FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you, I am glad to be here today for the opening session of this third annual conference for the Rainbow/Push Wall Street Project. Reverend Jackson, you have been tireless in your national leadership on civil rights and economic empowerment for Americans. Let me take this opportunity to thank you especially for your support for a strong CRA, and your leadership in working with us to expand access to capital in the parts of America that too often get left behind.

I would like to kick off this session with some observations about the broader economic environment and what it means for America's most disadvantaged regions and citizens.

In many, many ways, the performance of the American economy over the past decade has been miraculous. Even five years ago, if anyone had predicted the growth in output and productivity, the high volume of job creation and the modest inflation that we have been able to sustain: it is fair to say that that person would have met with more than a little skepticism.

We can rightly take pride in this prosperity. But enormous challenges remain. And none is more important to this country's future than making sure that every American is included:

• This is a vital moral imperative for all of us as we work to build a better America for our children.

• And it is a critical national economic imperative at a time when every individual brought into the productive enterprise of the nation marks a reduction in potential inflationary threats and expansion of the room for growth.

This crucial challenge is at the core of the President's New Opportunity Agenda for the coming year - one important piece of which he will be unveiling today with the proposal for a major new expansion of the Earned Income Tax Credit.

Today I would like to make three main points:

• First, that economic growth is the best social policy ever invented.

• Second, that the right kind of government can expand opportunities for the poorest and help the economy.

• Third, that expanding opportunities is crucial to reducing poverty, but we equally recognize that it is far from being enough.

Economic Growth and Social Inclusion

Economists have a long word, hysteresis, for a simple thought: that people form habits; that opportunities have a lasting impact; that exploiting the economy's potential increases the economy's potential; and that by running a strong economy that increases demand for labor we make a lasting difference in the lives of our fellow citizens.

Our economic success has created a high-pressure economy where jobs look for people more than people look for jobs. This pulls more people into the workforce and acts as a vital safety valve for pressure that might otherwise have proved unsustainable. And it benefits most the people who would otherwise be trapped in the economic margins.

Consider:

• Every one percentage point decline in the national unemployment rate has brought a nearly 2 percentage point reduction in rate for African-Americans. African-American unemployment averaged 8 percent last year - down from more than 14 percent in 1992

• Labor force participation has risen three times more, in percentage terms, among African-Americans than it has nationally, so that there are now 3 million more African-Americans in the labor market than would have been the case in 1993.

• Wages for African-American full-time workers since 1993 have advanced twice as fast as they have in the workforce overall.

• And because African-Americans in 1993 were much more likely to be living in poverty than other groups, the decline in poverty has also affected this group the most. While the national poverty rate has fallen by nearly 2.5 percentage points, to 12.7 percent, poverty among African-Americans has plummeted by fully 7 percentage points: to a little over 25 percent. That is still much, much too high. But it is a very important step in the right direction.

A strong economy is and will continue to be hugely important for lifting more Americans out of poverty and into the workforce. But if it is a necessary condition we know well that it is not sufficient. That has been the second pillar of our approach: that a rising tide needs the right kind of public action if all boats are to rise with it.

Over the past 15 years we have had a sea change in the approach that government has taken to the support of America's working poor. In the mid-1980s the federal government was spending around $5 billion on support for low-income working families. Last year, thanks in large part to an expanded EITC, the government spent ten times that amount.

The $45 billion increase in spending on this group is more than twice what was spent on food stamps last year, and it makes an enormous difference to the incentives facing poorer families. For example, a worker with two children who took a minimum wage job in 1993 could expect to earn just over $10,500 in today's dollars - well below the poverty line. As a result of the changes in the EITC and the minimum wage alone, by 1998 that same family stood to earn $13,300, or 26 percent more, in real terms - significantly above the poverty line.

It would be wrong to underestimate the role that this change in policy has played in America's recent economic miracles: not least, the fact that a record percentage of Americans are in the workforce - and the fact that, after nearly nine years of economic expansion, inflation and long-term interest rates are still close to or below the levels they were at when the recovery began.

