THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY THE PRESIDENT'S NATIONAL ECONOMIC ADVISOR GENE SPERLING AND THE PRESIDENT'S DOMESTIC POLICY ADVISOR BRUCE REED The Briefing Room
11:53 A.M. EST
MR. SIEWERT: We have two briefers here to give you a rundown on the overview of the President's speech today, the speech at the Democratic Leadership Council. Bruce Reed, the President's Domestic Policy Advisor, will run through the themes of that speech, and Gene Sperling will talk about some of the policy innovations that are part of that speech.
Bruce will kick it off.
MR. REED: Thank you, Jake. In his DLC speech this afternoon, and again in the State of the Union, the President intends to expand on a big idea that has been at the heart of his presidency, that we need to expand opportunity in return for more responsibility, and that as we build a new economy, we need to strike a new social contract with the working poor.
Gene will talk in a moment about the particulars of today's announcement, but let me just say a word about the philosophy behind it. The President's philosophy is simple, that individuals have a responsibility to work to support their families, and we have a responsibility to reward work. We think that when a person goes to work, good things should happen to them. There are enormous social benefits to moving people into the work force. Work gives structure and meaning to people's lives, to communities. The best social program is a job. The best way to reduce poverty is to promote work and to promote family.
In our entire social policy since 1992 has been about promoting work. In 1993, we dramatically increased the earned income tax credit; in 1996, we reformed welfare to require and promote and encourage work; also in 1996, we raised the minimum wage to reward work and we're trying to do so again. Over the last seven years we've increased support for child care, for working parents by 70 percent to help over a million kids. And we have been trying for the last couple of years to get Congress to increase that, as well.
And as we have made work more attractive and welfare less attractive and a second chance, rather than a way of life, we have seen an explosion of work. The percentage of people on welfare one year who are working the next is up 82 percent since 1992, 1.3 million people moved from welfare to work in the last year alone. People still on welfare are four times more likely to be working than they were when we took office. The welfare rolls have been cut in half, they are now the lowest they've been in 30 years. And thanks to the EITC, in any state in America work is a better deal than welfare.
We hope that these new changes that the President is going to talk about this afternoon will lead even more people out of poverty and into work. And the President will have more to say in the coming weeks on this new opportunity agenda that he's talking about this afternoon, and also about new responsibilities and efforts to promote community.
MR. SPERLING: In the President's DLC speech today, as Bruce mentioned, we are doing something a little unusual, is that we usually give out some of our specific policies in the roll-up to the State of the Union. But we usually save a lot of the themes for the State of the Union itself.
The reason why the President is introducing one of his major State of the Union themes today, a new opportunity agenda, is because we think it's critical that people see the linkages between the different proposals that will come out. All of these proposals, some of which will be rolled out over the next several days, in the next two weeks, and some in the State of the Union, are all part of one very substantial new opportunity agenda that the President will be putting forward in his budget and in the State of the Union. And so in a sense this speech is very much the kick-off to that new opportunity agenda.
It also, as Bruce said, is fitting, because all of these policies that we've done, as Bruce mentioned, do fit together in a coherent vision that the President's had, which is to attack poverty by rewarding work, taking away the disincentives from work, and for a family trying to work: the cost of child care, the cost of transportation, the lack of substantial wages -- all of these things can be disincentives to work. And across the board, the President has taken substantial steps, and at times attempted steps, that were all designed to be part of this general philosophy.
As you see, the things that we roll out as part of our new opportunity agenda, certainly some will be in the area of children and education, and incentives to invest in lower-income communities. But a lot will be around the theme that Bruce mentioned, the one the President's had since the campaign in '92, of rewarding work.
So it obviously makes sense, as the President starts out this, to start with an expansion of what has been one of the signature pieces of this President's effort to both have fiscal discipline, but to do so in a progressive way and to make sure that everybody, all Americans, even lower-income Americans, are sharing in the prosperity that we've had.
As Bruce mentioned, we had a substantial increase in the earned income tax credit in 1993. Since that time, there have been several studies that have confirmed that the earned income tax credit has had a substantially positive impact. There is one that looks over the last 10 years, and suggests that anywhere from a third to 63 percent of the movement of single mothers into the work force is due in some way to the increases that the earned income tax credit provides. So there are studies coming out of both Harvard and Wisconsin that support this.
So, again, we're not in a guessing game here. We've done something; we've seen it studied empirically and we know it works.
