FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, I appreciate this opportunity to appear today to discuss the President's budget proposal for fiscal year 1998.

This weekend I was in Berlin for a meeting of our G-7 economic partners. It wasn't so long ago when the other industrial nations roundly criticized the United States at G-7 meetings for not attending to its economic affairs and we were viewed as yesterday's economy. That situation is now exactly the opposite. The United States is once again viewed as the world's economic leader.

They understand that the primary source of U.S. economic strength today results from having squarely faced our challenges -- in both the private and public sectors-- including dramatic progress in restoring fiscal order. In Berlin, we also discussed the issues which the President emphasized in his State of the Union: how the globalization of the economy and the information revolution has made it more important than ever to have an educated workforce; how we must initiate policies which will bring more people into the economic mainstream; and how essential it is for all nations to remain engaged in the world. Meeting these challenges will further advance U.S. economic strength going forward, and that is the right path for the rest of the world as well.

It is in this context that I want to talk about the President's budget this morning.

We are in strong economic shape today and within striking distance of balancing the budget. This would not have happened without the deficit reduction program enacted in 1993, which has reduced the size of the deficit from 4.7% to 1.4% of GDP. That deficit reduction, in turn, inspired broad business confidence and drove down interest rates, which then drove and sustained the economic recovery. In fact, the United States now has the best economic RR-1497 conditions among all of the developed major industrial nations. Our economy has created over 11 million new jobs since 1993; inflation has remained low; exports are booming; and we've experienced record levels of investment, which is critical to future productivity. And just as deficit reduction has been the critical factor in these economic conditions, so is it critical to a strong economy over the long-term.

We have an historic opportunity to work together and finish the job. There is strong support among the public for balancing the budget and there is, I believe, a change of attitude in Washington about the importance of fiscal responsibility. Moreover, the global capital markets have created a powerful new incentive for fiscal order, by punishing fiscal laxity with high interest rates that are inimical to economic health. We can, should and must work together to capitalize on this moment and get the job done.

The President's budget will get us to balance by 2002. It does so using real numbers and no gimmicks while protecting our priorities and investing in our people. In prior Administrations, budgets were too often based on rosy economic scenarios-- and, when the actual deficits came in much higher than projected, the result was not only a higher deficit but increased public cynicism about the ability of the government to get its fiscal house in order. Under President Clinton, we have used prudent and realistic economic assumptions. As a result, actual deficits have come in lower than either OMB or CBO have projected in each of the last four years, which, I believe, is unprecedented. Our 1998 budget is done in the same spirit of sound policies and prudent, realistic economic and technical assumptions.

Our budget makes tough choices. It eliminates 254 programs outright for $2.9 billion in savings, combs discretionary spending, auctions broadcast spectrum, and contains a number of proposals to close corporate loopholes and improve compliance. Our proposal cuts Medicare spending by $100 billion over five years, but without adversely affecting the quality of care for beneficiaries or the amount they must pay out-of-pocket. In the absence of change, the Part A Hospital Trust Fund will become insolvent in 2001. The President's proposal extends the solvency of the Part A trust fund to 2007. At the same time, we recognize that there are obviously long term entitlement problems due to demographic trends such as the aging of the baby boomers, which we must address through a bipartisan process.

Mr. Chairman, as the President said in his State of the Union Address, balancing the budget requires votes by Congress, and the President's signature. It does not require a balanced budget amendment. Indeed, as strongly committed as the President is to a balanced budget, he has an equally strong conviction, which I firmly share, that a balanced budget amendment is a threat to our economic health and should not be adopted. Such an amendment will not make for us the tough policy choices that we ourselves must make to balance the budget, and it will subject our economy to unacceptable risks.

Within the context of moving toward a balanced budget it is extremely important that we invest in areas critical to future productivity and U.S. global leadership. There are, obviously, many specific initiatives in the budget worth mentioning, and most of them were mentioned last week by OMB Director Raines in his testimony before the Senate Budget Committee, but today I would like to focus on just a few significant ones -- the President's proposals aimed at giving middle class people the opportunity to obtain the skills they need to prosper in this economy, as well as proposals to move the residents of our inner cities and distressed rural areas into the economic mainstream.

First, the President's tax program provides targeted tax cuts for the middle class.

The Administration's program would make it easier for middle class families to raise children, save for retirement, and pay for post-secondary education. In addition, the Administration is proposing to eliminate capital gains taxes for nearly all homeowners when they sell their home.

The President is proposing tax cuts that total $100 billion over five years. I believe that amount strikes the correct balance between advancing the goals of a balanced budget, and providing tax relief. Tax cuts that are much higher than the Presidents' proposals would require us to make program reductions that would unduly harm our economy and our society. In many areas, the Congressional budget and the Presidential budget are close: not on tax cuts. I hope we can close this gap. What we should not do is engage in a "bidding war" over tax cuts.

Second, the President's budget bolsters areas critical to future productivity. The surest way to enhance productivity, and maintain our country's competitive edge in the future, is by investing in areas that have long term payoffs. To that end, the Administration proposes extending the R&D tax credit for another year; substantial additional spending on education and training; a new effort to ensure health care for children; and new initiatives to encourage businesses to hire former welfare recipients and to help states and cities locate jobs to move families from welfare to work. I mention moving families from welfare to work in the context of enhancing productivity because I believe that bringing welfare recipients into the economic mainstream and eliminating the social costs associated with welfare is critical to the future economic growth of the country and affects everyone. Welfare reform is an economic issue, as well as a social issue. Revitalizing our cities and moving welfare recipients to work is part of a much broader effort to bring the economically disenfranchised, many of whom are not welfare recipients, into the economic mainstream. The budget contains tax incentives to clean up environmentally contaminated land in distressed areas, known as brownfields; new empowerment zones; and increased investments in Treasury's CDFI fund. This is the right time to implement these leaner, private-sector oriented approaches toward fostering growth in the inner cities as we move to balance the budget.

The final area I wish to mention regards the importance of providing adequate resources to maintain U.S. leadership in the global economy.

The budget seeks a significant increase in overall funding to sustain our international engagement, and our role, as the President says, as the world's indispensable nation. To shape world events to advance our security and economic self-interest, we must meet our international obligations and support and lead in the United Nations and in the international financial institutions, such as the World Bank, the International Development Association and the International Monetary Fund. We should do so not for charitable reasons, but because it is in the economic self-interest and national security self-interest of the United States and our citizens. Bringing developing countries into the economic mainstream raises living standards, promotes political stability -- and it increases markets for U.S. exports.

Mr. Chairman, as I said earlier, I believe we have an historic opportunity to complete the job we started in 1993 and balance the budget; and to do so in a way that protects our priorities, both for now and the future. Let me conclude by thanking you again for this opportunity to discuss the President's budget proposal. I look forward to working with all of you this year.