[Budget of the United States Government]
[II. Preparing the Nation For a New American Century]
[From the U.S. Government Publishing Office, www.gpo.gov]


 
  II. PREPARING THE NATION FOR A NEW AMERICAN CENTURY


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                                                 Table II-1.  RECEIPTS, OUTLAYS, AND SURPLUS OR DEFICIT                                                 
                                                              (Dollar amounts in billions)                                                              
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                                                                                                   Estimates                                            
                                                1997  --------------------------------------------------------------------------------------------------
                                               Actual    1998     1999     2000     2001     2002     2003     2004     2005     2006     2007     2008 
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Receipts....................................  1,579.3  1,657.9  1,742.7  1,793.6  1,862.6  1,949.3  2,028.2  2,122.7  2,226.9  2,329.0  2,444.2  2,565.5
Outlays.....................................  1,601.2  1,667.8  1,733.2  1,785.0  1,834.4  1,859.6  1,945.4  2,013.4  2,090.2  2,164.6  2,227.9  2,307.0
Reserve Pending Social Security Reform......       NA       NA      9.5      8.5     28.2     89.7     82.8    109.3    136.7    164.3    216.3    258.5
Deficit (-)/Surplus.........................    -21.9    -10.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
                                                                                                                                                        
On-Budget Deficit (-).......................   -103.3   -106.3    -95.7   -104.9    -94.1    -44.6    -62.8    -44.0    -33.8    -15.1     23.7     55.6
Off-Budget Surplus..........................     81.4     96.3    105.3    113.5    122.3    134.4    145.5    153.3    170.5    179.4    192.6    202.9
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(11)As Percentages of GDP                                                                                                                               
                                                                                                                                                        
Receipts....................................     19.8     19.9     20.1     19.8     19.7     19.7     19.6     19.6     19.7     19.7     19.7     19.8
Outlays.....................................     20.1     20.0     20.0     19.7     19.4     18.8     18.8     18.6     18.5     18.3     18.0     17.8
Reserve Pending Social Security Reform......       NA       NA      0.1      0.1      0.3      0.9      0.8      1.0      1.2      1.4      1.7      2.0
Deficit (-)/Surplus.........................     -0.3     -0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
                                                                                                                                                        
On-Budget Deficit (-).......................     -1.3     -1.3     -1.1     -1.2     -1.0     -0.5     -0.6     -0.4     -0.3     -0.1      0.2      0.4
Off-Budget Surplus..........................      1.0      1.2      1.2      1.3      1.3      1.4      1.4      1.4      1.5      1.5      1.6      1.6
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          II.  PREPARING THE NATION FOR A NEW AMERICAN CENTURY

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   Imagine an America in which every child has a world-class education; in 
which every family can fairly balance the demands of work and child-rearing; 
in which we lift living standards here and around the world; in which we 
learn to grow our economy and preserve the common environment which is our 
home; in which our oldest values of opportunity, responsibility and community 
guide us into a new time of greatest opportunity.
                     
                                      President Clinton                                                        
                                      September 1997                                                         

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

   It is, as the President said not long ago, ``a time of genuine hope 
and earned optimism for America.'' A country that not many years ago was 
approaching the 21st Century with uncertainty now looks to it with 
strength and confidence, with the knowledge that we can make it a ``New 
American Century.''
   The Administration's five years of hard work are paying off. Our 
economy is strong, our social health is improving, and our place as the 
world's undisputed leader for peace and freedom is unchallenged. Our 
Federal Government is leaner, more efficient, more effective, and more 
connected to the essential values that Americans share--opportunity, 
responsibility, and community.
   Our economy has grown an average of three percent a year, helping to 
create over 14 million new jobs. Unemployment is below five percent, 
inflation is under control, and interest rates are low. Investment 
growth and consumer confidence are at their highest levels in a 
generation. Homeownership has hit record levels. And, after two decades 
in which family incomes remained essentially flat, we are making 
progress on this most intractable of economic problems as incomes have 
begun to rise at all levels.
  Violent crime has dropped dramatically for five years in a row, and 
the 1996 drop was the largest in 35 years. The welfare rolls have 
dropped by record numbers. Poverty and teen birth rates are also down 
while, all across America, many of our poorest urban and rural 
communities are springing back to life.
   Around the world, America remains the world's lone superpower in both 
military and economic terms. Our forces, our resources, and our 
international influence have helped to keep the peace in war-torn 
nations, nurture democratic capitalism in former communist countries, 
and open markets for our goods.
   Perhaps most striking of all, the budget deficit continues to fall 
dramatically and, with this budget, the President proposes to reach 
balance in 1999, marking the first balanced budget in 30 years and an 
end to an era of continuous deficits that spiraled out of control 
through the 1980s and early 1990s.