What we're trying to do in the earned income tax credit expansion here is address some of the measures where we still think there could be improvements in the earned income tax credit. Let me mention the four that we'll be proposing and why we're proposing them.
One is, you may recall when we were -- when we talked about Social Security, that when you look at the elderly population rate it's 10.5 percent, but when you break that down, you see that married couples over 65 have very low poverty; single elderly women have very high poverty.
When you look at children you see that there has been a significant decline, though it's still far too high, but that we've had the largest drop in five years, from near 23 percent to under 19 percent. Nonetheless, when you break out what you see is that the poverty rate is far lower than that for children in families with one or two children. It's 11.9 percent. What's disturbing is that it's nearly 28 percent for families with three children or more.
And so one of the ideas that has been brewing for some time is to have an extra amount in the earned income tax credit for families with three children or more. And so one of the expansions we're doing is to expand by $500 the amount of the earned income tax credit that would go to families with three children or more. And I'm happy to go into the mechanisms of how that works if people are interested.
The second thing that we are doing is that right now when a family receiving the earned income tax credit saves -- and that's very difficult, obviously, for a family making $16,000, $17,000, $18,000 to save -- if they have $18,000 in income and they save $2,000, which would be extraordinary, they'd only have $16,000 less (should he say LEFT?); but the earned income tax credit would assume they actually had $18,000. We'd like to encourage those families to save.
So when we're calculating what people's earned income tax credit would be in the future, we would disregard the amount that they were actually saving in a 401(k) or an IRA. Right now, that's not a very, very high percentage of people -- one, because these people are struggling, these families are struggling and find it hard to save; and secondly, they often work for smaller businesses that don't provide employer-provided pensions. But this would be a significant savings incentive.
Third is that the earned income tax credit goes up to a maximum, and then eventually it phases out. We felt that we should try to slow the phase-out, and the reason why is to allow people to keep more of their earned income tax credit as they're trying to make that leap between $15,000 and $30,000, that leap into the middle class. And so, right now it phases out from about $14,000, at 21 cents -- so, once you get to that amount, about 21 cents of your earned income tax credit is phased out as you make more money. We're reducing that to 19 percent. So for families with two children or more who are in that phase-out range, we will allow them to keep more of their earned income tax credit for longer to give them a greater incentive to work in this very critical range of income that often makes a difference between whether a family is gaining their security.
The fourth provision goes to what's often referred to as the marriage penalty. There is, in the earned income tax credits and other parts of the tax code, a degree of marriage penalty. What this does is add -- this allows the phase-out on the earned income tax credit to be increased by $1,450 for married couples. What that basically means is an extra $250 for a married couple on the earned income tax credit.
And again, this is simply to reduce any sense that there is a disadvantage to two people becoming married in the situation. This is obviously not an extremely common situation, but this would apply to a situation where somebody is on the earned income tax credit, another person with children is on the earned income tax credit and they were to marry. This decreases anything that they would lose by marrying by $250.00.
And so these four provisions together will cost about $21 billion over 10 years. And it reflects a quite substantial, but well-targeted expansion, the earned income tax credit. Every single thing we're doing there reflects issues that have been raised for years by experts in this area as ways of improving this.
I also want to mention that tomorrow the President will appear at the Wall Street Project, and that he will be talking about an additional expansion that we've not mentioned so far, which is expanding his New Markets tax credit and his empowerment zone tax credit. Again, this would be a second component of the President's new opportunity agenda.
What we will essentially do is double, slightly more than the double the amount eligible for the New Market tax credit. And the new market tax credit is essentially the following: it is a 25 percent tax credit for people who invest in community development organizations, or funds that invest in community development organizations. And in our last proposal we would have allocated $1.2 billion each year for five years, so that we were leveraging $6 billion of funding; we'll now be doing $3 billion each year for five years. So this tax credit would now leverage $15 billion of equity investment in lower income parts of America, both urban and rural.
The budget cost, therefore, would go up from $2 billion over 10 years, to $5 billion over 10 years. And that is the cost of paying for the 25 percent tax credit. So the amount that it leverages is about three to four times higher than the cost to the government.
Secondly, the President will also be expanding his empowerment zone tax initiative by $4 billion over the next 10 years. And in that initiative, what we will be doing is, there are currently two rounds of empowerment zones. In the first round, the two most substantial tax credits were small business expensing, in which small businesses in empowerment zones are allowed to expense an additional $20,000. That is in both of the first two rounds. We would not be expanding that from $20,000 to $35,000. That is on top of what the law normally allows. So a small business locating in an empowerment zone would be eligible for $35,000 of additional expensing under the President's proposal.
