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Office of the Press Secretary

For Immediate Release March 2, 1998
                           PRESS BRIEFING BY 
                             GENE SPERLING

The Briefing Room

1:18 P.M. EST

MR. SPERLING: I'm Gene Sperling. I'm the Director of the National Economic Council. Myself and Larry Summers, the Deputy Secretary of Treasury, we just want to give you a few minutes of background on the President's speech today.

The administration, as you know, has been very committed to efforts that Larry Summers will go into on simplifying the IRS, making it work better for families, for taxpayers bill of rights, phone service improvements, as well as tax reforms in the sense of making education a matter for tax cuts for families -- $500 tax credit. These are all the things that we do that we feel meets our principles of being sound for the economy, of being fair for working families and meeting fiscal discipline. And we feel that any measure that anyone puts forward we're willing to look carefully at it and hold it up to those principles and see whether or not it makes good public policy.

Unfortunately, right now many members of Congress, particularly Republican members of Congress, rather than putting forward a specific tax reform that the American public can hold up and analyze and judge whether it's good for their pocketbooks, whether they think it would be simpler, whether they think it could be better for the economy, they have simply called for a tax termination bill -- a bill that would simply eliminate the code on December 31, in the year 2001, and then simply call for a replacement magically by July 4, 2002.

This bill in the House is HR 3097, Largent, Paxon are the sponsors. It has 137 cosponsors at the moment. It is S1520 in the Senate; the main sponsor is Senator Hutchinson from Arkansas. It has 25 cosponsors.

Recently we have seen remarks from the leadership of both Houses that this is becoming a top priority. It is now one of the principles in the Senate Republican budget principles, the elimination of the tax code. Senator Lott said, as reported in the Congressional Record just several days ago, on the 23rd, that he seeks to have a vote on this legislation this year, and that there is a pending or soon to come, send to the Senate resolution on this.

And quite simply, we feel, the President feels that at this moment, where the United States is so clearly the bulwark of economic prosperity, economic confidence, and fiscal discipline, for us to take this type of a reckless riverboat gamble with our economy and with American taxpayers makes no sense. And the President spoke today because he wanted to nip in the bud what is clearly a political stunt masquerading as tax policy.

Those who have supported tax reform have often failed to emerge from the box that many of the reforms that have come forward have either been very regressive, raising taxes on most middle-income families and lower-income families, or they have been extremely expensive, costing over $100 billion a year to the deficit. In fact, many of you may recall, the most vituperative part of the 1996 campaign was probably not between Bob Dole and Bill Clinton, but was between Bob Dole and Steve Forbes, as Bob Dole rightly relied on Treasury analysis to say that the 17 percent flat tax would either cost over $133 billion a year, or nearly a trillion over seven years to the deficit, or would raise taxes on virtually everybody making under $200,000.

A recent Brookings analysis by Bill Gale suggests that a 17 percent rate would actually cost 27 percent sales tax if you were simply to try to account for people under the poverty level.

Rather than come clean and present specific proposals, we now see people proposing something that would truly be reckless for our economy. As the President said, nobody would suggest if they're unhappy with the criminal justice system that they should just simply eliminate all criminal laws, all laws in our society at all, and simply hope that somehow or another the Congress could pull together and replace the system without causing grievous harm. Certainly nobody should responsibly advocate the same for our tax code. This would certainly throw, as the President said, almost all business investments into paralysis.

And I think that to even go more into detail, the transition cost for older people, for homeowners, for any of the business investors, businesses that have nearly $3 trillion in unrecovered investment at this moment, certainly, certainly they could not be suggesting that all of these people would simply be losers.

And so if there were to be any type of transition relief, it would be quite expensive, it would be quite complicated, it would certainly drive up whatever sales tax proposal they have to rates that would be highly unattractive, and worst of all, play games with the economy. Who could even know what kind of transition relief you would have, because this is a system which doesn't even tell you what the tax code would be. So we have -- I think the President rightly wanted to come out today and kill this idea before it got any movement or wind to it. It's not -- it's the wrong thing for the American economy at any time, but certainly the wrong thing at this time.