Implementing the President's Agenda

   Five years ago, the President took office against the backdrop of a 
sweeping economic transformation both at home and abroad that was 
already dramatically changing how Americans lived, how they worked, and 
how they related to one another. An economy that had shifted from 
agriculture to manufacturing a century earlier was shifting again, this 
time from manufacturing to information, technology, and global commerce, 
challenging the rhythms of American life.
   In this new economy, Americans could no longer rely solely on their 
hard work to earn a good living. Now, they would need the skills to run 
the computers and other sophisticated equipment that had be

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come the engines of growth. More and more, what they earned in an 
increasingly competitive economy depended on their knowledge, their 
creativity, their sense of innovation.
   In early 1993, as one Administration replaced another, the Federal 
Government seemed ill-prepared to meet the challenges that lay at the 
Nation's doorstep, paralyzed by a seemingly intractable quandary--how to 
reverse more than a decade of record-setting, and still rising, budget 
deficits and a soaring national debt.
   In sheer dollars, the Nation had never seen anything like it. The 
deficit, which had grown to worrisome levels in the mid- to late 1970s, 
soared in the early 1980s--first to over $100 billion, then quickly to 
over $200 billion. America faced the prospect of $200 billion deficits 
``as far as the eye could see,'' in the words of David Stockman, 
President Reagan's Budget Director. Over the next decade, Presidents and 
Congresses, together or on their own, tried to bring the deficit under 
control, but a structural mismatch between revenues and spending 
continually out-paced their efforts.
   Year after year, the task of cutting the deficit cast a shadow over 
domestic, defense, and international policy. In that era, virtually 
every policy proposal from the Administration, Congress, or the private 
sector first elicited the question, ``How will it affect the deficit?'' 
The sheer merit of a proposal (e.g., to grow the economy, to address a 
social problem) often fell victim to Washington's all-consuming 
calculation of short-run cost.
   President Clinton understood the need for deficit reduction, and he 
exerted the leadership to get it. But he understood just as clearly that 
deficit reduction would not suffice. While reducing the deficit, he 
would also invest more in the skills and training of the American 
people, and he would push aggressively to expand markets for U.S. goods.
   The President's 1993 economic plan, which he worked with Congress to 
enact, was the centerpiece of his strategy. It slowed the growth of 
entitlements, raised taxes almost entirely on the wealthiest 1.2 percent 
of Americans, and extended the ``caps'' on discretionary spending for 
five years. It cut taxes for 15 million working families and made 90 
percent of small businesses eligible for tax relief. And it began an 
ongoing effort to invest in education and training and in research in 
order to boost productivity and, thus, 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 funds for a global 
policy that has brought peace to certain troublespots and expanded 
markets for U.S. goods.

Reaping the Benefits

   The three elements of the President's plan--(1) reducing the deficit; 
(2) investing in the future; and (3) opening markets to expand trade--
were never before tried together, and the strategy met its share of 
skeptics. Opponents predicted that the deficit would rise, not fall, 
because the economy would sink into recession, or worse. Jobs would 
disappear, the critics said, while interest rates and inflation would 
soar.
   What happened? All elements of the strategy worked beyond even the 
Administration's most optimistic hopes. Rather than generate higher 
deficits, the plan helped cut the deficit beyond expectations. Rather 
than prompt a recession, the plan helped cut interest rates, spurring 
steady growth, over 14 million new jobs, record exports, lower 
unemployment and inflation, less poverty, less welfare, and less crime.
   No element worked better than the first--reducing the deficit. The 
fiscal shortfall had hit a record $290 billion in 1992, and the 
Administration projected that, without changes in policy, it would hit 
$347 billion in 1997. The President's 1993 economic plan was designed to 
reduce the accumulated deficits over five years by a total of $505 
billion.
   What neither the Administration nor anyone else fully anticipated was 
how well the economy and economic plan would work together. The plan 
reassured financial investors, helping to cut interest rates and, in 
turn, spur growth and jobs. With the economy booming, Federal revenues 
from corporate and personal income taxes have far exceeded expectations. 
And, for the same reason, the Federal Govern

