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Office of the Press Secretary

For Immediate Release January 5, 1998
                         PRESS BRIEFING BY 
                      OMB DIRECTOR FRANK RAINES

The Briefing Room

2:50 P.M. EST

DIRECTOR RAINES: Hello, I'm Frank Raines, the Director of OMB. And with me is Gene Sperling, who is the Assistant to the President for Economic Policy, and Director of the National Economic Council. And we understand there may be some questions about the President made earlier today, and we're here to answer any questions you might have.

Q How is it possible? I mean, just a month ago administration officials were saying, no, we can't do this. Speaker Gingrich had been proposing this and the administration kept on saying, no, kept on throwing cold water on the idea. How is it possible now that you're able to all the sudden say, we can do this?

DIRECTOR RAINES: Well, the one thing that's very clear is that nothing about balancing the budget happens all of the sudden. The administration has been working on balancing the budget for five years. The President made two very important statements today: one, that for the sixth year in a row, 1998 budget deficit will be lower than the deficit the year before that; and the 1999 budget coming into balance is simply the result of applying the same process -- having strong discipline in putting together a budget, investing in those things that help the economy grow and not spending the good news. And when you do that over a long period of time, as the President has, you get good results.

We've been in a vicious cycle of deficits since the early 1980s. We're now in a virtuous cycle, that if you do the right thing then you get good economic results and you get good bottom line results.

Q Frank, I think what the suggestion is, is that you guys have been the ones saying, oh, no, there's not going to be a balanced budget, these projections of private economists, of Republicans that we are moving in that are overstated and, thus, all this talk about tax cuts is way premature. Don't you know -- I mean, either one of the two things happens. Should we now talk about tax cuts if we're going to have a balanced budget and, if not, why not?

DIRECTOR RAINES: Let me talk about the first part and let Gene talk about the second part, the tax cuts.

As you noticed, we have estimated that there will be a deficit in 1998, although there are a lot of private economists who don't have access to all the numbers who have been suggesting otherwise. So we're saying that there will be a remaining deficit in 1998. In 1999, we're saying the President is going to present a balanced budget on February 2nd, when he presents his budget.

So I think we have been very consistent all along. We've always beat our projections for budget outcomes and we hope that we are able to continue with that for the rest of the time the President is in office.

Let me have Gene answer the question related to tax cuts.

MR. SPERLING: Actually, I think you're right about one thing, but it may be a little different. I think we heard on one Saturday that I think there had been a call to balance the budget this year, '98 -- which we thought would have meant doing recisions in our current -- in the current '98 budget that was just passed. And that we did try to throw cold water on.

Since then, what we've said is that if we keep with the discipline that the deficit might be balanced earlier than projected. So we tried to make clear we thought that. But as Frank said, we're not going to apologize for being conservative and not announcing numbers until we know that they're there. And I think that's the right thing to do and that's what we've done.

Q Did the numbers change suddenly or --

MR. SPERLING: Frank would say optimistic things to us, but they did not know. (Laughter.)

DIRECTOR RAINES: Well, you have to remember, we're talking about a budget of $1.7, $1.8 trillion. And we're talking about deficit numbers in the 20s. So we don't try to even guesstimate very carefully how this is going to come out until we're pretty well down the path of putting the numbers together.

We got pretty well down that path this morning when I came in and people had been working all weekend on coming up with a number for what did 1998 look like and what did 1999 look like. As soon as that number had firmed up so that I was sufficiently convinced of it, I communicated that to the President. And the President has now communicated that to you.

So this is the process you go through when you're putting together budgets -- there are a lot of numbers moving around and you bring them together only slowly over a period of time to see what they come amount to.

MR. SPERLING: Let me just answer your question, though, which is -- you said, is it appropriate to talk about these things. I think that what we have been trying to say is that, one, you shouldn't start making spending commitments on money that is not even there. For example, there had been quite a bit of discussion -- a lot of you know, for example, in the transportation bill last year -- of spending money that was just better than the projections. So that if the projected deficit was supposed to be $30 billion and now we thought it was going to be $20 billion, that you had $10 billion to spend. We've been very strong stating that that is not a fiscal responsible position to take.