Secondly, in the first empowerment zone, the most substantial piece was a wage tax credit, which allowed employers to take a 20 percent tax credit on the first $15,000 that they paid people who they hired in the empowerment zone. So that would be a $3,000 tax credit on a salary of $15,000. That was not included in the second empowerment zone. We will now be proposing to include the wage tax credit in the second round of empowerment zones, as well as extending it to 2009 in the first round. In addition, we will be calling for a third round of empowerment zones that would be including these tax cuts, and would include ten additional empowerment zones.
Let me just say that these are proposals that we have worked on closely with Congress. Charlie Rangel has taken exceptional leadership in the House, and will take a leadership role not only on empowerment zones and New Markets tax credits as he has in the past, but in proposing these expansions. And we will be talking with Senator Robb and Senator Rockefeller, who were the sponsors of the new markets tax credit on the Senate side, as well.
This package will be the package that we will be sitting down with, with Democrats and Republicans, in an effort to see if we can find a compromise on a new markets/community reinvestment package. And as you know, Speaker Hastert met with the President in Chicago, and they both pledged to try to join our proposals with their proposals, their renewable community proposals. And we will be talking with the Speaker's office this week in an effort to set up a process to bring that effort, hopefully, to completion.
Q Gene, can you explain for us what this program is designed to do in the overall context of this unprecedented economy?
MR. SPERLING: For the New Markets tax credit and the empowerment zone, quite simply, what the President has said in his New Markets agenda and on his visits has been that while we have a remarkable period of prosperity, and a remarkable 4.1 percent unemployment, 20 million jobs and continually surprisingly strong growth, there are still pockets of our country -- substantial pockets in places -- where people are not fully sharing in this prosperity.
And the President's vision is that there is profits to be made in these communities if people would take an extra look; that if they would look at these areas as America's emerging markets, if they would search for new partners and new opportunities there, they could help bring economic growth there and at the same time make profits for themselves. This has never been a charitable program; this has been about encouraging people to make investments that would be good for the community, good for jobs, but will also have rewards to investors.
What you're doing, essentially, is you're sending two messages. You're saying, if not now, when. If we don't make the special effort to invest in our lowest income, poorest communities now, when we may have the strongest economy in a century, when will we. And what we're doing by providing the tax incentives is we're saying we know there's a little extra risk in going into these areas, but we think there are profits and opportunities to be made. So by providing loan subsidies, by providing extra tax credits, you are lowering the return that people need to hit in their first few years, thereby reducing some of the risk and giving people incentives to reach out and see if they can find new opportunities.
On the earned income tax credit what we're doing, again, is recognizing that even with our prosperity, that there are many people in our country who are raising two children, three children, on $20,000, $22,000, who are still struggling. They're playing by the rules, they're working full-time, but they're still struggling to make ends meet. We want, in every way, to encourage people to keep working, to reward work, to make it easier for people to move up the ladder so they can have a more secure middle-class living, and be able to provide more security for their family. And so this is an effort, even in this strong economy, to provide more incentives and more relief for those families who are working full-time, playing by the rules, but still struggling to get to a point of financial security for their family.
Q Is this also a recognition that many of the 20 million new jobs that you claim have been created in the last seven years are low-paying jobs, and therefore you've got to jump in here and help those folks out?
MR. SPERLING: That's actually not correct. The large majority of the 20 million jobs that have been created have been above the average wages. It's just simply a recognition that for many reasons, not everybody in our country shares the same opportunity. Some of it is accident of birth; some of it is historic racial disadvantages that some folks have had; and some of it is just the fact that in any country as big as the United States, even in a period of prosperity there will be some communities that people have never fully invested in, have never got a positive cycle, positive momentum, involved.
And so what this is doing is saying, in this time of prosperity, in this time where people have more funds, this is a time where we should be providing more incentives and encouragement for people to take a little extra risk to go into a community they maybe haven't invested before, look again, find the type of partners that will lead to ongoing investment. This is exactly no different than what happens in emerging markets overseas -- people explore, they take a little higher risk, but they do so in the hope that they will build relationships that will be profitable over time. That's obviously good for the emerging market, and it's good for the investors. What the President's trying to do is inspire corporate America and investors to take a second look in their own backyard.
