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Office of the Press Secretary

For Immediate Release June 26, 2000
                             PRESS BRIEFING
                      CHIEF OF STAFF JOHN PODESTA,

The James S. Brady Briefing Room

1:45 P.M. EDT

MR. SIEWERT: Here to brief on the President's mid-session review, Mr. John Podesta, the President's Chief of Staff; Treasury Secretary Larry Summers; the President's Director of the National Economic Council, Gene Sperling; OMB Director Jack Lew; and Deputy Assistant to the President for Health Policy, Chris Jennings.

MR. PODESTA: One of Washington's worst-kept secrets has now been revealed. Our projection of the 10-year surplus has increased today by over $1 trillion.

Well, this may already seem like old news to many of the people in this room who have been kibitzing about this over the past couple of weeks. I think the shear magnitude of today's announcement merits reflection.

First, the very notion of a budget surplus would have been considered a bizarre "X-Files" plot when President Clinton took office, let alone a $1 trillion mid-session re-estimate. But this is the result of an eight-year economic strategy of fiscal discipline, investments in people, and opening markets abroad. And if the Congress accepts the offer the President has made today we can continue on this path, with the fiscal discipline that will result in a debt-free America by, as the President noted, 2012 -- by investing in our families and our seniors with marriage penalty relief and a real Medicare drug benefit; and soon by opening our market to vast trade opportunities in China.

Today, the President proposed enactment of the Vice President's plan to take Medicare off budget and to extend its solvency to at least 2030. He proposed to extend the solvency of Social Security to at least 2057. He proposed a new, real Medicare prescription drug benefit with catastrophic coverage. He proposed a $500 billion reserve for America's future. And it's important to note that he proposes all of these things in the midst of the largest pay-down of debt in U.S. history.

The President's offer to sign a Medicare drug benefit, marriage penalty package, we hope, will break the logjam and reverse the low expectations for this Congress. This offer is made with the understanding that we cannot and we should not allocate the entire budget surplus this year.

A number of the Republican tax proposals would do just that and the President has made it clear that he would not accept them. But just because we can't agree on everything, we shouldn't let that stop us from agreeing on anything. Taking Medicare off budget, offering prescription drug coverage, and ending the marriage penalty are all goals we say we share. The President suggests we turn our rhetoric into reality.

Demonstrating the seriousness of this offer, the President is willing to sign a marriage penalty tax cut of about the size the Republican have proposed. While he opposed this bill as a stand-alone measure, because he continues to believe it's poorly targeted towards the highest incomes, he will sign it if we lock in the fiscal discipline that is achieved by taking Medicare off budget; and if it is matched, roughly dollar for dollar, with the President's prescription drug plan. If the Republican leaders agree, we can do this quickly. Time is running short in this session and many issues remain unresolved.

The President believes we should make this agreement now and turn our attention back to the critical issues still confronting us, like a patients' bill of rights, raising the minimum wage, gun safety legislation, education, health care, the environment, and passing permanent normal trade relations for China.

Today's surplus announcement offers us opportunities for progress that were unimaginable when the President assumed office. The President's economic team, many of whom are with us, have been instrumental in forging these eight years of success. They are here with me now. So at this time I would like to simply say thank you to our team. And we're ready to take your questions.

Q John, in a statement Ways and Means Chairman, Bill Archer, said that, "I would not be interested in a raw deal" quoting him directly, "where American families get just a few more pennies in tax relief and President Clinton gets a trillion dollar blank check for more government spending." Your reaction?

MR. PODESTA: Well, I think it's unfortunate. I think that the President had calls, as you know, to Speaker Hastert and to Senator Lott and asked them to look at the details and said it's an honest offer. But I think that what Mr. Archer is saying is, I think going to sound to most people who see this, Congress is going nowhere as a prescription for continuing down the same path of doing nothing other than perhaps using the President's veto to protect to the public fist by vetoing their risky tax schemes.

So I think it's an unfortunate comment. But I think that when he is able to maybe catch his breath and take some time and look at the offer, I think he will see that it accomplishes two things: one, that it provides a real Medicare prescription drug benefit, which the Republican's say they're for, in some form.

