President Bill Clinton -- Budget Briefing -- Feb. 6, 1997
SPERLING: I'm Gene Sperling. I'm just going to -- I'd just like to say a word or two and then we're going to proceed with rolling out the information that's in our budget.
This is our fifth budget. It's the fifth time that we've produced the budget with the president through a team nature, an economic team, with the leadership of the director of OMB, with this year Frank Raines, who did an outstanding job in bringing this budget -- helping us bring this budget together.
The main point that I would just like to make before we start is simply this. When we came into office in '92, I think if you looked at fiscal debate in this country, it was pretty much divided between those who were -- took a view that deficit reduction required almost blanket, across-the-board cutting of all programs regardless of their merit versus, I believe, another group who was more intent on increasing public investments but was not as focused on the problems of the deficit.
And I think that when you look at what Bill Clinton's special legacy is -- his special fiscal legacy is that he has shown through his action and through our record that it is possible, and indeed an imperative, to be able to bring down the deficit to increase private-sector investment at the same time that you are increasing the public-sector investment in education, in children, in our distressed areas -- that you need to have a strong economy.
When we came into office in 1992, the projected deficit for the year 2002 was $587 billion. We had the highest nominal deficit. We trailed Japan, France and Germany's percentage -- on the deficit percentage of our economy.
Today, we are at $107 billion and the lower interest rates that has brought has led to over 10 percent increase in -- in annual investment in productive equipment, which is the best for any administration since the Kennedy administration.
Now, at the very same time that we have gone -- taken the deficit down and taking spending down, we have increased investment in key areas so that today, 15 million more families -- hard-pressed families -- are getting up to an average of $1,000 more in their earned income tax credit.
Headstart, $1.2 billion is spent more every year right now than when we came in -- a 43 percent increase and a 55 percent increase with our new budget; 1.7 million more people are in the Women, Infant and Children's Program, a 38 percent increase.
A billion more is spent in Title I spending every year. Dislocated workers spending has doubled so that 274,000 more dislocated workers get training every year. This is in addition to the brand new programs like school to work, national service -- $2.4 billion increase -- annual increase -- in NIH, and Ryan White funding going from $386 million to $996 million.
It is worth mentioning this, because I believe if we were back four years ago, the notion that you could so dramatically have this kind of impact on people's lives with these kind of increases at the same time that you went from 290 to 107 billion would have seemed virtually impossible.
And our effort to do it reflects not an effort to balance priorities or balance constituencies. It reflects the balance that this president and this economic team thinks is necessary to have the kind of private-sector investment and public investment you need, to have a growing economy.
And when we look on the economic team, at the education initiatives, we look at the specter of having the graduating class of Americans be a decade earlier a class that is -- has access to the information technology, to the Internet, to being a class of which something was done about making sure all children can read.
These are not just social issues. If you have -- if we, through our efforts, the president through his mobilization can speed up the day that every child is literate by third grade and is technologically literate by sixth grade, we will be doing a tremendous thing for hat we have been able to have a replacement who also enjoys such a tremendous national reputation.
But Joe's last day is on Monday. And he will then become the chief economist at the World Bank.
Joe will be followed by Secretary Rubin, who will -- who has promised that he will try not to be hysterical, though...
(LAUGHTER)
... he said, perhaps, lately emotional, as he described our revenue package and our tax cuts. And then Secretary Rubin will be followed by Frank Raines who, while he has not yet balanced the budget for us, he has disgraced all of us who have been here by four years by in only two-months coming up with what is by far the president's favorite economic chart ever.
So we will proceed in the following order. We will take questions -- when Director Raines is done, we'll take questions for a while. At some point, Larry Haas will cut it off and then many of us will stay around here to answer more specific questions.
So, Joe?
STIGLITZ: Thank you.
This budget document includes the administration's new economic forecast. Over the past four years, our economic performance has been excellent.
This past year was no exception to the trend of solid GDP growth, combined with strong investment, robust employment increases and low inflation. Overall, we believe that this strong economic performance will continue.
Our forecast is based on the assumption that the president's proposal to balance the budget by the year 2002 will be enacted.
Over the next two years, real GDP is projected to rise 2.0 percent annually. Starting in 1999, the pace of growth is expected to rise to 2.3 percent annually -- the administration's estimate of the economy's potential growth rate.
