THE WHITE HOUSE

Office of the Press Secretary

                           PRESS BRIEFING BY 
                  SECRETARY OF TREASURY BOB RUBIN AND
        DIRECTOR OF THE NATIONAL ECONOMIC COUNCIL GENE SPERLING      

The Briefing Room

1:58 P.M. EDT

MR. MCCURRY: Good afternoon, ladies and gentlemen. Earlier today an administration team led by Erskine Bowles, Treasury Secretary Rubin, and Gene Sperling, the President's National Economic Advisor, were on the Hill to hear from Chairman Archer of the House Ways and Means Committee further details about the tax package they have under discussion there. I guess at least Erskine and Secretary Rubin and Gene also -- no, afterwards -- had an opportunity to meet with Democrats on the House Ways and Means Committee. And I'd like Treasury Secretary Rubin to tell you about those meetings. Gene also can take any questions you might have.

Mr. Secretary.

SECRETARY RUBIN: Thank you, Mike. Let me give you a little sense of where we are, and then Gene and I would be happy to respond to questions.

What we basically -- our basic objective is to have a plan, a tax plan that is good for the American people, good for working people, good for average families, good for the economy, and that is permeated by fairness throughout. By that test, we have serious concerns with significant parts of the Chairman's mark that we have received today.

As you know, the President has focused on education, on child care, and on savings, all with the focus on middle income families, both to help middle income families directly through tax cuts and to promote behavior that is good for middle income families and good for the economy. With respect to the areas that we do have significant concerns about, we look forward to working with Congress and to ultimately winding up with a tax bill that meets the test that I mentioned a moment ago, and that is good for the American people and that we can enact into law.

With that, we would be happy to respond to questions.

Q What are your main objections?

SECRETARY RUBIN: Well, I think if you look at this there are a lot of problems that are going to need some serious attention. For example, the EITC -- this is a rather technical point, but it's an important point -- the EITC is stacked before the child tax credit, so that means that if you have an income that's in the EITC range, but we are paying taxes, you first have the EITC credit against it and then only if you have some taxable income left can you get to use the child tax credit. The basic -- the effect of it is to deny the child tax credit to what I would call the middle poor or the least well-off working people who are still paying taxes. That's because they take the tax credit first and then only if you have taxable income after that you get a child tax credit. It's called stacking.

We would do it exactly the opposite way -- we'd put the EITC after the child tax credit.

Q But your tax credit isn't --

SECRETARY RUBIN: Our child tax credit as we currently envision it would be refundable. But even leaving that issue aside, if you put the child tax credit first, even if it's nonrefundable, and you have taxable income, then you'd get the benefit of the nonrefundable tax credit. And EITC is refundable; even if you've exhausted your income, you'd get the benefit of the EITC because it's refundable. That I think is a very serious issue.

Secondly, our understanding is, although you don't see it from the sheet that you all probably have received and that we did receive, that the dependent care tax credit which people currently get is going to be adversely affected or reduced by virtue of this program. In the second five years, our understanding is that for each dollar of that credit that you get, your child tax credit is reduced by 50 cents. That's obviously bad for working mothers.

On the HOPE Scholarship, that's been changed so that instead of getting a full HOPE Scholarship for $1,500, what you get is 50 cents on the dollar up to $3,000. So if you go to a community college that has a tuition, say, of $1,200, under the President's plan you get a $1,200 tax credit; under this plan you get a $600 tax credit. Again, it will tend to disadvantage the less well-off in our society. And as you look through this program, in component after component that is what this program seems to have done. It seems to have moved the tax benefit away from the less well-off and even away from middle income people toward higher income people.

Q What do they say about that? Is that what they say they're doing?

SECRETARY RUBIN: That is what they're doing. These are obviously the kinds of issues we'll have to discuss with them.

Let me just mention one other, if I may. They totally eliminate the corporate alternative minimum tax in the second five years and they reduce the corporate alternative minimum tax in the first five years. That basically means that a lot of companies will be able to pay substantially lower taxes than they otherwise would, and some would be able to pay no taxes, even though under current tax law they would be viewed as profitable and paying significant taxes.

At the same time they do that, they have these other -- that costs a lot of money -- I think something like $17 billion, if I remember correctly, in the first -- I do remember correctly -- $17 billion the first five years and $34 billion over 10 years. At the same time they do that, in a lot of these other areas they're moved away from helping working families and average families.

Q You always knew that once you got into the details of writing this tax bill, $135 billion gross tax cut, there would be these disputes with the Republicans in Congress, so this is not a surprise.

SECRETARY RUBIN: These aren't details, Wolf. I would say these are really --

Q But these are the nuts and bolts of what the tax cuts are going to be, right?

SECRETARY RUBIN: Well, this is their tax cut program.