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ment has spent less on unemployment and other benefit programs than it 
anticipated.
   Higher-than-expected revenues and lower-than-expected spending closed 
the deficit gap more quickly than expected. The 1997 deficit came in at 
$22 billion, just 0.3 percent of the Gross Domestic Product (GDP). In 
dollar terms and as a share of GDP, it was the lowest deficit in a 
quarter-century. (For a full discussion of the President's economic 
policy, see Section III, ``Creating a Bright Economic Future.'')
   Even within the framework of the President's 1993 economic program, 
with its annual ``caps'' on total discretionary spending and its pay-as-
you-go rules for financing new entitlements and tax cuts, the 
Administration worked with Congress on significant investments in 
education and training, the environment, science and technology, law 
enforcement, and other priorities to help raise the standard of living 
and quality of life for average Americans, both now and in the future. 
For example:
   The President's commitment to expand Head Start put 830,000 
          disadvantaged children into the program in 1998, helping to 
          prepare these children for school and making further progress 
          toward the President's goal of putting a million children in 
          Head Start by 2002.
   His investments in public schools have helped States and 
          communities raise academic standards, strengthen 
          accountability, connect classrooms and schools to the 
          information superhighway, and promote public school choice by 
          opening over 700 charter schools.
   His national service program has enabled over 100,000 
          Americans to earn money for college while helping children to 
          read, working with parents to improve their kids' health, 
          creating after-school and summer programs, patrolling the 
          streets, and performing other vital community work.
   His historic investments in higher education, from his new 
          Hope scholarships to his record increases in Pell Grants, are 
          ensuring that anyone who wants to go to college can afford to 
          go.
   His efforts to help older, dislocated workers buffeted by 
          economic change have led to a wider array of Federal 
          retraining benefits and services to which workers can more 
          easily avail themselves.
   His children's health care initiative, the largest investment 
          in health care for kids since Medicaid was created, will 
          provide meaningful benefits to up to five million uninsured 
          children.
   His investments in the environment have protected or restored 
          some of the Nation's most treasured lands, such as Yellowstone 
          National Park and the Everglades, provided the funds to 
          conserve others, and accelerated toxic waste clean-ups.
   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 COPS program that supports community policing is putting 
          83,000 more police (out of 100,000 under the program) on the 
          streets of America's communities, helping to reduce violent 
          crime for five straight years.
   His investments in distressed urban and rural areas have 
          leveraged billions of dollars in private investment, created 
          thousands of jobs, and helped bring communities back to life.

Cutting the Size of Government

   How could the Administration both cut the deficit dramatically and 
invest more in these and other priorities? Not only by building a strong 
economy that would boost revenues and lower spending on unemployment and 
other benefits, but also by cutting unnecessary or lower-priority 
spending, and, led by the Vice President's National Performance Review, 
by increasing the efficiency and effectiveness of our Government.
   Since 1993, the Administration has worked with Congress to limit 
total discretionary spending, partly by eliminating hundreds of programs 
and projects. More broadly, in every budget year of this Administration, 
total spending has equaled a smaller share of

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GDP than in any year of the previous two Administrations and, in 1999, 
spending will drop to 20.0 percent of GDP, its lowest level since the 
early 1970s. The Administration has cut the size of the Federal civilian 
work force by over 316,000 people, creating the smallest work force in 
35 years and, as a share of total civilian employment, the smallest 
since 1931.
   The Administration, however, is working to create not just a smaller 
Government, but a better one, a Government that best provides services 
and benefits to its ultimate customers--the American people. It has not 
just cut the Federal work force, it has streamlined layers of 
bureaucracy. It has not just reorganized headquarters and field offices, 
it has ensured that those closest to the customers can best serve them.
   To be sure, the job is not over. For 1999, the Administration once 
again is turning its efforts to the next stage of ``reinventing'' the 
Federal Government. It plans to dramatically overhaul 32 Federal 
agencies to improve key services, such as improving student loan 
processing and speeding aid to disaster victims. It also plans to tackle 
critical challenges, such as ensuring that Government computers can 
process the year 2000 date change and making more Government services 
available electronically. (For a full discussion of the Administration's 
management agenda, see Section IV, ``Improving Performance Through 
Better Management.'')
   Under the 1993 Government Performance and Results Act, Cabinet 
departments and agencies have prepared individual performance plans that 
they will send to Congress with the performance goals they plan to meet 
in 1999. These plans, in turn, form the basis for the first Government-
wide performance plan, which the Administration is sending Congress 
along with this budget. \1\
---------------------------------------------------------------------------
  \1\ The plan describes the Administration's commitment to fiscal, 
management, and program performance. Thus, it includes the following 
sections of this budget--Section III, ``Creating a Bright Economic 
Future''; Section IV, ``Improving Performance Through Better 
Management''; and Section VI, ``Investing in the Common Good: Program 
Performance in Federal Functions.''
---------------------------------------------------------------------------

