    [Budget of the U.S. Government]
    [I. The Budget Message of the President]
    [From the U.S. Government Publishing Office, www.gpo.gov]

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                    I. THE BUDGET MESSAGE OF THE PRESIDENT

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                                  Table I-1.  RECEIPTS, OUTLAYS, AND SURPLUS OR DEFICIT
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                      Estimate
                                                         1996  -----------------------------------------------------
                                                        Actual    1997     1998     1999     2000     2001     2002
    ----------------------------------------------------------------------------------------------------------------
    Receipts.........................................   1,453    1,505    1,567    1,643    1,727    1,808    1,897
    Outlays..........................................   1,560    1,631    1,687    1,761    1,814    1,844    1,880

    Surplus/Deficit (-):
      Unified........................................    -107     -126     -121     -117      -87      -36       17
      On-budget......................................    -174     -199     -197     -205     -183     -139      -93
      Off-budget.....................................      67       74       76       87       96      103      110
    ----------------------------------------------------------------------------------------------------------------

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                       THE BUDGET MESSAGE OF THE PRESIDENT

      To the Congress of the United States:
      The 1998 Budget, which I am transmitting to you with this message,
    builds upon our successful economic program of the last four years by
    balancing the budget while investing in the future.
       My budget reaches balance in 2002 the right way--cutting unnecessary
    and lower-priority spending while protecting our values. It strengthens
    Medicare and Medicaid, improves last year's welfare reform law, and
    provides tax relief to help Americans raise their children, send them to
    college, and save for the future. It invests in education and training,
    the environment, science and technology, and law enforcement to raise
    living standards and the quality of life for average Americans.
       Over the last four years, my Administration and Congress have already
    done much of the hard work of reaching balance in 2002. We have reversed
    the trend of higher deficits that we inherited, and we have gone almost
    two-thirds of the way to reaching balance. Now, I want to work with
    Congress to achieve the final increment of deficit cutting and bring the
    budget into balance for the first time since 1969.

    Building a Bridge to the 21st Century

       For four years, my Administration has worked to prepare America for
    the future, to create a Government and a set of policies that will help
    give Americans the tools they need to compete in an increasingly
    competitive, global economy.
       We have worked to create opportunity for all Americans, to demand
    responsibility from all Americans, and to strengthen the American
    community. We have worked to bring the Nation together because, as
    Americans have shown time and again over the years, together we can
    overcome whatever hurdles stand before us.
      Working with Congress and the American people, we have put America on
    the right path. Today, the United States is safer, stronger, and more
    prosperous. Our budget deficit is much smaller, our Government much
    leaner, and our policies much wiser.
       The economic plan that we put in place in 1993 has exceeded all
    expectations. Already, it has helped to reduce the deficit by 63
    percent--from the record $290 billion of 1992 to just $107 billion in
    1996--and it has spurred a record of strong growth, low interest rates,
    low inflation, millions of new jobs, and record exports for four years.
       While cutting the deficit, we also have cut the Federal work force by
    over 250,000 positions, bringing it to its smallest size in 30 years
    and, as a share of the civilian work force, its smallest since the
    1930s. We have eliminated Federal regulations that we don't need and
    improved the ones we do. And we have done all this while improving the
    service that Federal agencies are providing to the American people.
      We have cut wisely. We have, in fact, cut enough in unnecessary and
    lower-priority spending to find the resources to invest in the future.
    That's why we were able to cut taxes for 15 million working families, to
    make college more affordable for 10 million students, to put tens of
    thousands of young people to work through national service, to invest
    more in basic and biomedical research, and to help reduce crime by
    putting more police on the street.
       My plan to reach balance in 2002 provides the resources to continue
    these important investments. We must not only provide tax relief for
    average Americans, but also increase access to education and training;
    expand health insurance to the unemployed and children who lack it;
    better protect the environment; enhance our investments in biomedical
    and other research; beef up our law enforcement efforts; and provide the
    needed funds for a thriving global policy and a strong defense.

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     Putting the Building Blocks in Place

      When my Administration took office in 1993, we inherited an economy
    that had barely grown over the previous four years while creating few
    jobs. The budget deficit had hit record levels, and experts in and out
    of Government expected it to go higher. Savings and investment were
    down, interest rates were up, and incomes remained stagnant, making it
    harder for families to pay their bills.
       We put in place a comprehensive set of policies that are bearing
    fruit. By cutting the deficit from $290 billion to $107 billion last
    year, my economic program (and the strong economy it helped create) has
    brought the deficit to its lowest level since 1981. As a share of Gross
    Domestic Product (GDP), we have our smallest deficit since 1974 and the
    smallest of any major industrialized nation.
       Other parts of my economic policy also are helping to create jobs and
    raise living standards. With regard to trade, for instance, my
    Administration not only completed the Uruguay Round of the General
    Agreement on Tariffs and Trade and the North American Free Trade
    Agreement, but also more than 200 separate trade agreements, helping to
    raise exports to record levels. By opening overseas markets to American
    goods--by encouraging free and fair trade--we are creating high-wage
    jobs at home.
       Taken together, our budget and trade policies have helped to create
    over 11 million new jobs in the last four years. After two decades of
    troubling stagnation, incomes have begun to rise again while inequality
    shrinks. Also, partly due to a strong economy (and partly to our
    policies), poverty, welfare, and crime are down all across America.
       With strong growth, low interest rates, low inflation, millions more
    jobs, record exports, more savings and investment, and higher incomes,
    the Nation is enjoying what such experts as Alan Greenspan, the chairman
    of the Federal Reserve, have described as the healthiest economy in a
    generation.
       Now, our challenge is to complete the job that we began in 1993--to
    bring the budget into balance for the first time since 1969 while
    continuing to invest in the American people. My budget does that.

