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THE WHITE HOUSE

Office of the Press Secretary

For Immediate Release August 5, 1996

                              PRESS BRIEFING
                BY LEON PANETTA, WHITE HOUSE CHIEF OF STAFF

The Briefing Room

2:54 P.M. EDT

MR. PANETTA: What I would like to do, if I can, is just provide a brief summary of our reaction to the Dole proposal. I want to talk about the two visions that are obviously being presented to the American people, talk a little bit about the kind of major reversal that this represents in terms of Dole's position. Also talk about what it will do as far as the deficit is concerned, in terms of blowing a hole in the deficit. And then, lastly, just very briefly, the kind of targeted tax cuts that we think make sense.

Obviously, first and foremost, the President has been saying that this election is about two very different visions about where this country needs to go. The American people don't have to guess as to what the position of the candidates will be. The President's position is very clear about our vision for the future and what we intend to do with regards to the economy, the kind of proposal that we presented in our economic plan and that we continue to press in terms of moving towards a balanced budget, providing targeted tax relief and trying to provide the incentives for expanded trade and growth in our economy -- the kind of proposals that are, in fact, working versus candidate Dole's proposal today, which really represents a step backwards in terms of where this nation needs to be.

We do not need to implement another version of supply side economics that blows a hole in the deficit and basically would reverse the kind of economic growth that we've been able to have over the last few years because of the Clinton economic strategy.

On the two visions: Clearly, we have, as all of you know, when we came to office we were still faced with the legacy of the supply side economic plan that was put into effect in the early '80s. At that time the promise was made that we could cut taxes dramatically and that we would balance the budget. At that time I believe President Reagan promised that we could balance the budget within two to three years at that tax cut. Economists and others, including David Stockman, as director of the Office of Management and Budget, knew what it really represented, which was an escalation in the national debt.

And as a consequence of that proposal, it quadrupled the national debt. And when we came to office we faced not only the challenge of a quadruple debt and deficits that were running from $300 to $400 to $500 billion each year, up to $600 billion by the beginning of this next century, but also an economy that was stagnate and job growth that virtually was going nowhere. As a consequence of putting our economic plan into place that significantly reduced the deficit, $500 billion deficit reduction plan, that the Republicans opposed at the time we presented it to the Congress -- that plan has resulted in reducing the deficit each year for the last four years, something that hasn't happened in this country since before the Civil War.

We have taken the deficit, the annual deficit of $300 billion and cut it more than in half, to $117 billion; expanded job growth in this country to 10 million new jobs in this country. We also have, obviously, brought the unemployment rate down from what was then unemployment of about 7.3 percent down to about 5.3 percent. We have, at the same time, provided 4.2 percent growth, as reported in the last quarter. So that we have, through a combination of deficit reduction, lower interest rates, been able to expand growth, expand jobs and move this country forward.

The President has said, is that enough. No, it's not enough. We need to continue to try to move towards balancing the budget. We need to provide the kind of targeted tax deductions that will be aimed at education in this country -- those that he has proposed and continues to speak to that are necessary for this country.

In contrast to that, candidate Dole has now presented his proposal. I don't think there's any question but his proposal represents another version of supply side economics for this country. The kind of supply side economic plan that he, himself, has criticized time and time again. This proposal, as we understand it, involves about $546 billion worth of tax cuts and assumes that there will be sufficient growth in the economy so that it won't blow a hole in the deficit. This is the largest supply side proposal and assumption since Ronald Reagan; but it's a proposal that while it provides the largest supply side assumption, is done without the smile that Ronald Reagan had when he presented his plan in the early '80s. As Senator Dole, himself, said, some would say that he would bet the farm. He's not betting the farm, he's going to bet the nation. And, indeed, he would bet the nation if his plan was put in place because the nation would have to bear the consequences of the increase in the deficit.

I think the bottom line is this: We have -- this plan has been implemented before and we've seen the consequences of it. We saw the legacy of that plan in the quadrupling of the deficit and the huge interest payments that were placed on our children for the future. And this country has made the decision we ought not to repeat that mistake again. If we're going to balance the budget, let's balance the budget. Make the tough decisions that go with balancing the budget; do targeted tax cuts, but ensure that they're paid for. Don't just roll the dice, let's not have another riverboat gamble for the future in terms of what happens with this country.

What Senator Dole is now saying, obviously, is contrary to everything that he has said in the 35 years that he has been in the Congress, both in the House as well as the Senate. I will just give you one quote from Senator Dole. And I quote: "What I could never understand is why if you just cut taxes you'd have this big, big revenue increase, you know, more jobs, more opportunity. And you didn't have to make hard choices about spending. That was the philosophy back in the '80s, particularly with Newt and the House Republicans. Don't make any painful decisions, just cut taxes. And in the '80s we said everything was going to be fine. Well, it wasn't."

