    [Budget Supplement]
    [Creating an Age of Possibility]
    [1. A Vision for the Future]
    [From the U.S. Government Printing Office, www.gpo.gov]

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      We live in an age of possibility. A hundred years ago we moved from farm to factory. Now we move to an age of
    technology, information, and global competition. These changes have opened vast new opportunities for our
    people, but they have also presented them with stiff challenges.

                                          President Clinton
                                          January 1996

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      The change that we face is both exciting and frightening. For some, it
    raises hope of a better, more prosperous, and more secure life. For
    others, it transforms the traditional rules of life and work in
    unsettling ways.
      In this period of change, our challenge is to make the age of
    possibility one that will raise living standards and expand opportunity
    for all; make our streets safer and our air and water cleaner; and
    enable Americans to share the full potential of a new era.
      Change of that magnitude comes mainly from the private sector. But a
    leaner, more flexible Federal Government--as the President is creating--
    has an important supporting role to play, working with State and local
    governments, businesses, schools, churches and synagogues, and other
    organizations. By providing a sense of national purpose, and the funds
    when appropriate, the Federal Government can be an important catalyst
    for change.
      The Government also plays a key role in creating a climate for strong,
    sustained economic growth, and higher living standards now and in the
    future. Its tools include a responsible budget policy, an expansive
    trade policy, and investments in education and training, science and
    technology, and other priorities.
      Over the last three years, the President's economic program has
    generated much stronger growth, millions more new jobs, and lower
    interest rates than under the previous Administration. The program also
    has produced stable prices and record exports. For the first time in a
    decade, the economy is moving in the right direction.
      In this budget, the President proposes to build on his strong record
    of deficit reduction and to bring the budget into balance over the next
    seven years. His plan includes a balanced mix of deep spending cuts in
    both entitlements and discretionary spending--deep enough to allow for a
    modest tax cut for average Americans and small businesses.
      The budget balances the need to cut total discretionary spending with
    maintaining, and in many cases increasing, the President's investments
    in key priorities. A balanced budget would help set the stage for
    continued economic growth, low interest rates, and stable prices in the
    future.
      Clearly, the Nation cannot achieve its common goals without strong
    economic growth. But growth alone is not enough. We must ensure that
    America is growing together, and that everyone is sharing the benefits.
    Today, too many Americans are working harder and harder just to stay in
    place, or are actually falling behind. To address that problem, the
    President proposes to help Americans get the skills they need to assume
    high-wage jobs in the new economy. He would invest in education, from
    pre-school to college; fund training for the workplace; and support
    science and technology to spur future productivity and wage growth.
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      As the President has said, ``the era of big Government is over.'' At
    the same time, the Federal Government must support growth by giving the
    private sector the tools it needs. This budget builds on the
    Administration's three-year record of success in establishing, and
    implementing, Government's proper role in our economy.

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                           1.  A VISION FOR THE FUTURE

      This budget helps promote a strong economy for the future and, with
    it, helps Americans build better lives for themselves and their
    families.
      To promote a strong economy with sustained growth and low interest
    rates, the budget reaches balance in seven years by cutting unnecessary
    and lower priority spending. At the same time, it invests in education
    and training, the environment, science and technology, and other
    priorities to help raise average living standards and the quality of
    life. The budget protects Medicare and Medicaid, reforms welfare to make
    work pay, and provides tax relief to middle-income Americans as well as
    small businesses.

