    [Budget of the U.S. Government]
    [II. Building a Bridge to the 21st Century]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                   II.  BUILDING A BRIDGE TO THE 21ST CENTURY

      ----------------------------------------------------------------------

      I would like to be remembered as the President who prepared America for . . . the 21st Century where we had
    opportunity available to all Americans who were responsible enough to exercise it; where we lived with the
    diversity of this country and the diversity of the world on terms of respect and honor, giving everyone a chance
    to live up to the fullest of his or her own ability in building a stronger sense of community, instead of
    becoming more divided, as so many countries are; and where we continue to be the indispensable Nation in the
    world for peace and freedom and prosperity.
                                          President Clinton
                                          December 13, 1996

      ----------------------------------------------------------------------

      Nearly a century ago, America struggled through what was, up to then,
    its most profound change--from an economy rooted in the farm to one
    powered by the machine. As our economy changed, so did the lives and
    habits of our people. Once mostly isolated in small areas or small
    communities, Americans moved to towns and cities, transforming how they
    lived, how they worked, and how they related to one another.
      With such change came new challenges. Theodore Roosevelt and then
    Woodrow Wilson--two former governors, the first a Republican and the
    second a Democrat--provided the responses for what eventually became
    known as the Progressive Era. What this burst of Federal activity
    represented was a new way of thinking--of using Government to address
    the wrongs, and shape the future, of a growing Nation.
      Today, the Nation faces an upheaval that is just as great, as its
    economy moves from one rooted in machines to one in which information
    spreads from person to person, city to city, nation to nation, at
    lightning speed. Like the upheaval of 100 years earlier, this one, too,
    is transforming the lives of our people, changing the way we live, the
    way we work, and the way we relate to one another.
      But what worked in the Progressive Era was inadequate for the demands
    prompted by the Great Depression. What worked in the 1930s gave way to a
    new approach prompted by the Cold War. So, what worked then must, in
    turn, give way to a new approach for the times that we now face.
      The Nation stands at one of those truly unique moments in its
    history--a moment that demands new thinking. The traditional debates
    between liberals and conservatives seem not to hold the answers for the
    challenges before us. We should not move left or right; rather, we must
    move forward.
      As the President has said, ``the era of big Government is over.'' And
    we are, in fact, cutting the size and scope of Government as we move
    toward a balanced budget. But, as the President also has said, the issue
    is not solely bigger versus smaller. It is also how to make Government
    better. For if Americans do not want a Government that tries to solve
    every problem, they just as surely do not want one that retreats from
    its proper role.
      Generally speaking, governments do certain things well. They ``promote
    the general welfare'' by safeguarding the public, financing education,
    building roads and bridges, distributing benefit checks, and so on. The
    Federal Government, in particular, defends the Nation against attack,
    engages in international diplomacy, ensures retirement income, provides
    health coverage for the elderly, the poor, and people with disabilities,
    expands access to education and housing, protects the environ-

    [[Page 12]]

    ment, encourages business investment, and more.
      But the Federal Government does not--indeed, cannot--do it all. Today,
    Federal spending totals less than 25 percent of the Nation's income, as
    measured by the Gross Domestic Product (GDP). To promote the goals that
    Americans share, the Federal Government must work with State and local
    governments, business and labor, non-profits, communities, schools, and
    families.
      ----------------------------------------------------------------------

      I believe that the Federal Government should give people the tools and
    try to establish the conditions in which they can make the most of their
    own lives. That, to me, is the key.

                                   President Clinton
                                   October 6, 1996

      ----------------------------------------------------------------------
      Nor, in this budget, should we think about Government solely in terms
    of what it spends. The Government provides services and benefits in all
    sorts of ways. Not only does it distribute cash and provide services,
    but it also allocates tax incentives to achieve certain goals, such as
    expanded home ownership and more research and development. At the same
    time, it pursues social goals through responsible regulation, such as
    protecting children by reducing their access to cigarettes. (For a
    discussion of the full range of Federal activities, see Section VI,
    ``Investing in the Common Good: The Major Functions of the Federal
    Government.'')
      For four years, this Administration has been creating a Government for
    the 21st Century. It is leaner, but not meaner. It spends money more
    wisely. It is no longer wrapped in the red tape and bureaucracy of
    yesterday. And it provides better service to its ``customers,'' be they
    Social Security recipients or victims of natural disasters.

