area is on energy cuts, housing cuts. We know that the assistance will be denied to about 16,000 homeless children by virtue of the cuts that are impacting on the homeless program. And again, the families of about 3.4 million children that will be required to pay more rent as a result of the cuts that they've made on the Section 8 program.

Those are the key areas that obviously we've tried to define in terms of its impact on children. Again, I think the main point is this: as I've said, the test of any budget is whether or not it really does -- it not only helps families, but allows children to be able to live the American dream and to improve their lives in the future. I think there is a clear choice between these two budgets. The President's achieves a balanced budget without sacrificing our investment in children. The Republican budget basically says, you know, we've go to harm kids in order to save them, and that makes no sense.

Q Will you talk about how you derived the state-by-state figures? Did you simply allocate them to states based on population or does it reflect anything more -- than that?

MR. PANETTA: Gene, the state-by-state breakdown.

MR. SPERLING: These were done by each of the departments and there is a methodology page. Some of the methodology pages are more specific, but we could try to get you more specific methodology from each of the departments. I think most of them have a pretty good -- have pretty good state-by-state information, certainly Education and others do. So, in the EITC case, they use the census data to help break-out for each family.

But these are -- but we can get you more -- I can get you more. But since they're done by each of the departments, there's no exact formula. Each of the departments do them, then OMB takes a look to make sure that it's done in a proper way.

And as you know, on the environment, that was one we could not break out state-by-state. So we did point out what the impacts were nationally. There were others we couldn't do state-by-state, so they were not included. So these are the ones that they were able to break out in a reasonable way.

Q So, how do you think this breaks down when you're in conference now? Could you explain some of what you think the political dynamic will be as this unfolds more and you have your numbers out to the House and Senate with the conference -- is it just split the difference, or what?

MR. PANETTA: Unfortunately, neither the House or Senate version of reconciliation is acceptable. So splitting the difference between those two versions is not acceptable. As I said yesterday, if they complete their work on the reconciliation bills that are currently working their way through the House and the Senate, that proposal is going to be dead on arrival at the White House; the President is going to veto it. And I don't think we can send a clearer signal that they ought not to proceed on their path. Frankly, they're wasting their time and they're wasting the time of the country by not sitting down and trying to develop an agreement that's more in line with what we think should be the goals of the budget.

Q You're still willing, aren't you, to give up the federal promise of aid to all indigent children, that is welfare as an entitlement as part of the welfare bill, if the numbers are construed in a way that you think they should be?

MR. PANETTA: On the welfare bill, what we want is a strong maintenance of effort requirement and what we also want is to have sufficient funding, adequate funding for the children's assistance that is needed to make that work. In addition to that, we want additional funds added to the contingency fund so that it can cover families in the event of a recession. If you have those kinds of protections, then we're willing to go along with the Senate approach.

In addition, though, I should point out that of the seven programs that are out there that assist families, vulnerable families, we're opposed to block granting in six of the seven.

Q What's the one you're not opposed to, sir?

MR. PANETTA: That's the EITC one if there's a maintenance of effort.

Q The Wall Street Journal indicated there is a plan being drafted by Democrats that would have about $250 billion in combined Medicare/Medicaid cuts, coupled with a half percentage point adjustment in the CPI and no tax cuts. Is that a combination of anything that would be acceptable to the White House, particularly the $250 billion -- some years of $180 billion range?

MR. PANETTA: I think our position is that the President has presented what we think is the right approach to balancing the budget. I mean, there will be other alternatives, obviously, offered but within the confines of what the Congress is dealing with, very frankly, we don't think that, you know, we're looking at any kind of acceptable alternative.

Q But you said you can't split the difference between $180 billion, which is your combined approach on Medicare/Medicaid, and their $450 billion. But there must be some range of acceptability below $450 billion.

MR. PANETTA: Well, we don't agree that we're at $180 billion; we're at $124 billion.

Q No, with Medicaid combined.

MR. PANETTA: Oh, with Medicaid? Yes. I mean, if you're looking at what we do and obviously, you know, what they do -- the problem is that, very frankly, we have seen no indication that they are prepared to move towards us on the Medicare number. I've seen no indication that they're prepared to move towards us on the Medicaid number. We've seen no indication that they're willing to allow for greater investment in education or in the environment or in law enforcement or in some of the other investments. We've seen no indication that they want to target the tax cuts just to the middle class. And, frankly, that's the centerpiece of whether or not we can arrive at an agreement, whether or not they're willing to move on these kinds of fundamental differences, and they're not. We have gotten no indication that they're prepared to move on that.