Secondly, we also think that if you start making commitments that you're going to spend certain amounts of money -- whether it's on tax cut or a spending program -- based on a surplus that has not yet materialized, well, what happens if things don't work out as good as you thought? Then you have the 1980s all over again, where you've made commitments to allocate certain funds and you commit more than the country can bear and you drive back up the deficit and hurt our fiscal situation.

Obviously, it's not irresponsible for people to talk about if we had a surplus, if a surplus happened what would be the type of things that one should do. But even in that context we think that we need to be very responsible about looking at what our future obligations are and make sure that we do not make commitments to spending money we don't have and then find that we have repeated the exact problem that we created in 1981 and we spent all of this time digging ourselves out of.

Q I didn't understand the President's answer on tobacco tax. What was he really saying?

DIRECTOR RAINES: What was the question?

Q Is there going to be an increase in the tobacco --

DIRECTOR RAINES: Well, as you know, the President made a statement after the announcement of the tobacco settlement in which he set forth his views as to how you ought to view that. And he indicated that he thought a settlement that would lead to significant public health benefits could be in the interests of the nation.

And we have been discussing that internally since that time and we'll be supporting in this coming year legislation that will have that as its primary purpose -- improving public health. So that will be part of the legislative program going forward this year.

Q Well, will it be revenue building? Are you thinking in terms of revenues?

DIRECTOR RAINES: Well, as you know, the settlement between the tobacco companies and the state attorney generals had a lot of revenue moving around. And that would be, I think, in any legislation passed, there would be a substantial revenue component to any tobacco legislation passed.

Q Like $10 billion the first year?

DIRECTOR RAINES: As I recall, the settlement had tens of billions of dollars that were involved. I don't remember how much was in the first year. But a substantial amount of money was involved in those settlement discussions and I would not be surprised that any tobacco legislation would be very similar.

Q Can I follow on that in two respects? The President, at the time he made his statement on tobacco, said that his approach would be to outline general principles that he thought were important, but leave it to the legislative process for a specific bill to emerge. Is he departing from that? Is there now going to be a specific administration bill? And, secondly, does this balanced budget for fiscal year 1999, is it contingent upon tobacco revenues and what form are those tobacco revenues to take?

DIRECTOR RAINES: Well, as you know, this is not February 2nd, and therefore we're not announcing the budget. So there is a lot of detail that we either can't or won't get into.

But let me say, the President is going to be very consistent in his approach to the tobacco legislation -- consistent with his proposal that we will be working with Hill on specifics of the proposal. But there will be in our legislative program an expectation that tobacco legislation will be enacted. And as far as effect on the budget, it will be relatively self-contained, so that the tobacco legislation and its related parts will be all of a whole and, therefore, will rise and fall as part of a package.

Q So what you're saying is that you could have a balanced -- if you took the tobacco component out, including the extra money you anticipate from taxes on tobacco and cigarettes, and additional spending in that realm you anticipate, you could still balanced the budget separate and apart from that?

DIRECTOR RAINES: That's right.

Q Mr. Raines, are you saying that you cannot forecast when there might be a surplus?

DIRECTOR RAINES: No, I'm saying I can. The President said he could today. He said he's going to present a balanced budget for the fiscal year 1999.

Q What quarter will we see surpluses; how big do you project they'll be; and then why can't we have a tax cut?

DIRECTOR RAINES: We've had a surplus -- actually, for the last 12 months the government has been in a slight surplus. So if you look on a quarterly cash flow basis, we've been on a cash flow basis and surplus over the last 12 months.

But if you're talking about for the total fiscal year, what we're saying is the President of the United States will present a balanced budget -- and you can assume balanced means it will be some slight surplus -- by fiscal year 1999.

Q What's slight surplus, though?

DIRECTOR RAINES: You'll have to stay around until February 2nd, and we'll be able to tell you that specific a number.

Q Something in the billions?

Q Three quick related questions. Is the President making any kind of commitment to holding the budget in balance past '99? Can you talk a little bit about the economic assumptions that you're making? And where is the unexpected revenue coming from? What's a particular source that's been surprising you guys over the last few months?