Now, we have criticized, I think, with particularity what we find wrong with the bill that they're bringing forward to the floor of the House which we think will not provide affordable prescription drug coverage to all of our senior citizens. But I think he ought to take a second look at the President's plan to do that; and to see if we could put aside the partisanship that characterized this Congress and see if we can find some room in the middle where we can get something done.

Q Can I just follow up? You said the President hoped to make this deal now. Is this offer in any way perishable? That is to say, will it be withdrawn if there is not immediate Republican acceptance?

MR. PODESTA: Well, I think he -- again, he said in the statement that he made in the Rose Garden that he thinks that the Republican leadership, as well as the Democratic leadership -- and we've discussed this obviously with Senator Daschle and Congressman Gephardt -- we think they ought to take a look at it and consider this as an opportunity, consider what the alternatives are.

But, first and foremost, what we want to see happen is that we do make progress; that we use this season of prosperity to provide, for the first time, real prescription drug coverage in Medicare. And that's our highest commitment. It's a commitment that Democrats I think on both sides of Capitol Hill share. We want to see if we can make progress and we're offering something in exchange for that in terms of looking at one of their key priorities, which is a bigger marriage penalty relief than the President has proposed.

Q Today the President said that he thought that both of them were --

MR. SPERLING: I just wanted to add a clarification. I hope when Chairman Archer looks closer he'll realize that the comment about the blank check for a trillion is not reflective of the very specific proposal the President made. This proposal takes $400 billion off budget for debt reduction. So you start with money that will be spent neither for tax cuts or spending, but for debt reduction.

Secondly, the President says that a proposal consistent with his, which would be in the $250 billion range, could be passed consistent with a tax cut, which at its largest form in the Senate Finance Committee is about $250 billion. So what you're seeing here is actually an offer that really calls for a pretty parallel amount of tax cuts for prescription drugs, and in the context of $400 billion of debt reduction.

So I hope as he takes a clear look at that, he'll understand this is a very reasonable offer consistent with debt reduction and a fair division between tax relief and an important benefit for senior Americans.

Q But today, John, the President said, when he talked to the Republican leaders they sounded interested. So far we haven't seen any public indication of that interest. Could you describe why he thinks they're interested in it, what evidence there is of that?

MR. PODESTA: I think they had good conversations. And he laid it out, but I think that he was laying it out to them and he said that he was going to do what he did, which was to come out and publicly say, here is the mid-session review, here are the resources that are on the table, and here is what I think we ought to do to go forward.

He didn't ask them for an instantaneous response; he asked them to take a look at the mid-session review, to consult with their staff and to get back to him, which we expect that they will do in the next day or two.

Q Can you talk about whatever tax cut changes the President is proposing today?

SECRETARY SUMMERS: This is a balanced approach that the President is proposing today. He is proposing to take a step towards something that the congressional majority has identified as a priority, if they are prepared to take a step towards the crucial priority he has identified, an affordable, effective Medicare, prescription drug benefit.

The marriage penalty is something that the President did address in his budget, on a small scale; but made clear that the more expansive proposals, such as those that have been considered by the House and the Senate Republicans were, in his judgment, problematic without a full fiscal framework that provided for debt reduction and in light of their distributional impact.

He made clear in his statement today that he would be prepared to work with them on a marriage penalty of the scale that they contemplate if it is in the context of an overall approach where we take the crucial step for fiscal discipline, of taking Medicare off budget and do a prescription drug benefit as part of Medicare that is consistent with the approach to that issue that the President has outlined.

Q But is he proposing any changes, though, in his own February 10th proposal?


Q Is he proposing any changes in his own tax cut plan from February?

SECRETARY SUMMERS: The President is not proposing new tax cuts or alternative proposals today, but he is making clear that he's prepared to work if others are prepared to work -- it's really up to them -- in a bipartisan approach.

Q Would he want a major structural change within those numbers and the Republican side to change the distributional impact that he complained about?

SECRETARY SUMMERS: The President has concerns about the distributional impact, but if we are able to take Medicare off budget, and if we are able to pass a full Medicare prescription benefit along the principles that he's outlined, he would certainly want to work with the Republicans to pass a suitable bill and would recognize the need for give and take in that process on marriage penalty.

Q Can you explain a little bit about what has happened over the last five months that has led to a trillion dollars more being put on the table?

