THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY
SECRETARY OF TREASURY BOB RUBIN,
OMB DIRECTOR JACK LEW,
AND NATIONAL ECONOMIC ADVISOR GENE SPERLING
The Briefing Room
11:55 A.M. EDT
MR. LOCKHART: Good afternoon, everyone. Good morning, actually. It's still for a few more minutes. Here's what we're going to do this morning. We're jointhat the President talked about this morning. John Podesta will lead off. We've also got Gene Sperling, Secretary Rubin, OMB Director Jack Lew. They will each make a short presentation, take your questions, and then when you've exhausted them, I will come down and do whatever else you might have on your minds for the day.
So, Mr. Podesta.
MR. PODESTA: Thanks, Joe.
I've got a couple of paragraphs of general rhetoric, but as Joe reminded me as I was coming in, I could probably dispense with that and just say that this, the numbers in this mid-session review and what we intend to do with it is a big, damn deal. And that's why we're here.
This unprecedented moment of promise is a result of an unwavering commitment to fiscal discipline in a program of targeted investments that have paid dividends of more jobs, higher wages and stronger communities.
Let me describe the President's budget framework. It represents a breakthrough on several fronts of what we presented in January in the State of the Union. It eliminates all publicly-held debt of the federal government. The President's plan pays off the debt by 2015. It balances the budget each and every year without using Social Security surpluses, for the first time since 1960. That was when Gene was two years old.
It creates a stronger Social Security lock box that extends Social Security solvency to the year 2053. It makes Medicare solvent for more than a quarter century, and extends universal affordable prescription drug coverage to millions of seniors.
It establishes a children's and education trust fund to help repair a generation of America's youth for the challenges of the 21st century. It invests in our national defense, the environment, our farm families and our veterans. It cuts taxes for child care, long-term care, school construction, and creates USA accounts -- the largest and most progressive tax cut for savings ever proposed.
We're going to go in order here. Jack is going to give you a sense of the overall approach, of where we've come from and where we're going with this new plan. We believe that the program is both ambitious and achievable. Jack is going to describe it. Then Bob is going to talk about the program with respect to taxes. And Gene will follow up with saying a little bit more about Social Security.
MR. LEW: Thank you, John. The chart you are looking at really is a summary of what we're talking about. It shows you what we're doing in terms of debt reduction and the opportunity that we have now to really set our priorities straight if we do first things, first.
Let me begin by talking about the improvements in the budget outlook since February, when we put the budget out. For the fiscal year that we're in now, fiscal '99, we're projecting a $99 billion surplus. Looking ahead to next year, we're estimating a unified surplus of $142 billion. And for the first time, we have an on budget surplus of $5 billion.
I think one has to look over five, 10 and 15 years to really understand what this chart is all about and what gives us the opportunity to put forward the program that we're announcing today. If you look over the 15-year period, we're talking about a total of unified surpluses of $5.9 trillion. We're talking in 10 years about $2.9 trillion. Over the next 10 years we're talking about an on-budget surplus of $1.083 trillion. This is an increase from our February budget of $333 billion.
So the budget that you have seen working its way through the Congress is in 10-year terms; we've been talking in 15-year terms. Whichever way you go, over the 10, 15-year time horizons, we have very substantial opportunities.
If I could just switch for a moment to the economic assumptions which, in a sense, drive a lot of these numbers, I'd just like to make a couple of very brief points. We continue, as we always have in the past, to use conservative economic assumptions. Essentially what we've done is we've updated our budget to reflect what's actually happened in the economy since February. We've reflected the actual improvements in economic growth and GDP, and the trends in unemployment and CPI.
As we go forward, we have slightly higher projections that just reflect what we've experienced, but they remain on track with our past and with the blue-chip economic indicators.
One number that you might be interested in, the unemployment numbers, which have a lot of effect on these budget projections -- we're very close to where we were in the last projections, but we are just one-tenth of a point below in a long-term trend rate.
If I can go to the next chart, what I would like to do is walk through the aggregate numbers of how we've allocated the surplus and to put numbers behind some of the policies that we've been talking about this morning. What we've done in this framework is we've allocated the non-Social Security surpluses -- Gene will explain in more detail -- we've taken the entirety of the Social Security surplus, put it aside in a lock box. What we remain with is allocated as shown on this chart. We've taken federal Medicare $794 billion and allocated it to Medicare, both for solvency and a small piece of it to help with the prescription drug benefit. That's an increase of $108 billion over the numbers that were in our budget in February.
On the discretionary spending, we have increased the total over 15 years by $41 billion, to $522 billion in total, and we've set forward a proposal for a children education trust fund, which we'd be happy to talk a little bit more about later.
In the Universal Savings Accounts, which is the part of our tax cut that's funded out of the surplus allocation, we have increased the total from $536 to $540, so it's an increase of $4 billion.
The key to this plan is that we have to put first things, first. Every piece of this proposal that we put forward is conditional on us dealing with Social Security and Medicare first. We are not proposing any of these outside of the context of the entire framework. And as we continue going through the numbers and policies, that's something we think is very important. Because going back to the first chart that we showed you, the key to keeping the progress that we've made -- you can see how we've taken the trend in federal debt, which was growing and we've eliminated it -- the debt held by the public, by 2015 -- is by sticking to tough policies. And we think that that's essential in order to make sure that we go here, and not here.
