Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
March 02, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 6763 words
HEADLINE:
TESTIMONY March 02, 1999 JACOB J. LEW DIRECTOR OFFICE OF MANAGEMENT AND BUDGET
SENATE BUDGET FISCAL YEAR 2000 BUDGET REQUEST
BODY:
JACOB J. LEW DIRECTOR OFFICE OF MANAGEMENT
AND BUDGET TESTIMONY BEFORE THE COMMITTEE ON THE BUDGET OF THE UNITED STATES
SENATE FEBRUARY 2,1999 One year ago, President Clinton set the course of the
Nation's budget policy with his charge to "Save Social Security First." The
President recognized that we were entering a new era as we left behind the
decades of large budget deficits. He was building the foundation for budgeting
in this new era of surpluses. Fiscal progress has produced a strong economy The
year 1998 was one of the most extraordinary in modem U.S. economic history. We
enjoyed the first budget surplus in 29 years - the largest ever in dollar terms,
the largest as a percentage of the economy in more than 40 years. And this
budget surplus was not the result of a temporary wartime policy, as was the last
surplus in 1969. We will have a budget surplus again in the ongoing fiscal year
- at an estimated $79 billion, larger than last year's - which will mark the
first back-to-back surpluses in more than 40 years. The budget I present to you
today proposes a third consecutive surplus - the first time that will have
happened in half a century. And our 1998 budget surplus was the sixth
consecutive year of improvement in the U.S. fiscal position - the first time
that has happened in American history. The private sector is the key to economic
progress, but we have clearly seen in the decade immediately past that the
Federal Government can either hinder or promote economic progress. If the
Federal budget deficit is high, so that the cost of capital is driven up and the
financial future is uncertain, the private sector cannot yield the progress of
which it is otherwise capable. But if, instead, the Federal Government declares
its intentions of responsible fiscal behavior, and lives by those intentions -
and if the Federal Government supplies the public investments that America needs
- then the economy is free to prosper. This is the path that this Administration
has taken. In 1998, we reaped the fruits of five years of fiscal responsibility.
After the best sustained growth of business investment since the 1960s, the U.S.
economy fueled that decades- absent budget surplus. And the economy itself
defied the pundits, staying on a pace of solid, above trend expansion, in the
face of an international financial disruption that broke the stride of most
other economies around the world. Unemployment and inflation both hit
three-decade lows, with the lowest unemployment rates for African Americans and
Hispanics in the history of those statistics; real wages continued to grow after
more than a decade of stagnation, and a record percentage of adult Americans
worked in those higher-paying jobs; the percentage of Americans on welfare fell
to a 30-years low; the 10-years Treasury bond rate reached its lowest level in
30 years; and a higher percentage of Americans attained home ownership than at
any time in our history. The President deserves a great deal of credit for the
virtuous economic cycle that we now enjoy. The announcement of a firm intention
of fiscal responsibility in 1993 was greeted by a continued reduction of
interest rates, which helped to trigger the investment boom that has proved
central to sustained strong, non-inflationary economic growth. The two other
pillars of the President's policy - investing in our people and our technology,
and opening foreign markets to U.S. exports - complete this winning economic
strategy. The 2000 Budget is a defining moment This extraordinary
budget-and-economic performance - with the budget setting historical standards
and the resilience of the economy setting global standards - tells us something.
It tells us that we have developed a winning economic policy and that we must
not turn back. We must not discard the economic philosophy that got us here, to
this confluence of economic indicators that all sides now agree is the best in
modem memory. So in one sense, our budget policy now clearly should be built on
continuity. We have achieved a sustained fiscal improvement, and we should
continue to sustain that improvement. We have an economy that achieved a record
sustained peacetime expansion, and we should continue to sustain that expansion.