A real growth assumption is very close to the consensus of blue chip forecasters for 1997 and 1998, and to the Congressional Budget Office's January estimate for the 1997 to 2002 period.
Consistent with our forecast of continued economic expansion near the economy's potential, we believe that inflation will remain low and stable. Last year, the rate of CPI inflation was elevated by rapid increases in food and energy prices. These prices are not expected to increase any faster than other prices over the next year. And so the rate of increase in the CPI is expected to edge lower, an average of 2.7 percent-a-year over the forecast horizon.
The decline from current inflation also reflects the likely effects of technical adjustments to the computation of the CPI that have been announced by the Bureau of Labor Statistics. Given the outlook on the mediocre -- for moderate inflation...
(LAUGHTER)
... for moderate inflation, we project the chain-weighted GDP price index to grow at 2.6 percent over the forecast period. Combining this with the real GDP growth figures, we expect to project nominal GDP growth averaging 4.9 percent over the forecast horizon.
We project the unemployment rate will remain low. We revised down our long-term projections to the unemployment rate to 5.5 percent, from 5.7 percent assumed in the mid-session review. This reflects the increasing evidence that the unemployment rate, consistent with stable inflation, has moved down a little.
The combination of low inflation and the movement to a balanced budget by the year 2002 will create a very favorable environment for interest rates. Short rates are expected to fall, with the yield on 91-day treasury bills leveling off at 4.0 percent. We also see the 10-year rate falling to 5.1 percent over the forecast period.
Thus, we are projecting that the term structure will flatten slightly to a shape that reflects the historical experience in periods of low and stable inflation.
In conclusion, let me say for the past four years, the economic projections of this administration have consistently been close to outcomes. Comparisons of our earlier projections with the economy's actual performance show only small differences. If anything, we have been too conservative. We have underestimated real GDP in every forecast and overstated, overestimated inflation in the budget deficit.
We believe that the economic assumptions presented in this budget are similarly sound and realistic, and they are in line with the forecast of the blue chip, private forecasters in the Congressional Budget Office.
Finally, as I said at the beginning, we believe the outlook for the economy is good. We see some variations in growth from quarter to quarter.
Some recent quarters have been extremely strong. The overall economic fundamentals of our economy are sound and conducive to steady growth with continuing job creation and low inflation.
Now let me turn to Secretary Rubin, who will talk about the tax portion of the budget.
RUBIN: Thank you, Joe. Next time Gene introduces me, I'm going to draft the introduction.
(LAUGHTER)
In any event, let me start with a comment that reflects the four years that I've been here. I can remember when I was in Wall Street and we used to see budgets coming out of Washington, and we would write up little research reports and we would deride the assumptions, and rightly so.
We came here and president -- then President-elect Clinton because it was during the transition -- said to us that he was willing to argue about policy, but he wanted to have realistic numbers, and that's exactly the strategy that we followed for four years. And it's why, as the president, Joe and others have said, the deficit in each of those four years came in lower than we had projected at the beginning of the year.
And it's exactly in that spirit that we've moved forward in the budget that we're presenting today.
In that budget, we have the president's tax proposals. You have them in your budget books, so I won't repeat them. Let me just very quickly go down the categories.
There's a phased-in $500 tax credit for dependent children. There are expanded IRAs. There's a $1,500 tax credit for post- secondary school education or a $10,000 phased-in deduction for college tuition. There's elimination of capital gains taxes for home sales' profits of less than $500,000.
There is also a proposal to expand the Work Opportunity Tax Credit to help people move from welfare to work. And that's part of a larger program, or series of programs I should say, that are directed toward helping move the residents of the inner cities into the economic mainstream.
There are $34 billion of loophole closers or elimination of outmoded subsidies.
And there's $42 billion, which consists primarily of extenders -- that is to say extending current law -- that's a tax-raiser, as well.
Let me mention one other item, if I may, because it's very important and it gets very little focus.
This budget seeks a significant increase in overall funding with respect to this country's leadership in the international economy -- global economy -- and the international arena more generally. That is to say it seeks appropriate funding to meet UN arrears and it seeks appropriate funding for the World Bank, for IDA, and for the sister development banks.
We think that that funding is absolutely critical to our self- interest, not charity, but our self-interest, our national security self-interest, and our economic self-interest.
Taken all together, this budget continues the strategy that the president began the first day he walked into the Oval Office, and I am confident that if put in place, it will contribute to continuing the kinds of economic conditions that we've had the last four years.