SECRETARY RUBIN: If you look back over the now six and a half years of this administration, I don't think there's any question but that the fiscal discipline that began with the President's powerful deficit reduction program in 1993, and has been followed through on ever since, has contributed critically and indispensably to the strong economic conditions we've had over the past six and a half years.
The program that Jack just described is designed to continue on exactly that strategic path in order to best promote our economic well-being in the years and decades ahead. But the issue that now is before us in that context is how to best deal with the surplus.
The President's program includes a strong set of tax cuts that meet the objective of best promoting our economic well-being and our social well-being. The centerpiece are the USA accounts, which provide both an automatic refundable tax credit for savings and an additional matching refundable tax credit for voluntary savings by those qualified for the USA accounts. The benefits accrue most heavily to those who save the least, to those who are the lowest income amongst those who work, and then they scale down as incomes increase and then at some point they discontinue.
If you look at the USA accounts from a macroeconomic perspective, what they do is take part of the surplus and employ it to increase the private savings component of national savings. And in that way they promote our economic well-being in the years and decades ahead.
Looked at another way, USA accounts, which I think are really an extraordinarily good program, have the potential for giving a large number of people who presently do not have a financial stake in our economy a financial stake in that economy. They have the potential for better preparing working people for retirement and for promoting the habit of savings. I said a moment ago, for all these reasons I believe the USA accounts are an excellent tax cut proposal and I think they have a potential for becoming an important part of our national life.
We are also proposing additional tax cuts on a fully paid for basis for important economic and social objectives. These include an increase in the child care tax credit, school construction tax credits, long-term tax care credit, various environmental provisions, a new markets tax credit, and other provisions that are described in the materials that we distributed to you.
Let me also add, with respect to the USA account that we've estimated that roughly 124 million Americans, including spouses, would qualify for the USA account. And that includes the 50 percent of workers who do not currently have employer plan retirement programs, and the more than 80 percent that do not have IRAs.
Two final cautionary notes: Number one, the surplus projections that Jack presented are based on conservative and prudent projections as we've used throughout this administration, but the future is inherently uncertain, and it is far more prudent, with respect to our future economic well-being, to commit surpluses to increasing national savings and fiscal discipline than to large, non-savings-related tax cuts. And, number two, tax cuts should not provide the appearance of soundness by having moderate costs in the early years and exploding costs in the later years.
With that, I turn the podium over to Gene.
MR. SPERLING: Let me say a word about the new children and education trust fund, and then a word more on the Social Security lock box.
This President's vision of productivity and growth agenda since 1992 has been the need to pay down the deficit and to free up savings for private investment, but at the same time, to recognize the importance of investing in the skills and productivity of our people, and that together the strengthening of private investment, and investment in our people is what together will lead us to have a strong growth and productivity agenda in the future. That is why, even as the President has been part of putting forth budgets that have ended our annual deficits, he has always stressed significant increases in key children's and education programs.
During his time, for example, Head Start has gone up nearly $2 billion -- every year nearly $2 billion more is spent on Head Start. Every year there are a million more people in the Women, Infants, Children's program. These increases happen in the time of deficit reduction because one needs to do both at the same time. And so that is why, as we are looking for our long-term agenda, our focus is not only on securing the key retirement programs of Medicare and Social Security, not only on paying down our national debt so that we can spur further lower interest rates in private investment, but on securing that we have a true future budget that ensures we're setting aside enough for children and education.
And so in our budget there will be $156 billion set aside over 15 years for children-education trust fund. This is the type of investment in our future and our children and education that we hope will draw broad bipartisan support.
On the Social Security lock box, as you know, when the President spoke at the State of the Union he called for setting aside what was the equivalent over 15 years of the entire Social Security surplus. The Social Security surplus over 15 years at that point was estimated to be $2.7 trillion. The President called for setting aside over $2.7 trillion in surplus for Social Security.
At the time that the President made that proposal there was very little consensus for doing that. In fact, the two main Republican tax proposals put out at that time, HR-3 and S-3, call for 10 percent tax -- that would have been effective immediately. Therefore, they would have been draining anywhere from $150 billion to $200 billion over the first few years from the Social Security surpluses.
After the President's State of the Union the political dynamic in Washington changed and the Republicans, as well as Democrats, started focusing on truly saving the Social Security surplus. And since then, we have seen a positive movement of setting aside the Social Security surplus and not spending that on new spending or tax cuts, but setting it aside for debt reduction.
The problem that we have found in the lock boxes sent forward is, one, they were based on budgets that had unrealistic, if not severe, cuts in discretionary spending from education to health care to veterans to environment. These were discretionary budgets that were not real. And so while it might have looked nice on paper, it was part of a budget that did not hold together.
Secondly, while the money was set aside, the Social Security trust fund was not extended by a single day. So you have an interesting notion of a lock box -- it sets aside the funds, but it doesn't actually ensure that Social Security is strengthened by a single day. And then, thirdly, there's not anything in their framework that strengthens Medicare, of which we have an even more immediate problem. There was nothing to strengthen that for even a day.
With the stronger numbers that Jack Lew has stressed, the President now has the ability to put forward a proposal that not only, as he did in January, sets aside the entire Social Security surplus over 15 years, but sets it aside each and every year. So now we will be able to say that each and every year we can set aside the surplus from Social Security and keep it separate from the rest of the government spending and truly put it in a true lock box for debt reduction.