But in another sense, we have stepped into a new world. Where our budget used to
be 'written in red - for so many years that people came to take it for granted -
now we are in the black. And this change has tempted some to throw away all of
the policy principles that got us here. For two decades now, there has been much
discussion about fiscal discipline, restraint, and deficit reduction. Since
1993, we have taken action; and far beyond the expectations of even the most
optimistic, we now have budget surpluses as far as the eye can see. But now, as
the first surpluses appear, it is important that we not revert to the practice
of cutting taxes and raising spending first, and thinking about the fiscal
consequences later. As the President suggested in his State of the Union address
two weeks ago, this is a moment that will do much to determine the character of
our country at the end of the next century. We can build and strengthen the
fiscal foundation that first arose in these last few years. Or we can sweep it
away, before it is firm and strong, and set our economy to foundering again. The
choice is clear and the President is determined to pursue a balanced program of
fiscal discipline and prudent investment for the future. This budget charts that
course into an era of surplus. Fiscal policy since 1993 was pivotal to our
current good fortune To see why fiscal responsibility matters, consider where
this Administration started six years ago. In 1992, the budget deficit was $290
billion, the largest in the Nation's history. Between 1980 and 1992, the debt
held by the public, the sum of all past unified budget deficits, quadrupled; it
doubled as a share of our Nation's production, or GDP - from about 25 percent to
about 50 percent. These adverse trends showed every sign of accelerating. Both
CBO and OMB projected that, without changes of budget policy, growing deficits
would add to the Nation's debt, and growing debt service costs would add, in
turn, to the Nation's deficits. OMB forecast the 1998 deficit, in the absence of
policy change, at $390 billion, or 5.0 percent of GDP; by 2003, we expected the
deficit to be $639 billion, or 6.6 percent of GDP. And there was nothing in the
forecast to indicate that this exponential trend would stop. This threat was not
turned back by accident. It required tough policy choices, which the
Administration and the Congress took in 1993 and 1997. The President's initial
economic program cut spending and increased revenues in equal amounts. Since
that time, deficit reduction (and ultimately surplus increase) has more than
doubled the estimates for the President's plan - instead of the projected
cumulative $505 billion, deficits have fallen by $1.2 trillion. That is $1.2
trillion less in debt that the American taxpayer must service - forever. And
this deficit reduction has come as much from lower spending as from higher
revenues. Spending has declined to its smallest share of the GDP in a quarter of
a century. And thanks to the strong economy, receipts have grown beyond
expectations, even though the tax burden on individual families is lower than it
has been for about a quarter century: - The typical family of four - with the
median family income of $54,900 - will pay a lower share of its income in income
and payroll taxes this year than at any time in 23 years. Its income tax payment
considered alone will be the lowest share of income since 1966. - A family with
an income at one-half of the median level, $27,450, will pay the lowest share of
its income in income and payroll taxes since 1965. Its income tax bill will be
negative; it will receive money back because of the earned income tax credit.
That was never the case before 1998. - Even a family at twice the median income
level, $109,800, will pay less in combined income and payroll taxes as a share
of its income than in any year since 1977. Taken alone, its income tax as a
percentage of income will be the lowest since 1973. Receipts have risen as a
percentage of GDP not because of a heavier tax burden on typical individual
families, but rather because of the extraordinary growth of incomes of
comparatively affluent Americans (including capital gains and stock options that
are not included in measured GDP); and because of the rapid growth of corporate
profits. The historic bipartisan balanced budget agreement of 1997 has
reinforced expectations of Federal fiscal responsibility. This has had a
favorable effect on interest rates, and the economy at large. In the last six
years, we have enjoyed an extraordinary economic performance because our fiscal
policy was responsible and sound. If we want to continue to enjoy such strong
economic performance, we must continue our sound fiscal policy. As the
experience of the last 20 years clearly shows, budget problems are very easy to
begin, and very hard to end. Reducing debt burden is as important to the Nation
as it would be to a family. The Nation must service its debt. If we gratify
ourselves today by collecting taxes insufficient to cover our spending, and
accumulate debt, our children and our grandchildren will have to service that
debt. If, instead, we reduce our debt, our children and our grandchildren will
be freed of the obligation to tax themselves more heavily in the future just to
pay the interest on the debt they inherited. The President's proposal will fully
reverse the buildup of debt of the 1980s - and then go further. By 2014, the end
of the 15-years horizon of the President's program, the combined effects of the
President's commitments to Social Security and Medicare will reduce the Nation's
debt burden to an estimated seven percent of GDP. This will be the lowest ratio
of debt to income that the Nation has enjoyed since before it entered World War
I. And as most experts would tell us, this will be one of the greatest gifts
that we could ever give our children, as we exercise our fiscal stewardship of
these United States. The President's policy would devote more than three-fourths
of future budget surpluses to reducing the Nation's debt through contributions
to Social Security and Medicare; and would dedicate another 12 percent to
household savings through Universal Savings Accounts. This is important to our
economic performance for four basic reasons: First, it increases the Nation's
savings rate, which is critical to productivity gains and economic growth.