Reaching Balance While Investing in the Future

   Though the 1993 President's economic plan had exceeded all 
expectations in restoring the Nation's fiscal health, the task of 
reaching balance would require one final push. That would come with the 
historic 1997 Balanced Budget Act (BBA), on which the President and 
Congress agreed last summer.
   Along with saving $247 billion over five years, the Act also extended 
the solvency of Medicare's trust fund for at least 10 years while 
providing for the largest investment in higher education since the G.I. 
Bill in 1945, the largest investment in children's health care since the 
creation of Medicaid in 1965, and a $500-per-child tax credit for about 
27 million working families. It also provided tax incentives to restore 
distressed urban and rural neighborhoods, launched a $3 billion Welfare-
to-Work jobs initiative, and restored health and disability benefits to 
elderly and disabled legal immigrants.
   While implementing the BBA, this budget builds on the President's 
efforts to invest in the skills of the American people. Thus, it 
continues the President's policy of helping working families with their 
basic needs--raising their children, sending them to college, and paying 
for health care. It also invests in education and training, the 
environment, science and technology, law enforcement, and other 
priorities to help raise the standard of living and quality of life of 
average Americans.
   Within tight constraints, the President proposes major initiatives 
that will continue his investments in high-priority areas--from helping 
working families with their child care expenses to allowing Americans 
from 55 to 65 to buy into Medicare; from helping States and school 
districts recruit and prepare thousands more teachers and build 
thousands more classrooms to addressing the world-wide problem of global 
warming. The budget pays for every initiative--in the President's words, 
``line by line, dime by dime.''

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  Families and Children: For five years, the President has sought to 
help working families balance the demands of work and family, and he 
proposes a major effort to make child care more affordable, accessible, 
and safe. His Child Care Initiative provides tax breaks to help families 
pay for care; tax incentives to help businesses create or expand child 
care facilities; direct subsidies for over two million poor or near-poor 
children; increased funding for before- and after-school programs; and 
funds to help States enforce safety and quality, to train child care 
staff, to promote early childhood development, and to improve the health 
of young children in child care. Also to help working families, the 
President proposes tax incentives to encourage small businesses to 
create pension plans for more workers.
  Health Care: The President has worked hard to expand health care 
coverage and improve the Nation's health. The budget gives new insurance 
options to hundreds of thousands of Americans aged 55 to 65 and proposes 
new initiatives to ensure that as many uninsured children as possible 
are covered. In addition, it provides for unprecedented investments in 
biomedical research at the National Institutes of Health; advocates 
bipartisan national legislation that would reduce tobacco use among the 
young; expands access to new AIDS therapies through the Ryan White 
program; enables more Medicare recipients to receive promising cancer 
treatments by participating more easily in ``clinical trials''; expands 
substance abuse prevention and treatment activities; and enhances food 
safety. The budget also funds full participation in the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC), 
which will provide benefits to 7.5 million people by the end of 1999.
   Education and Training: The President has worked to enhance access 
to, and the quality of, education and training. The budget takes the 
next step--helping States and school districts to reduce class size by 
recruiting and preparing thousands more teachers and to build thousands 
more classrooms; and creating new Education Opportunity Zones to provide 
needed support for high-poverty, low-achieving urban and rural districts 
while holding them accountable to boost student achievement. The budget 
also proposes to move further toward the President's commitment to put a 
million disadvantaged children in Head Start by 2002; begin field 
testing voluntary national tests; mobilize and train reading tutors for 
children; help parents, teachers, and communities create more charter 
schools that are free of most State regulations; integrate technology 
into the classroom as we connect every classroom to the Internet; enable 
more Americans to serve their communities and earn money for college; 
expand college work-study to a million students; make it easier for 
parents and students to borrow and repay college loans; raise the 
maximum Pell Grant college scholarship to its highest level ever; expand 
assistance to workers dislocated as a result of global trade and 
technological change; increase G.I. bill educational benefits for 
veterans; and expand resources for veterans who lose their jobs.
   The Environment: The Administration, which helped engineer the global 
agreement in Kyoto to address climate change, proposes to launch the 
U.S. effort with tax incentives and spending that will spur energy 
efficiency and help develop low-carbon emission energy sources. The 
proposal includes incentives for buying new, highly fuel-efficient cars; 
for investing in energy-saving equipment for commercial and residential 
buildings; for commuting by public transit or vanpool; and for 
developing innovative energy generation techniques, such as biomass, 
wind, and photovoltaics. The budget also would restore and rehabilitate 
national parks, forests, and public lands and facilities; expand efforts 
to restore and protect the water quality of rivers and lakes; continue 
efforts to double the pace of Superfund clean-ups; extend the 
Brownfields initiative to promote local cleanup and redevelopment; 
better protect endangered species; continue to restore Florida's 
Everglades and California's Bay-Delta and protect Yellowstone National 
Park and California's Headwaters Forest; improve the roads through 
national parks; and expand the public's access to information about 
environmental conditions in their neighborhoods.
   Research: The President has sought to tap the full potential of our 
boundless future by investing heavily in basic and applied research. 
Along with increasing funds for biomedical research at the National 
Institutes of Health, the budget would promote science and engineering 
research at the National Science Foundation; support space-related 
activities