The way that our program would work, therefore, is that all of the Social Security surplus would be locked away for debt reduction. That debt reduction will lower interest savings -- will lower interest costs of the federal government. So if you are paying down -- for example, in our budget, if we pay down all of the debt for 10 years, we will have paid down -- the Social Security lock box will have led to nearly $2.1 trillion of debt reduction being paid down. That would lead to $107 billion in interest savings for the federal government.
What this trust fund does is it not only -- what this lock box does is it not only locks away the Social Security surpluses for debt reduction, but it also locks away the interest savings from the debt reduction and ensures that the interest savings are transferred to Social Security.
So to repeat, it locks away the Social Security surpluses for debt reduction. After 10 full years of debt reduction it would start transferring the interest savings to the Social Security trust fund. So the only money that's being transferred from general revenues or from the on-budget surplus to Social Security is the money that Social Security has itself generated by paying down the debt. We don't think Social Security payroll taxes should be diverted to other uses and we don't think the interest savings that come from the Social Security lock box should be diverted to other uses.
If we committed to Social Security under our plan we can extend the solvency until 2053. We are hoping that this type of new lock box that also addresses debt reduction and solvency can be a basis for a bipartisan down payment on Social Security reform. We still would like to complete further Social Security reform that would get over 75 year solvency. And as the President said, there has been encouraging bipartisan discussions, particular in the Ways and Means Committee, but this could be a significant bipartisan down payment for Social Security reform.
It also would have a stronger protection. And the stronger is, first of all, just the pure transparency. If you can't use Social Security to mask the size of the deficit anymore there will be greater pressure to meet a higher fiscal standard. And that new higher fiscal standard will be to balance the budget without the use of Social Security money.
Secondly, we will maintain the pay-as-you-go rules for the Social Security surplus, so that there would at least take a 60 vote in the Senate to try to waive this measure or raid the Social Security surplus in any way.
Third, and perhaps most powerful, is that this will create a very tough political enforcement on the debt reduction. Because the amount of debt reduction is linked to the amount of Social Security solvency, a future Congress that seeks to renege on the commitment to debt reduction will be hurting Social Security solvency. And perhaps nothing will be more likely to lock in the debt reduction here than the understanding by the public that if debt reduction is reduced, so will the solvency and life of the Social Security trust fund.
We will keep the same parameters that we have in our current plan. Equity investments will take up no more than 4 percent of the market, or 15 percent of the trust fund.
And I'd be happy to answer further questions, but let me just say that, on a sentimental note, we've done many budgets in mid-sessions. This will be our last one with Secretary Rubin, unless there is an enormously long delay in Deputy Secretary Summers' confirmation. (Laughter.) I think Bob thinks that's not funny, more affecting his vacation plans than Larry's future.
But what I do want to say is it is now taken for granted that the Clinton economic team functions as a team, that the OMB Director and the Secretary of Treasury, rather than fighting in the papers, work together with the NEC and the CA and, as appropriate, Social Security Director, HHS, Secretary of Commerce -- as appropriate, as a team. Each and every single issue is worked on as a team; recommendations are presented to the President as a team.
That exceptional fact is now considered unexceptional. And I think that when one looks at how that came to be, that you have the first administration ever that functioned as an economic team, one has to look back to the President's commitment and to Secretary Rubin's team building that he did at the beginning and he's maintained throughout.
That function of teamwork, of everybody operating together, of the team is more important than the individual and that this will lead to better policy is one that Secretary Rubin deserves unique credit for. And we will miss him -- and people will be fighting over his chair in my office and in John's staff meetings. (Laughter.)
Q The 2053 number for Social Security, I'm just making sure -- does that include still the investments in the stock market from the surplus?
MR. SPERLING: Yes. For the first 10 years under this plan right now there would be nothing but the debt reduction. Then the interest savings would be transferred. Some of those interest savings would be transferred under our plan to buy equities for the Social Security trust fund.
Obviously, one could support our concept without supporting that, but it would not get as great solvency. So, in other words, the core of it is paying down the debt and using the interest savings from the debt reduction for Social Security. Some people would prefer that one use more of the interest savings for equity purchases; some would prefer that you use none. We use a moderate amount that extends solvency to 2053.
Q Can you talk about the Medicare, the prescription drug benefit a little bit, how it will be paid for and why you decided not to do means testing?
MR. SPERLING: Well, obviously we're going to do that tomorrow and we have some --
Q Well, for those of us who are writing for tomorrow morning.
MR. SPERLING: On Medicare, we are funding -- the majority of the prescription drug benefit will be from savings from Medicare. And that's why it will not have a large cost, is because the majority of the prescription drugs will be funded with savings from efficiencies and new competition within Medicare itself.
And on the issues you raised, high-income premiums, the President is going to be doing a pretty tough act tomorrow, he's going to be putting out a highly detailed Medicare plan which will have many specifics, and many of them will be controversial. And there will be significant savings in there. But our goal is to put forward a plan that has a realistic chance of passing, a realistic chance of drawing bipartisan support.
