FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, members of this committee, it is a pleasure to speak with youtoday about the President's FY 1999 budget. This is an historic moment: The President isproposing a balanced budget for the upcoming fiscal year, the first since 1969. The budget isrooted in fiscal discipline, yet invests in areas critical to future productivity, and promotes andprotects our interests in the global economy. Perhaps most importantly, this budget provides aclear answer to the question of how to use the projected budget surpluses. The Presidentproposes that surpluses be reserved pending reform of the Social Security system.

This budget carries forward the President's successful economic strategy. As thePresident said last week during the State of the Union, from the beginning of this Administrationwe have "pursued a new strategy for prosperity: fiscal discipline to cut interest rates andspur growth; investments in education and skills, in science and technology and transportation toprepare our people for the new economy; new markets for American products andworkers."

Before I discuss the specifics of this budget, I think it is important to review theprogress we have made in getting our fiscal house in order.

When President Clinton entered office in 1993, federal debt had quadrupled from1980 to 1992 and the 1992 deficit was $290 billion, an all time high. These huge deficits keptinterest rates high, diminished confidence, lowered investment and stifled growth. Budgets werebased on economic assumptions that were far too optimistic. When these assumptions failed tomaterialize, the result was higher deficits than forecast, and cynicism about the budget process.

In 1993, President Clinton fought for, and Congress approved, a powerful deficitreduction plan that was based on conservative economic assumptions and which brought the deficit down by $500 billion over five years. The deficit reduction increased confidence, helpedbring interest rates down, and that, in turn, helped generate and sustain the economic recovery,which, in turn, reduced the deficit further. The result was a healthy, mutually reinforcinginteraction of deficit reduction policy and consequent economic growth, that brought the deficitdown to $22.3 billion in 1997, and sets the stage for going to balance.

Today, unemployment is 4.7 percent; it has been under 6 percent for the last threeyears. Over the last five years, the economy has generated over 14 million new jobs, inflation and interest rates are low and real wages are rising, although too many Americans are still notparticipating fully in the economic well-being that most are sharing. Last year's bipartisan deficitreduction package has further improved our fiscal picture, even while increasing investments andcutting taxes for the middle class.

Moreover, for a median income family of four, the federal income and payroll taxburden will be lower in 1998 than at any time in the last 20 years. And for a family of four earninghalf the median income, in part because of the expansion of the Earned Income Tax Credit for 15million families, the federal income and payroll tax burden is lower than at any time in the last 30years. Families' tax burden will fall further next year when the child credit enacted last year is fullyphased in.

Mr. Chairman, the efforts over the past five years have paid off: the current projectionanticipates surpluses well into the next century, although long-term budget forecasts inherentlyinvolve a great deal of uncertainty. How we use these surpluses is a critically important issue inthe years ahead, and a key focus of the President's budget.

The overarching point of the President's economic strategy going forward and his1999 budget is clear: Under no circumstances can we take any steps that will undo the fiscaldiscipline we have worked so hard to achieve. We propose targeted tax cuts that are fully paidfor, in the context of a balanced budget, to benefit working families. We believe there should beno tax cuts that are not fully paid for. The last few years clearly demonstrate the economicbenefits of fiscal discipline and the global financial markets that have emerged in recent yearsgreatly heightens its importance. The global capital markets impose swift and strict penalties oncountries with unsound policies as we have seen in recent months in Asia, and confers greatbenefits on countries with sound policies.

The surpluses present an enormous opportunity, one that so many have worked hardto achieve, and one that we must not squander. We believe the surpluses should be reserved untilSocial Security is placed on a sound financial footing for the 21st century.

After 2010, the huge baby boom generation will begin retiring. This will placeincreasing pressure on the Social Security system. And that is why the President believes veryfirmly that nothing should be done with the surpluses until Social Security reform is addressed.

I would stress, however, that the President's commitment to preserving the surplusesdoes not preclude undertaking other initiatives -- including cutting taxes and increasing spending -- so long as those initiatives are fully paid for. Indeed, our budget includes investments in areascritical to increasing future productivity, moderate targeted tax cuts, Medicare and retirementinitiatives, and critically important measures to protect and promote America's economic andnational security interests in the global economy. Today I would like to focus on just a fewsignificant measures that reflect those priorities.