Q The only thing you agreed on with them, going into the balanced budget agreement, would be $135 billion in gross tax cuts, $35 billion of which would be earmarked towards education?

SECRETARY RUBIN: Well, toward the President's tax program.

Q For education.

SECRETARY RUBIN: Toward the President's tax program for education, that is correct.

Q Have they honored their commitment to you?

SECRETARY RUBIN: Well, beyond that, however, we have to determine whether we have legislation that we believe is good for the American people, or not. And that issue --

Q You always suspected that would be the case, right?

SECRETARY RUBIN: Wolf, I think there are two tests. One, as you correctly say is, have they met the test of the agreement. And with respect to the education piece, they have $31 billion of education. The HOPE, obviously, is modeled after the President's, but nevertheless it's significantly different for the reason I just discussed. It's worth half as much to somebody who goes to a community college with a $1,200 or $1,500 tuition. And the other piece is totally unrelated to the President's program. So I would say they are not consistent with the agreement with respect to education piece.

Beyond that, the test is the test that I mentioned -- do we have a tax bill that meets the interests of average and working families, and is good for the economy. And by that test, as I said a moment ago, I think there are significant concerns.

You used the word "details," though. I was just taking exception to that because I think this is much more than a question of details. This is a question of --

Q Are they reneging on the deal?

SECRETARY RUBIN: I don't think I would say that at this point. I think I would just say that we now have the mark and we have to work with Congress and our objective is to work with Congress to get a bill that, A, meets the agreements, and, B, meets the test that I mentioned before. And that's what we look forward to doing as we go forward.

Q -- tax bill the President would sign, you're saying?

SECRETARY RUBIN: I'm saying that we have significant concerns about significant portions -- serious concerns about significant portions of this, and we need to work with Congress to work our way through that.

Q Let me go back -- you say it's not consistent to the agreement vis-a-vis education. So you're saying that as to that $35 billion, that roughly $35 billion, they aren't following it or they are?

SECRETARY RUBIN: Well, on the roughly $35 billion, they've got $22 billion for a HOPE credit, which is modeled after the President's, but nevertheless is significantly different from the President's, for the reason that I described a moment ago. Just to repeat it once more, if you have, say, a $1,200 community college bill, our way you get a $1,200 credit, their way you get a $600 credit. And then the additional $9 billion roughly that they have in education is a totally different program than the President's deduction program.

Q But isn't this sort of one of those things where you had a chance --

SECRETARY RUBIN: And, of course, we were supposed to be roughly $35 billion, and this is $31 billion.

Q -- you had a chance to hammer up the best deal that you could; the $35 billion was what you could nail down to get the rest of the budget agreement -- isn't there a sense the Republicans can say, look, you knew that this was how we would write the bill for the rest and that's the way it goes?

SECRETARY RUBIN: No, I think that where we are -- the one commitment in there -- well, there are actually three commitments, aren't there. One is the total size of the tax package first five and second five years on a net basis, right? Second commitment is that it not explode, and we have not yet had a chance -- we've just gotten this -- we have not yet had a chance to do the analysis to determine what effects this would have out beyond the first 10 years and whether this does or does not explode. I do not have a view on that; we've got to do the analysis.

And then the third is, with respect to everything else, since the specifics were not laid out, it's like every other tax bill; we have to work together and see if we can arrive at a tax bill that we are both comfortable with and think serves the interest of the American people, and that's where we are right now.

Q -- their plan on the education tax credits mitigate some of the incentives that people have said for community colleges to simply raise their prices up to the maximum in order to take advantage of a tax subsidy -- it keeps the recipient of the education with a responsibility for some of the payment.

SECRETARY RUBIN: I don't think there is a material difference. If you look at CRS, they estimated if I remember correctly that 90 percent of our program would not affect tuition, so you're talking about 10 percent to begin with. So -- if you take the CRS study. So you're talking about, at most, 10 percent. So if theirs helps a little bit on that, maybe they've solved a little piece of what is, by CRS's estimation, a small problem to begin with. I do not think that's a significant argument.

Q How much of a problem do you have with Democrats on the HOPE Scholarships? Archer -- at least according to Archer, no Democrats stepped forward to defend it in his talks.

SECRETARY RUBIN: I think that you will find that the House Ways and Means Democrats -- I don't want to speak for other people, so I'll just -- well, let me say, I think you will find amongst House Ways and Means Democrats that there is coalescence around a HOPE Scholarship that has the principles of the President's HOPE Scholarship. That would be my judgment at this point.

Q -- is gauging their level of support is --

SECRETARY RUBIN: That is correct.

Q You may have noticed that the dollar has fallen to a six-month low. Has there been a change in policy, or do you still favor a strong dollar?

SECRETARY RUBIN: We favor a strong dollar as we always have, and I think that -- and for the reasons we always have -- helps keep inflation down, helps keep interest rates down, both of which are good for the economy.