DIRECTOR RAINES: Well, the President has been in favor of balancing the budget since he first announced for national office. His budget plan will show throughout his term in office certainly, and into the future, a balanced budget. I don't think there's any question about that.

The economic assumptions won't be available to you until later, but I think you will find that they're mainstream economic assumptions. And as to revenue, what we are seeing right now is a continuation of what we've seen for the last several years, which is that revenue is growing at a rate that exceeds the rate of growth of the economy as a whole and has continued to do so over -- this is now the third year that it's done so. And we've seen that over the last -- the first three months of this fiscal year, which gives us a firm sense of confidence about how fiscal year 1998 is likely to turn out.

Q Is that corporate tax receipts? Is there any particular element --

DIRECTOR RAINES: It's a whole mix of things. There's a lot of analysis going on, but it's a mix of things, including corporate tax receipts, increased receipts from capital transactions, as well as simply increased earnings by individuals. So it's a broad range of very strong results on the revenue side, which is a result of an extraordinarily strong economy.

Q And just following up one last time, I understand the President's long standing commitment to back holding the budget in balance, but the deficit reduction plan had called for increases in the deficit over the next couple of years. Obviously, the President announced today that that isn't going to happen next year and you're going to see further reduction in the deficit. What I'm wondering is, can you say the same for 2000 and 2001?

DIRECTOR RAINES: Oh, does the path get better? I think you'll find that we will not see a -- the path gets better in future years.

MR. SPERLING: To somewhat recoin an old phrase, you'll see surpluses as far as the eye can see.

Q Well, in which case does that mean that the job of dealing with Medicare and Social Security is easier?

DIRECTOR RAINES: No, it actually means that the job of dealing with Medicare and Social Security is now teed-up for the political process. One of the biggest impediments of getting attention to dealing with this long term budget problem has been the short term budget problem. And now with the President presenting a balanced budget, it provides the framework in which he can now try to move the entire political process to focus on the problems of Medicare and Social Security going down the road.

So we think it's a very good result, having a balanced budget three years early, because that means that the President is going to be able, over the next three years, to focus public attention on these entitlement problems.

Q Well, just to follow up, I mean, yesterday Chairman Archer said the best way he can do that is by making a specific proposal of his own to Congress to get the process started. Why won't you do that?

MR. SPERLING: I think that the President is very committed to having Social Security reform. And what he has asked members of his economic team and members of senior White House staff to consider is what is the most effective way to get that done. That that is one possible option, it is not necessarily an option would the most effective.

Q Can you explain why?

MR. SPERLING: Why? Many people believe that the best approach for Social Security reform is to not have options that are seen as much as the Democratic option or the Republican option, but to try to create a framework, a bipartisan framework in which there could be a bipartisan proposal that could draw bipartisan support. And that that is the best -- that is a way to keep the issue from being overly politicized.

That's why, for example, Congressman Kolbe and Congressman Stenholm have a rule that they have in their group, is that all proposals that they put out will have bipartisan support. Many people who've spoken to us have asked for the same thing.

Now, I'm not saying that's necessarily the right approach, either, but you asked what the logic is. What the President has to do is say, looking over the next couple of years, what is the best process in which he can lay a foundation for actual passage of reform. Clearly, that means a few things. Clearly, that means that we have to try to raise the sense of national urgency. In the past when we've done major entitlement reform we've waited right until the ax was falling. Here we're trying to do something that requires a higher degree of responsibility, which is to act to prevent a crisis; to act so that we can take care of an issue wisely, instead of waiting until the solutions become much harder.

Secondly, the President has to try to create the type of bipartisan trust that we had in 1997, that allowed us to have a very historic balanced budget agreement. And, third, I think you will see that if we can come to a Social Security solution you'll see that this President will provide the cover for people willing to make the tough choice. That does not mean -- let me make clear that does not mean that we have ruled out making any specific substantive policy proposals or announcements. Those are things worth considering, that's part of what we're considering right now.

But our goal is to have a strategy that leads to Social Security reform happening in a way that protects its solvency and ensures that we continue to have a progressive and universal program that continues to allow people to live a dignified retirement.