Second, it reduces the debt. Third, it improves the fiscal position of the
country, and puts it on a stronger footing for whatever uncertainties might
arise. And finally, it improves the retirement security of all Americans. The
current challenge is to use the surplus prudently In 1993, we faced the
challenge of eliminating projected budget deficits of $4.3 trillion over ten
years. Today we face the enormous opportunity of projected surpluses of more
than $4.8 trillion over the next 15 years. The challenge is to use this surplus
prudently - to maintain our strong economic and budgetary performance. We must
save Social Security first. A statement of good intentions is not good enough
for the millions of Americans, retired and working today, who rely on Social
Security for their retirement security - and for protection for their families
against disability and premature death. From the beginning, this Administration
has kept its eyes on the future, and taken policies that would benefit the
Nation for generations to come. It has paid off. Saving Social Security first is
precisely such a future-oriented policy. The President's FY 2000 budget -
symbolically, as well as financially, "in the black" continues firmly on that
successful path. The budget maps a course for the Federal Government after
Social Security is reformed - and makes its own policy recommendations for the
beginning of the bipartisan Social Security reform process that the President
inaugurated last year. But the budget also draws a line that this Administration
will not pass without Social Security reform. Thus, the FY 2000 budget is fully
paid for within the existing budget law. Just as in every previous year, the
President has specified his own priority initiatives, but has paid for all of
them - line by line, dime by dime - with savings from elsewhere in the budget.
The President's policy calls for a bipartisan Social Security reform, this year.
The President has already committed 62 percent of our projected budget surpluses
- enough to extend Social Security's solvency almost an extra quarter century,
to 2055. We hope that this will launch a bipartisan process to address long-term
Social Security solvency. We are gratified that several leaders from the
Congress have already accepted this principle and hope that both parties, the
President and the Congress, can follow through on this commitment and achieve
sufficient additional reforms to extend the solvency of the trust fund at least
through the traditional 75-years actuarial horizon. If we achieve that
objective, the budget makes further commitments of the surplus to priority
National objectives in the future. The President proposes to dedicate 15 percent
of the surplus to extending the solvency of the Medicare trust fund. This is a
key element of the President's program, because the financial security of
Medicare will be threatened even sooner than that of Social Security. In 1997,
the President and the Congress, acting together, made Medicare financially sound
through 2010. The President's 2000 budget would extend that lifetime ten years
further, to 2020. We see the commitment of the surplus as a vital step to
facilitate an environment in which a bipartisan effort - including the current
Medicare Commission - can go even farther; with the time horizon so short, even
after the contribution of 15 percent of the surplus, we cannot delay Medicare
reform. As the President stated, he wants to consider, as a part of this reform
process, expanding Medicare coverage to include prescription drugs. The
President also proposes using 12 percent of the surplus to finance his new
Universal Savings Accounts - "USAs." This proposal includes seed money for
Federal contributions, plus additional funds for matching contributions if
individual workers contribute their own money. The matching contributions will
provide a larger percentage inducement for low-wage workers. The goal is for all
Americans to see the rewards of saving building up in these USAs - and with this
introduction to the power of compound interest, to begin to save further on
their own. The President believes that this program, with its Government seed
contribution, has the potential to reach even those who have failed to respond
to the generous subsidies in the current law Individual Retirement Accounts
(IRAs). The President wants a fiscally responsible tax cut. He believes that the
USA is the right kind of tax cut - targeted toward the future, and helping the
many American families who have the most difficulty saving for their retirement.