With that, let me give you Deputy Secretary Summers.

DEPUTY SECRETARY SUMMERS: As the President said today, we share the outrage most Americans feel, including those who work at the IRS, at the abuses at the IRS. That's why we're working hard to administer the tax code fairly and to make it better. To administer the tax code fairly, we've passed a taxpayer bill of rights -- more than 40 provisions including measures that allow taxpayers to collect legal fees when they were right and the IRS was wrong; including measures to require the IRS to assure that innocent spouses are notified in cases where they've been wronged by their former spouse in the tax area; including measures to make it easier for people to appeal liens against their homes; including processes such as problem resolutions day where IRS district offices are open each month on a Saturday, that have served some 16,000 taxpayers; including measures to make it easier to interact with the IRS -- 25 percent more people have filed by telephone this year than a year ago -- including citizens advocacy panels that give taxpayers a place to go when they have a problem with the IRS.

And as we've worked to administer the tax code better, we've also worked to make the tax code work better for Americans at key points in their lives, helping them raise children with $500 credits, helping them assure adequate income with the Earned Income Tax Credit to benefit the lowest-income Americans, helping them send their kids to college with the HOPE Scholarship credit and other credits, helping them by a home with expansions of IRA provisions, helping them prepare for retirement with a significant expansion of IRAs. And we're looking to do more of the same this year, particularly through an expansion of the child care credit.

These kinds of approaches are the right way forward. Abolishing the tax code without an alternative in place is throwing dice with the American economy. By eliminating with the stroke of a pen federal revenue that is on the way, it would put in jeopardy the record of fiscal probity that we've achieved and risk a substantial spike in interest rates.

With no tax law in place on which people could rely, investment decisions in new homes, in new factories to make our economy more competitive would be put at risk , threatening the confidence, the highest level of both business and consumer confidence in 30 years, which has been so central to our prosperity.

We stand ready to discuss and debate all possible ways of making our tax system work in a better way. But to abolish the tax code with no alternative is to put the steady, determined progress that we've made that has produced a combination of 4.7 percent unemployment and nearly 2 percent inflation, that's produced the highest rate of equipment investment in our history, that's produced rising wages in incomes again -- it is to put all of that at risk.

Q Are they really serious about this? What would they do for revenue?

MR. SPERLING: You'd like to think it wasn't serious, but at some point when someone gets over 130 cosponsors, when you have Dick Armey saying it's on their 90-day priority list, when you have Senator Lott calling for a Senate resolution, when it's on the Senate budget principles, I think that we have to take it seriously now so that the public won't take it seriously later.

You're absolutely right, you're actually talking about a complete shutdown of everything subject to Congress in six months being able to magically agree on an entire plan, taking into account all of these transition rules, all of the debates that go on. Who would look at the American economy, seeing that type of mess, and still think it is a safe and secure place to invest. Imagine a homeowner who doesn't know if they're going to wake up the next day and find their house is worth $20,000-$30,000 less because no longer would mortgages be deductible. A business investment assumes -- a huge amount of the calculation comes from assuming what the depreciation costs are.

But you may have a system coming in, maybe, maybe not, where everything is immediately expensed. How would you know whether to make an investment, how would you know whether to hold back. If you're a company that right now gives generous health benefits or covers all your workers because health benefits have a -- are tax deductible to the employee as a form of compensation, you would have no way of knowing in that year whether that was something that was worth continuing or still made economic sense.

The only way, again, to explain it is that, unable to come clean or agree with the American people on what they propose, unable to ever agree among themselves, unable not to have an internal firing match back and forth between those who propose a sales tax and those who propose some other form of consumption tax, they are putting this political stunt out and now driving it as if this is a serious and responsible proposal. And we will be the first to admit, at a sound-bite level it may sound attractive. At any form of serious economic analysis for the economy or families, it is a reckless gamble.

Q Gene, you've issued a lot of proposals this year; not among then has been a tax reform proposal. Is it safe to assume that tax reform, tax simplification, is a pretty low priority for the administration?