DIRECTOR RAINES: Let me give you a couple numbers, since we didn't give any handouts -- some of you may still have this in your head -- but just so that you can remember the numbers.

Last year, in last year's budget we projected for 1998 a deficit of $120 billion. In the budget agreement announced in May, 1998 deficit was $90 billion. In August, we said in the mid-session review, in our latest estimate we said that the budget deficit in 1998 would be $58 billion. So just to give you a trail on that. And I give you the same numbers for 1999 so you can see what the path of the improvement. In February of last year, we said that the deficit for 1999 would be $117 billion. In the agreement we said that 1999 would be basically $90 billion, again. And then in August we said that 1999 would be $57 billion.

Q You spoke yesterday about that Medicare proposal a little bit. One of the concerns that the Republicans seem to be expressing is that even if it's revenue neutral to start out with, there would be a sense of entitlement that would come along, people would -- if they found that they couldn't afford the existing premiums there might be subsidies that would come into it.

Can you assure people that that's not going to happen, that those Republican concerns are misplaced, that this will be now and to the foreseeable future revenue neutral?

DIRECTOR RAINES: Well, we will be making proposals regarding Medicare. And what I can say is that they're all paid for and all paid for within the Medicare system. And we're using the best estimates that we have for that process and we'll be working with their estimators, as well, to assure that nothing in this proposal will do anything that will diminish the achievement of having extended the life of the trust fund for 10 years.

So it has been our watchword that any proposals related to Medicare need to be paid for and not hurt the trust fund over the long run.

Q What did you think of the reception you got yesterday from Archer and Kasich? It sounded like it was kind of dead on arrival?

DIRECTOR RAINES: I think the reception is like the reception that I've heard to a number of our proposals that are likely to be very popular. And that is, to try early on to see if they can affect the popularity. But that's often a leading indicator that they'll be staunch supporters when it comes around time to vote. So I'd rather see what their views are when we get a little closer to the time when there's a real proposal that they have to vote on.

MR. SPERLING: I think one of the things that this allowed a discussion on is that there are real problems, real problems for Americans between the age of 55 and 64, and what happens when they lose coverage and what happens when they have to compete in the individual market. And I don't think that when somebody in a policy position tries to address a real problem affecting real American families and is willing to pay for it and make sure it's self-financing, that that's the type of thing the American people will look down upon.

I think what the American people don't want is an expansion, a return to not paying for proposals. But I think that Congressmen Archer and Kasich should be encouraged by the fact that when we are trying to address real health care needs we are being very responsible and specific. And that is a good trend, both addressing real health care problems of Americans and being specific and detailed about how they should be paid for in a way that protects the Medicare trust.

Q -- do a buy-in for those below age 65? Do you have an additional premium once they would come into regular Medicare at age 65? Because I understand it's about $50 a month for the Part B premium -- is that for everyone who comes into it, or just those who have been higher risk, higher cost --

MR. SPERLING: This is just what we're going to be talking about tomorrow. We'll be back here tomorrow after the President has had his event on this issue.

Q If the economy significantly slows down because of Asia or some other unexpected reason, what is the affect on the deficit and surplus projections that you're going to be making?

MR. SPERLING: Well, you know, we've all been here too long to get into the hypothetical, what if bad things happen, and then answer questions. But I will say the following. We've had very conservative estimates. Before we came into office the norm was that the Office of Management and Budget projected something and then growth turned out to be not as good and the deficit turned out to be worse.

Every single year since we've been in office -- every single year -- growth has been higher than we projected and the deficit has been lower than we projected. So all you can do in having sound budgeting is to have conservative forecasts that assume that there will be both good and bad times -- those are built into the budget assumptions; and that if you stay that kind of discipline, conservative budget assumptions, that overall your budgets will hold fast; or, if we had a period like we've had the last five years where we've averaged three percent growth, that you'll get even better news than projected.

Q -- years Congress has failed to even enact much more modest health care coverage proposal that you put forward for the temporarily unemployed. So why do you think the one for 62 to 65, the Medicare coverage will -- support?

MR. SPERLING: Again, we'll be back to talk about this tomorrow.

