[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.