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Office of the Press Secretary

For Immediate Release January 19, 1999
                          PRESS BRIEFING BY 

The Roosevelt Room

1:15 P.M. EST

MR. SOSNIK: We'll do this on the record, and if I need to lapse into background, I'll do that. But just assume this is all on the record. What we will try to do is get through the first part of the briefing rather quickly, so maybe you all will have as much time as possible to ask questions.

Let me just say, you guys, a lot of you, have covered us for a while, so you know this. So I'll just repeat it very quickly. If you look back to how we've run this White House and governed in the last six years, the budget process and the State of the Union are really the center of gravity in terms of how we rolled out the years' plans and policies that the government is going to push, the President is going to push. And if you look at the State of the Union in '95, the budget in '95, same with '96 and '97 and '98, I think what the President's priorities were in his budget, we use real numbers and we exceeded the expectation on the basis of which we made our economic assumptions.

And also what the President talked about in the State of the Union address, I think that was a pretty good indicator of what those years looked like in terms of what happened that year. And I think that this year will be no different. And the thing that the President said last year in his State of the Union address -- and for those of you who have had the opportunity to cover us on the road, listen to his remarks throughout the day and late into the evening -- he often remarks about the fact that we are, in fact, having great times right now in this country. And I won't go into the litany of where we were in January of '93 and where we are now on economic indicators or any other type of indicators, except to say that this country is in much better shape.

The message that the President has said over and over again, and I think you'll hear him say again tonight, is how important it is not to rest on the good times and congratulate ourselves, but rather seize the opportunity off of these good times to try to step up to the challenges for the future. I think that will be a big part of his speech tonight.

And the last thing that I'll just mention before moving to Sandy is, for those of you who have covered or who have read about two-term Presidents -- Eisenhower and Reagan -- and think about their seventh years, both in terms of the State of the Union and what they laid down and what their administration was like at that point, I think you'll come away from -- like tonight and what we've been doing all month -- hopefully, convinced that we're going to have a very active agenda for the next two years, very ambitious agenda. It's an agenda that, I think, if you look back, as I said, for the last several years while we've been promoting it as something that not only does the public support, but we are, in fact, succeeding quite well in terms of making the country better.

And I think one of the messages of tonight's speech is our intent to be as aggressive as possible all the way until the end of the years as President.

Sandy will talk briefly about the foreign policy part of the speech tonight.

MR. BERGER: While you were gone, Doug, I tried to convince them that I was up first because the entire speech is about foreign policy. Nobody bought it. (Laughter.)

Essentially, the President will talk on the foreign policy part of the speech about the unique opportunity and responsibility that the United States has at this moment in history as a peacemaker, making reference, of course, to Northern Ireland, what still needs to be done there; Bosnia; the Middle East peace process; obviously a strong reference to Kosovo.

Second, dealing with the threats to that security, which can come from rogue nations like Iraq, or from the proliferation and expansion of weapons of mass destruction -- and I'm going to come back to that because it's one of the major elements of the foreign policy section.

And then, third, continue to strengthen America's capabilities at home, both with a reference to strengthening additional resources for our diplomacy, as well as an initiative with respect to readiness that I'll speak to in a second.

There really are three elements of this section, which are new and which are most specific. One is the President announcing his budget will contain a major expansion of the cooperative threat reduction program to try to deal with the danger of proliferation from Russia and the states of the former Soviet Union. You're all familiar with the Nunn-Lugar program, which has been very successful, which has allowed us, for example, to dismantle nuclear weapons and to dismantle -- in Russia, dismantle strategic bombers that are cut by arms control.

The President will be announcing a 70-percent expansion in these programs over a five-year period, funding them over that period to $4.2 billion; and expanding the scope of these programs, which are not only in the Department of Defense, Nunn-Lugar, but also Energy and State. And they will include things such as more money for dealing with nuclear materials and safety, more money for the plutonium initiative that Senator Domenici and the President have been talking about, that is actually taking 50 tons of plutonium that could be made into thousands of weapons and destroying it; securing fissile material; funding to put 8,000 Russian scientists in the civilian research sector; and tightened export controls in Russia; as well as to work on helping Russia convert out of chemical and biological weapons. So that's initiative number one.