             Q  Let me ask you about --
             Q  You've been making this argument on Medicare cuts and you

were on the Hill talking about a raid on rural America and now you're talking about the impact on children. Is part of the problem the selling job? You talked about Republicans moving towards you. Why, if the administration accepts to many Republican assumptions on Medicare insolvency, the need for a balanced budget in seven or ten years, desirability of tax cuts, the need for welfare funding, the ending of welfare, the entitlement status -- I mean, you sort of seem to be arguing on a lot of these assumptions with the Republicans and aren't you now in the "yes, but" phase here now where you sort of, "Yes, but --"?

MR. PANETTA: Not at all. Not at all, because I think the President has -- well, first and foremost, the President when he first came into office talked about fundamentally to deal with the deficit. And one of the problems and frustrations we've had is that for 12 years Republicans have stood to the side while the national debt was quadrupling and basically failed to address this whole issue during the '80s. And ultimately, this President confronted that with a $500 billion deficit reduction package that the Republicans walked away from.

But, interestingly enough, that $500 billion deficit reduction plan is very fundamental to any effort they have to try to achieve a balanced budget. They're not seeking to repeal any element, including the tax element, of our package, of our economic package that was passed by the Congress. They're building on it. The President basically set the direction with regards to dealing with the deficit and did it successfully. We have cut the deficit in half. We haven't just talked about it, we did it.

So I think the President's credibility with regards to the effort to balance the budget is there and the Republicans kind of decided that was going to be something they'd build into their contract after they walked away from our approach to reducing the deficit; both fine. Now we both agree that we ought to try to move towards balancing the budget.

But beyond that, there are some fundamental differences. I mean, everybody that wants to, you know, to kind of look at this and say, "Well, gee, there really are no fundamental differences." There are some big differences. They're at almost a half a trillion dollars taken out of our health care system in this country. We're at, you know, 124 out of Medicare and 54 on Medicaid. That's a tremendous difference.

I haven't seen them at any time say that, you know, they're going to move off of those numbers. That's the big difference. We are not going to have the elderly double their premiums, increase their deductibles, and take that much out of the Medicare system when in fact you don't need that much in order to protect the Trust Fund.

On education and on these other investments, this President has made clear, time and time again, we're not going to cut the discretionary budget by well over $400 billion, which has the kind of impacts you see here on kids. Investment is part and parcel of any budget -- it should be -- investment in our people. And that's what this President has continually said with regards to education and these other investment areas.

And when it comes to a tax cut, you want to do a tax cut, target it at working families, target it at the middle class. For God's sake, don't give a tax break to people that don't need it, over 200,000.

Now those are big differences. Those are big differences.

Q What he's asking -- what I think he might be asking and what I would ask in another way is the same question. What are you -- are you looking at a budget summit around Thanksgiving?

MR. PANETTA: Oh, I see, the issue is when the hell do we all get out of town, right? (Laughter.)

Q Is it going to be at Andrews or Bolling?

MR. PANETTA: Well, you know, I think in the end, you know, to get a budget agreement that's obviously -- I think I've been working on most budget agreements and summits ever since they came into existence over the last number of years -- to come to an agreement, to some extent, both sides have to be able to, you know, to say they've gotten a victory.

My assumption has always been the Republicans would say, "Look, we've got a balanced budget. We helped protect the trust fund, the Medicare Trust Fund. We were able to get welfare reform, and we got a tax cut." The Democrats have to basically say, the President has to say very clearly, "We got a balanced budget but we protected Medicare, we protected Medicaid. We made our investments. We protected our investments in education and the key areas that we have been concerned about. And the tax cut was targeted to the middle class."

Now, you know, if we can arrive at an agreement that allows for everybody to be able to say what I just said, then you can put an agreement together. If not, you know we're going to have some very tough sledding.

Q Can I ask one thing about the side-by-side here? Are your numbers that you've been giving, you're saying they want to cut this and that, we want to cut this and that -- are your cuts all predicated on the OMB budget estimates? Is that what you're using as your baseline?