It strengthens perhaps the most neglected of the figurative three legs of the
retirement stool - personal saving, to stand alongside Social Security and
employer pension plans -- and for the many who have no employer plan, this
initiative may be crucial. Most importantly, it is part of a plan that fixes
Social Security first. Finally, the budget proposes that the remaining 11
percent of the surplus be dedicated to other important priorities - including
education, National security, and health care. In last October's negotiations on
the Omnibus appropriations for fiscal year 1999, Congressional leaders argued
that our National defense needs had outgrown the existing discretionary spending
caps and, indeed, defense received the largest share of the additional emergency
funds made available in that legislation. Likewise, the American people have
recognized that the quality of their children's education will determine how
they progress in life - and also the strength of the future economy. The
President's budget is a sound, disciplined way to provide the additional
resources for these priorities that both sides recognize will be needed if our
country is to survive and prosper in the next century. The President's framework
for Social Security reform and long-term fiscal discipline works The President's
contribution of the surplus to Social Security will use many of the existing
financial management tools of the Federal Government. It will be in addition to
the accumulation in the Social Security trust fund that would occur with no
change in the current law. After the trust fund is credited for all of its own
receipts, exactly as in current law, the Treasury will be left with the unified
budget surplus. Each dollar of that unified surplus can be used only once - for
cutting taxes, increasing spending, or buying down the debt. The President has
brought the debate right to the point: What should we do with that surplus? Or
to put it another way: If we were to look back fifteen years from now, or at the
end of the next century what would we want to be able to say that we had
accomplished with this opportunity? The President wants to leave a legacy of
building for the future: saving Social Security and Medicare; encouraging
Americans to save for their own futures, build wealth, and prepare for
retirement; investing in education; ensuring our National security; and making
other key investments. So the President started by committing 62 percent of the
surplus to save Social Security first. Most of the share committed by the
President to Social Security will be used to buy down the publicly held Federal
debt through the periodic debt refundings of the Treasury Department, in exactly
the same way as debt was retired last year. That same amount will be credited to
the Social Security Trust Fund, in the form of Treasury securities. This same
procedure will be followed for the President's contribution to the Medicare
trust fund. This commitment will significantly extend Social Security solvency.
At the end of 1999, the currently estimated combined balances of the OASDI trust
funds is about $850 billion. Through 2014, we estimate that additional
contributions to the trust funds under the current law, including interest, will
total about $2.7 trillion, leaving a total balance of about $3.5 trillion. The
President's program would contribute an additional $2.8 trillion to the trust
funds over the next 15 years. Taking into account additional interest earnings,
that would leave a balance in the trust funds of more than $7 trillion - instead
of the approximately $3.5 trillion under the current law. The President's
program will more than double the balances in the trust funds over the next 15
years -- without accounting for higher earnings on the portion of the surplus
invested in corporate equities. Because the President's plan will reduce the
public debt, the total obligations of the Federal Government will not increase.
We are already committed to paying benefits beyond 2032, when the trust fund is
now expected to be exhausted. The President's proposal would deposit assets in
the Social Security trust fund to pay these obligations, and reduce by an equal
amount the debt borrowed from the public. Interest payments will go to the trust
fund, to cover future Social Security benefits, rather than to banks,
individuals and other investors in Government bonds. A small portion of the
President's commitment to Social Security (21 percent of the commitment) will
take the form of holdings of corporate stock. Because the Social Security trust
fund will need that amount of the cash surplus to purchase the shares, this
contribution will not reduce the public debt. However, it will improve the
Federal Government's implicit balance sheet - to the same degree, but in a
different way. While the reduction of debt will reduce the Federal Government's
liabilities, the corporate shares will increase the Federal Government's assets.