Initiative number two is something we'll be talking about more on Friday -- is to deal far more aggressively with new threats to America's security and particularly defending ourselves against biological and chemical attacks and against cyber attacks to our computer networks -- whether those are in defense or whether they're part of the critical infrastructure that drives America.

We'll be increasing funding, for example, for vaccines and development and public health surveillance; establishing a national domestic preparedness office that will train in, I believe, 120 cities -- the first providers, the police, the fire, the hospitals -- to be able to detect and deal with chemical and biological attacks as those take place; hiring technology experts.

And then the computer area -- developing systems that make our computer systems in government and then working with the private sector, better able to deal with the kinds of attacks that we saw on the military system not too many months ago.

And the third, I would say, major initiative in this section of the speech deals with something the President has already referred to, and that is reversing the, essentially, decline in military spending that has taken place since 1985. The President will -- has become convinced that there is a readiness problem with our military. There's a question of retaining pilots. There's a question of spare parts; the question of modernization; and that we have been able to shrink our military and maintain effectiveness, but now we basically have to invest again in ensuring that it can do the job.

And we will be, in the budget, providing for $110 billion to be spent over six years on readiness and modernization needs, which includes essentially living conditions, including a pay raise next year of 4.4 percent for military personnel. This will strengthen military readiness, help us to modernize our weapons programs, and improve pay and benefits.

There are other things in here, obviously, but those are the highlights.

MR. SPERLING: I think what we'll do, if it's all right, if you have any questions for Sandy, we'll do them now and then we'll move to the domestic side of the speech.

Q Any decisions made today on Kosovo, concerning Ambassador Walker? And what implications will that have for the remarks the President will make tonight?

MR. BERGER: I just saw a wire report that indicated that the government of Serbia had extended Mr. Walker's stay in the country for 24 hours. That, obviously, is in itself insufficient, but may reflect the fact that this is unresolved.

Based on a conversation of maybe half an hour ago, General Clark and General Naumann were still behind closed doors with Mr. Milosevic.

Q Is he going to -- missile defense tonight or talk about that at all?

MR. BERGER: No, not specifically, although we continue to conduct research at a very -- essentially at a significant level, I think, as can be justified. And the President and Secretary Cohen have said that they hope in the year 2000 to be able to make a decision on whether a limited national missile defense system is necessary, which then would be deployed over the ensuing several years.

Q Will he say anything one way or another about opening the door to NATO to a second wave of expansion?

MR. BERGER: He will mention NATO and the NATO summit in April, where probably the largest event -- I think the largest summit in history in Washington -- where heads of state from 44 countries will come here in April -- the 19 members of NATO plus the partner countries, to admit Poland, Hungary, and the Czech Republic.

The speech itself will not talk about that, but we are very committed to continuing to keep the door open the new members and see enlargement as an ongoing process.

Q U.N. news?

MR. BERGER: He will speak to the need to leverage our influence through cooperation with international institutions, and in order to have a strong relationship and strong institutions, we need to pay our dues.

Q Anything new on embassy security?

MR. BERGER: He will make a reference in the speech to that both in terms of the terrorism problem and also in terms of the need to make our embassies more secure and the need to make the people who work in those embassies -- to give them the resources that they need to do the job. At a time when, in many ways, our role in the world is more complicated, we've seen a 50-percent decrease, as you know, in international resources over the last decade, which we think very much needs to be reversed.

Q In terms of the upgrade of chemical and biological defenses in this country, can you describe the threat as you see it now that justifies this substantial effort?

MR. BERGER: Well, there is no question that a number of nations either have or are developing chemical or biological weapons capabilities. In one way we try to control that through regimes like the Chemical Weapons Convention that Congress ratified two years ago and passed implementing legislation last year. We're trying -- Under Secretary Holum just left an hour ago to Geneva where we're trying to strengthen the Biological Weapons Convention and give us greater capability to use that, to go in and inspect suspect sites.