After we did our consultations it was our opinion that putting in a high income premium on people making over $100,000 -- even though that's a reasonable idea the President has supported in the past, that we felt putting it in the plan would actually draw the type of politicization from both Democrats and Republicans that might actually hurt the process of moving forward on Medicare reform. And so we felt we would be increasing the chances of doing something significant for Medicare solvency and for prescription drug by not having that in.
But clearly the President, as the President has signaled, that he would not be open to increasing the eligibility age I think is also clear that the President would be open to some form of high-income premium if that were something that was, as the process worked through, both Democrats and Republicans decided with us should be part of the package.
Q Gene, you've already got a lot of Republicans saying that expanding to prescription drug coverage in such a widespread way will threaten the very future of the program. How are you all going to respond to that?
MR. SPERLING: Well, I think I have, which is, first of all, when they see this plan they'll realize that the savings -- that it is largely being paid for with savings internal to Medicare that are part of an overall plan to modernize the Medicare program. And it's worth thinking of the word "modernize." There is nobody -- nobody who if they were creating the Medicare program today would even think about creating a Medicare program that didn't have prescription drugs in it. No one.
So the question is are we going to keep a system that is clearly outdated, the provides for prescription drugs in the most inefficient way possible for the economy, that has 15 million Medicare beneficiaries without any coverage at all and millions more buying expensive and inadequate coverage in the private Medigap market, or are we going to put forward a reasonable plan?
I think when people see our plan, they'll see that it's simple, that it is fiscally responsible, that it asks people to pay a modest premium and some cost-sharing for a benefit that is far better than they can get in the private sector. And anyone who doesn't think this is a general problem, anyone that doesn't think that this is a general problem among seniors, I would encourage to go talk to seniors. Talk to -- I would encourage members to talk to their constituents and ask them whether they think the cost for prescription drugs is a problem, whether making them -- make tradeoffs between other necessities of life and prescription drugs, and whether or not they have foregone prescription drugs because of the cost and then later had to endure more expensive hospitalization or treatment because we didn't have an adequate system for prescription drugs.
Q Gene, is it safe to say then that the prescription drug benefit is sort of the carrot to convince Congress to accept these huge administrative changes in the program, and are you anticipating a lot of resistance from providers and other health care interests?
MR. SPERLING: Would you want to --
MR. LEW: I would go back to what Gene said, rather than characterize it as a carrot. It is central to the modernization of the program. And I think that is why we have tried to design a benefit that is both universal and affordable, and has moved away from what some of the other programs that have been put forward earlier this year which would deal with prescription drugs only for the poorest Medicare recipients.
I think we need to design it in a way that helps deal with that special problem of people at the bottom end of the scale. But again, Gene used the figure, 15 million Medicare recipients; fully 40 percent of those people have incomes above 200 percent of poverty. So there are a lot of people out there who don't have any benefit today, either through the Medigap market or through other kinds of programs. And we're trying to address that.
And I think that the plan stands -- I think in total as a way of building on the work that's been done over the past year to provide competition, to modernize the program, to deal with the issue of the overall fiscal solvency of Medicare. You'll see an important extension of solvency in the Medicare program -- we'll leave a few of the details until tomorrow, but again this is done in the context of trying to move the overall program forward and deal with the fiscal health of the program, but to deal with the most important feature that's missing in today's Medicare.
Q Some critics would say that while this is a good plan it still is putting off the problem because in 2053 -- you're not taking it all the say as long as I think the President originally was hoping. So how do you answer that, that it's just a temporary fix?
MR. SPERLING: The way I would look at it is that, first of all, our goal is to have longer-term Social Security reform that would go over 75 years. And I think we have said from the beginning that we believe to get that type of long-term solvency it would take Democrats and Republicans working together on making some of the tougher choices.
But we also have a very basic choice about whether we're going to take the huge, large surplus we have right now and just spend it now, perhaps on worthy measures, whether tax cuts or spending, or whether we're going to recognize that we have long-term deficits in Social Security and Medicare and put the money aside.
I think suggesting this isn't doing anything significant or tough is wrong. If you have a large amount of -- you know, if a company had a large amount of surplus and they had big deficits in their pension program, one would think the responsible thing to do is to shore up their pension programs first before doing anything else. When we say first things first, we're saying let's have the discipline to not do all of the spending and tax cuts we might all like or might be popular until we've done what we have to do.
So setting aside a significant amount of the surplus so that you're paying down debt and creating the resources for Medicare and Social Security is a very significant part of long-term Social Security reform. So it's a significant part, it's a down payment. It's an opportunity for bipartisan agreement to make significant progress on Social Security. But is it as far as we should go? No, we should still go further and we still need to work in a bipartisan way to get further.
MR. LEW: I would also just reiterate that the lock boxes that have been presented on the Hill don't add one day to the solvency of the Social Security trust fund. And I think that's why this is a better program. And I think that's why this is a better proposal.
Q People on the Hill are wondering why it is that this report, which was due by July 15th, seemed to be rush released to beat the CBO report, which was coming out in three days. That's a curiosity that the CBO director, himself, had. Why is this report coming out now, three days ahead of the CBO report? And do you expect that to be more optimistic than yours, in terms of surpluses and so forth?
MR. LEW: One thing I can tell you is that these reports can't be rushed, that you finish them when they're finished. We always try to time the mid-session review so that it can go before Congress during the period of time when they're making most of the decisions that are ultimately going to become the basis for making laws.