The salutary effect on the Government's balance sheet will be the same, but it
will appear on the other side of the balance sheet. Thus, the President's policy
in no way increases the total obligations of the Federal Government. In fact, by
retiring part of the public debt, it strengthens our economy in exactly the same
way that reducing the budget deficit, and avoiding the accumulation of debt, has
helped the economy over the last six years. The President's program does shift
the Federal Government's commitments to Social Security, however, and in that
way improves Social Security's solvency for the next century. This will give
Social Security a first call on the economic benefits associated with long-term
reductions in publicly held debt. The President believes that budgeting in an
era of surpluses requires a focus firmly on the future. We must put money aside
against our current obligations before we incur any new obligations. The
President's program does that, by retiring debt and accumulating assets against
the Social Security commitments that we already have. We must balance fiscal
discipline with prudent investments for the future In addressing these
priorities, the FY 2000 budget builds upon the investments in our people and our
technology that were set in motion by past budgets. Last year's budget
implemented the Balanced Budget Act of 1997, maintained fiscal discipline -
reserving the surplus until we save Social Security first - and provided a
strategy of targeted investments to help sustain economic growth. For example,
last year's budget provided resources for: - The first year's investment to
reduce class size by hiring 100,000 new teachers. Smaller classes ensure that
students receive more individual attention, a solid foundation in the basics,
and greater discipline in the classroom. In this year's budget, the President
proposes investments in this area, ultimately to reduce class size in the early
grades to a national average of 18. - Investments to protect our economic
interests at home by responding to international economics in turmoil. The
disruption in financial markets last year lead to economic dislocation in Asia,
Latin America and the Soviet Union. This, in turn, hurt American exporters,
farmers and ranchers, who found that markets overseas were beginning to dry up.
With President Clinton's leadership, Congress approved nearly $18 billion for
the International Monetary Fund, a stabilizing force in the world economy. - A
guaranteed, record-level investment for the next five years in the
Transportation Equity Act for the 21st Century to continue rebuilding America's
highways and transit systems, which are essential to continue the growth of
modern commerce. This legislation also funds programs for highway safety,
transit and other surface transportation, while safeguarding air quality, and
helping former welfare recipients get to their jobs. Over the past six years,
the President also worked with the Congress to establish and build upon
significant investments in education and training, the environment, law
enforcement and other priorities to help raise the standard of living and
quality of life for average Americans both now and in the future. For example,
the President's commitment to fund key domestic investments has: - Advanced
cutting-edge research, putting the National Institutes of Health on a path to
doubled funding for research including intensified work on diabetes, cancer,
genetic medicine, and the development of an AIDS vaccine. - Established the
children's health care initiative, the largest investment in health care for
kids since Medicaid was created. Last year, 47 states began programs designed to
provide meaningful benefits to as many as five million uninsured children. -
Increased Head Start's ability to provide greater opportunities for
disadvantaged children to participate in a program which prepares them for grade
school. Last year, a boost in Head Start funding put 835,000 children into the
program, making further progress toward the President's goal of putting a
million children in Head Start by 2002. - Invested in public schools to help
States and communities raise academic standards, strengthen accountability,
connect classrooms and schools to the information superhighway, and promote
public school choice by opening 900 charter schools. - Protected and restored
some of the Nation's most treasured lands, such as Yellowstone National Park,
and the Everglades; provided the funds to conserve others; and accelerated toxic
waste clean-ups. - Built the COPS program to support community policing. This
year COPS will reach the goal of putting 100,000 more police on the streets of
America's communities. COPS has helped reduce violent crime for six straight