But beyond those international regimes there are obviously rogue states and there are terrorists. We know that they have -- that a number of states have this capability; we know that a number of terrorist organizations seek this capability. And while I think there is not specific threat information with respect to a particular attack on that United States, this is something that we've been working on really over the last two years, and the President will have doubled the budget for this between FY'99 and 2000, will have doubled the budget for these programs over that two-year period. It's really prudent and preventative.

MR. SOSNIK: We'll move on to Bruce Reed and then we'll do Gene and take your questions.

MR. REED: Gene and I have been doing this for seven years now, and I think tonight the President will lay out the most ambitious State of the Union and agenda since his first one in 1993. It's also an agenda that we feel has a real chance to pass this year, in this Congress.

Let me talk about five areas: education; tax relief for families; health care; welfare; and crime.

First, in education, this year the President will propose significant new investments in education: $600 million for after-school, tripling the after-school budget; well over a billion dollars to take the next step in hiring 100,000 teachers; a school construction-modernization tax credit that will make available $22 billion in borrowing over the next five years.

But tonight the President will also make clear that, for the first time, we also have to hold states and school districts accountable for results. This year Congress has to reauthorize what's called the Elementary and Secondary Education Act, which they do every five years. It's the principal federal law governing aid to public schools. And under our proposal, all states and school districts will be required to do five things. First, end social promotion, because nobody should graduate from high school with a diploma they can't read. Second, demand qualified teachers by testing new teachers and ensuring that all teachers are assigned to teach subjects they know.

Third, identify and turn around failing schools, or shut them down. Fourth, make sure that every school issues annual report cards, so parents know how schools and students are doing. And fifth, adopt discipline policies to make sure that classrooms are places of learning. These are all things that governors and mayors in both parties around the country are doing, and we believe that ending social promotion, testing new teachers, turning around failing schools, holding schools accountable for results to the taxpayers are all sound, common-sense ideas that Republicans and Democrats ought to be able to agree on, even in Washington.

The second area, tax relief, a number of targeted tax credits that the President has put forward. First, a $1,000 tax credit for long-term care, to help families care for their loved ones. Second, $1,000 tax credit to help the disabled move back to work. And, third, a tax credit for stay-at-home parents, up to $250 per child, that is part of a larger child care package that the President will repropose tonight. And we're giving Congress no excuse not to ask this year.

The third area, health care, it should come as no surprise that the President will make an impassioned plea for the patients' bill of rights, which came close to passage in the House last year and we think has a good chance this year. He'll also reiterate his support for the historic bipartisan Kennedy-Jeffords-Roth-Moynihan legislation to help the disabled keep their health insurance when they go to work. And he'll make clear that holding the tobacco companies accountable remains a top priority for this administration this year.

Fourth, on welfare reform, we're going to try to build on our success over the last six years in cutting the welfare rolls nearly in half by proposing a billion dollar program to move another 200,000 people from welfare to work.

And then, finally, the President will tonight call for a new 21st century crime bill. Five years ago we passed a crime bill that put is in a position where this year we're going to be able to reach our goal of putting 100,000 new police officers on the street. Crime has gone down six years in a row as a result and this new crime bill will give us the funds to put another 50,000 police officers on the street and make sure they're equipped with the latest technology.

MR. SPERLING: The President tonight lays out a bold framework for our fiscal responsibility over the next 15 years. What the President essentially is saying to the country is that when you look at the situation we're in, because of the significant fiscal discipline we've seen in 1993 and 1997 budget agreements that we are now in a situation to look out a 15 year period and have a surplus of over $4 trillion over that 15 year period.

And the country faces a basic choice, which is that we can squander this or simply use it for current consumption. Or we can recognize that we have a significant retirement challenge in the next generation and we can save significant, overall majority of this surplus to address that challenge and therefore relieve the burden on our children and grandchildren.

And so what the President is proposing is that of that surplus, that 60 percent of it be devoted to Social Security, with a fraction of that -- perhaps 20 to 25 percent -- being invested in the market to get higher returns for Social Security. By allocating 60 percent of the surplus, and having that portion invested in the market, we can -- with those measures alone -- extend the life of Social Security solvency from 2032 to 2055. But the President will make clear that our aim should be higher, that we should be seeking to make Social Security solvent for at least 75 years, and that, at the same time, we should be seeking measures to reduce the unacceptably high poverty level of elderly, particularly widowed women, and that we should be eliminating the earnings test that serves too much to confuse and discourage older Americans from working.