As we head into the summer months, when Congress will be considering very serious policy decisions, they should have the best, most up-to-date information in front of them. And we think that this mid-session review offers that opportunity. We also think that putting the Medicare program forward at this moment puts some policy alternatives in front of them at the right moment. So I would say we've put it out as quickly as we were able to, which is what we did last year. And I think that's the right way for the mid-session review to go to Congress -- in time for it to make a difference.
Q Was it your goal to beat the CBO to the punch, though?
MR. LEW: Our goal was to get the numbers right.
Q With the education trust fund that you're proposing, aren't you --
MR. SPERLING: Why don't you let him go through the numbers first?
Q Just so there's no ambiguity on the numbers later, Mr. Lew, the total 15-year cumulative surpluses are expected to be $5.9 billion. The proportion that is attributable to the Social Security surplus is $3.1 billion, correct?
MR. LEW: Correct. Trillion. You said billion.
Q Trillion, excuse me. While you describe this as going into the lock box, in effect, all of that $3.1 trillion would go to pay down debt, correct?
MR. LEW: Well, there is debt reduction associated with increasing -- not spending the Social Security trust fund surplus. It's a very positive reason to take the Social Security surplus and not spend it. But, yes, it does contribute to debt reduction. It's precisely that debt reduction that helps us reduce our net interest cost. And I can't underscore enough how dramatic the reduction in net interest costs.
If we actually take the third poster out, the effect of reducing the debt held by the public and reducing the interest cost that the federal government pays to the holders of federal debt takes us from interest taking 27 percent of the budget to less than two-tenths of a percent of the budget. We couldn't find a red line small enough to accurately represent how small .2 percent is.
This is what gives us the basis for the kind of lock box and the kind of transfers that Gene described. We're reducing our interest in 2011
and beyond. We're dedicating those interest savings to shoring up the Social Security trust fund, which is really giving the trust fund the money that we're getting as a result of putting the Social Security surplus off limits.
Q So the contribution to debt reduction is solely from the fact that that money is not spent?
MR. LEW: No, there's other -- the funds that we're putting into Medicare for solvency purposes will increase the amount of debt reduction. So it's the total of those two that contribute to the debt reduction.
Q Given the larger budget surplus, sir, why shouldn't you consider an across-the-board tax cut? And, given the larger budget surplus, will it be more difficult to oppose Republican calls for an across-the-board tax cut?
SECRETARY RUBIN: Why don't you let me take a first shot at that, and then others might want to chip in.
What we've done in this program is to try to determine what is going to best meet the needs of the country in terms of our continuing the strong economic conditions we've had over the last six and a half years, and also in dealing with various social objectives.
In our view, first things, first. That is to say, first deal with Social Security and Medicare. And as Jack just said, in dealing with Social Security and Medicare you are also reducing the debt of the federal government and, therefore, enormously increasing the ability of the federal government to deal with whatever we might have to face in future years and reducing pressure on bond markets, reducing interest rates, increasing confidence, and promoting a better economy.
Secondly, you have to decide what you think is most important both for our economy and in other respects, the American people. And in our judgment, defense, military readiness, education, various children's programs, the environment, all had very important priorities.
Thirdly, within that framework or context, you take a look at your tax cut and you say, okay, given that, what size tax cut fits into that set of priorities and what should the content of that tax cut be. And in our judgment at least, the USA accounts -- which I really think are an extraordinarily good proposal. I think they've gotten far less attention than they deserve -- the USA accounts serve all the purposes I described before. And then there are various other things that we should do that are in our tax proposals.
It doesn't mean that other ideas aren't good ideas; many of them are good ideas and ideas that we like as well. The question, what are your priorities, what is most important for the country.
Q Related to that, you're going to be accused by Republicans of, a, basically spending the general revenue surplus with the education trust fund and so forth, and providing no room for tax cuts. You just have that $4 billion in added tax cuts per the USA accounts. And, b, aren't you also really busting the budget caps here by going above the spending?
MR. LEW: I think that you have to look at the congressional budget and the problems that the Congress is having in the appropriations process this year and ask the question whether the kind of discretionary spending levels that they've called for in their budget are realistic. The out-years of their budget call for reducing discretionary spending from where we are today. They can't produce appropriation bills with the current limits.
So it's a totally unrealistic projection to say that we can make savings in discretionary spending at the depth that are called for in the congressional budget and have a tax cut that's that much larger because of it. I think that we have to be realistic about what it costs -- that's the red line up there -- John is correctly saying -- if we look at the defense priorities I think there is a bipartisan consensus on the need for defense. I think if you look at education and many of the programs that we've been talking about this morning there is a bipartisan consensus on the need to invest in these areas. And we've put in our framework allocating the surplus, the on-budget and non-Social Security surplus, to try and balance a tax cut with our other priorities.
We come back to very basic choices. The Medicare plan that we're putting out is being put out in the context of this forecast, of this mid-session review. We have only this time, this one time with this surplus, to make the choice of how to allocate it. If we were to go all the way towards the view that the tax cut should take every penny of the on-budget surplus we would be left with totally unacceptable discretionary levels, and I think with an unacceptable forecast for Social Security and Medicare solvency. We proposed a balanced approach and we think that's the right place to begin.