SECRETARY SUMMERS: Jack may want to add something, but there have been three main factors. First, the economy has been stronger over the last six months than appeared likely in the late fall, when the budget was forecast -- which both meant substantially more revenues this year and a higher jumping off point for future growth.

Second, there have been upwards revisions in consensus forecasts in most economic observers judgement about the likely average long-term growth rate of the economy over a 10-year period, which translates into higher federal revenues.

Third, the great strength of revenue collections over the last six months -- even after adjusting for the strength of the economy -- has led to an upwards revision in forecast tax revenues over the succeeding 10-year period.

And those three factors are the dominant factors. These are forecasts that have been done consistent with the methodologies we've pursued over the last eight years, which have proven to be consistently conservative in judging revenue outcomes. Nonetheless, as the President stressed, we think it is very important to avoid pre-committing in an absolute and irreversible way all of the found money in recognition of the fact that these forecasts can, and have, historically fluctuated.

Q Mr. Secretary, the President's --

MR. LEW: I would only add, and it really underscores the point that Larry was making that what we're doing in the economics is, first and foremost, recognizing the real performance of the economy since the last time we made the projection, is that the numbers for the current year are substantially better. That the baseline for just the year 2000 has gone from $32 billion to $52 billion in terms of the on budget surplus.

I think that if you look at the numbers what we see is that spending has not been going faster than we expected, in some cases it's been going more slowly. Revenues have been substantially higher.

And the point that the President underscored and that Larry underscored is that these numbers have moved quite substantially in just a very short period of time. And we need to be careful in terms of how we make decisions based on these numbers. The proposals that the President put forward in the framework, and in the offer itself, really lock in the notion that fiscal discipline has to go hand-in-hand with the specific polices that we're putting forward.

And if we start by taking $400 billion, taking it off budget -- we can take a step like the offer the President proposed and not put ourselves at risk. If you were to spend the entire on budget surplus that's a fairly risky move. And it's not one that we proposed.

Q You found room, under certain preconditions, for compromise on the marriage penalty. Is there anything that might be possible in the works for estate taxes, beyond what, say, Congressman Rangel has advanced?

SECRETARY SUMMERS: We will certainly be prepared to work with Congress on that issue. But the President has been very clear in his position. Total estate tax repeal is the wrong priority. It is the wrong priority because when fully enacted, it would cost more than $50 billion a year, a sum that is large compared to other priorities, from federal spending on education, to the earned income tax credit, to what could be done for middle-class families with $50 billion a year.

It is questionable because a very large fraction of the benefit would go to a very small number of people. Only 2 percent of estates pay the federal estate tax, and half of the federal estate tax is paid by the top 6 percent of the top 2 percent, or the top one-tenth of a percent that benefits several million dollars each.

The President is also concerned that total estate tax repeal would do substantial damage to philanthropic giving, and to the nation's network of private institutions.

So we are prepared to work with the Congress to address the very real issues that some families who are wealthy -- who appear wealthy on their estate tax returns, but have real economic challenges: family farms; those whose principal residence has gone way up in value; certain small businesses. We're prepared to work with the Congress to address that -- to address those concerns, and to look at other technical estate tax issues. But we do not believe that total repeal is appropriate.

Q Secretary Summers, could you tell us, why does the gross federal debt actually rise to about $6.5 trillion over the decade, even as the publicly held portion of it zeros out?

SECRETARY SUMMERS: That is a reflection of the inter-governmental transaction that is represented by the accumulation in the Medicare and the Social Security trust funds. What essentially all economists or financial experts will tell you is that what impacts on interest rates, what impacts on the availability of funds for investment, what impacts on the health of the economy, is the debt that the federal government sells that has to be held by the public, and that crowds out other uses of the public's saving. And that's why we focus on debt held by the public as our measure, and it is that debt that will, on a net basis, be eliminated by 2012.

Q What I'm not understanding, though, is why amidst this unprecedented growth and these projections that you've come up with, why is the gross debt rising at all?

MR. LEW: I think that you're seeing is that you're seeing the Social Security and Medicare trust funds growing, which is what was expected, in terms of anticipating the retirement of the baby boom. You wouldn't want to see the trust funds, either Medicare or Social Security, coming down. And the means with which we show that is that it's an intra-governmental transaction, and it shows up as debt.