So, in doing that, the President is making clear that, by allocating the surplus and having a prudent amount invested in the market, we can get a long way toward our Social Security goal, but that we will have to work in a bipartisan way and make tough-minded but sensible choices, if we want to get to our ultimate goal of a 75-year solvency that goes further in reducing the poverty level of seniors.

The President -- the investment in the market will not be made through individual accounts, but having the Trust Fund devise a mechanism, working with members of Congress, so that it is independent, non-political, that private sector managers do the actual investing, and that it be in passive, broad-based measures, so as to reduce, as much as is conceivably possible, any chances of undue political or government interference in the market. This amount is quite prudent. At full implementation, the Social Security trust fund would not have more than 15 percent of its assets in the market.

When you consider that the average pension fund probably has 50-60 percent or more, 15 percent is quite small and the overwhelming amount of benefit that people would get would still come from, of course, the payroll tax and money coming from the trust fund. But this will help give Americans a better return on Social Security and in a prudent, responsible and safe way.

Secondly, the President will allocate, will suggest that if we can get Social Security completed, Social Security first, if we can get Social Security completed with that amount of the surplus, then we could have the opportunity to allocate 15 percent of the surplus -- or between $650 and $700 billion -- to Medicare, so that we could strengthen the life of the Medicare trust fund from 28 to 2020.

But, again, the President will suggest that we should aim higher, that we should seek to work in a bipartisan way, to look at new ideas, so that we could not only secure Medicare to 2020, but that we could find the resources to also offer seniors prescription drugs so that we have a stronger, more effective Medicare program.

Third, the President will call for using about 11 percent of the surplus -- or about $500 billion over 15 years, or about $33 billion a year -- for a universal savings account, USA account, that will be separate and in addition to the retirement security provided by Social Security. It will be an effort to recognize that retirement security was always a three-legged stool. Social Security was one part, but also individual savings and pensions were the second and third components.

What we're deciding to do is that we want to protect Social Security in traditional, guaranteed benefit fashion that existed for generation. But outside of Social Security, we believe that we could give more incentives to help more Americans save, participate in wealth creation that could lead to more dignified retirement for them, or even to leave money to their heirs.

The way that we want to structure this -- and we want to leave this open to work with the relevant committees in Congress -- but the way we want to structure this is to make it very progressive so that it helps all the Americans who right now do not participate enough in additional savings or pensions and do not benefit enough from the tax incentives that are currently provided. We want to provide those Americans with the opportunity to be part of the world of savings and accumulating wealth.

And so the structure that we are proposing is to give most working Americans some flat distribution, some flat amount -- let's say $100 -- so that everybody has an account; and then to allow for Americans to put in more savings that would be matched from the surplus in the way that employers often do. But we want it to be a progressive match. So for example -- I'll give you one example how this might work, though this is, again, just an example how it could depending on the structure.

A family making $40,000 could perhaps get $100 as a flat amount into their account. If they invest -- if they put $600 in and there was a 50-percent match, then the federal government would bring in another $300. So that family would have gotten a $100 distribution and they put in $600 additional savings and the government matched and the surplus matched $300. So they have $1,000 in the account, $600 that they put in, $400 came from the government. Somebody who added that amount of savings every year over a lifetime would have $130,000 of additional savings.

It's very important to note what this does, though. Our current system of providing incentives for people to have additional IRAs or 401(k) savings weights the subsidy to more upper income Americans. If you're in the 31 percent bracket or the 28 percent bracket, you are getting a larger subsidy than somebody in the 15 percent bracket or someone who doesn't have any additional tax liability. Even though the people who are more lower or moderate income are the ones who have the hardest time saving because they have to use most of their income for consumption.