For example, the share of single mothers in work has risen from just over 60 percent in 1992 to 75 percent in 1998. One recent study by Bruce Meyer and Dan Rosenbaum, published by the National Bureau of Economic Research, estimates that 63 percent of the increase in participation within this group between 1984 and 1996 can be explained by the EITC. Other estimates suggest that it has moved nearly half a million families off welfare.

Today the President is proposing to invest close to $20 billion over ten years in further enhancing the returns to employment for poorer families through the EITC:

• By reducing marginal tax rates for families with three or more children. Families with income up to $9,980 in 2001 would get 45 cents for every additional dollar they earn - compared to 40 cents under current law. This would be a tax break for more than 2 million American families.

• By expanding tax relief for two-earner married couples. Married couples would be able to earn an additional $1,450 before their EITC starts being phased out. This would benefit more than 1.3 million married workers.

• And by reducing marginal tax rates for families with two or more children. For these households, the President is proposing a nearly ten percent cut in the rate at which the EITC is phased out after earnings go beyond the maximum, from just over 21 percent to 19 percent. That would mean a tax break for over 5 million working families.

All told, these proposals would cut taxes by $315, on average, for 6.4 million working families.

The second key pillar of our approach is democratizing access to capital. The First Lady likes to say that it takes a village to raise a child. She's right. And it takes capital to build a successful village.

Traditionally and importantly the question of access to capital has been about debt and the provision of loans. We have continued to built on that tradition in recent years:

• Under a revitalized Community Reinvestment Act, last year some $88 billion in private capital flowed into low-income communities for home ownership and small business growth.

• And we have helped to expand the reach of the private sector by creating the Community Development Financial Institutions Fund, or CDFI. CDFIs are locally based, specialized financial institutions that serve markets overlooked by traditional financial institutions. These CDFIs are often the market pioneers in their communities, proving the viability of new market segments, and drawing mainstream financial institutions into partnership. Since 1996 the CDFI Fund has provided over $200 million to such local financial institutions, a sum that has leveraged anything up to ten or fifteen times that amount in total generated investment.

At the same time, we have learned that there can be more important barriers to attracting or creating businesses in our disadvantaged communities and making them a success. Notably, lack of access to equity and lack of the kind of technical expertise business networks that firms in the mainstream economy take for granted.

Growing businesses in these communities are unlikely to attract the attention of venture capitalists, who tend to work with the relationships and communities they already know. At the same time, local venture funds may have difficulty becoming capitalized, developing deal flow, providing the requisite expertise, or managing the risks that come from less diversified local economies. And isolated businesses, both urban and rural, might need greater levels of technical assistance and business advice to succeed.

• That is why the President launched his New Markets Initiative last year, to unlock the potential of Americas inner cities and rural areas at time when the purchasing power of these communities is estimated to be close to $700 billion. Tomorrow at this conference the President will be making an important announcement about the scope of this initiative going forward.

• And that is why, through BusinessLINC, led by Vice President Al Gore, we are encouraging businesses throughout the nation to take a second look at opportunities for partnering with firms in inner cities and rural areas. Indeed, BusinessLINC strategies can be good for both sides, providing large firms with an agile source of products or partner for time-sensitive projects, as well as an entree into new markets. With a private-sector coalition led by Texaco CEO Peter Bijur, and the support of the Business Roundtable, we are working to expand BusinessLINC strategies across the country, including with the Chase Manhattan Bank and the New York City Partnership right here in New York.

The sheer potential that exists here was brought home to me in my very first week as Treasury Secretary, when I visited Harlem, USA, a major retail and entertainment center being developed on 125^th Street. This public-private effort - brought together, among other things, by the CRA - is bringing major retailers to an area with a population the size of Cincinnati that previously has had no shopping mall or even, until recently, a major supermarket.