    Reaching Balance the Right Way

      This budget reaches balance in 2002, a goal to which the President is
    committed, using the last available economic and technical assumptions
    of the Congressional Budget Office (CBO). It also achieves a surplus of
    $44 billion in 2002 under the economic and technical assumptions of the
    Office of Management and Budget (OMB).
      The budget embodies the proposal that the President put forth in
    budget negotiations with the bipartisan congressional leadership on
    January 18, 1996. The President and the leaders have worked hard to find
    agreement on a plan to balance the budget over seven years. While they
    have not finished the job, the President believes strongly that their
    negotiations have been productive, bringing the two sides closer
    together. He is committed to doing whatever he can to complete the task.
      In their talks, the President and the leaders have outlined a variety
    of proposals. The minimum amounts of savings that the plans have in
    common in the major budget categories (e.g., $124 billion in Medicare,
    $297 billion in discretionary spending) provide enough in total savings
    to balance the budget and also provide a modest tax cut.
      The congressional leadership wants bigger tax cuts--offset by deeper
    cuts in Medicare and Medicaid, other mandatory programs that help
    farmers and the poor, and discretionary spending. But the President
    believes those cuts are too deep and would threaten the Government's
    vital role in guaranteeing health care to vulnerable Americans and
    investing in the future. He has proposed that the two sides quickly
    enact the savings they have in common and give the American people a
    balanced budget.

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      To estimate the deficit for 1996 through 2002 based on assumptions from the Congressional Budget Office (CBO),
    the Administration used the most recent assumptions that were available--from December 1995.

      In March or April, CBO plans to release a new, updated set of economic and technical assumptions. While the
    President's budget reaches balance under CBO's December 1995 assumptions, the new assumptions could change the
    President's path to balance; in 2002, they could produce a bigger surplus or a deficit.

      In case the new assumptions produce a deficit in 2002, the President's budget proposes an immediate adjustment
    to the annual limits, or ``caps,'' on discretionary spending, lowering them enough to reach balance in 2002.

      The President is committed not only to proposing a budget that reaches balance according to CBO, but reaching
    an agreement with Congress to enact such a budget.

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      Using the last available CBO assumptions, this budget saves $593
    billion over seven years (after accounting for the President's tax cuts)
    by reforming Federal entitlement programs, cutting deeply into
    discretionary spending, and limiting corporate subsidies.
      Among its major elements, the budget:
      saves $297 billion in discretionary spending, cutting
              unnecessary spending but investing in education and training,
              the environment, science and technology, law enforcement, and
              other priorities that will raise living standards and improve
              the quality of American life (see Chapters 8-11);
      saves $124 billion in Medicare, strengthening and improving
              the program and guaranteeing the solvency of the Part A trust
              fund for over a decade (see Chapter 6);
      saves $59 billion in Medicaid, reforming the program but
              continuing the guarantee of meaningful health and long-term
              care coverage for the most vulnerable Americans (see Chapter
              6);
      saves $40 billion through real welfare reform, moving
              recipients to work while protecting children (see Chapter 7);
      saves $49 billion by reforming a host of other mandatory
              programs (see the more detailed explanation in the next
              paragraph);
      saves $62 billion by ending corporate subsidies and other tax
              loopholes, and taking steps to improve tax compliance (see
              Chapter 12); and
      cuts taxes by $100 billion, providing tax relief to tens of
              millions of middle-income Americans and to small businesses
              (see Chapter 12).
      Among the $49 billion in other mandatory savings, the budget proposes
    to auction, privatize, or sell, rather than give away, valuable public
    resources, including segments of the broadcast spectrum, energy
    resources, materials stockpiles, and other assets. It also proposes that
    Federal agencies fully fund their employees' retirement costs.
      In addition, the budget extends previously-enacted savings in
    veterans' benefits; cuts subsidies to financial institutions that make
    and hold student loans (without increasing program costs to borrowers);
    imposes fees to recover the costs of services that the Federal
    Government provides to private businesses; reforms Federal housing and
    banking programs; and makes other program efficiencies and improvements.
      The budget also includes a ``trigger'' to ensure that the budget
    reaches balance under either CBO or OMB assumptions. Under the trigger,
    most of the tax cuts end after 2000 if the deficit is not at least $20
    billion below CBO's initial estimate for that year. If, however, the
    deficit is at least $20 billion below the estimate, then the budget
    distributes the additional savings in the following order:
      first, it maintains the tax cuts after the year 2000;
      second, it reduces the cuts in discretionary spending; and
      third, it splits any additional savings evenly among more tax
              cuts, more reductions in the discretionary cuts, and more
              deficit reduction.
      If OMB's assumptions prove correct, the budget would provide tax
    relief over the next seven years of $117 billion, and discretionary
    spending cuts of $186 billion.