    Shrinking the Size of Government

      Nowhere is our success more dramatic than on the fiscal front. The
    budget deficit--for too long a kind of public metaphor for waste and
    mismanagement--had hit a record $290 billion in 1992, the year before
    President Clinton took office. The national debt, meanwhile, had
    quadrupled, to $4 trillion, in the 12 years before the President took
    office. By all accounts, the deficit was on a path ever higher, about to
    heap more debt on our children and grandchildren and to force the
    Government to use more of its taxpayer dollars not for anything useful
    but, rather, to pay interest on the debt.
      Then in 1993, the President worked with Congress to enact his economic
    program of lower deficits and, at the same time, more public investment.
    Largely due to the plan, and to the strong economic performance that it
    has helped to spur, the deficit fell by a whopping 63 percent, to just
    $107 billion in 1996--its lowest level since 1981 and, as a share of
    GDP, its lowest since 1974.
      The plan slowed the growth of entitlements, raised taxes almost
    entirely on the wealthiest 1.2 percent of Americans, and extended the
    annual limits, or ``caps,'' on discretionary spending for five years.
    While helping to dramatically reduce the deficit, the plan also cut
    taxes for 15 million working families, made 90 percent of small
    businesses eligible for tax relief, and invested in the future. (For a
    full discussion of the Administration's fiscal policy, see Section III,
    ``Putting the Building Blocks in Place.'')
      By limiting total discretionary spending, the caps put a premium on
    spending wisely--on eliminating wasteful and lower-priority programs
    while emphasizing investments in the Nation's future. Thus, the
    Administration has worked with Congress to invest in education and
    training, and in research, in order to enhance productivity and, in
    turn, promote higher living standards; to protect the environment and
    fight crime in order to improve the quality of life for all Americans;
    and to secure the resources for a global policy that has brought peace
    to certain troublespots and has expanded markets for U.S. goods.
      Facing the challenge of global competition, American businesses are
    forcing themselves to do more with less. The Federal Government is doing
    the same. Led by Vice President Gore's National Performance Review, the
    Administration has worked hard to ``create a Government that works
    better and costs less.''

    [[Page 13]]

      As business downsizes, so does the Federal Government. Four years
    after the President and Vice President assumed office, and largely due
    to their efforts, the Federal work force stands at 1.9 million civilian
    employees \1\-- its smallest size in 30 years and, as a share of
    civilian employment, its smallest since 1931. The Administration has cut
    the work force by over 250,000 full-time equivalents (FTE),\2\ and it
    will continue shrinking as the President and Congress finish the job of
    balancing the budget.
    ---------------------------------------------------------------------------
      \1\ Not included in this figure are 1.5 million uniformed men and
    women and 0.9 million employees of the Postal Service
      \2\ As of September 1996.
    ---------------------------------------------------------------------------
      The shrinking work force focuses the spotlight on those Federal
    workers who remain on the job. It is they who must work more effectively
    if the Federal Government is to work better. From our efforts to
    reinvent Government, which these workers have led, the Administration
    knows that the vast majority of them want to do a good job. The
    President and Vice President will continue to view them as partners in a
    great quest to give the American people the best Government that they
    can create.
      To the average American, however, the size of Government involves more
    than the size of its budget or of its work force. It involves the
    regulations (or rules) with which millions of businesses and individuals
    must comply. It also involves the responses they receive when they call
    the Government for help.
      Regulations are not inherently good or bad; potentially, they can be
    either. Good rules bring us safer cars and workplaces, cleaner air and
    water, and fairer business practices. But bad rules--those that are too
    costly, too intrusive, and too inflexible--can impede businesses and
    other institutions from doing their jobs.
      The President has sought to develop a more sensible regulatory
    program, one that reduces the burden of existing and new rules while
    improving their effectiveness. Specifically, the Administration has
    nearly reached its goal of eliminating 16,000 pages of regulations and
    dramatically simplifying 31,000 others. In addition, agencies are
    effectively implementing the President's Executive Order 12866 of 1993--
    using better data and analysis to make their decisions, considering the
    costs and benefits of alternative ways to reach their goals, and opening
    the decision-making process to those affected by the rules.
      What do Americans find when they call their Government? Compared to
    four years ago, they are likely to find a friendlier, more responsive
    voice on the other end. Agencies are making real progress in improving
    service to their customers, the American people. They are finding new,
    innovative ways to deliver service, and they are reaching out to learn
    more about what their customers want.
      If anything, the challenges will only grow for departments and
    agencies. They face a future of severely constrained resources. As a
    result, the Administration has developed a set of strategies (or tools)
    by which agencies will try to make even more progress in this
    environment. (For a full discussion of these seven tools, see Section
    IV, ``Improving Performance in a Balanced Budget World.'')