But as Larry just pointed out, it's not debt that we're borrowing from the public. It doesn't impinge on private markets. I think if you look at our budget, what we're doing over this 10-year period is we're reducing by $2.9 trillion the debt held by the public. Of that, $2.3 trillion is due to protecting the Social Security surplus, and the rest, almost $600 billion, is because of taking Medicare off budget, and some additional debt reduction. I think that's what, to the outside world, is the transactions that the federal government is participating in, and that's why we're able to reduce the debt held by the public to zero in 2012.

Q Is that what you're saying? If Congress adopted what you want to do, that would increase even more -- the debt to the trust funds would be even larger than the publicly-held debt?

MR. LEW: Well, it would be larger by the amount that we're transferring in. So, in the proposal that we put forward today, it would be larger by $115 billion from the transfer, and an additional increment because of interest payments. But that's a good thing; that's how you extend trust fund solvency. Trust funds having assets -- Social Security and Medicare trust funds having these assets is the way we can extend solvency.

Q But don't they -- that highlights one point here, right, which is that these are obligations that the government is -- eventually has to make. So given that, is it really responsible to be increasing the benefits offered under Medicare, for example, at a time when there is already, as you point out, an enormous obligation to be paid some day?

SECRETARY SUMMERS: Let me make two points, if I could. First, with respect to the trust funds, when a good thing happens the economy gets stronger, more people are working, more people are paying taxes, more money is in the trust funds. And so it shows up as more debt. But what we clearly have is more capacity to meet the obligation for Medicare and for Social Security benefits.

So the growth of those trust funds is a reflection of economic -- is a reflection of economic strength. And the government has no obligation, as a consequence, that it did not have previously.

Now, with respect to your question, it's obviously one that we all thought about very, very hard; and the President thought about very hard in making his Medicare proposals. I think we can take satisfaction from three aspects of these proposals.

First, for the first time they remove Medicare from the overall unified budget, just as we did with Social Security last year, and thereby create a framework where the Medicare trust fund can, under no circumstances, be raided.

Second, because of the economic strength that has led to increased revenue collections and because of the success that has been had in controlling Medicare costs -- even with the changes that are being announced today, the Medicare solvency is being expanded, is being pushed back to 2030 -- further out than it was in the President's January budget proposals.

Third, these proposals would leave Medicare in its best financial condition, as measured by the time that the trust fund is solvent, since the program was put in place in 1965.

So these are not steps that we would take lightly because of the future obligations. But let me repeat: these proposals, if enacted, would leave the Medicare program, which was projected to only have eight years more solvency when the President came into office, in its best -- five more years when the President came into office, with six times as long a solvency period in its best situation since 1965.

Q Gene, I apologize if this has been asked; I had to miss the first part of the briefing. Has the Democratic leadership signed off on this deal involving the marriage penalty tax cut and the President's prescription drug proposal? Whoever wants to take that.

MR. PODESTA: We've discussed it with both -- with Senator Daschle and with Congressman Gephardt. And I think that they are positive about it, they want to see us move forward and try to get the prescription drug benefit in a form that will be real, will be affordable, will be available to every Medicare beneficiary, front and center. As you know, the Senate voted on that last week in a slightly different plan than the President offered -- Senator Graham's proposal. And the House is about to vote on it this week.

So they see this as a road map to progress, and I think they're very positive about that.

Q Could I follow up on that? Have they indicated in any way that they would accept -- that there are circumstances in which they would accept a Republican marriage tax proposal? You essentially indicated that you would take that if you got what you wanted on prescription drugs. Have they indicated they would vote for that under any circumstance?

MR. PODESTA: I think that if it's linked to a real prescription drug benefit in Medicare that's going to provide an affordable benefit for all beneficiaries, and along the lines that the President has proposed and that the Democrats on both sides of Capitol Hill have proposed, then I think they would be very open to that.

Q You're presenting this deal as a road to fiscal discipline, when, in effect, what the President is saying -- he'll accept a too expensive marriage penalty bill if the Republicans will accept a very expensive drug prescription proposal. It sounds like the kind of typical legislative back-scratching -- you vote for my expensive program, I'll vote for your expensive program -- that got us in trouble in the first place.