With that, Frank Raines.
RAINES: The chart. Huh?
Like that? Multicolored and balanced, too.
This -- the budget that the -- we are presenting today is a budget that I think is historic in that for the first time in 30 years, we'll be able to tell the American people that we have brought fiscal sanity back to their government. And I'd like to make five points about this budget that we are presenting.
The first point I'd like to make is that we've already done much of the hard work necessary to balance the budget by the year 2002.
You've often heard the numbers of reducing the budget deficit from $290 billion in 1972 before the president took office down to $107 billion in 1996. What you may not have seen is that the impact of that is far greater as you look out over time, and that's what this chart really demonstrates.
The green areas on this chart indicated the total savings already achieved by actions taken by the president and Congress since the president took office. That adds up to a total of $2.5 trillion of deficit reduction that is embedded in 2002 from where -- from the projections that the president faced when he took office.
What we have left to do and what this budget is about is the area in the far right-hand corner, roughly $250 billion remains to be done to actually bring the budget into balance by the year 2002.
So that the most important point, I think first point is that we have achieved an enormous amount. And we've -- and in comparison to other countries what we have achieved is quite extraordinary.
We must remind ourselves that the United States has the smallest government of any industrialized nation. About 33 percent of GDP is devoted to government. About 12 -- 21 percent of it in the United States and 12 percent -- 21 percent in the national government and 12 percent in the states.
That compares, for example, to a government of 50 percent of GDP in Germany, a government of 54 percent of GDP in France and a government of 36 percent of GDP in Japan. So we have a smaller government than other industrialized countries.
We also have the smallest deficit of any of the other major industrialized nations.
We've been able to reduce our deficit to 1.4 percent of GDP at the national level. So that our government, as a result of these -- of these policies, is neither growing at some rapid rate, is not out of control and indeed we have managed to lead the world in our fiscal policy.
My second point is that we've already reaped many of the benefits from pursuing this fiscal policy. And you've heard a number of them. I'd just like to stress a couple.
We have seen dramatic growth in the private sector since the president's plan was put into effect, and such that we've seen business investment and equipment is seven times as fast as it was under President Reagan and five times as fast as it was under President Bush.
Of the 11 million new jobs that were created, 93 percent are in the private sector. And if you compare interest rates today to the last time we had unemployment at our current level, the interest rates today are 1.5 percent lower than the last time we had unemployment at this level.
So we are receiving the benefits from the pursuit of this fiscal policy. My third point is that the budget the president is proposing is a credible budget with real savings based on conservative assumptions. As Joe mentioned to you, we've had a pretty good record in estimating on what our budgets will be -- what our budget deficits will be.
And this is somewhat new. And many of you remember the days of rosy scenarios. Indeed, in the 12 years prior to the president taking office, the deficit came in higher than forecast 10 times. In this administration, every estimate of the deficit -- actual deficit was lower than forecast, indeed, lower by an average of $50 billion a year. So that we have been very conservative in our estimates. And the president has broken this pattern of rosy scenarios.
We are proposing a total of $350 billion of deficit reductions in this budget; $137 billion in reductions in discretionary spending; $121 billion in reductions in mandatory spending; $34 billion by eliminating unwarranted corporate tax subsidies; $16 billion by reductions in interest costs; and $42 billion by extending tax provisions that the Congress has allowed to expire. Now we've taken -- from that $350 billion of savings, we're using $98 billion for tax cuts for American families.
The overall impact of the president's proposal -- let me put the GDP chart. The results? The overall impact of the president's proposal, since he has taken office, is to reduce the size of government as a percentage of GDP.
And it's a dramatic reduction. Since 1960, the federal government has spent, on average, about 21 percent of GDP, and we've taxed it at about 18.5 percent of GDP for the familiar deficit of 2.5 percent of GDP.
In his first four years, he has brought down that number to 20.8 percent GDP. The budget he is proposing today will reduce the size of the government to 19 percent of GDP, a reduction that's unprecedented in the post-war period.
And so that this budget, it not only balances the budget, balances revenues and expenditures, but continues a pattern of reducing the size of the government by a dramatic percentage, which will further reduce the size of government in the United States, as compared to governments in other industrialized nations.
And this is a singular achievement that will be even more the marvel of our competitors.
My fifth point is to emphasize that this budget also invests in the nation's priorities.
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