    Achieving Our Goals

      But can smaller really be better? Can we really do more with less? As
    the Administration has proved across a broad spectrum of areas, the
    answer is a resounding ``Yes!'' The right kind of Government, making the
    right kind of decisions, can have a demonstrably better effect on the
    lives of millions of Americans.
      Opportunity for all, responsibility from all, and a stronger American
    community--those have been the underpinnings for what the Administration
    has sought to achieve. In pursuing these goals, Administration policies
    have helped to produce a strong economy with better jobs, higher
    incomes, more pension and health security, greater educational
    opportunity, safer streets, and a cleaner environment.
      By cutting the deficit, for instance, the President's 1993 economic
    plan helped cut interest rates, spurring strong growth with steady
    prices. The result: over 11 million new jobs (most of them high-wage);
    the lowest inflation of any Administration in

    [[Page 14]]

    over 30 years; the highest
    rate of homeownership in 15 years; rising incomes; falling inequality;
    and record numbers of exports and new small businesses.
      With the 1993 plan limiting spending, the President has worked with
    Congress to spend the available resources most wisely, helping to
    produce real results in education, the environment, research, and law
    enforcement.
      His direct lending program has helped make college more
              affordable for 10 million students.
      His national service program has enabled 70,000 Americans to
              earn money for college while building houses, helping children
              to read, patrolling the streets, and performing other vital
              community work.
      His investments in research are helping to build new, high-
              powered supercomputers, and to develop drugs that could extend
              the life expectancy of those with HIV and AIDS.
      His community policing program has already put 64,000 more
              police (out of 100,000 under the program) on the streets of
              America's communities, helping to reduce serious and violent
              crime for five straight years.
      The President worked with Congress to:
       Raise the minimum wage, giving 10 million Americans a pay
              raise;
      Enact the Family and Medical Leave Act, enabling 67 million
              workers to take up to 12 weeks of unpaid leave from work to
              care for a newborn or a sick family member;
      Adopt the Kassebaum-Kennedy bill, ensuring that as many as 25
              million American workers would not lose their health insurance
              when they change jobs;
      Reform the Federal pension insurance system, protecting the
              pensions of over 40 million Americans;
      Take a vital first step ``to end welfare as we know it'' by
              requiring able-bodied recipients to work;
      Adopt the Brady bill, imposing a five-day waiting period on
              gun purchases that has already prevented over 100,000 felons,
              fugitives, and stalkers from buying handguns;
      Ban the import and manufacture of 19 deadly assault weapons,
              keeping them from would-be killers; and
      Overhaul the immigration system, cracking down on illegal
              immigration without punishing legal immigrants.
      The Administration also has acted on its own to improve the lives of
    average Americans. It has:
      Approved waivers (before last year's welfare reform law) to
              let 43 States find innovative ways to move recipients off
              welfare and into the economic mainstream. (Due to those
              efforts and a strong economy, 2.1 million fewer Americans are
              on welfare than when President Clinton took office.);
      Approved waivers to let 15 States pursue major State-wide
              health reform initiatives under Medicaid;
      Protected the border by deporting a record 206,000 illegal and
              criminal aliens from 1993 to 1996; and
      Completed the General Agreement on Tariffs and Trade and the
              North American Free Trade Agreement, as well as over 200 other
              trade agreements, helping to spur exports to record levels
              and, in turn, create high-wage jobs at home.
      Our trade agreements, and the benefits they produce, point to a
    growing reality--we live in an increasingly inter-connected world, one
    in which our prosperity at home depends on our leadership abroad. Over
    the last four years, the Administration has reduced tensions in the
    world's troublespots through the deft use of diplomacy and, when
    necessary, the deployment of troops. Democracy in Haiti, peace in
    Bosnia, more dialogue in the Middle East--they are all due to American
    leadership.
      Yet, despite his impressive four-year record of accomplishment both at
    home and abroad, the President understands that his work is not done.
    Most importantly, we must finish the job of balancing the budget. For
    only when we balance the budget can we

    [[Page 15]]

    hope to assure a healthy economic
    future for all Americans. And only then can we hope to restore the
    public's confidence in Government.