    Maintaining Our Values

      From the start, the President's economic program has emphasized one
    primary concern--to raise the standard of living of average Americans
    now and in the future. His budget policy has played a central role.
      By cutting the deficit nearly in half in the last three years, we have
    reduced Federal borrowing, making more funds available in the private
    markets so that businesses can invest, grow more productive, expand, and
    create jobs. We also have shifted resources to education
    and training, science and technology, and other priorities--to enable Americans to get
    the skills they need to compete in the new economy and to help
    businesses become more competitive.
      Like the President's previous budgets, this budget maintains his
    investments in education
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     and training, science and technology,
    environmental protection, law enforcement, and other key priorities.
      These investments include Head Start for disadvantaged children; the
    Safe and Drug-Free Schools and Communities program to create safe
    learning environments; Goals 2000, which helps States and school systems
    extend high academic standards, better teaching, and better learning to
    all students; AmeriCorps, through which 25,000 Americans are serving
    their communities this year and earning money for college; direct
    lending that makes it easier to borrow and repay college loans; Pell
    grant scholarships for needy students; and job training Skill Grants for
    dislocated workers and low-income adults.
      The budget maintains environmental enforcement; protects national
    parks and other sensitive resources; and invests in basic and applied
    research and technology. It funds the Community Oriented Policing
    Services (COPS) initiative to put 100,000 more police on the street by
    the year 2000; more border patrol agents to prevent illegal immigration
    and more inspections to prevent the hiring of illegal immigrants; and
    the Community Development Financial Institutions Fund to spur growth and
    create jobs in communities that have been left behind.
      In addition, the budget includes funds to launch the important
    initiatives that the President outlined in his State of the Union
    address.
      To promote educational opportunity, the budget funds a
              Technology Literacy Challenge to bring the benefits of
              technology into the classroom; expanded work-study to help one
              million students work their way through college by the year
              2000; a $1,000 merit scholarship for the top five percent of
              graduates in every high school; and more Charter Schools to
              let parents, teachers, and communities create public schools
              to meet their own children's needs.
      To promote a secure future for American workers, the budget
              funds initiatives to make it easier for small businesses and
              farmers to establish their own pension plans, to encourage
              these and other employers to established flexible pension
              plans that workers can take with them when they change jobs,
              and to help workers who lose their health insurance when they
              lose their jobs pay for private insurance coverage for up to
              six months.
      To protect our environment, the budget funds tax incentives to
              encourage companies to clean up ``brownfields''--abandoned,
              contaminated industrial properties in distressed areas.
      To protect public safety, the budget provides funds for the
              FBI and other law enforcement agencies to step up efforts to
              combat juvenile crime and gangs that involve juveniles.

    A Period of Change

      The Nation has entered a period of profound change--from an economy
    based primarily on traditional manufacturing to one based more heavily
    on information--the most profound change since we moved from the farm to
    the factory a century ago. It is a period of great opportunity and great
    uncertainty, a period that demands new thinking and new responses.
      In the 19th and early 20th Centuries, and with the American economy
    assuming the lead, the economies of the developed world moved from
    agriculture to manufacturing by way of a pull and a push. The pull: the
    explosion of opportunities in manufacturing. The push: the growth of
    productivity in agriculture that freed resources--that is, both workers
    and investment--to exploit the new opportunities.
      Now, an explosion of possibilities in the use of information is
    drawing workers from manufacturing, while the rapid growth in
    manufacturing productivity has eased the change. The revolution in
    information technology has increased productivity by helping people work
    faster and smarter. It has created jobs, rewarded entrepreneurs and
    investors, improved learning, and provided more enjoyable uses of
    leisure time. For society at large, it is both desirable and inevitable.
      As President Clinton said in signing the Telecommunications Act of
    1996 into law on February 8:
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          Today our world is being remade yet again by an information
          revolution, changing the way we work, the way we live, the way we
          relate to each other. Already the revolution is so profound that
          it is changing the dominant economic model of the age. And
          already, thanks to the scientific and entrepreneurial genius of
          American workers in this country, it has created vast, vast
          opportunities for us to grow and learn and enrich ourselves in
          body and in spirit.
      But the benefits of this revolution are not spread evenly among all
    Americans.