     Improving Performance in a Balanced Budget World

       Led by the Vice President's National Performance Review, we are truly
    creating a Government that ``works better and costs less.''
       We have cut the Federal work force by over 250,000 positions,
    eliminated over 200 programs and projects, closed nearly 2,000 obsolete
    field offices, cut red tape, and eliminated thousands of pages of
    regulations while dramatically simplifying thousands more. We also are
    providing better service for Americans--at the Social Security
    Administration, the Department of Veterans Affairs, and other agencies.
       Our efforts to balance the budget will continue to put a premium on
    spending wisely. I am determined that we will provide the highest-
    quality service to Americans for the lowest price. And I will demand
    that agencies continue to search for better and better ways to achieve
    results for the American people.
       As we move ahead, we plan to follow a series of strategies that build
    upon our successes to date. We will, for instance, restructure agencies
    to make them more flexible and decentralized. We will work to ensure
    that Federal employees and their managers work together to achieve
    common goals. We will expand competition to ensure that agencies perform
    their functions as efficiently as possible.
       Government cannot solve all of our problems, but it surely must help
    us solve many of them. We need an effective Government to serve as a
    partner with States, localities, business and labor, communities,
    schools, and families. Only when we can show the American people that
    Government can, in fact, work better for them can we restore their
    confidence in it. And I am determined to do just that.

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     Creating Opportunity, Demanding Responsibility, and Strengthening
    Community

       I worked with the last Congress to ensure that as many as 25 million
    Americans no longer have to fear that they will lose their access to
    health insurance if they lose their jobs or change jobs; that people no
    longer will be denied coverage because they have preexisting medical
    conditions; that insurance companies will sell coverage to small
    employer groups and to individuals who lose group coverage; and that
    self-employed people will find it easier and cheaper to get health
    insurance. Now, I want to strengthen both Medicare and Medicaid to
    ensure that they continue to serve the tens of millions of Americans who
    rely on them, to expand health care coverage to help the growing numbers
    of American children and families who lack insurance, and to promote
    public health. My budget invests more in biomedical research, in
    programs to combat infectious diseases, in the Ryan White AIDS program
    that provides potentially life-extending drug therapies to many people
    with AIDS, and in community health centers and Indian Health Service
    facilities that serve critically underserved populations.
       We have to ensure that every American has the skills and education
    needed to win in the new economy, and we can do that only if every
    American is ready for a lifetime of continuous learning. My budget
    expands Head Start, increases our investments in Federal elementary and
    secondary education programs, launches a new effort to jump-start needed
    school renovation and construction, and provides funds for America Reads
    to ensure that all children can read well and independently by the end
    of third grade. To expand higher education and training to all
    Americans, I propose HOPE scholarship tax credits of up to $1,500 for
    two years, tax deductions of up to $10,000, the largest increase in Pell
    Grant scholarships in two decades, lower student loan fees and interest
    rates, and the G.I. Bill for America's Workers so they can choose where
    to get the best job training available.
       We do not have to choose between a stronger economy and a cleaner
    environment. Over the last four years, we have produced both. Now, we
    want to go further. In this budget, I am proposing the funds to speed up
    toxic waste clean-ups, to redevelop abandoned and contaminated sites
    known as ``brownfields,'' to improve the facilities at our national
    parks, to advance our salmon recovery efforts, to invest in energy
    efficiency and renewable energy, to further our environmental efforts
    overseas, and to expand our work with States, localities, private
    groups, and others to restore such sensitive ecosystems as the South
    Florida Everglades and California's Bay-Delta area between San Francisco
    and Sacramento.
       We must maintain our leadership in research, the results of which
    have so greatly improved our health and well-being. Federal research, in
    concert with the private sector, creates new knowledge, trains our
    workers, generates new jobs and industries, solves many of our health
    care challenges, strengthens our ability to address environmental
    issues, enables us to teach our children better, and ensures that we can
    maintain a strong, capable national defense. I am proposing to increase
    our investments in basic research in health sciences at the National
    Institutes of Health, in basic research and education at the National
    Science Foundation, in research at other agencies that depend on science
    and technology, and in cooperative ventures with industry, such as
    through the successful Advanced Technology Program and Manufacturing
    Extension Partnerships.
       I want to build on our efforts to fight crime, curb the scourge of
    illegal drugs, and secure the Nation's borders. Crime is falling all
    across America. And, under the Brady Bill that I fought so hard to
    achieve, we have prevented over 100,000 felons, fugitives, and stalkers
    from obtaining guns. Now, I want to make further progress and, in
    particular, target juvenile crime and violence. My budget continues our
    progress toward putting 100,000 more police on the street. It renews our
    efforts to fight drug abuse, particularly by focusing on youth
    prevention programs to reverse the recent trends of softening attitudes
    toward drugs and more drug use by young Americans. It also strengthens
    our efforts to control illegal immigration by stopping those who want to
    enter illegally,