Q Secretary Rubin, the President sounded pretty open to at least negotiating with the Republicans on their tax cut proposals out there in the Rose Garden, like now finally there is room for maybe everybody's priorities, as there has been in the past.
SECRETARY RUBIN: Well, my view as you listened to the President this morning -- that we are tracking with what he said -- look, I don't think it's very complicated. From the very beginning what he has said is we've got to figure out what's most important for the country, very often it's been the tougher path not the easier path -- it was very tough in '93 to do what we did. It's been very tough for him to hold to a strong fiscal discipline through this whole period, but he's done it.
And what he's saying now as we go forward is we've got to continue on this track and go on this line, as John said, not this line, and in addition, emphasize areas such as education and various inner-city programs, children's programs and the rest that are going to be so important to future productivity and what kind of society we have. And that's where he is.
Q But does the bigger surplus make room for Republican tax cut proposals as well as his?
SECRETARY RUBIN: I think if you take all the priorities that we have, and which I think we rightly have in terms of the best interest of this country, then we sized up the tax cut as we presented in our program, and in our view at least, the most important tax cut we could use is one that promotes national savings, which is a very important priority, and at the same time gives working people an opportunity to better prepare for retirement and increase savings and wealth creation.
I think it's -- I've said it several times, I'll say it again -- I think it really has -- USA accounts have the potential of becoming a very important part of national life. That doesn't say the other ideas aren't good ideas, it's just a question of what do you think is most important for our economy and our society.
Q For how long do these economic assumptions assume there won't be a serious recession?
SECRETARY RUBIN: Adam and I went to the same elementary school, right? A long time ago. That was not recently. I don't know if he graduated. (Laughter.) I actually didn't because we moved to Florida. But in any event, the way the assumptions are worked out, Adam, are that they assume that if you do have a recession at some point and in some other points you'll grow more rapidly than your average, so it all averages out. And that's the way we've done the assumptions from the very beginning. I think it's realistic.
Is that right, Jack?
MR. LEW: Yes. And as in the past, we don't predict that a recession will come at any specific time, but by using conservative long-range projections we've built into the averages the fact that some years the economy does better and some years it does worse. We've been very lucky over the last few years with very good economics that are not just luck, they're the result of a lot of hard work. But we didn't take the opportunity to go and put in very rosy economic assumptions because of that. We've stayed with the kind of conservative projections which have served us in good stead for the last six and a half years.
Q How do you factor in the stock market, and then looking ahead, how dependent are your projections on the continued kind of gains you've seen in the stock market?
MR. LEW: We started by updating our numbers for what's actually happened. To the extent that there's been more income because of the market, we don't distinguish what the source of income is. If there's more income and there's more revenue, we project based on the current actual numbers. We have not dramatically changed our projections, which projected pretty much the blue-chip indicator trends on market trends. We don't do anything terribly dramatic in our assumptions.
Q -- use that as a gauge for the U.S. economy, the stock market?
MR. LEW: Well, we don't take good news and project that the future will only be good news and go up, up, up. We do what we've done from the very beginning, which is take what are right in the middle of conservative forecasts. And we would much rather be surprised by good news than bad news.
Q So what are your growth forecasts?
MR. LEW: Our growth numbers -- I should say that Janet Yellen is on vacation, so this is my debut presenting the economics. So I beg our indulgence. The real GDP is for 2000 at 2.4; we had projected in the 2000 budget it would be at 2.0. So that gives you a sense of how the actual numbers are giving us a boost. In 2001, we are projecting 2.1 percent; whereas, in the 2000 budget we projected 2.0 percent. So we didn't just continue a trend line at the most recent good news. Over the five -- '99 to '05, our average growth is 2.6 -- and these are year to year numbers.
Q The budget caps that you now call unrealistic are written into law, a law that the President signed. Would the President now be willing to go up to Congress and take the lead and say, look, let's raise those caps to realistic levels before some great train wreck occurs?
MR. LEW: I think the President took the lead in his budget when he proposed that beginning in 2001, one of the priorities that needed to be funded out of the surplus was additional discretionary spending.
For our 2000 budget, we've put forward a very full set of offsets that permits spending at levels that we think would meet national needs. But we think it's a mistake to begin by changing the budget caps. It's a question of first things, first. It's a question of whether we have an overall program where we're dealing with Social Security and Medicare, where we're dealing with debt reduction; or whether we go back to business as usual.
I mean, we know where business as usual takes us. It takes us back to debt going up. What we've never had the opportunity -- at least, in my lifetime, to do -- to sit here with a surplus, look forward and say, how do we make, across the board, the kinds of decisions that will keep us on the black line path, which is debt going down, reducing the burden of interest, and giving us the enormous opportunities that we have today -- which it's easy to lose if we were to just start by spending money or by having tax cuts without looking at it in the context of the whole program.
Q So you would not allow -- you would not support raising the budget caps this year, then? For this year that's off the table?
MR. LEW: Well, we've proposed offsets which are in front of Congress. I will note the that Senate Appropriations Committee has actually been going through the offsets we've proposed and taking advantage of some of them to try and move the process along. We look forward to working with Congress. We think that's the right place to begin and we should get on with the discussion of what we do with this wonderful opportunity of allocating the surplus but putting first things first.
Q You wouldn't rule it out? Previously you've ruled it out.
MR. LEW: I'm telling you what our program has been from the very beginning.