And he's providing them some of the incentives to encourage them to do that. And he's also empowering many of the community development groups, and the community development banks, to have a way of getting the door open. When you have a tax incentive like this, it makes every financial institution stop and take a look: is there any way they can make funds, they can make new money, off this tax credit? It gives somebody with a good idea for an investment in a low-income community a way to open the door and get a meeting with an investor or an investor group that may not have been interested in the past.
So we're doing this as part of a major national mobilization that the President's been calling for on his New Markets trips, to highlight attention to trying to bring more opportunity to the communities that have been left behind.
Q Gene, Chairman Archer points out today that EITC enjoys support from both Republicans and Democrats, but claims that it's fraught with waste and fraud and abuse, and questions whether there should be an expansion of a program where there seems to be an accountability problem.
MR. SPERLING: Well, first of all, the earned income tax credit, much more than most tax incentives or tax expenditures has a fairly well-documented, academic literature that shows that it has had a positive impact in moving low income people into the work force. So I would say that it has been one of our country's most successful pro-work, anti-poverty initiatives.
Secondly, there has been problems with compliance, and this administration has taken unprecedented steps to reduce that and address that. And it's certainly something we need to be careful about. In fact, the issue on the unearned income that I mentioned is not only pro-savings, that is a measure that I think most earned income tax credit experts, if you ask Bob Greenstein and others, would say will reduce compliance problems.
But my main point is the following: if somebody wants to take an overall look at noncompliance with taxes in our country, and include EITC in that analysis and see what we can do to improve compliance overall, then I can understand that. But what I cannot understand is where there is dramatic noncompliance in virtually every area of the private sector, why you would target the one tax credit that goes to lower income and working families. There is far more money to be collected from noncompliance, fraud and abuse in other areas of the tax code, in others of the private sector than this.
So if we want to take an overall look, fine; but I don't think we should look through the whole vast code and say the only thing we're going to target on is the one program that goes to hard-working, lower income individuals.
Q Gene, I was thinking about the problems you guys have had with the CHIPS program and getting people to be aware that it's there and able to use it. Do you have that problem with EITC? Do people know about it at that income level? Do they use it? Is there an education that needs to go on?
MR. SPERLING: You know, I think there's really two issues here and I don't think we should confuse them. Sometimes people have said, well, people didn't fully understand where their increase in 1993 came, why they were getting an additional thousand dollars in their check.
Well, that may be an issue of kind of credit and political credit. That's one issue. And maybe us and maybe others didn't communicate the 1993 earned income tax credit increase enough. But that's not really an economic issue, that's probably more a political credit issue.
The fact is, people get a tax credit refund check at the end of the year. For some, that's $2,000, $3,000, $4,000 -- you bet a family making $13,000, $14,000, $15,000 notices the $2,500 refund check that they get. And what people have found is that it is often used for kinds of major purchases that are necessary and related to work. Often it's the money that somebody may use to fix a car to allow them to take a job that's outside the suburbs. We've seen stories of people who have used it as tuition to go to school to get a degree while they are working. Again, I think all of the evidence shows that people in the lower-income brackets are very sensitive to the rewards to work.
And if you go back and remember the old critique that used to come from us, but often from Republicans, it was that people -- is that the same group of people in terms of income were so sensitive and so aware of what their benefits were, that when there was not enough benefits to get off welfare, when they could perceive that the loss from moving off welfare in terms of the welfare check and Medicaid was so great that it wasn't going to work, it was widely believed and widely claimed that that had a significant disincentive to go to work.
So I really think if you look at what all sides are saying, all sides recognize that there is a significant sensitivity to rewards to work, or incentives to work at the lower-income brackets.
Q Gene, why is the President loading up an election year Congress with this mountain of proposals you're coming out with? What's he trying to accomplish?
MR. SPERLING: He's trying to make sure that all Americans have the kind of opportunity that most of the people in this room do; that they had a chance to have a decent education, they had a chance to live in a community that wasn't a place where people were afraid to invest in and create jobs in. And he's doing exactly what a President should do, which is -- he could decide to do the following, which is go around the country and say, this is the greatest economy in the century, this is the lowest unemployment rate, and that's all we could do. That's one way a President could be in his 8th year. The other thing he could do is say, even though we have this very strong economy, that's not good enough. A President should be looking out for all of the American people and he should be looking out for those who have been left behind, and focus his bully pulpit and his initiatives on trying to give a chance to lift those up.