What we do with this is we flip that, and we try to provide a greater tax credit subsidy to those who need it most. So, again, a lower income -- in that example I gave, a lower income family might get matched a dollar, a dollar, so they might put in $400 and receive $400, so that it is a greater incentive for lower income people to save.

In doing this, the President responds to two very powerful concepts he heard during his year of national dialogue on Social Security. One was people saying that we needed to get more -- that Americans were going to live longer and have a larger period of their life in retirement who needed to do more to get more Americans saving and being part of the wealth creation that comes from accumulated returns of long-term savings.

On the other hand, we also heard very strongly that people want Social Security to remain what it is: a guaranteed benefit that someone can count on regardless of what happens in the market. And so, while some people proposed integrating these two goals, we felt that it added an element of risk and uncertainty to Social Security that was not called for, and that it was a sounder approach to protect Social Security with a guaranteed defined benefit plan, and then on top and outside of that, to use the benefits of our surplus to have a progressive universal savings account.

The cumulative effect of everything we're doing here is an enormous amount of savings. That's 89 percent of this, in Medicare, Social Security, and the universal saving account. The other 11 percent would be for military readiness and for domestic priorities. But through that 89 percent, an enormous amount of that ends up going to debt reduction, because the money going into Medicare, and the money going into Social Security that is not being invested in the market, is going to pay down debt, and in a way that pays down the debt, but where the interest savings are then allocated to Social Security and Medicare.

The effect of this is dramatic on the publicly-held debt. When President Clinton took office in 1993, the publicly-held debt was 50.1 percent of GDP and rising. It is now 44 percent of GDP. Under this plan, by 2014, it would be below 10 percent of GDP -- the publicly-held debt would be less than 10 percent of our nation's output. That would be the lowest level of publicly-held debt since 1916.

And so, when we look at this plan overall, it is a recognition that we need to have a fiscally responsible plan for the surplus over the next 15 years so that we are truly dealing with the retirement challenge we face in a way that we address this problem now and relieve the burden on future generations.

Q I think we'll take any questions you have.

Q Gene, by assigning what you're going to do with the surplus for the next 15 years, does that not shut the door on an across-the-board tax cut for a decade and a half?

MR. SPERLING: I think that it would be an excellent national debate, to talk about what is best to do in this situation, where we have, through our fiscal discipline, accumulated a large surplus, where it can be very tempting to simply allocate it for consumption right now. But when we know that we have a serious demographic and retirement challenge coming up, for us simply to spend it now is simply to say, we'll just ask the next two generations to take care of this problem; we'll just ask them to face higher tax burdens and have less funds for their schools.

The responsible thing is for us to decide to save this money for Social Security, Medicare, retirement savings, in a way that we use this 15-year period of good times to do something responsible, not only fix the current budget deficit, but the generational deficit as well. And if people suggest that we should, instead, just give this all away and not save it, then we'll have that public debate. But it's a public debate that we think the public will support us on.

Q How much of the 62 percent that you allocated to Social Security will also -- anyway? And how quickly would you integrate prescription drugs?

MR. SPERLING: Let me explain that because I know that anything having to do with government accounting, but particularly Social Security trust fund, is never simple. But the thing to understand is this is money that is additionally being put into the Social Security trust fund. So right now there is about $2.7 trillion or so that Social Security has coming into the Social Security trust fund over the next 15 years. That money is already credited to Social Security. It's already credited. So what happens is Social Security get more than they need at the current moment. They essentially loan it to the government. The government agrees to pay back Social Security when it's needed to pay benefits.

But now the government has this $2.7 trillion -- what can it do with it? Some people say, just give it back in a tax cut for consumption or an across-the-board tax cut. What we're essentially doing is saying, let's take this $2.7 trillion and let's use most of it to actually pay down the debt. And when we're paying down the debt, our interest costs are getting lower every year. But by devoting it to Social Security and Medicare, we're saying that that interest savings should be targeted back towards Medicare and Social Security.

So we are -- this is very much a plan that focuses a lot on reducing the debt, but then targeting the savings to fixing Social Security and Medicare. So this actually means -- so this means actually putting an additional $2.7 trillion or more into the Social Security trust fund.

Q Above the expected surplus over the next 15 years?