Q Mr. Raines, if I could get you to clarify your statement earlier to Mr. Bloom, the balanced budget is not contingent on tobacco revenue. I mean, there was a story today that quoted senior officials at this White House saying that it anticipates $10 billion of tobacco revenue. Could you please square those two things?

DIRECTOR RAINES: Well, I hate to try to square something with an unknown person. All I can do is say that the tobacco legislation that we will be supporting will be self-contained and will have a net zero impact on the rest of the budget. And, therefore, the rest of the budget -- we'll be in a same position we'd be with or without it. However, we obviously believe that such legislation would be beneficial to the public health, otherwise we wouldn't be supporting it. And it will, as a total package, be an important part of our proposals going forward. I don't see any inconsistency in what I've said with any other statement.

Q So what you're saying is --

Q But if a comprehensive settlement fails, the tax doesn't go through; is that what you're saying? If the comprehensive tobacco legislation does not go through, your proposals on tobacco don't happen either.

DIRECTOR RAINES: What I'm saying that we're going to present a comprehensive package.

Q Right.

DIRECTOR RAINES: And comprehensive packages mean comprehensive, and they mean it's a package. If it's a comprehensive package, its impact on everything else is obviously minimal.

Q But, Frank, what you're also saying, I presume, is that there's some spending in the health related, cigarette, tobacco related field that you're willing to forsake if you don't get the tobacco tax that you anticipate?

DIRECTOR RAINES: What I'm trying to say is that when you look at any of these tobacco proposals -- and you will see that they are all very complicated and that they depend on a variety of mechanisms to improve public health, our proposal is going to be equally comprehensive and will be tightly linked. So that we foresee it as being a successful tool for meeting the President's goal, from a public health standpoint and from other public policy standpoints; but we don't see it at all as being a danger to his ability to balance the budget.

Q Can I ask you what are the numbers that you've been estimating on or using to estimate? How many people do you think will go into the system if you do expand Medicare? How many more new people between 62 and 65?

MR. SPERLING: Everything that's been in the paper on Medicare has not necessarily been wrong, but none of it has been authorized. And so the President is going to speak on this tomorrow and I'd just say again, that's when we're going to give out the details. I mean, it's no secret that the President thinks that this population has some special problems and that there is a need to address that. I think he had made that clear long before he'd asked all of us to look at proposals. What we'll say is that the proposals we have are, as Frank said, self-financing and will protect the Medicare trust fund and we'll be able to walk through all the details with you after the President's event tomorrow.

Q Gene, Frank, either of you -- you and other officials here have talked about initiatives in the area of child health care, of child care, day care type credits, initiatives, Medicare initiatives, others, some of which are said to include new spending. Aren't you about to do what you were just warning Republicans not to do, to spend the surplus?

MR. SPERLING: You know, in 1992, when we had the campaign, we said that we'd be able to cut the deficit, and that if we cut wisely we'd be able to cut additional amounts so that we could still fund significant increases in programs. I think in '92, most people would not have thought we could bring the deficit down 92 percent and be spending more than a billion every year on Head Start, and be spending more than a billion every year on WIC, and be spending $6 to $8 billion more on the earned income tax credit every year. But we have. And I think that that debate has been settled.

What we do is we cut other programs or in other ways get specific savings and so that everything we do that's additional is being paid for. And that's what we've done the last several years. That's what has helped lead to a two-pronged strategy of bringing down the deficit and increasing more in the American people, and that's what we're going to do. We will -- if it's in the discretionary side it will meet the discretionary path that was set out in the balanced budget agreement. If it is on the mandatory, or the tax cut side, it will follow the pay-as-you-go rules in which if we're spending a dollar we'll pay for it with a dollar savings elsewhere.

So that's exactly what we're encouraging -- that's exactly how the budget rules work and that's what we're doing in this budget.

Q So to ask it another way, everything that you're going to propose -- or none of what you're going to propose is going to take advantage of any of the extra money from this that you've found?


DIRECTOR RAINES: We are not using any of any projected surplus to pay for initiatives. We are doing it the old fashioned way.

Q When is the last time a President proposed a balanced budget?

DIRECTOR RAINES: The last time a President proposed one was in 1971. The last time we had one was in 1969.

END 3:20 P.M. EST