I don't think I can improve on that quote in reflecting on the plan that has been presented here by Senator Dole to the nation. Every conservative -- this is not just the administration's viewpoint -- but every conservative economist believes in the same kind of consequences. Warren Rudman, as you know, as part of the Concord Coalition, has indicated that you cannot have rosy scenarios and technical voodoo to basically reduce the deficit. And the ad that the Concord Coalition presented was right on. It's too early for Christmas, was the comment that has been made about this kind of proposal. Bill Archer, Pete Domenici, Paul Volker, Alan Greenspan -- and I could go on and on -- all of these are responsible, conservative individuals who do not believe in dynamic scoring, who do not believe that there is somehow a magic way to confront the deficit, and believe that tax cuts in and of themselves will not do it unless you present a hard and fast plan as to how you'll balance the budget.

Now, let me get to that point, because this is the key. Senator Dole says that he is interested in trying to balance the budget at the same time he is providing $546 billion in tax cuts. The problem is he doesn't provide any specifics in this proposal as to how he would do that. Of the $548 billion tax cut that he is recommending, $122 billion is paid for by virtue of the Republican budget that is already on Capitol Hill. So we will give him $122 billion. The problem is that $426 billion is not specified as to how he would achieve the balance of that in order to, obviously, balance the budget. Well, it's not even balancing the budget, it's paying for the tax cut that he is going to be implementing.

The best we can estimate, he is looking at about $147 billion of that coming out of economic growth, which as I said is the largest estimate of growth from a tax cut in the history of supply side economics. He adds to that about another $75 billion that would be available in additional revenues. We have assumed some additional revenues in our budget, but not $75 billion. That alone produces $222 billion in estimated new revenues that would be part of the result, obviously, of providing this tax cut. Again, it is an assumption that nobody with any economic credentials really believes can in fact happen in order to try to get the deficit reduced.

Then he would add about another $100 billion in additional discretionary cuts that again are not defined. And, again, the problem is, if you're going to do another $100 billion in discretionary cuts, you are only left, assuming that you're going to protect defense spending, with having to go after programs like veteran's programs, FAA safety, transportation programs, environmental programs, education programs. These are the areas where there have been dramatic cuts already proposed by the Republicans. You would have to do more.

So the problem is we're not getting specifics about how, in fact, you would balance the budget. In the very least if you're going to propose $548 billion in tax cuts, the country needs to know the tough decisions. Where are you going to cut the federal budget in order to pay for that tax cut as well as to balance the budget? I would just remind you that in the Republican budget -- there was a $245 billion tax cut in the Republican budget that was presented that the President vetoed. And in order to pay for a $245 billion tax cut, Republicans had to propose $270 billion in Medicare cuts, $163 billion in Medicaid cuts, $30 billion in education cuts along with cuts in the Earned Income Tax Credit.

Now they're going to double the level in the old proposal, they're going to double the tax cut from $245 billion to $548 billion, more than double it. And, yet, he's saying that somehow there won't be the additional cuts with regards to Medicare or Medicaid and that somehow this can be paid for largely through growth.

So the end result of this is that clearly this is not -- trust me, it's not enough here in terms of how this is going to happen. Even in our proposals we were required to submit them to the Congressional Budget Office for their scoring. I would like to see Senator Dole and the Republicans submit this proposal to the CBO for scoring. And let's see exactly what they say are the consequences in terms of the deficit.

Lastly, this is of course not to say that we do not support tax cuts that are responsible and targeted. We do. We do believe that in the context of a balanced budget you can target tax cuts, as we have in our budget, $130 billion of which are targeted at education, at training, at child tax credits, at savings; that this can be done, but it has to be done in the context of a very specific proposal that in fact does achieve a balanced budget.

So our view is this: We need to do more, obviously, to try to increase wages and productivity and provide sustained economic growth in our society. But we can accomplish that without abandoning a strategy that is working for the American people. Instead, we need to build on that strategy. And as the President has proposed, what we need is a balanced budget, moderate tax cuts fully paid for and targeted to working families. Those are the kind of investments, in working family, that are important for our future. This is not a time the bet the country. This is a time to lead the country responsibly.

Q Leon, where was the quote from that you cited, Dole's quote about the '80s?

MR. PANETTA: That was a quote from Gentleman's Quarterly in June of '95.

MR. MCCURRY: You wore him out. (Laughter.)

Q Leon, what's the -- you weren't here, you were in Congress still in the '80s. Are there any real differences between what Senator Dole has trotted out today and what President Reagan trotted out in 1980, when he was running for office? I mean, where are the -- are there any substantial differences there? And we're not the economic environment then versus today.