years. The 21 st Century Policing Initiative proposed in this budget will expand
on the number of police and provide other law enforcement tools to the
community. This year's budget builds on the President's efforts to invest in the
skills of the American people. It continues his policy of helping working
families with their basic needs - raising their children, sending them to
college, and expanding access to health care. It also invests in education and
training, the environment, science and technology, law enforcement and other
priorities, to help raise the standard of living and quality of life of
Americans. Families and Children: For six years, the President has sought to
help working families balance the demands of work and family. In this year's
budget he proposes a major effort to make child care more affordable, accessible
and safe - by expanding tax credits for middle income families, and for
businesses to expand their child care resources; by assisting parents who want
to attend college meet their child care needs; and by increasing funds with
which the Child Care and Development Block Grant can help more poor and near
poor children. The budget proposes an Early Learning Fund, which would provide
grants to communities for activities that improve early childhood education and
the quality of childcare for those under age five. Education: The President has
worked to enhance access to, and the quality of, education and training. The
budget takes the next steps by continuing to help States and school districts
reduce class size by recruiting and preparing thousands more teachers and
building thousands more new classrooms. The President proposes improving school
accountability by funding monetary awards to the highest performing schools that
serve low-income students, providing resources to States to help them identify
and change the least successful schools, and ending social promotion by funding
additional education hours through programs like the 21st Century Learning
Centers. The budget also proposes further increases in the maximum Pell Grant to
help low-income undergraduates complete their college education, and more
funding for universal reemployment services to help train or find jobs for all
dislocated workers who need help. Environment: This Administration proposes a
historic interagency Lands Legacy initiative to both preserve
the Nation's Great Places, and advance preservation of open spaces in every
community. This initiative will help address sprawl and air and water pollution,
through land acquisition, preservation efforts, environmental protection and
local growth management. The Administration also proposes a new financing
mechanism, Better America Bonds, to further creation of open spaces in urban and
suburban areas. The Better America Bonds initiative is an example of our use of
targeted, paid-for tax cuts to achieve the Nation's priority goals. In addition,
the budget would restore and rehabilitate national parks, forests, and public
lands and facilities; expand efforts to restore and protect the water quality of
rivers and lakes; continue efforts to double the pace of Superfund clean-ups;
and better protect endangered species. Defense: The President is committed to
maintaining world military leadership to provide for the safety of American
citizens and the primacy of American Armed Forces. To ensure America's Armed
Forces are fully prepared to meet the challenges of the next century, the
President proposes a long-term, sustained increase in defense spending to
enhance military readiness, improve recruitment and retention, and provide the
most modem and effective weapons. In addition, these resources will reinforce
the ability of the Defense Department to counter emerging threats such as
terrorism, reduce threats from weapons of mass destruction, maintain the
nation's nuclear deterrent, and provide humanitarian and disaster assistance.
Health Care: The President has worked hard to expand health care coverage and
improve the Nation's health. The budget gives new insurance options to hundreds
of thousands of Americans aged 55 to 65, and it advocates bipartisan national
legislation that would reduce tobacco use among the young. The President's
budget proposes initiatives to help patients, families and care givers cope with
the burdens of long-term care; and it helps reduce barriers to employment for
individuals with disabilities. The budget also enables more Medicare recipients
to receive promising cancer treatments by participating more easily in clinical
trials. And it improves the fiscal soundness of Medicare and Medicaid through
new management proposals, including programs to combat waste, fraud and abuse.