MR. PANETTA: You're asking what our baseline is here?

MR. APFEL: I don't think there's much --

MR. PANETTA: I don't think there would be much difference, frankly, in the baseline with regard to these cuts because that's --

MR. SPERLING: The places where the baseline are different -- there was some difference on Medicaid and Medicare baseline --

Q But --

MR. SPERLING: But that doesn't -- that doesn't --

Q But that affects -- we're talking about Medicare and Medicaid and you've been throwing a number of figures here, the $124 billion versus $270 billion, those are based on -- predicated on two different baselines.

MR. PANETTA: The $124 billion -- and this has been an area of confusion that I've heard time and time again -- $124 billion in our budget is $124 billion under any baseline. I don't care whether you use CBO, OMB, blue chip -- I don't care what you use. It's $124 billion in terms of programmatic cuts.

The difference in terms of baseline is that the difference between what is the estimate with regards to where health care costs are going in terms of the future -- that doesn't relate to the level of reductions, savings --

Q But it depends on how much in the long run -- how close you get to a balanced budget, right?

MR. PANETTA: Ultimately --

Q You're saying you only need $124 billion to get to the balanced budget, and they're saying you need $270 billion.

MR. PANETTA: Correct. But our $124 billion is not based on what we need to get to a balanced budget; our $124 billion is based on $90 billion that we'll be using to basically secure the Trust Fund, and the others are basically efficiencies that flow out of the economic plan that we already adopted.

Q So you're saying all these other numbers, it makes no difference what the baseline is.

MR. PANETTA: I don't think so. Not in terms of the impact on kids.

Q You've been around this subject for a long time. This isn't your first budget battle. Based on your experience, would you share with us how you think it's going to go and what's going to happen? (Laughter.)

MR. PANETTA: I don't know. You know, the old -- you always try to look and see where the break point is, and ultimately how you can eventually write an agreement. It's difficult to see that right now, because I think the Republicans have basically taken the blood oath and they're going to march down the path of passing the Republican contract and the Republican budget. However, it's pretty clear that if they do proceed along that path, the President will veto it.

My hope is, once the President has vetoed that package, that common sense will take hold and that there will be an effort to try to find some common ground and consensus here so that we can develop an agreement. My hope would be that once that veto takes place, that there would be an agreement with the Congress to provide for a continuing resolution to get us past -- to extend, rather, the CR so that we don't have any concerns about shutting down the government, and that we would also pass the extension that the debt ceiling to avoid the potential for default. And that if we could do that, frankly, until sometime into December, that perhaps that might give us some time to be able to arrive with a budget agreement. That would be my --

Q So you don't have much hope that anything can be worked out in the first conference prior to a veto?

MR. PANETTA: No, I don't.

Q Are you willing to disinvest the Social Security Trust Funds to extend -- in case they don't raise the debt ceiling?

MR. PANETTA: Secretary Rubin is going to be sending a letter to the Speaker indicating that -- the concerns again with regards to the debt ceiling situation and he does not want to be put in any position that would involve that potential for default in the country, and for that reason, what we're going to be asking the Congress to do is to try to move ahead past the debt ceiling and at the very least, give us a temporary debt ceiling extension, but for God's sakes, don't put us in a position where we have to raise questions about our ability to meet our bills.

Q Given the President's back and forth on the tax this past week, what is there to really convince that the Congress, on either side that he really means what he says.

MR. PANETTA: On what, the --

Q Given his back and forth on the taxes this week, on this budget. On these so-called principles.

MR. PANETTA: In the end, I guess what I would ask -- what I would ask the country to do and what I would ask members on the Hill to do is to judge this President by his actions. And if you judge him by his actions, I think he's pretty clear on what he's going to do in this situation. He's willing to take on the NRA on assault weapons and on the Brady Bill, he was willing to take on the health care industries on health care, he was willing to take on special interests on NAFTA, he was willing to take on those that urged him to move away from affirmative action, on racial relations. He's taken some strong steps. And on the budget, I can tell you he feels more strongly about these priorities than some of those other issues. He feels strongly about the investments we've made in our budget and the direction we've set on our budget. He, himself, has said he is not about to provide our kids with the kind of future that the Republicans have outlined in the budget that I just told you about.

THE PRESS: Thank you.

END 3:04 P.M. EDT