MR. SPERLING: Well, I mean, first of all, let's remember that in what is now a $4-trillion unified surplus, the President is taking $2.3 trillion of that off budget for debt reduction. Then he's taking an additional $400 billion for Medicare off budget. In fact, when you look at the full Medicare and debt reduction policy, we are putting forward here -- on the on budget, after you've taken Social Security, $595 billion of additional debt reduction -- so what you're talking about is a dramatic commitment to debt reduction, to paying off the debt by 2012.

Now, the President was the one, as you know, who pretty much put the brakes on everybody in this political system from spending the surplus when we first started to see it projected in '98, '99. Since then, I think that there has been, due much to his leadership, a pretty dramatic shift towards allocating more and more of all the Social Security surplus, and now the Medicare surplus, for debt reduction. In this context here he stayed very much in that framework. He said, if on top of the Social Security debt reduction we can take another $400 billion, only then would he be willing to go forward with a prescription drug plan and a marriage tax penalty plan.

So again, this is preconditioned on making even an additional step for debt reduction, which would take $400 billion. Or if it was done fully, as we would like, would lead to nearly $600 billion more of debt reduction.

MR. PODESTA: Let me just note one other thing, which is the premise of the question, which is that this is what got us into trouble. I think the President has a pretty good track record of getting us out of trouble.

And I just remind you, as I said at the beginning, where we started, where we've come from. And I think Gene has outlined the numbers that give us a very real commitment to fiscal discipline that ought to be carried forward into the future.

Q John, you said a moment ago that you hope to hear from the Republicans in a day or two. I just want to revisit the question I asked earlier. Is this offer on the table for a limited time, or does it last for the entire legislative session?

MR. PODESTA: I think that the President has always tried to work in good faith to, again, put aside partisanship, to try to find some consensus. But there are a lot of issues on the table. And we think that they are moving forward now on their plan on prescription drugs, which we think is flawed. We would like to see this happen in the short frame -- again, there are only about 40 legislative days left.

So, Major, I don't think we're putting this conditional on them, saying something today or the next day. We want to see progress made. But we've got a long list of issues that we need to work on. Prescription drugs is probably front and center the number one that I think has captured the American public's attention. And it's captured the attention of the Congress, because it's such a very real need that we could do something about right now. So I think we would like to see something happen quickly on this so that we can continue our work on patients' bill of rights, on raising the minimum wage, on devoting adequate resources to education, to the environment, to health care.

So I don't think we're putting any kind of preconditions that if we don't hear from you by Thursday at 5:00 p.m., the deal is off the table. We want to try to work with them in good faith to see if we can make progress.

But having said that, I think as you very well know, there are very few days left in this legislative session. The appropriations bills have still not been brought through to fruition, we still don't have an emergency supplemental, which we asked for months ago, and we still don't have a vote scheduled on permanent normal trade relations with China in the Senate. So there's a lot of work to do.

So I think that if we're going to be able to make progress, it's important that we engage sooner rather than later and see if we can make that progress.

Q Whatever became of the President's oft-stated refrain, save Social Security first? Is that done? I mean, we're spending all this surplus money.

MR. SPERLING: I think that we would have preferred to have a little greater commitment towards solvency. But what's been remarkably successful is that if you look at when the President first said save Social Security first, Chairman Archer, many others, have large tax cuts that spent not only the on budget surplus, but the Social Security surplus, as well.

The President came back again in the State of the Union in '99, if you look at H.R.3 and S.3, the Republicans had tax cut proposals out at the beginning of 1999 that would have spent the Social Security surplus for many years, as well.

So through the President's leadership on Social Security first, we have what we hope -- we have what is and we hope will remain a bipartisan commitment to take the entire Social Security surplus and save it for debt reduction. That is a fairly substantial accomplishment of the President's goal.

We obviously would have liked to have seen Congress go the next step and join us in a commitment to use some of the benefits of that debt reduction explicitly to increase the solvency of Social Security from 2037 and beyond. But I think, Mark, that what you're seeing is he's staying in that same framework, which is that fiscal discipline has to come first. And so he's conditioned this whole deal, this whole offer on taking another dramatic step on fiscal discipline by taking Medicare off budget.