MR. SPERLING: Yes. Yes. And the benefit is that we are now in a fiscal situation, where we can pay back -- where we can afford to pay that and still have surpluses in the out years.

Q -- to generate payroll taxes already? What tax is generating that money?

MR. SPERLING: That is the 12.4 percent from payroll taxes produces an extra $2.7 trillion. But what I'm saying is that when we devote -- and I think ours just happens to be, like, $2.75 trillion -- that isn't just putting that $2.7 trillion -- I apologize, I didn't create the Social Security trust fund, I'm just explaining it -- that $2.7 trillion has already been credited to the assets of Social Security.

Government then has this money. Government can spend it, that's what generally happened over the '80s, because government was in deficits. Or in surplus, government could give some of it back. We're essentially saying, why don't we take that money and retire debt and then direct the savings to Medicare and Social Security.

So that's how publicly-held debt keeps going down. But instead of -- if we just retired -- you could just retire debt generally and you could just put the general fiscal situation in a better place. But part of our challenge of fixing the Medicare and Social Security system is we want Social Security first, we want to direct those savings so that we can say Social Security is solvent and then future generations do not have that hanging over them and they can deal as they will with the current needs of their society.

Q Are you saying, though, that you're going to go out in the credit markets and you're going to buy Treasury's back, you're going to buy down the debt that the Treasury has already -- or are you just going to --


Q -- you're going to do that?

MR. SPERLING: I mean, the mechanics of -- you choose not to roll over debt. I don't know the exact mechanic between choosing not to roll over debt or buying back. But the point is you're reducing the level of publicly held debt. And from a math or economic point of view, that's what you want to know. You want to know how much is the government crowding out the private sector. And so you are reducing -- we're not only reducing the deficit, now we're reducing the level of publicly held debt, lowering the interest savings, and then we're directing those back to Medicare and Social Security.

And that's how it extends the trust fund to 2055. It extends it -- it would extend it a certain -- close to 2050, but because a portion of that is going into the market and we're getting the higher returns, that pushes up further to 2055.

Q What's the dollar amount of the projected interest savings?

MR. SPERLING: Well, the projected savings that are being directed toward Social Security -- in order to score it you have to allocate your amount. It's $2.7 trillion, of which about $650 to $700 billion would be an equity investment; and around $200 billion would be in buying special purpose bonds, that would then retire the debt. And what we're saying, we're asking for a new budget rule that when money from the unified surplus goes to buy a bond for Social Security or Medicare, that it is treated as an outlay, so therefore it can do nothing else but retire the debt. It can't be spent again by the government.

Q Will the State of the Union or the budget, have a tobacco tax increase in it? And if so, how much?

MR. REED: The budget, as it was widely reported last week, includes a 55 cent tobacco tax increase.

Q Gene, what safeguards do you have over this 15-year period, that there could be a recession? What happens to the plan?

MR. SPERLING: Well, actually, it would be hard to devise a plan that is more fiscally responsible in that sense. Because what you're doing -- the concern you should have is that, if you had a large surplus -- let's say you had a surplus of $200 billion for several years -- and you allocated $100, $150 billion, let's say, to spending of some sort, across-the-board tax cuts -- then, if things fall into bad times, you might not have enough money to meet all of that.

But here, when you're actually allocating so much of the money to debt reduction, you're essentially putting the country in a better situation to handle even a downturn, because you're actually making us less dependent on publicly-held debt to run things.

But I will say that -- this is a different world. When we started here, the 1993 Congressional Budget Office estimated that the deficit in the year 2002 would be $579 billion, $579 billion deficit. Now, in 2002, there's a $187 billion surplus projected. You're talking about looking at a world in which there is a $700 billion-$800 billion swing from the government borrowing to actually reducing debt. So you're looking at numbers that go into the $300 billion, $400 billion, $500 billion surpluses over the next 15 years. So we're not talking about a thin cushion.

But it's certainly reasonable to assume there will be ups and downs. That's why you use conservative budget assumptions. But the fact that so much of this goes to retiring debt should make one feel that this is a particularly safe plan, considering the ups and downs of the economy.