MR. PANETTA: Well, I mean, there are several differences. Number one, we've learned our lesson. We've learned our lesson from what was presented in the early '80s. And at the time in the early '80s we had not really tried an approach of just providing massive tax cuts that somehow could reinvigorate the economy. Kennedy tried it, but it was done obviously in a much smaller targeting. Here you had much larger tax cuts. I mean, what happened was, in effect, the President -- President Reagan proposed tax cuts, the Congress basically expanded those tax cuts, did not pay for them; there was no consideration about how you pay for them. There was no consideration at all, and I was in the Congress at the time, about how these would be paid for over the time. We did not have the budget rules that are in place now that require that you pay for tax cuts.

So he pretty much had a free ride to basically propose tax cuts. Everybody jumped on them. The package expanded. So one difference is, we know the consequences of what happens when you do that kind of massive tax cut without paying for it. It quadrupled the national debt. And it would happen this time, as well.

Secondly, at the time -- what Senator Dole is proposing is obviously much larger in terms of what his assumptions are as far as revenues coming back to help pay for the deficit. He's assuming, as I said here, almost $222 billion. We estimate that well over a third of this package is being assumed, is being paid for by revenues that will flow into the economy. That's a much larger assumption than even Ronald Reagan assumed at the time.

Q Which was what?

MR. SPERLING: The Reagan campaign assumed 17 percent. They assumed a $531 billion -- they assumed --

MR. PANETTA: Gene Sperling, ladies and gentlemen.

MR. SPERLING: The Reagan campaign assumed a $531 billion tax cut would bring in revenues of $73 billion. That would come to 70 percent feedback.

Also, you should remember that that was a 30 percent across-the-board at a time when the rates were at 70 percent. So you would expect that to have a larger feedback. Still, they assumed only 17 percent and, yet, that is part of the legacy of the huge deficit. So any sense that this is a moderate supply side assumption is not borne out by the facts. And I would be happy to give anybody who's interested the documentation. That was clearly from their words, not from anybody else.

MR. PANETTA: Let me just make a point on the third element here. Under present rules now, in terms of the budget, when you say that growth is going to be able to pay for it and growth fails to pay for it, then you automatically have to find cuts to be able to pay for the tax cuts. In the early '80s none of these rules applied. So what I'm saying essentially is that if for some reason, as we believe, these growth estimates will not bear any fruition because of the fact that there isn't an economist who believes that that's going to happen, then you have to find the cuts. And where are you going to find the cuts?

You have to go to Medicare. You have to go to Medicaid. You have to go to other entitlements, and you clearly have to go to the nondefense discretionary, if not defense discretionary, to be able to pay for it. And so -- you know, you can pretend that you're not doing any harder cuts with regards to Medicare, but it's not real because these growth estimates are not real.

Q To follow up this question of what you just said. After the Reagan tax cut, you didn't just have the -- you had runaway entitlement that exceeded everyone's estimates -- you and I talked about this -- you had a trillion dollars in the '80s of new defense spending, on top of the defense budget. If you hadn't have had those problems and you don't have them now -- I mean, in other words, was supply side really given a chance to work? You didn't have any controls on the spending side then that you do now. So turning around the third part of your answer, maybe this wouldn't be as bad as that for the deficit.

MR. PANETTA: The problem is that, again, tax cuts in and of themselves do make sense as part and parcel of economic policy, I mean, if the economy is doing well, as it is now. And the President believes that we ought to be able to target those tax cuts at the areas of need and that you can do it in a way that doesn't blow the budget if you're prepared to pay for those.

I think the President's economic plan tells you how you do tax cuts in the context of tough decisions that balance the budget because it's real. As a matter of fact, I'll give credit to the Republicans in the Congress. They wanted to do a larger tax cut package of $245 billion. But they also had to present in their plan how you cut the budget in order to pay for it. So their plan, even though we disagreed with the level of tax cuts, it's an honest plan, tells you that they have to cut Medicare and Medicaid. But that's fair. The public then can understand that.

The difference here is that Bob Dole is proposing this and not telling the American people where those cuts are going to come from and basically relying on growth.

To go back to your question, I think the problem in the '80s was the combination. There is no question. It was a huge tax cut. But in addition to that they blew defense spending during that period of time, entitlement spending went up, and we had absolutely no controls in terms of the budget. But that's not to say you could still do that level of tax cuts and not have it impact adversely on the economy. I don't think, even if you had implemented the Reagan tax cut, that the economy could have sustained the level of cuts you would have to do in order to pay for it.

Q Since the deficit picture is improving and the economy seems to be improving, is the administration giving any thought to beefing up its tax cut package between now and November?

MR. PANETTA: No, we have no plans to do that. I think the President has developed our economic plan for this country. We have indicated what our tax cuts ought to be. We have indicated what kind of cuts we're going to have to put in place to balance the budget. We're willing to take that plan to the American people.