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that enhance our knowledge of Earth; invest in Federal-private ventures 
to more quickly develop cutting-edge technologies that create jobs; 
strengthen university-based research; invest in environmental research 
on safe food and clean air and water; expand support for energy 
efficiency and renewable energy programs; enable Americans to travel 
more safely, more quickly, and more efficiently; and put commercial 
industry's technical know-how and economies of scale to work for 
national defense.

Innovating to Invest

   Challenging times demand innovative solutions, and the budget meets 
the challenge by proposing three new investment funds for America--for 
research, the environment, and transportation--that will focus attention 
on these critical priorities. Together, the funds provide $75.5 billion, 
a $4.7 billion increase over the 1998 level for the programs they 
contain. Because the funds rely on budget offsets to help finance the 
spending, they, in effect, apply pay-as-you-go principles to 
discretionary spending.
   The funds are:
   The Research Fund for America, which includes a broad range 
          of investments in knowledge, including programs of the 
          National Institutes of Health, the Centers for Disease Control 
          and Prevention, the National Science Foundation, the National 
          Aeronautics and Space Administration, the Energy Department, 
          the Commerce Department's National Institute of Standards and 
          Technology, Agriculture Department research programs, the 
          multi-agency Climate Change Technology Initiative, and other 
          programs. The budget finances this Fund, in part, through 
          receipts from tobacco legislation and savings in mandatory 
          programs.
   The Environmental Resources Fund for America, which 
          encompasses the multi-agency Clean Water Initiative; the new 
          Land, Water, and Facility Restoration Initiative of the 
          Interior and Agriculture Departments; the Agriculture 
          Department's water and wastewater program for rural 
          communities; and the Environmental Protection Agency's 
          programs for cleaning up hazardous waste sites (within the 
          Superfund) and upgrading clean water and safe drinking water 
          infrastructure. The budget finances the Fund, in part, through 
          an extension of Federal taxes that support the Superfund.
   The Transportation Fund for America, which includes the 
          Transportation Department's highway, highway safety, and 
          transit programs; the Flight 2000 free flight demonstration 
          program; and the Federal Aviation Administration's programs, 
          including Airport Grants. The budget finances the Fund, in 
          part, through a new Federal aviation user fee.

Looking Ahead

   In policy-making terms, the fiscal ground has shifted dramatically in 
Washington. No longer will the deficit hover like a dark cloud over all 
debate and decisions. No longer will it serve as a symbol of fiscal 
incompetence. No longer will it sap the public's confidence in its 
national leaders.
   Five years into this Administration, the Nation has turned the 
corner. A budget that was out of control is now headed toward balance 
while investing in the American people and reflecting their values. As a 
result, an economy that was adrift is now strong, with the fundamentals 
in place to herald an era of continuing prosperity. A Government that 
lacked direction is now focused on providing better service, more 
efficiently, at lower cost.
   To be sure, challenges remain on the fiscal front. For one thing, the 
path to balance is predicated on a continued adherence to budget 
discipline, as framed first by the 1993 economic program and, more 
recently, by the BBA. For another, the challenge of ensuring the 
financial solvency of Social Security and Medicare, on which tens of 
millions of Americans rely, stands not too far into the future.
   In the public and private sectors, meanwhile, prospects for a budget 
surplus are spurring a wide array of ideas about how to use it. At this 
point, the Government has not yet reached the surplus milestone, and the

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President believes strongly that ``we should not spend a surplus that we 
don't yet have.''
   More specifically, he believes the Administration and Congress should 
not spend a budget surplus for any purpose until we have a solution to 
the long-term financing challenge facing Social Security. With that in 
mind, the budget proposes a reserve for the projected surpluses for the 
years 1999 and beyond.