First, to enhance productivity, and maintain our country's competitive position in theyears ahead, the Administration proposes increased funding for education, such as tax credits forschool construction and new spending for recruiting and training more teachers. The budget alsoproposes the new Research Fund for America for medical and science research.

Our budget also includes an important set of child care proposals, including tax creditsto help parents afford child care and to encourage businesses to create and expand its availability,and new spending for child-care subsidies for children from poor families. Helping parents withchild care is not only good for parents, it is also good for the economy, because it helps all toparticipate in the workforce to the full extent of their abilities and wishes.

In addition, the budget includes measures to promote growth in our inner cities andother economically distressed areas, by increasing the low-income housing tax credit and throughincreased funding for community development banks. This is a national economic issue: Oureconomy will never achieve its full potential until we equip the residents of these areas to enterthe economic mainstream.

Second, the budget promotes retirement security and health care through permittingall individuals to buy into Medicare when aged 62-64, and the unemployed after age 55. The costsof these medical proposals are entirely paid for by the beneficiaries, plus by specific proposals toeliminate waste, fraud and abuse in the Medicare program, all in accordance with rates set by theprofessional actuaries every year at the Health Care Financing Administration. Our budget alsoincludes new tax credits that will increase the availability of private pensions to those who do nothave access to them now.

Third, our budget includes measures to help protect the environment: tax incentives toencourage energy conservation, which are critical as we address the threat of global climatechange; and spending and other incentives to clean up environmentally contaminated sites.

Fourth, and finally, the budget has critically important measures to protect andpromote the interests of American workers, farmers and businesses in the global economy.Working through international financial institutions such as the World Bank, the InternationalMonetary Fund and the multilateral development banks helps promote fiscal stability and growthin developing countries, which promotes jobs and increases standards of living here at home.

The IMF is playing an especially critical role as it leads an international effort toresolve the current financial crisis in Asia. The countries in Asia are our customers, ourcompetitors and our security partners. The United States has both critical economic and nationalsecurity interests at stake in promoting the related goals of economic growth and strongercurrencies in Asia.

To enable the IMF to respond effectively if this crisis were to spread and intensify --which we all want to avoid -- and to deal with future crises that could similarly affect the interestsof the American people, we recently transmitted a supplemental FY 1998 budget request for anincrease in our IMF quota subscription, and a commitment for an augmented back-up facility tothe IMF, the New Arrangements to Borrow. When the IMF draws on either of thesecommitments, we receive a liquid, interest bearing offsetting claim on the IMF of equal value. Ourcontribution does not result in a budget outlay and so does not increase the deficit, or displacespending on other domestic programs. And last year, this Committee provided in the bipartisanBalanced Budget Act specific provisions for discretionary cap adjustments for these programs.

Before concluding, let me say once more: the budget does not exceed thediscretionary caps, under the structure of the current Budget Enforcement Act; and all of theinitiatives in the President's budget are fully paid for, in full accordance with that act. Themeasures to pay for the initiatives include spending cuts, tax loophole closers, revenue fromtobacco legislation designed to curb the use of tobacco among young people, extension ofSuperfund taxes and excise taxes on fuels, and a new Federal aviation user fee to replace existingaviation excise taxes.

Mr. Chairman, we have finally put our nation's fiscal house in order. That is anenormous achievement, but by no means can we rest on our laurels. We face significant challengesin fostering a strong economy and maintaining fiscal responsibility in the years and decades ahead,particularly with the coming retirement of the baby boom. As the old saying goes, you fix yourroof when the sun is shining.

Mr. Chairman, the President's budget carries forward the President's economicstrategy that has been so central to the strong economic conditions of the past five years. Thisbudget preserves the surpluses until we strengthen Social Security, invests in areas that are criticalto the future of this country, provides for programs that protect and promote our criticaleconomic and national security interests in the global economy, and, of absolutely criticalimportance, it keeps us on the path of fiscal discipline that is so crucial to our economic well-being. I look forward to working with all of you in the days and weeks ahead to approve thisbudget. Thank you very much.