Q Mr. Secretary, you say you do not regard this at this point as a breach of the budget agreement. Given the parliamentary mechanics, though, won't it be very difficult to fix this? And when would it become a breach?

SECRETARY RUBIN: Well, the question was, did I view this as a breach of the contract, and I said it seemed to me it was too early to be speaking in those kinds of terms. I do not think this is consistent with the agreement. (Laughter.) But I think that the attitude we should be taking, and we do take -- we want a bill that we can sign and that is good for the American people, and we look forward to working with Congress to get that sort of bill. This is the legislative process.

Q Is there anything you like in the package?

SECRETARY RUBIN: Yes, I think there are pieces that are worth nothing. That's a good -- yes.

Q What are they?

SECRETARY RUBIN: There is a substantial child tax credit. As you know, the President has always been an advocate of a substantial child tax credit. The two problems with this one are the EITC stacking problem, which sounds technical, but is not technical at all, that would adversely affect a lot of relatively poor or low-income working people.

Q How many?

SECRETARY RUBIN: I don't know how many yet, because we have to get this back and work on it.

And secondly, this dependent care issue, which is a very big issue for working mothers. And secondly, in the HOPE Scholarship program. While it is not -- it has the problem I mentioned, which is a big problem, relative to the President's program, it has elements of the President's program in it.

Q Mr. Secretary, what about the proposal to raise the inheritance tax limit to $1 million from $600,000 and to lower cap gains to 20 percent?

SECRETARY RUBIN: Well, in cap gains, they lower the top rate to 20 percent. They also have indexing, so that they're really providing a double benefit to people with respect to capital gains. We have always had very serious reservations about indexing partly because with indexing and lowering the top rates, you're providing an enormous set of benefits to people with large capital gains, partly because of complexity and in the case of the indexing because of the impacts it could have on the deficit in outer years.

Q Would you like to lower cap gains for people of lower income?

SECRETARY RUBIN: You're talking about taking the 10 percent? Well, we have never been in favor of a broad-based capital gains tax cut. On the other hand, we've always said that it's likely, since the Republicans do favor it, that there would be one in the final agreement. I think the best thing to say about a capital gains tax cut is that we're going to be working all these issues with Congress and we'll work our way through this. Indexing is the piece of capital gains that we are most troubled about.

Q And the inheritance tax?

SECRETARY RUBIN: Wolf, I don't want to get into individual provisions, but that doesn't -- it's not one that I mentioned as striking me as a serious concern, but we've got to go through this and analyze it and discuss it amongst ourselves.

MR. MCCURRY: There were two last questions back there, and then Ann.

Q The Archer proposal has the child tax credit going up to age 17.

SECRETARY RUBIN: Age 16, I think, isn't it?

Q The 17th birthday, yes. And as I recall, yours went up to age 13. Do you have a problem with the higher age, or are you willing to accept that?

SECRETARY RUBIN: Well, it's a question of how much money you want to spend on the child tax credit. And we think a child tax credit is a very good policy. The President has consistently advocated it, and it's just a question of how much you want to put in that pocket. That isn't a problem. We have to view that in the context of the overall package. But I think, taken in and of itself, I don't think we would have a problem with that.

Q Gene pointed out how hard it gets to change some of these things. What do you do now with it once you go through all this? What are you going to do?

SECRETARY RUBIN: We're going to be working with the various committees in Congress and continue working with the various committees in Congress and we'll have to see what the process are going forward.

Q Are you going to send objections up to these particular things you've highlighted today?

SECRETARY RUBIN: We just got this in the last couple of hours, so we've got to decide ourselves exactly what the best way is to progress. But we'll be working with both parties in both Houses.

MR. SPERLING: One thing I just wanted to add was, someone said, isn't this something you would expect. On the child tax credit, on arranging it so that it doesn't go to lower income working families, this was not part of their proposal in '95. The plan in '95 and '96 -- they did not do this. So this is a change in the way that even they've designed the child tax credit so that Bob -- we haven't had a chance to look at it, but the Center for Budget Priorities estimates that this would deny the child tax credit to as many as 4 million families that are in the, as the Secretary said, the lower working income families, which we think is a very questionable way to get additional savings.

And then, just on the child tax credit, on the child care tax credit, they're actually saying that on the outer years, for every dollar that you're getting on their new child tax credit, you would take away 50 cents of their child care dependent tax credits. So you have two families -- one family, they have a single person --one parent makes enough so the other parent can stay home -- they get the full child tax cut and they get the dependent care tax credit as it exists. The family next door, both parents have to work, which is the way it is for tens of millions of working families. They're saying that for that family who then needs to use the dependent care tax credit, they would take away 50 cents on every dollar. That is a very, very puzzling proposal.

THE PRESS: Thank you.

END 2:15 P.M. EDT