Now, we've had significant fiscal discipline and we're going to maintain that fiscal discipline, but one reason for having fiscal discipline was so that we could stop spending so many hundreds of billions of dollars over multi-year periods on interest rates, so we could strengthen our economy, but also so that we'd have a chance in a fiscally-disciplined way to provide more education incentives to people who need opportunity and help. And that's what the President is doing.
Q But also, to what extent is it a President facing his last year in office, just taking his last shot at the legacy scoreboard?
MR. REED: Let me try. (Laughter.) Mark, we think Congress should go to work even in election years. And we would like to see hard work rewarded, so that's why we're putting out this proposal.
Q I thought I'd try -- question a little bit. The Republican leadership last year actually sought to delay EITC payments. Why, in a year when Congress does not expect to do much of anything, do you think that specific proposal might have a chance -- and you just heard what Archer said about it, as well?
MR. SPERLING: Ever since 1993 there have been proposals to save money by the Republicans by reducing the earned income tax credit. And every year they fail. And they fail because this is a successful program; they fail because people believe there should be tax incentives to low income -- people who are playing by the rules and working full time, and they certainly don't believe there should be tax increases on them.
I think there is much more support for the earned income tax credit than you'd often suggest. Certainly, you saw Governor Bush's reaction. But beyond that, I can't tell you how many times I'm in a meeting with Republican staffers, Republican members where they virtually apologize for those in their party who attack the earned income tax credit. I think there's much more support for this. I think this is well-targeted. I think it has a lot of support from various members of Congress, on both sides. And I think Chairman Archer's first point I thought was that this does enjoy bipartisan support. So what I'd say is let's see if that's the case.
Q Gene, does the President in his State of the Union address call for approximately $220 billion in tax cuts overall? And will that tax cut package resemble the cuts he proposed for fiscal 2000?
MR. SPERLING: The President's proposal last year had a certain component that was paid for with corporate loophole closers and compliance measures. And then there was $250 billion that would have come out of the surplus, but only in the context of an overall fiscal responsibility package. Those will be the basic parameters of this year's package. There will be some differences. I think the progressive savings initiative will be less than it was this year. It will be substantial, but less than last year, partly to make room for other measures like this earned income tax credit initiative.
Q And a second question. You mentioned that there are other sectors of the IRS code that are more abused than the EITC. Care to name a couple?
MR. SPERLING: It probably would be unwise of me to cite that just off the top of my head, but there is an actual report that I can show you that goes through and lists where there's the largest noncompliance. And some of that is in very politically sensitive areas concerning the self-employed and others. All I'm saying is, let's look broadly at this issue if that's what we're going to do. Let's not just single out the one tax credit that goes to lower income working families.
Q Are you saying that the portion, that the rate of fraud in some tax programs is higher than that in the EITC? Or that the amount to be collected by ending the fraud in some tax programs is higher than that in EITC?
MR. SPERLING: I don't know the answer to your first question. The answer to your second question is, clearly there are areas that are much larger than the earned income tax credit. And again, there are few tax incentives or expenditures that have such an empirical evidence of serving their intended purpose as this does. When you hear that single moms -- that participation in the work force has gone from 70 to 85 percent, and that anywhere from 30 to 63 percent of that increase may be due to the amount of reward in work coming from the earned income tax credit, that's pretty substantial. I think in the papers we gave out, it shows that 4.4 million people are lifted out of poverty by the earned income tax credit alone. That's a pretty successful initiative.
Q Gene, could you just tick off the pieces of the new opportunities program, other than the two pieces that you talked about today?
MR. REED: The general areas that we'll be talking about in the next few weeks and in the State of the Union include health care, education, family, and new markets, and other efforts to help the working poor, others to aspire to the middle class and to reward work, generally.
Q To follow up on that, if you can quantify a little bit, even in a general sense, is the EITC the biggest slice of that pie, or are there initiatives that you're going to be rolling out?
MR. SPERLING: We need to save some things for the State of the Union.
Q Gene, you're relaxing at least one little provision here, the marriage penalty that you talked about. What does the President plan to do in the next budget for the rest of the married people in America?
MR. SPERLING: Wait and see.
Q Is that an indication that he is planning on taking on the marriage tax penalty this year? Or are you just saying that and you're going to disappoint us all? (Laughter.)
MR. SPERLING: Wait and see. (Laughter.)
THE PRESS: Thank you.
END 12:25 P.M. EST