Q Isn't your children's trust fund the equivalent of a substantial increase in the caps in subsequent years?
MR. LEW: Well, our budget from the very beginning, from February, has called for increasing the caps in 2001 and beyond. And we've added, as I mentioned at the beginning of the briefing, we've added to the amount of resources that we're dedicating to increasing the caps.
I think the question is really how we proceed, whether we proceed -- because the appropriation bills are snagged at the moment -- do we start by raising the caps or do we start by getting to the hard work of making the balanced judgments that will head us in the right direction for the next decade. We're saying that we're where we've always been, that we should do the hard part first. It's stood us in good stead, doing the hard work in '93 and '97, and we think now that we have a surplus we should stick with the same kind of approach that I think has had enormous benefits for the economy and certainly for the budget.
Q Just so I understand, the difference between your lock box proposal and the other lock box proposal is yours means there will be solvency for that many more years because of the interest that's being put back in? Is that the difference in the savings --
MR. LEW: We're taking the benefits of a lock box -- first of all, we have a lock box that works. I think if we compared our lock box to the congressional lock box, we think ours is much more likely to actually set aside the Social Security surplus and save it. We then go to the next step and we say we're saving the Social Security surplus, we're reducing our interest payments; Social Security should get the benefit of that. And we're making general revenue transfers into Social Security in the amount of interest saving beginning in 2011.
Q What happens to the first 10 years of interest savings, there aren't any?
MR. LEW: The first challenge is to accomplish the debt reduction. When we put our budget forward in February a lot of questions were raised about unified budgets versus Social Security surpluses. A lot of questions were raised about making a commitment to general revenue before we actually achieved the debt reduction. We've listened very carefully to the questions that have been asked.
We put a framework together which we're presenting today which I think addresses the questions that had serious merit to them. We've taken our best effort within the on-budget surplus, the non-Social Security surplus to meet all of the priorities that we've described and still provide for the Social Security solvency.
I suspect that were we to go back to the approach that we put forward in February which called for the transfers immediately, questions would be raised. Our goal is to move the process forward and to try to engage in a discussion of how we can actually accomplish it.
Q -- specifically the first 10 years of that interest savings goes where, to the USA accounts?
MR. LEW: We haven't identified -- first of all, they build up. They don't start out at a very large level. And we've allocated the on-budget surpluses we've described and we haven't singled out which dollar is coming from which.
Q Jack, in your February budget didn't you project Social Security solvency through 2055, which is two years longer than you're now doing? Am I missing something or is that accurate?
MR. LEW: I think you have to look at the proposal that we're putting forward today; it acknowledges a different structure than what we put forward in February. In February, we had transfers beginning immediately and lasting for only 15 years. What were proposing now is waiting until we've accomplished the debt reduction, and then making a longer-term commitment of the interest savings, which gets us, based on our current estimates, to 2053.
Different mechanisms will always have slightly different results. But I think it's substantially the same commitment of general revenue for Social Security solvency, and it's based on an analytic framework that I think is the basis for moving forward in a bipartisan way.
Q So you're extending its solvency two years less, but in exchange, you are not using general funds up front, you're eliminating that?
MR. LEW: We're separating the Social Security surplus and all of the allocation for all of the priorities that we've described is strictly from the non-Social Security surplus. And I think that that responds to many of the questions that were raised in February.
Q Gene, could you talk a little bit more about the rationale behind the children and education trust fund? Most of the programs that are eligible for that listed here are things that are ordinarily funded in the annual appropriations process. And however laudable the programs are, it seems like you could put almost any program in that category. Somebody else might have a prison construction trust fund, or a defense spending trust fund. Are you committing future Congresses to programs now just because you happen to think they're laudable and appropriate programs?
MR. SPERLING: No, I think the appropriate question --
Q With all due respect, can you give an appropriate answer? (Laughter.)
MR. SPERLING: Well, I think as Jack said, I think that we have tried to what people have said about our budget and where we could make it stronger. I think that the President has always maintained, as you know, right from the campaign in 1992, the notion that we had two deficits in our country -- a deficit investing in children and future workers, and a deficit in the budget -- and that we had to address both at the same time.
We believe that while we are focusing on securing the retirement programs for Americans as they get older, and as we are paying down the debt for private investment, there should be a focus as well on making sure we are setting aside the types of investment in people that also lead to higher productivity and a better society in the future.
And so I think we are saying that as you look at this overall budget, we don't want to have the only thing set aside being the savings for the retirement programs. We want to stress in a more vivid and powerful way that we should also be setting aside the type of investments in children, students and future workers that are necessary. And so we are stating as a matter of priority that we think when Congresses look at future budgets, they should be making sure in a more explicit way that they are setting aside enough for children, enough for education, enough for attacking and reducing child poverty.
And so we're not locking anybody into any specific choice, but we are putting forward the policy preference, which people can agree or disagree with, that as we're looking for a future budget, that future budget should also include the workers of the future, the parents and leaders of the future who are children right now. We have a great economy, but we do have a real problem in our schools, we have a real problem with child poverty. This is an effort to make sure that were allocating sufficient resources.
And I'll be clear: It's also a way of making clear that those who would seek to starve the discretionary budget, who would seek to just put in unrealistic amounts in the future, are not just affecting some undefined pot of money, they are affecting the things like immunizations, like the WIC program, like Head Start. And people who believe that those things should be cut and reduced should have to come forward and state it. Let's have that debate.