Q Well, Gene, what's the age cutoff on the USA accounts? I mean, is it 60, or 55?

MR. SPERLING: We are -- just to be clear on this, not to dance around -- we are very purposely keeping the elements of the USA accounts open so that we can work with people on them. I think there's some things that are clear. I think that one would probably have to create some type of structure like the thrift savings plan, so that lower-income people could have a way that they could set up their accounts with a very low administrative cost and is efficient. And you'd have to have an income cutoff for what the flat distribution amounts are, how far that goes up. Let's say it's 100 or 200 -- how far does that go up. And then you have to have the progressive matches -- at what income do you get a one-to-one level.

But these are things that -- there are a million different ways you can cut it with the amount of money allocated. And we think we have a better chance of doing this if we do this by working with Democrats and Republicans on the House Ways and Means and Senate Finance Committee than just trying to put out all the details ourselves.

Q -- Medicare prescription drug benefit?

MR. SPERLING: Well, the way the President purposely phrases this is he does not -- he suggests that the surplus could be used to strengthen the life of the Medicare trust fund. Then he suggests, if we work together on a bipartisan way we could find additional savings, so we could get to 20-20 and provide prescription drugs.

What he -- the President was trying not to do was simply suggest that one should take the surplus and add new benefits to Medicare without doing any reform. He is saying you could either extend the Medicare trust fund to 20-20, but he's saying the better thing to do would be to use these extra resources to help have bipartisan reform that could both extend the trust fund and offer prescription drugs.

Q By saying USA accounts are not part of Social Security, it looks like that's a bit of a distinction without a difference, because the money that you're allocating to those USA accounts could just as well have gone into the Social Security. So aren't you taking money from Social Security for individual accounts?

MR. SPERLING: No, because we're saying that we're going to fix -- what you think of our Social Security reform will be based on those reforms themselves. And we're not saying, judge our Social Security plan by looking at Social Security and adding anything else. We're saying we have to fix Social Security and we want to do it in a defined benefit way that's not contingent on the ups and downs of the market. And you should judge -- and we're saying, judge our Social Security reform on how we fix that alone.

And then we're saying that, in addition, though, this administration has always had proposals on pensions and individual savings. We proposed the education IRA; we proposed various things on small business pension. We have always tried to work on the three legs of the retirement security. But we're recognizing a real issue, which is that the way our tax system works right now is it gives the highest degree of tax dollar subsidies to those people in the highest income brackets, and it gives the least to those in the lowest income brackets who really need the most incentive to save.

So if we want a world in which every American has not only secure Social Security, but additional retirement and security through an individual savings or pensions, then we should be allocating this this way. Bruce and others and the President back in '92, we had a pilot called an IDA -- and individual development account. But the basic notion was to give a bigger match to lower-income people. But now what we're doing is doing this in a very broad way, and I think the result would be that -- to fix Social Security, to extend Medicare, and to fill a huge gap that exists in people who work in small businesses and lower income, that they do not have additional savings beyond Social Security.

And I think one thing the President did find very powerful in the discussion he heard is that it is true, we think, that when you get more Americans into the habit of savings and understanding the benefits of compound returns over years, that it will encourage people more to save. We have to fix Social Security, but we do have to recognize Americans are living longer and are going to spend more time in retirement. And so, in addition to fixing Social Security, the responsible thing is also to encourage people to save more on their own. And we're targeting something that addresses those moderate and lower income families who would have the hardest time doing that.

Q Do you plan any other changes to your Social Security or is this ready to go up to the House -- up to the Senate for their joint hearing March 1st, or are there other changes in eligibility and that kind of thing?

MR. SPERLING: Look, we're recognizing what everybody understands as a clear political fact of life, which is that significant tough-minded choices in areas like Medicare and Social Security are best on a bipartisan process.

And so what the President has done is he is saying -- he's not suggesting we can solve the whole 75-year problem just by allocating a surplus and investing some in the market. He's recognizing that there may need to be some reasonable but tough- minded choices, and that the best way to do it is to do it in a bipartisan way.