    The Task Ahead: Balancing the Budget

      This budget fulfills the President's commitment to reach balance in
    2002. In fact, under the Administration's economic and technical
    assumptions, it would generate a $17 billion surplus that year.
      The budget builds on the balanced budget proposals that the President
    outlined in his negotiations with the bipartisan congressional
    leadership over the last two years. The negotiations brought the two
    sides close to an agreement, and the President is determined to finish
    the job this year. He views this budget proposal as the next step in the
    march to reach balance.
      Specifically, the President continues to seek cuts in unnecessary and
    lower-priority spending in both discretionary and mandatory programs,
    and to eliminate unwarranted tax loopholes and preferences. His $388
    billion in total savings would do more than bring the budget into
    balance by 2002. They also would provide enough savings to finance a
    modest tax cut to help middle-income Americans raise their children,
    send them to college, and save for the future; and to correct the harsh
    provisions that Congress attached to last year's welfare reform
    legislation.
      Among its major elements, the budget:
      saves $137 billion in discretionary spending, cutting
              unnecessary and lower-priority programs while investing in
              education and training, the environment, science and
              technology, law enforcement, and other priorities that would
              raise living standards and the quality of life for average
              Americans (see Chapters 2-6);
      saves $100 billion in Medicare ($138 billion over six years),
              ensuring the solvency of the Part A trust fund until 2007
              while maintaining the essential quality of Medicare services
              for the elderly and people with disabilities (see Chapter 1);
      saves $22 billion in Medicaid, building upon the substantial
              savings that Federal and State experimentation in this
              jointly-run program is already generating, and continuing the
              guarantee of essential health and long-term care coverage for
              the most vulnerable Americans (see Chapter 1);
      saves $76 billion by ending corporate subsidies and other tax
              loopholes, extending expired tax provisions, and improving tax
              compliance (see Chapter 8);
      saves $36 billion by continuing the Administration's
              successful policy of auctioning segments of the broadcast
              spectrum (for other proposals on mandatory programs, see
              below);
      provides $18 billion to correct the harsh provisions that
              Congress attached to last year's welfare reform law,
              protecting those in need and helping recipients to find self-
              supporting work (see Chapter 7); and
      cuts taxes by $98 billion, providing tax relief to tens of
              millions of middle-income Americans and small businesses (see
              Chapter 8).
      With regard to other mandatory programs, the budget proposes to more
    fully fund the costs of Federal civilian employee retirement; extend
    previously-enacted savings in veterans' benefits; cut subsidies to
    financial institutions that make and hold student loans while reducing
    the costs to borrowers; impose fees to recover the costs of services
    that the Federal Government provides to private businesses; and
    privatize or sell, rather than give away, valuable public resources.
      All budget plans--the President's, Congress', and others--rest on a
    set of assumptions about how the economy will perform over the next five
    years, and about technical matters such as how fast Medicare spending
    will grow. Those assumptions, in turn, help shape projections about the
    future direction of the deficit and, thus, the size of the challenge
    ahead in balancing the budget.
      Since the President took office, the Administration has worked hard to
    develop a set of conservative assumptions each year and, in fact, our
    economic assumptions generally

    [[Page 16]]

    have proved too conservative. The economy
    has performed better than most analysts expected in the past four years,
    providing strong growth, low interest rates, and stable prices. The
    Government has received more tax revenues, and spent less on certain
    social programs--and, as a result, the deficit has fallen far more than
    projected.
      The Administration's assumptions also proved more accurate than the
    even-more conservative assumptions of the Congressional Budget Office
    (CBO)--although both sets of assumptions were quite reasonable. The
    Administration is confident that its own assumptions will continue to
    prove the more accurate.
      Nevertheless, the budget includes a mechanism to ensure that the
    President's plan reaches balance in 2002 under OMB or CBO assumptions.
    If OMB's assumptions prove correct, as we expect, then the mechanism
    would not take effect. If, however, CBO proves correct--and the
    President and Congress cannot agree on how to close the gap through
    expedited procedures--then most of the President's tax cuts would
    sunset, and discretionary budget authority and identified entitlement
    programs would face an across-the-board limit.
      With this mechanism in place, the American people can rest assured
    that we will reach balance in 2002--no matter which set of assumptions
    are used in the budget process.
      ----------------------------------------------------------------------

      Comparisons between this budget and the President's earlier balanced budget plans can be misleading.

      Over the last two years, the President's goal has not changed. He has consistently sought to reach balance by
    2002. But with each passing year, the time frame has, by definition, shrunk. Thus, the seven-year plan that he
    first proposed was followed by a six-year plan, followed by a five-year plan in this budget.

      Is the task of reaching balance easier now? Yes and no. On one hand, the continued strength of the economy,
    slower spending in key programs (such as Medicare and Medicaid), and savings enacted last year have lowered the
    projected deficits through 2002, reducing the amount of savings needed to reach balance. On the other hand, the
    shorter time frame makes it harder to phase in savings in entitlement programs, thus making the entitlement cuts
    deeper than they otherwise would have to be.