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    quickly removing those who slipped by, and making it
    harder for illegal immigrants to get jobs.
       Because some American communities have grown disconnected from the
    opportunity and prosperity that most of us enjoy, I want to help
    communities attract private investment to spur their revitalization.
    Because permanent solutions must come from the community level, my
    budget proposes to create opportunities and offer incentives for
    individuals and businesses to participate directly in addressing local
    problems. I want to expand my national service program so that more
    Americans can volunteer and earn money for college. I want to expand
    Empowerment Zones and Enterprise Communities, making more and more
    communities eligible for the tax incentives and other support that can
    spur a return of business and jobs. I also want to expand the Community
    Development Financial Institutions Fund to enhance credit and other
    services to distressed areas. In addition, the Nation's capital, which
    suffers from a unique set of challenges, would benefit greatly from the
    groundbreaking proposal that I have previously outlined.
       I am pleased that, today, 2.1 million fewer Americans are on welfare
    than the day I took office, both because of a strong economy and because
    I have helped States to test innovative ways to move people from welfare
    to work and protect children. I am also pleased that I could sign last
    year's welfare reform legislation, because I believe it will promote my
    basic goals of work, family, and responsibility. I have directed my
    Administration to work closely with States so that we can make welfare
    reform succeed. Last year's law, however, also included excessive budget
    cuts, mainly affecting nutrition programs, legal immigrants, and
    children, that had nothing to do with welfare reform. In signing the
    bill, I said that I would seek legislation to address those problems. My
    budget does that.
       Over the last four years, we have provided tax relief to millions of
    working Americans and to small businesses. But I want to go further by
    helping middle-income Americans raise their children, send them to
    college, and save for the future. For those Americans, my tax plan
    offers a $500 per child tax credit for all children under 13, a $1,500-
    a-year tax credit to help families send their children to college for
    two years, a $10,000 tax deduction for tuition and fees for higher
    education and training, and expanded Individual Retirement Accounts to
    encourage saving and enable families to cope with unforeseen problems. I
    am also proposing to ensure that homeowners do not have to pay capital
    gains taxes on 99 percent of all home sales. My tax plan would promote
    the hiring of long-term welfare recipients in order to help move people
    from welfare to work, restore the tax credit that encourages business
    research and development, and expand tax credits for Empowerment Zones
    and Enterprise Communities. And it would help finance my tax relief by
    eliminating unwarranted tax loopholes and preferences.
       On the international front, we must continue to project our
    leadership abroad while we advance our national goals. With the Cold War
    over, we have a great opportunity to expand democracy overseas, but we
    will have a much better chance to succeed if we fulfill our
    international commitments. In this budget, I am proposing that we pay
    our arrears to the United Nations and other international organizations,
    so that our leadership is not undermined at this crucial time. But I
    will also insist that these institutions control their budgets and enact
    the reforms that our Government and others have called for. In addition,
    we must continue our support for Russia and the New Independent States
    of the Soviet Union as they make the difficult transition to free
    markets and democracy, and we must be prepared to do whatever we can to
    advance the difficult, but vital, peace process in the Middle East. A
    strong, coherent foreign policy also will help us further our progress
    in opening markets abroad, and my budget proposes strong, continued
    support for the Federal efforts that help to expand exports.
       Finally, our goals both at home and abroad must rest on the firm
    foundation of a strong national defense. It is a strong defense that
    safeguards our interests, prevents conflict, and secures the peace. We
    must ensure that our armed forces are highly ready and armed with the
    best equipment that tech-

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    nology can provide. They must be prepared and trained for the new threats to our security--from the proliferation of weapons of mass destruction, to ethnic and regional conflicts, to terrorism and drug trafficking that directly threaten our free and open society. My budget continues to sustain and modernize the world's strongest and most ready military force, a force capable of prevailing in two nearly simultaneous regional conflicts. It fully funds our commitment to maintain the highest levels of training and readiness, and to equip our uniformed men and women with the most advanced technologies in the world. We must never fall short when it comes to defense.

     Conclusion

       Our policies are working. By dramatically cutting the deficit and
    investing in the future, we have helped to spur four years of strong
    economic growth, providing vast new opportunities for millions of
    Americans. Jobs, incomes, savings, investment, exports, and
    homeownership are all up. Crime, poverty, teen pregnancy, and inequality
    are all down. Clearly, we are moving in the right direction.
       But our work is not done. For too long, the Federal Government has
    spent much more than it received, creating deficits that cast doubt on
    both our economic future and our ability to govern. In the last four
    years, we have made huge progress, cutting the deficit by nearly two-
    thirds. I urge Congress to help me finish the job and balance the budget
    by 2002--giving the American people the balanced budget they deserve.

                                                          William J. Clinton

    February 6, 1997