And I remind you that in Medicare in 1997 we were able to achieve a very significant Medicare saving package that extended the trust fund. And the way we were able to do it after two years is when both parties came together and worked and put their names jointly on a plan that everybody supported. And I think the President is going to be encouraging people there tonight to work together to get all the latest --

Q Are you ruling out any solution that calls for partial privatization in Social Security?

MR. SPERLING: Well, we are not relying on individual accounts for solving Social Security. We are addressing, outside of Social Security, as I said, through the USA accounts, the need to increase savings to supplement Social Security. But within Social Security, we are not relying on individual accounts. The higher market return that we would get would be done through the Social Security trust fund in a way that has the lowest administrative cost, so that, rather than tens of billions of dollars being transferred in fees, that money is saved for Social Security recipients. But we recognize that we need to work together to find a structure that is truly independent, non-political, and does some form of competitive bidding to have private managers actually doing the investment themselves.

Q How do you come to this particular -- that it should be 15 percent of the --

MR. SPERLING: Well -- for Medicare, you're saying?

Q No, for Social Security. Are you saying that 60 percent is going to go, on the surface, to Social Security, of which 25 percent -- was that a judgment on the way the Dow might go?

MR. SPERLING: No, I think we were recognizing that, in doing something new, having equity investments involving Social Security, and because of concerns about possible interference, it was best to do this in a prudent and reasonable amount. So, even at full actualization of this plan, the average amount that the Social Security trust fund would be involved in the market would only be about four percent. That's less than half of what state and local governments are involved now. It's about as much as Fidelity is alone. And, to the extent -- and 15 percent is far, far more conservative than any pension plan in the country does.

And so I think it gives assurance to seniors, and people who might be concerned about undue interference, that this is a relatively small fraction. And, you know, clearly, as the debate goes on, this will be an issue we'll have to work on. Some people might think it should be less; some people might think it should be more. Those are some of the things that could be discussed in trying to get to 75-year actual balance.

Q What about sacrifices? Are you saying Social Security can be protected, the way you outline in here, without any benefit reduction?

MR. SPERLING: No, no, I hope I made clear that the way the President does it is, he says this will get us to 2055.

Q Without benefit reductions? Like COLA cards or advancing eligibility age?

MR. SPERLING: It is an actuarial fact that, by taking the 60 percent and investing 20 to 25 percent in the market that you can extend the life of Social Security to 2055. The President then says, our goals should be to get 75 your actual balance, and he says that can only be done if there is a bipartisan effort that is willing to make tough-minded but sensible choices.

Q Can I ask you one political question before we go?

MR. SOSNIK: I'll do my best not to answer it.

Q Both you and Bruce have made the point that the President's agenda tonight is very ambitious for a President entering his seventh year. To what extent does this ambitious agenda help the President's efforts to defeat impeachment in the Senate?

MR. SOSNIK: Well, I think the President has made clear all along that he's going to continue to do the job that people elected him twice to do. And I think that, as I've said to many of you before, the agenda right now that the Democratic Party has is where the mainstream of this country is -- it's the first time in my adult political life that I can say that. In the old days I used to say that I knew what the Republicans stood for and what they were fighting for and I was against it, but at least I could tell you what it was.

I can't tell you right now what it means to be Republican. They have now been in charge of the Congress for four years and the only thing they have to point to on accomplishments are probably some deals that they cut with us in August of '96 that were unfavorable to us; the budget deal in '97 we feel very good about; October of '98, the budget process, I think we feel like we came out pretty well on that. So I don't know what it means to be a Republican. I don't know who the leader of the Republican Party, I don't know what their agenda is.

If you look at -- and I'm not going to go through a lot of polling with you all, but I think the American public understands that the President's agenda that he's been leading -- and, frankly, the only people on the playing field for the last four years -- has been the President and what he's been fighting for. It's made a real difference in people's lives and we're going to continue to do that. The irony -- I wish somebody had told me 15 years ago -- is good policy is, in fact, good politics.


MR. TOIV: On your way out, Roger is going to be outside the door with paper on Social Security, I think, primarily.

Thank you for coming.

END 2:00 P.M. EST