Embassy Security: The bombings of U.S. embassies in Kenya and Tanzania highlight
the dangers faced daily by Americans who work in U.S. facilities abroad. The
budget proposes an increase to the State Department's operating budget to ensure
protection of embassies and other facilities, and the valuable employees who
work there. The budget also includes a request for $3 billion in advance
appropriations for a multi-year security construction program. The 2000 Budget
saves the surplus until we fix Social Security first The President's FY 2000
budget is fully paid for, in compliance with the discretionary caps and the
pay-as-you-go budget rules. The budget allows for appropriations for important
domestic and national security priorities by limiting other discretionary
spending and achieving mandatory savings. Offsets to discretionary spending
include the President's tobacco policy (which would reimburse the Federal
Government for tobacco-related discretionary health care costs), FAA user fees,
health care savings, Superfund receipts, student loan savings and the recall of
additional federal fund reserves at lending guaranty agencies, and reform of the
existing harbor maintenance excise tax. With the use of these offsets, in
keeping with longstanding budget practice, the 2000 budget complies with the
discretionary spending caps. The budget provides targeted tax reductions,
financed by the elimination of tax loopholes, and inefficient or obsolete tax
subsidies. Important tax cuts and incentives, in addition to the President's USA
retirement savings program, include the tax credit for long-term care needs, the
public school construction and modernization bonds, the expansion of the child
and dependent care tax credit, the new Better America Bonds, extension of the
R&E tax credit, the work opportunity tax credit, the welfare-to-work tax
credit, and the tax incentives for reductions of carbon emissions that cause
global warning. Important mandatory initiatives include child care, the Medicare
buy-in, disability and cancer clinical trials programs, and extension of
health-care programs to immigrants. Taking all of these policy steps together,
the budget complies with the pay-as-you-go rules, and the tax cuts and mandatory
initiatives are fully paid for. We need adequate resources for a strong defense
and critical domestic priorities For future years, the budget includes the
discretionary resources contemplated as a part of the plan for Social Security
reform. While these funds will only be available if Social Security reform is
enacted, the Administration's policy is categorically defined including those
resources. Social Security reform is one of the President's highest priorities
for this year and we must work on a bipartisan basis to accomplish this
important goal. The comprehensive framework for allocating the surplus will also
provide these critical discretionary resources. The President believes that his
discretionary priorities are important to economic growth, and to the Nation's
well being and quality of life. Some have disagreed, and have argued that
Federal spending in general is too high. This debate requires some perspective.
First, and perhaps most fundamentally, consider the record. Over the years
1980-98, Federal spending averaged 21.9 percent of GDP. But Federal receipts
averaged only 18.5 percent of GDP. Thus, the Federal budget averaged a deficit
of about 3.4 percent of GDP. When this Administration set out to cut the budget
deficit that we inherited, our original plan called for roughly equal spending
cuts and revenue increases (with spending cuts in fact slightly larger). While
the results of this plan have been far beyond what we ourselves anticipated -
with the deficit falling by more than twice as much as our original estimates -
they did maintain the balance between spending cuts and revenue increases. In
balancing the budget, this Administration has controlled Federal spending well
beyond the record of its predecessors. As a percentage of GDP, spending in every
year for which President Clinton submitted a budget has been lower than in any
year of the two preceding Administrations. In every budget year from 1994
through 1998, Federal spending as a percentage of GDP fell. Spending as a
percentage of GDP in 1998, at 19.7 percent, was the lowest in almost a quarter
century. Some argue that "Federal spending is still going up." In the simplest
terms -- total dollars with no discounting for inflation, no allowance for the,
growth of the economy, and no allowance for the growth of the population
government serves -- that is true. But even in this format, the analysis tells a
great deal about the record of Federal spending under this Administration. From
1993 through 1998, 31 percent of the simple dollar increase in Federal outlays
came because more elderly people retired on Social Security benefits, and prior
retirees received cost of- living increases; 26 percent arose because of
additional beneficiaries and higher costs under Medicare; 18 percent arose
because, even with a rapidly declining budget deficit - and by 1998, a budget
surplus - there was more debt to service, and so net interest costs went up; and
IO percent came from increased costs under Medicaid, more than two-thirds of
which went for the expenses of the indigent elderly, blind, disabled, and
mentally retarded, many of those in long term care. Thus, there has been almost
no spending growth in programs other than Social Security, Medicare, Medicaid,
and net interest. Spending of the entire remainder of the Federal Government
over 1993 to 1998 shrank by 5.4 percent in inflation-adjusted dollars, and fell
from 11.5 percent to 8.8 percent of the Nation's GDP. This shrinking of core
government operations cannot go on forever if government is to accomplish the
missions assigned to it. We all take for granted the obligation to maintain
critical core functions like the FAA, the FBI, and the administration of
Medicare. As we consider how to budget in this era of surpluses, we must
consider carefully the resources available for these often-anonymous functions
that the Nation has a right to expect its government to perform well. A key
element in the Administration's ability to expand strategic investments, while
balancing the budget, is the reinvention of government - doing more with less.