MR. SPERLING: Why don't I let Larry answer?

DEPUTY SECRETARY SUMMERS: Tax reform is a high priority. We've proposed more than 40 tax simplification measures this year, including an expansion of the taxpayer bill of rights. We've proposed a balanced budget tax reform package that addresses a number of critical priorities, including child care, including the need to stimulate environmental incentives. We continue to look at a range of tax reform options, but they have to be assessed in terms of their impact on the deficit, in terms of their impact on growth, in terms of their impact on fairness, and in terms of their impact on the simplicity.

I think we have a tax code today that works better for Americans as they do what is crucial to them in their lives -- raise children, send kids to college, prepare for retirement -- than we've had in the past as a result of the proposals we've made. We will continue to work to improve the tax code. It is a critically important priority for us, as is administering and enforcing the tax code that we have in a better, fairer, more customer-oriented way.

Q But you consider the current tax code to be fair, the one that's in place today?

DEPUTY SECRETARY SUMMERS: The tax code can always be made fairer and better, and that's what we're working to do.

MR. SPERLING: Just one thing. I'll tell you ways I think it is absolutely fair. I think for a working poor family that wants -- that believes that if they work full-time they would be above the poverty line, not have to raise their children in poverty, there is no question that the dramatic expansion of the Earned Income Tax Credit has made the tax code more fair for that family. For a family that thinks that if businesses get tax preferences for investing in capital equipment, why shouldn't the family get a tax preference for investing in their kids, in their children's higher education, there is no question that the tax code is more fair. And for people raising children who now get a $500 child tax credit, it is more fair.

And if you look at the long-established measurement that the Treasury Department has done for years on a typical family, you will see that they will have the lowest tax rate percentage of their income in over 20 years. That doesn't mean it could not be made more fair and simpler. But the question is, if someone has a proposal, like any proposal, whether it's in health care or education, you come forward and you say what the specifics are and you judge it and you look how much it costs. There's nothing else that somebody would come in and simply say we'll abolish everything, we have no plan for what we'll do, we'll just take a huge gamble with the American public.

Q Isn't what really bothers you about the Republican plan is that it might move the nation closer to a flat rate and the elimination of the kind of tax breaks that you just cited?

MR. SPERLING: I'll let Larry speak, but what bothers me is that we have 4.7 percent unemployment, we're the economic envy of the world, and at a time when the President has come out with a Social Security first plan and other measures to show our country and the world that we're going to maintain fiscal discipline, for other leaders in our country to send a message out that we may become a completely uncertain, unreliable place to invest and create jobs should be very bothersome to anybody who cares about the American economy.

Q Gene, the fact that you're rolling out the heavy artillery today to try to kill this plan indicates that you're taking it, the administration, taking it seriously. Why do you think it's become a serious proposal? Why do you think it's become as popular as it has? What's driving it?

MR. SPERLING: Well, I think one of the reasons that it's important that the President came out and spoke out against it today is that because at its sound-bite level, at a kind of shallow political sound-bit level, it may sound attractive. Once people have the facts, once they realize the risks, they'll realize it's a very unwise and reckless idea. And so the reason we came out now was that we have a responsibility to let the American people know what a reckless idea this is and to put all the facts on the table so that people view it -- don't just hear the sound-bit level, they hear what the real economic story is both for the economy and their family.

Q You're saying that the leadership of both Houses would apparently pass something that's completely reckless simply to look good on TV and have nice sound bites -- is that what you're saying?

DEPUTY SECRETARY SUMMERS: I think my presence here and Treasury's close involvement with this issue does not reflect a political calculation, it reflects a judgment that with what's going on in Asia and other places, this is not a time to add threats to the sound economic path that we are on. Abolishing the tax code with no alternative is a threat to the path of prosperity and expansion we are now on.

Q You say you are looking at a range of options. Can you give us some idea of what your timing is for proposing more simplification measures?