The taxpayer's contribution to this project will not go un-rewarded. Higher New York City tax revenues will pay back the public investment in Harlem, USA in just 9 months. Moreover, and values in the area have increased 5- to 10-fold.

As we think about finance we need also to think about financial services for people. Like money itself, the benefits that a bank account provides are easy to take for granted. Until you do not have one. And today, in the age of the Internet, derivatives, and embedded options, between 10 and 20 percent of American households still lack that basic passport to the broader economy.

If it was an important national challenge half a century ago to ensure that essentially every American had access to electricity, to running water, and to a telephone - in new economy, ensuring access to a basic bank account must also be a national priority. One recent survey in Chicago found that 44 percent of recipients of the EITC used a check cashing service to cash their refund check. And estimates suggest that the costs over a lifetime for low- and middle-income families of paying fees for every check or bill payment could be more than $15,000.

Having a bank account would save these families precious resources. It would also give them the capacity to save on their own account. As recent research by Dalton Conley makes clear, access to savings takes on even greater significance for African-American families today, at a time when racial wealth differences can make all the difference in the world to whether families and their children can see out bad times and break out of poverty.

This can be tackled in a number of ways:

• By encouraging states to help families making the transition from welfare to work to have bank accounts. Building on Individual Development Accounts, states could and should use a portion of their TANF surpluses to ensure that low-cost financial services and financial education are available for families moving to economic self-sufficiency.

• By working with the private sector to find ways to educate Americans about the importance of building wealth through savings and financial literacy.

• By working to provide safe and convenient access to banking services within traditionally underserved communities. As part of this effort the Treasury Department and the Postal Service have established a pilot program to place ATMs in post offices, which will give many low-income families needed access to their funds at a low cost.

• And by building on the experience of the Electronic Transfer Account, which is now a useful entry point to the financial services mainstream for federal benefits recipients without a bank account. In only its first five months, ETA 99 has secured commitments from over 300 banks to offer the account, underlining that these types of innovations can benefit both banks and consumers. We are hoping to work with Congress to expand these efforts going forward.

As part of this approach we will also be encouraging direct deposit of the EITC refund into bank accounts, so that the 19 million working families that are eligible for it receive their refund more quickly and securely - and see less of it eaten away by fees.

We have all spoken a great deal about opportunity in recent years and we will continue to speak about it a great deal in the future. It is profoundly important. But I would like to conclude today with a different thought: that opportunities only become realities when people are in a position to take advantage of them.

It has been estimated that in America today, a child born of a single teenage mother who did not finish high school has an 80 percent chance of living in poverty at the age of ten. As the First Lady has taught us, what we are any of us able to become can be determined to a very large degree by what happened to us in our pre-school years; by the home we grew up in; by the kind of school that we were able to attend. That will be true, regardless of how fast the economy grows and regardless of how low the rate of unemployment falls.

That is why economic empowerment is about more than a strong economy - important though that it. And it has to be about more than strengthened incentives and support for those with the capacity to find work. It must also be about ensuring every American child starts out with the core essentials: above all, the capacity to read and write.

In this new economy many are rightly focused on preventing a gaping digital divide. We should equally remember that nothing does more to create that divide than the inability to read:

• That is why we need to expand Head Start so that every child can begin his or her education with a real chance.

• That is why Medicaid and the expansion of the Child Health Insurance Program, CHIP, are so important, so more American children come to school healthy and ready to learn.

• And that is why, following the lead set by Bob Rubin, Treasury continues to work to get both Federal agencies and large businesses involved in providing assistance to inner city schools. As part of these efforts, Treasury is now providing internships to high school students and in-kind support to three career academies in DC and one here in New York City in partnership with Sandy Weill's National Academy Foundation.

In short, our commitment to sound policies, both at the macro and a micro level has already paid important dividends in some of Americas most disadvantaged communities. But we can and must do more. And we must all work together to do it. Thank you very much.