Q How do you think that the surpluses are going to affect the overall political climate for getting your Social Security and Medicare programs through? I mean, you still have deep ideological differences on things like USA accounts or exactly how the prescription drugs thing gets done.
MR. SPERLING: Well, I think that, again, as I said, if you look at the surplus of Social Security, there has been a significant movement towards the President for the idea of saving the surplus for Social Security in a general way. Where we have had the differences is on exactly how we would get solvency. Some of that debate has been about the degree of equity investments or individual accounts.
I think what we're putting forward here is a lock box that we think could provide a kind of bipartisan jump start or down payment. I think this is the type of thing that perhaps could get bipartisan agreement. Now, we would still have harder work to do to get all the way to 75 years. But let's look at what this focuses on. It focuses on paying down the national debt, locking in debt reduction, and then using interest savings in the future to make sure we're meeting our existing promises to Social Security. That's a pretty fiscally conservative proposal. That should be something that can bring Democrats and Republicans together.
And just to make clear why there's so much logic to this in terms of the interest savings, take the first 10 years, where you've set aside $2.1 trillion for debt reduction. If you didn't do debt reduction with those $2.1 trillion, if you did a tax cut with it or you gave it all to individual accounts so there was no debt reduction, there would be $107 billion more interest spending by the federal government every year.
So if you decide to make the choice to pay down the debt, and then have $107 billion less in interest savings, isn't the logical thing that those interest savings should go to is Social Security and not being diverted to other priorities or other issues in the future? So the notion of you're only taking from general revenues what you've earned, Social Security is only taking what it essentially has earned by locking in debt reduction, and it's only taking the interest savings that come from it's own -- the lock box's own debt reduction.
Q At the beginning of the year you criticized Republicans for proposing permanent large tax cuts funded by a projected surplus that may or may not materialize.
MR. SPERLING: Right.
Q My question is, what happens to your program if those projected surpluses either don't materialize or only materialize in part, what goes over the board first?
MR. SPERLING: First of all, let me say it's a good question and it is -- focusing on that question is what led us to the structure that we did, because what we are fundamentally doing with projected surpluses is paying down the national debt and increasing savings.
Now, if you're trying to -- that does two things. That means you are showing humility about your projections because if you take that money and you -- even if you use all of it for a very worthy spending program, or all of it for a worthy tax cut, that money has left the federal budget and has not affected savings. If things go bad later then the federal government is going into the market and hurting our national savings rate again by borrowing money and, therefore, being a negative source of our national savings.
What we're doing is saying because these projections are just that, projections, isn't the most conservative thing you can do is lock them for debt reduction. That way what you're doing is that you're increasing national savings, lowering our debt, and then if you have a future year where things go bad and you don't take as much money in, you've provided the best possible cushion that you could. You've put yourself in that much stronger of a situation and so if one imagines another world crisis, as the President said is coming, if the United States has very low debt we will be in the strongest possible position to weather that storm. So I think that question, and the concerns about that question, is what very much motivated a focus of using projected surpluses for debt reduction that goes throughout our entire budget.
Q Can I ask one more for Secretary Rubin on USA accounts? What is the top income cap for a worker to participate and what size tax credit are you talking about? What can a family expect?
SECRETARY RUBIN: On the later part, the automatic contribution the maximum amount would be $300 and the most that you can put in -- the total of the government contributions plus the voluntary contributions would be $1,000 per year. But remember, both the working person and his or her spouse -- or if they both work, both together -- it doesn't matter -- could do that. So you can get $2,000 per family, which is a substantial amount of money. This is, as I've said, I'll say it again, I think a very good program. Gene can answer the first part.
MR. SPERLING: Just clarifying on the example. As Secretary Rubin said, the $300 is per person. So, for a family making $40,000, they could have $300 each or $600 automatically that goes into their accounts. Then if they put up another $700, the government would match that $700, so you would have $2,000 that that couple is putting in. If that couple saves that, that $2,000 each year, they could have accumulated enough for an additional $20,000 of income every year for their retirement.
So again, it allows them an automatic amount, $300 per person or $600 per couple, and then says if you invest -- if you are putting an additional savings yourself of $350 per person or $700 per couple, the government would match that. So, if that was $2,000, $1,300 would be essentially a tax cut and $700 would be your contribution. So the idea is to give everybody an account so everybody has a savings account, and then just like many of our 401K plans do, give people an incentive to put more savings in by having a match.
The reason why we call them Universal Savings Accounts is that right now the benefits are already very generous for people in the upper-income brackets, they already have substantial tax incentives. What we're trying to do is even the playing field out so that everyone does.
So when you get up to over $100,000 you're having -- people who already through the existing 401K and IRA system have substantial tax incentives for savings. The problem with our tax incentive system is we don't give many of the incentives to the people who have the hardest time saving. Seven percent of the tax incentives for savings to go people under $50,000. So of all the IRAs and 401K incentives, only 7 percent of that benefits people under $50,000.
This is designed to balance this and give those families who have the hardest time saving because they're struggling to make ends meet, give them the incentive to save, give them an automatic amount so everyone has an account, and then allow matching part to inspire, as Secretary Rubin said, more private savings.
THE PRESS: Thank you.
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