DEPUTY SECRETARY SUMMERS: We have proposed them and we look forward to working with Congress on an agenda of simplification, and we will continue to have proposals in the future. There are many, many proposals in the President's budget -- in both the taxpayer bill of rights and simplification areas which I think deserve very serious consideration. There's also a great deal that can be done administratively, such as the recent announcement on innocent spouses.

Q Do you have any more legislative proposals to come out in the next two months, say?

MR. SPERLING: I'm sorry, I couldn't --

Q Do you think you'll have any more legislative proposals to come out in the next two or three months?


Q You made the distinction -- you're saying that you're going to make it simpler to pay your taxes, but in fact you're making the tax code more complicated the more tax credits and deductions you add, right? Are you saying you're making the tax code simpler or just the process of paying your taxes?

MR. SPERLING: I think you want the tax code to work better for average working families. My guess would be a family sending their child to school find it simpler to pay $1,500 less than to pay $1,500 more because they have a child in the first two years of school. And I do think --

Q That's not simpler, that's less money.

Q I'm just asking you if you think making the tax code itself simpler is a priority for this administration.

MR. SPERLING: I think that making the tax code simpler is one priority that has to be measured along with other principles. For example, you could make the tax code simpler and drain the fiscal -- you could drain the treasury of hundreds of billions of dollars. You could have it be simple and have it be highly regressive and raise taxes on most people.

So clearly, simplification is one value that has to be measured with other things. There are things that we have done, proposed -- as you remember, it was the administration that proposed and came out actually of the Treasury Department's tax analysis as part of simplification that people not pay capital gains on their homes. And that was driven as a simplification measure so that people did not have to carry around records for 50, 60 years for the time when they might sell their home.

But we look and they say that's a simplification measure that we were able to pay for, so it's fiscally sound. We felt it was fairer to working families. And we felt it was good for the economy. If something meets those tests, we're going to support it. Most things that have come forward recently don't meet those tests, and the people who put them forward don't think they meet the tests, because they aren't willing to put it out, have it scored, and have it discussed. And that's why people look for open-ended provisions like this.

DEPUTY SECRETARY SUMMERS: Let me just add, if I could. I don't know who regrets having the opportunity to claim a HOPE Scholarship, so I don't think that's inconsistent with our goal of simple tax administration in America. What people do regret -- did regret, is the complex record-keeping associated with having to keep track of every improvement in their home for 30 years, which they no longer have to do because of the homeownership tax provision. What people regret is a child who has a $310 bank account that earns $16.48 in interest having to file a separate tax return -- only they don't because of the proposals that we've made.

What people regret is having to file an extra return because of earning a minor amount of income abroad. The simplifications that people regret -- simplification -- complexity that people regret is not the complexity of opportunity, which is what the HOPE Scholarship creates, which is what the expanded IRA creates. The complexity people regret is the complexity of unreasonable burden, and that's what we've been working to mitigate.

Q Mr. Summers, over the weekend President Soeharto said that the IMF bailout may not be sufficient. Do you have a reaction to that?

DEPUTY SECRETARY SUMMERS: The President's personal representative, former Vice President Mondale, is in Indonesia and will be talking soon with President Soeharto, and I don't have any comment, any further comment on the Indonesian situation at this time.

Q How seriously are the Asian economic problems -- how are they going to affect what you're doing here?

DEPUTY SECRETARY SUMMERS: I think as we've said many times, the economic developments in Asia are very important for Asia, for the global economy, and potentially for the United States. And that is why it is so crucial that we do everything we can to contain those problems, based on the countries pursuing strong policies, based on conditional financial support where that is appropriate, and based on each of the major economies doing what they need to do, as we have done in the United States. Others will need to step forward to move their economies.

I think if we can pursue this approach, it offers overwhelmingly the best prospect of containing these problems and allowing them not to interfere with the existence of economic expansion in the United States. But I should say in that regard, that action to support the IMF is essential, that failure to support the IMF at this juncture would be very much like cutting off your life insurance just after you've gotten sick.

Thank you very much.

END 1:42 P.M. EST