If I can respond to John's question for a second. Obviously, we have always thought that if you put in place a fiscally-disciplined economic plan, you could, having done that, use some resources to deal with the country's major challenges in terms of health care and education.

The reason why I feel good about what we're doing on prescription drugs is that when I look at what our long-term deficit in Medicare is, I don't just look at what I think is the solvency deficit. I this is part of the deficit. I do not believe it is viable to think of Medicare going on for years and years more with now people having prescription drug coverage; it's bad health care policy. I think it leads to higher health care costs in society, it leads to less preventive care, so I think when you're looking at what we need to do to deal with Medicare in the future, we do need to deal with its solvency. But this is something that needed to be corrected.

So to take some of these surpluses now and deal with what is really a hole in our existing Medicare plan, to us seems like a better idea than many of the other uses that the surplus could go to.

Q But, Gene, if the goal is finding common ground and doing it in as fiscally prudent a fashion as possible, why would you double the cost of your own benefit just within the last 48 hours before offering this deal? Isn't that in some way sort of moving the goal post?

MR. SPERLING: Look, I think you should look at our plan. I think our plan is a very reasonable plan. I think some people will, when they look at it, will think that it should even be phased in faster. We're not --

Q But what if Republicans said, let's shake hands on the deal, on the plan that you had last Friday, as opposed to the one you had on Saturday? Would that be okay?

MR. SPERLING: John, let's look at what really happened in our plan. All we did was move it up a little earlier so that it's phased in immediately. It's not changing the policy; it's just recognizing that we had a good policy, and that we should try to provide that help to seniors as quickly as possible -- seniors who are often making very difficult choices about prescription drugs versus other necessities in life.

Secondly, we did not have a catastrophic coverage. That's hardly a luxury that we're adding. We're saying to those Americans who are so unfortunate that they have over $4,000 in out-of-pocket costs in a given year, that we'll provide them a backstop. I hardly think that anybody who saw a senior American in that circumstance would think that that was some kind of a new added benefit. I think that if anything, one could have criticized our previous proposal as being deficient in that measure. And we signal that by saying that we had a $35 billion reserve for catastrophic stop-loss coverage, and that we thought, if there was more funds, this was just good health care policy.

So I think you should look at the policy we're proposing. Look at what it offers to Americans and see if you think it goes too far, or not far enough, or is just right.

Q The President couldn't shake hands with Republican leaders on his plan as of last week, it was no longer good enough.

MR. SPERLING: I think that his plan last week was certainly better than any of the Republican proposals that have gone further -- that have been presented so far, because it is a voluntary, Medicare plan that is available and affordable to everyone.

But in the context of a significant addition to the surplus, we made a significant structural step for debt reduction. In that context, we put forward a somewhat fuller prescription drug plan, which we think is better health care policy, and are saying to the Republicans very simply that if you'll join us in accepting the Vice President's proposal -- take Medicare off budget and pay down the debt and join us in what we think is a strong prescription drug plan, then we would take a Medicare -- we would take the marriage penalty tax cut that we think standing alone is perhaps a little bigger and a little less targeted than it should be.

We'd do that in the spirit of old-fashioned compromise. We're taking a little more of something that they've offered, than we think perhaps is justified, for something that we think -- we feel very strongly is absolutely justified.

MR. PODESTA: I just want to correct one fact, and then let Joe take over for the rest of the briefing -- which is that our proposal, I think, was $198 billion -- $195 billion over 10, and we've added $58. I'm just -- that use of the term double has been thrown out a lot, and it's not true. So I just wanted to correct that. We've gone from $195 billion to $253 billion, which is a $58 billion --

Q So with all this extra money around, are any of you willing to predict that a prescription drug-marriage penalty deal is likely this year?

MR. LOCKHART: I'll take that one.

MR. PODESTA: Joe's going to take that.

MR. SPERLING: We think that we've offered the congressional majority a road map to getting something done this year on fiscal discipline, on prescription drug and marriage penalty tax relief, and we hope they'll take that road map to a signing ceremony and benefits for tens of millions of seniors and middle-class families.

Thank you.

END 2:19 P.M. EDT