    The Perils of Change

      In 1979, 13,505 taxpayers filed Federal tax returns with incomes of
    over $500,000. From that year to 1993, the cost of living roughly
    doubled. If incomes had just kept pace with inflation over that period,
    the same number of taxpayers would have had incomes of over $1 million
    in 1993.1
      \1\Population growth would have raised the number to roughly 16,000,
    and changes in income definitions in the tax law might have raised it
    slightly higher.
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      In fact, the number of taxpayers with incomes over $1 million had
    almost quintupled by 1993, to 66,485. Obviously, at the upper end of the
    income scale, opportunity is alive and well--as it should be for all
    Americans who are working their way up the economic ladder.
      Opportunity, however, has been absent for many others. Average
    families in the middle fifth of the income scale had $447 less in
    purchasing power in 1992 than in 1979. Those in the bottom two-fifths
    had even larger declines in percentage terms. At the same time, the
    income of the top fifth of families grew by 12 percent, and that of the
    highest five percent by 17 percent.
      More and more, workers entering the labor market without the requisite
    skills face worse income prospects over their working lives than their
    predecessors did. Those who did not invest in their skills, or who
    invested in skills that have become obsolete, can find that what were
    once lifetime jobs are disappearing. Too often, these workers face
    limited prospects for maintaining their incomes.
      Wage trends of 25-34 year-old workers make the point: In 1979, male
    workers with high school degrees who worked full time and year-round
    earned, in 1992 dollars, an average of about $30,900; by 1992, their
    earnings had fallen to $24,400. Their female counterparts saw their
    earnings fall by two percent, to only $18,900.
      On the other hand, the earnings of young male college graduates rose
    two percent, to $40,000, after adjusting for inflation. Female college
    graduates enjoyed an even larger gain, 15 percent (see Chart 1-1). And
    yet, though those with college degrees are doing better than others,
    even they have experienced slower income growth in recent years.

      Nor do these figures begin to explain how profound economic change has
    affected peoples' lives. If economic change shakes an entire business
    firm, the retirement security of that firm's workers can shake with it.
    Young people who cannot get the skills and training to compete in the
    information economy risk facing a considerable disadvantage for their
    working lives. And with health care often dependent on employment, the
    absence of skills or loss of a good job can adversely affect family
    security beyond the measure of a worker's income.
      The Nation cannot afford to dismiss any workers, to relegate them to
    the bottom rung of the economic ladder. The stakes are far too high. To
    build a stronger, more competitive economy at a time of increasing
    global competition, we need the contributions of all Americans. We need
    everyone to actively partake in the society at large, rather than impose
    costs on it through crime or dependency. As the President often says,
    ``We don't have a person to waste.''
      The Federal Government cannot guarantee each, or any, person's
    success. But it can, and should, help every individual to achieve his or
    her greatest potential by reducing the barriers and the risks to
    building personal skills for a changing, information-based economy.
      Education and training are the cornerstone of the new economy. To help
    give workers the skills they need, and the opportunities they deserve,
    for high-wage jobs, the budget enhances the Government's support for
    education and training. It protects funding for essential education
    programs, from Head Start
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    for disadvantaged pre-schoolers to college
    scholarships. The budget proposes an income tax deduction for tuition
    and expenses for college and career training, to encourage especially
    those for whom costs present the greatest obstacle. It allows penalty-
    free withdrawals from individual retirement accounts (IRAs) for
    educational costs. And it anticipates a major overhaul of Federal job
    training programs based on the President's G.I. Bill for America's
    Workers, proposed in last year's budget.
      Building on the retirement safety net that Social Security and Federal
    pension protections already offer, the budget proposes to expand IRAs to
    help workers build their own reserves against their retirement needs.
    The budget also proposes to help workers who lose their jobs to continue
    health insurance for themselves and their families. And it proposes
    simplified retirement savings systems to encourage employers to
    establish flexible, portable pension plans that workers can take with
    them when they change jobs.