Q Putting aside the numbers and the nature of the lack of specifics in the Dole plan, you worked with Bob Dole for a number of years on budgetary matters on the Hill. Do you feel that he is doing this out of desperation? Do you think that he was talked into this, because you're saying that this is not his philosophy.

MR. PANETTA: Well, look, I have worked with Bob Dole. I worked with him for the last 20 years. I think he has been part of every economic summit we have had over the last 20 years having to deal with the whole issues of how we confront reducing the deficit. And in every one of those meetings that I was a part of, to be frank, when the proposal came up that we should engage in tax cuts, Bob Dole was very firm that our first priority ought to be to balance the budget, it ought to be to reduce the deficit.

And, frankly, those of us who were deficit hawks working on the budget committee felt we had a friend in Bob Dole with regards to that effort. And now this is, in my mind, a total reversal of his record of trying to confront the deficit. And obviously it comes in the middle of a Presidential campaign. It's done as an effort to try to jump start his campaign. I understand that.

But the Jack Kemps of the world have always said they didn't care about balancing the budget. I mean, Jack Kemp basically said we shouldn't have to worship at the altar of the balanced budget. I can remember that quote when I was on the budget committee. So he believes that, and that's fine. If you believe that you don't have to balance the budget, that's one thing. But here you have a situation where Bob Dole, I think, honestly believes that we should balance the budget and yet he is proposing a Jack Kemp solution to our economy that is, in essence, going to blow a huge hole in the deficit.

Q What about the view of eliminating the IRS as we know it? (Laughter.)

MR. PANETTA: Welcome to the political campaign world. I think -- again, I can remember Bob Dole, when we were dealing with the IRS, believing that we ought to reinforce the ability of the IRS to be able to do its job because frankly one of the problems is the lack of adequate collections in terms of the tax side. So he has a record, I think, of basically supporting the IRS in his efforts. And I guess today, that position that he's talking about again represents, I think, another reversal. Although, obviously, all of us are interested in simplifying the tax system. All of us are interested in trying to ensure that there's fairness with regards to how the IRS works.

But in the end, the IRS has the responsibility. They've got to enforce it. And the reason you have to do that is because, well, you know, people who are good citizens in this country pay their fair share in terms of taxes, you've got to make damn sure that those who want to get away with it are also -- we're going after them to make sure they fulfill their responsibilities. It's a little bit like saying, you know, we ought to obey the law but not have any cops on the street to enforce the law. You've got to have the cops to be able to do the job.

Q One question on a foreign policy issue?

Q Did you run any numbers on the effect that this would have on inflation if you had this kind of a program? Has the NEC or CEA run any kind of figures on the effect this would have on inflation and growth?

MR. PANETTA: I don't know that we've got any inflation results. Gene.

MR. SPERLING: We've just seen this. But I think that if you note many of the economists that are commenting in the Business Week story, I think some of the people quoted in the USA Today piece are all making the basic point that, if at this period in an expansion you have a large unpaid for giveaway, the chances are great that it would increase interest rates and then paradoxically that would end up slowing down growth. And I think that that -- I would encourage anybody here to talk to the independent validators out there who are on either side as to what they think of a big, huge giveaway that would blow a hole in the deficit at this period of an economic expansion. I think you'll find the prediction of higher interest rates and slower long term growth will be a pretty steady one.

Q A quick foreign policy question -- not related to that. Last week saw a fierce government crackdown in Indonesia -- the government raided the opposition party's offices, the resulting protest that killed a number of protestors, arrested more than 200 protesters and now have a shoot-to-kill policy for any protester in Indonesia. Why hasn't President Clinton unequivocally condemned this Indonesian repression?

MR. PANETTA: I believe the State Department has, in fact, conveyed our concerns about what happened in Indonesia.

Q Expressed concerns?

MR. PANETTA: That's correct.

Q But why not unequivocally condemned?

MR. PANETTA: Well, first things first. We hope that -- we have in the past seen that when we have expressed our serious concerns about what's happened there that we have, in fact, had steps taken to try to minimize the human rights violations that occur there. We are expressing our concern and we are going to follow things very closely there to ensure that they do more in this area. Obviously, if that doesn't happen, then more significant steps will have to be taken.

Q As a result of the crackdown, Senator Pell has called for a halt to President Clinton pushing the sale of F-16's. Will President Clinton not sell those F-16's -- push for the sale of those F-16's?

MR. PANETTA: I don't want to state specifically what we will or will not do with regards to that situation. Obviously we'll consider Senator Pell's request, but I think a lot depends on what they are willing to do to deal with that situation before we consider additional steps.

THE PRESS: Thank you.

END 3:20 P.M. EDT