      ----------------------------------------------------------------------

    The Task Ahead: Investing in the Future

      Balancing the budget is not an end in itself. Rather, it helps fulfill
    the President's central economic goal--to raise the standard of living
    for average Americans, both now and in the future.
      So, too, do the spending priorities of this budget. Details matter.
    How the Government spends money--for whom, for what purpose--is just as
    important as whether it does.
      Within tight constraints, the budget continues the President's policy
    of the last four years in shifting Federal resources to education and
    training, science and technology, and other investments to enable
    Americans to get the skills to acquire good jobs, and to give businesses
    the tools to become more competitive, in the new economy. The budget
    also continues to shift resources to the environment and law
    enforcement, raising the quality of life for average Americans.
      For education and training, the budget proposes to fulfill the
    President's commitment to put one million disadvantaged children in the
    Head Start program by 2002; to create safe learning environments for
    more children; to help more school systems extend high academic
    standards, better teaching, and better learning to all students; to
    enable more Americans to serve their communities and earn money for
    college; to bring technology into more classrooms; to expand college
    work-study to one million students by the year 2000; to create a $1,000
    merit scholarship for the top five percent of graduates in every high
    school; to let more parents, teachers, and communities create public
    schools to meet their own children's needs; to make it easier for
    parents and students to borrow and repay college loans; to create the
    largest increase in Pell Grant scholarships in 20

    [[Page 17]]

    years; and, finally,
    to provide Skill Grants to adults for job training.
      On other priorities, the budget proposes to maintain environmental
    enforcement; protect national parks and other sensitive resources; and
    provide tax incentives to encourage companies to clean up
    ``brownfields''--abandoned, contaminated industrial properties in
    distressed areas. The budget would put 17,000 more police on the street,
    bringing the total to 81,000 and moving closer to the President's goal
    of 100,000 by the year 2000; and it would provide more funds to combat
    juvenile crime and step up the fight against drugs, largely by focusing
    on treatment and prevention aimed at youth. It would increase the number
    of Border Patrol agents and workplace investigations to prevent illegal
    immigration and deter the hiring of illegal immigrants.
      The budget invests in research, including biomedical research at the
    National Institutes of Health, in programs to combat infectious diseases
    at the Centers for Disease Control, 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. The budget funds full participation in the Special
    Supplemental Nutrition Program for Women, Infants, and Children (WIC),
    which would be 7.5 million people by the end of 1998.
      Finally, the budget proposes to add $1 billion to the Community
    Development Financial Institutions Fund over five years to create jobs
    and foster development in low-income urban and rural communities. For
    the same purpose, the budget proposes to expand the number of
    Empowerment Zones and Enterprise Communities, providing tax relief and
    other assistance for distressed urban and rural areas.
      Over the last year, the President also has proposed a series of
    initiatives to more quickly, and more effectively, meet his goal of
    higher living standards and a better quality of life for all Americans.
      Along with his earlier tax deduction proposal of up to $10,000
              for college tuition and job training, the President proposes a
              new $1,500-a-year HOPE scholarship tax credit to make two
              years of college universal. The budget also proposes to
              increase Pell Grants for lower-income families who lack the
              tax liability to benefit from the tax cuts.
      The President proposes the America Reads Challenge to help
              ensure that all children can read by the third grade, and a
              five-year, $5 billion school construction fund to help States
              and communities address the serious problem of dilapidated
              school buildings.
      Building on his earlier proposal to help the unemployed keep
              their health care coverage for six months, the President now
              proposes to help expand health care coverage to uninsured
              children.
      Having taken the first step to reform welfare, the President
              now proposes to enhance the Work Opportunity Tax Credit to
              encourage employers to hire long-term welfare recipients.
      The President proposes to reshape the Federal Government's
              relationship with the District of Columbia by assuming
              responsibility for certain pension, justice, and other
              functions. In exchange, the Government no longer would make an
              annual discretionary payment to the city, and it also would
              expect the city to be more accountable for how it uses its
              resources.

    A Look Ahead

      A balanced budget; a leaner, more effective Government; investments to
    help secure a brighter future--these are the priorities that pervade
    this budget, and that are outlined in the pages that follow. They are
    the priorities that will, in the President's words that began this
    section, ``prepare America for . . . the 21st Century.''
      But to fully appreciate the President's agenda for the future, it
    helps to know what the Administration has already accomplished. The
    President's economic policies, including a dramatic cut in the deficit,
    have helped to revive an economy that was suffering from over a decade
    of debt and other burdens. It is to that record--four years of
    significant accomplishment--that we now turn.