Efforts led by Vice President Gore's National Partnership for Reinvention have
streamlined government, reduced its workforce, and focused on performance to
improve operations and delivery of service. And these efforts, by reducing the
cost of government operations, have improved the bottom line and contributed to
our strong economy. Since 1993, the Administration, working with Congress, has
evaluated and eliminated hundreds of unnecessary programs and projects. The
Administration has cut the size of the Federal civilian work force by more than
365,000 people, creating the smallest work force in 35 years and, as a share of
total civilian employment, the smallest since 1931. The Administration, however,
is working to create not just a smaller Government, but a better one - a
Government that best provides services and benefits to its ultimate customers,
the American people. It has not just cut the Federal work force, it has
streamlined layers of bureaucracy. It has not just reorganized headquarters and
field offices, it has ensured that those closest to the customers can best serve
them. For 2000, this Administration once again is turning its efforts to the
next stage of reinventing" the Federal Government. It plans to dramatically
overhaul 32 Federal agencies to improve performance in key services, such as
expediting student loan processing and speeding aid to disaster victims. It also
plans to tackle critical challenges, such as ensuring that Government computers
can process the year 2000 date change, and making more Government services
available electronically. Under the 1993 Government Performance and Results Act,
Cabinet departments and agencies have prepared individual performance plans that
they will send to Congress with the performance goals they plan to meet in 2000.
These plans provided the basis for the second Government-wide Performance Plan
which is contained in this year's Budget. For the first time in 2000, agencies
will submit to the President and Congress annual reports for 1999 that compare
actual and target performance levels and explain any difference between them. We
have an historic opportunity for long-term prosperity if we rise to the moment
There is much to be proud of in America today. By balancing the budget, we have
not just put our fiscal house in order; we have left behind an era in which the
budget deficit, as the President said recently, "came to symbolize what was
amiss with the way we were dealing with changes in the world." Today we have
risen to the challenge of change - by preparing our people through education and
training to compete in the global economy, by funding the research that will
lead to the technological tools of the next generation, by helping working
parents balance the twin demands of work and family, and by providing investment
to our distressed communities to bridge the opportunity gap. If the deficit once
loomed over us as a symbol of what was wrong, our balanced budget is proof that
we can set things right. Not only do we have well-deserved confidence, we have
hard-earned resources with which to enter the next century. As the President
said, what we do now - after having balanced the budget - will shape the
character of the next century. We can build upon our newfound firm economic
foundation; or we can squander it. The President has brought the debate right to
the point: What should we do with the surplus? Or to put it another way: If we
were to look back fifteen years from now, or at the end of the next century -
what would we want to be able to say that we had accomplished with this
opportunity? The President wants to leave a legacy of building for the future:
saving Social Security and Medicare; encouraging Americans to save for their own
futures, build wealth, and prepare for retirement; investing in education;
ensuring our National security; and making other key investments. There is no
more pressing issue facing us as a nation than the need to guarantee that Social
Security will be there for generations to come. And there is no better time to
act than now while the system is still strong. This is truly an exceptional
moment in America - the economy is prosperous, the budget is in balance, and the
President's commitment to national dialogue has created conditions for
constructive action. We must seize this moment.
LOAD-DATE: April 6, 1999