    Maintaining Our Edge--Abroad

      In this age of possibility, the United States must continue to provide
    leadership across the globe and cooperate in the community of nations,
    not withdraw from it. Despite the voices that call for a U.S. retreat
    into isolationism, our diplomatic leadership remains critical to keeping
    the peace and defending our interests in major regions of the world.
      American leadership is a key ingredient in dealing with the new
    threats of the post-Cold War era. Leading the global effort for arms
    reductions and nonproliferation continues to be an integral element of
    our diplomacy and national security strategy.
      Our efforts support a broad range of programs to reduce the threat of
    nuclear and chemical weapons. We are making our
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    children's future safer
    by reducing existing arsenals and ensuring that rogue states and
    terrorist groups do not acquire these terrible weapons or the materials
    and technologies needed to make them.
      Other emerging threats know no national borders. America must lead in
    confronting such problems as ethnic and national conflicts that threaten
    regional stability; terrorism, international crime, and drug
    trafficking, which directly threaten our free and open society; and
    large-scale environmental degradation.
      More than ever, our domestic and foreign economic interests are
    closely intertwined, and mutually reinforcing. Economic and trade issues
    are increasingly at the forefront of our diplomacy. We need a strong
    economy to sustain our military forces and diplomatic strategy. And we
    must be global leaders in trade and investment in order to open foreign
    markets and create the high-wage jobs that will raise the living
    standards of our people.
      Our defense capability is what sustains and supports our diplomacy. We
    have the world's strongest and most ready military force, one designed
    to fight successfully two nearly simultaneous regional conflicts. Our
    weapons are state-of-the-art, and our military is the best equipped,
    best trained, and best prepared in the world. And, when necessary, we
    have sent the men and women of our military into action.

    Maintaining Our Edge--At Home

      At home in this time of change, the public and private sectors must
    work together; we cannot rely on just one or the other. Americans of all
    generations must come together in the interests of all--whether it is
    for better schools, safer streets, or a cleaner and healthier
    environment.
      As Americans, we should dedicate ourselves to building a society in
    which we all have the opportunity to use our talents to their fullest
    potential, and in which we all take responsibility for our actions; in
    which all children can learn at safe and stimulating schools, free from
    the fear of gangs and guns; in which all fathers and mothers give the
    task of raising their children the energy and attention it deserves; and
    in which all those who want to work can find good jobs.
      To reach this goal in a time of change, we need the right kind of
    Government and the right kind of policies. We need a Government that
    creates opportunity, not bureaucracy; one that works with State and
    local governments, businesses, and religious, charitable, and civic
    associations; and one that manages its resources wisely.
      We need a leaner, but not meaner, Government, one that puts its
    customers--the American people--first by delivering better services
    every day and not imposing undue burdens on individuals and businesses.
    And we need a Government dedicated to better performance and results,
    rather than to simply doling out dollars.
      Government should not do for individuals what they can do for
    themselves. We must ask more of ourselves, expect more of one another,
    and meet the challenges that confront us together. We must strive to
    enable all of our people to make the most of their lives with stronger
    families, more educational opportunity, economic security, safer
    streets, a cleaner environment, and a safer world.