    [Public Papers of the Presidents of the United States: William J. Clinton (1993, Book I)]
    [June 9, 1993]
    [Pages 822-832]
    [From the U.S. Government Publishing Office www.gpo.gov]

    [[Page 822]]

    Remarks and a Question-and-Answer Session With the Business Roundtable
    June 9, 1993

        The President. Thank you. Thank you, John, and thank you, ladies and
    gentlemen, for the invitation to come here and speak with you today. I
    appreciate it not only because of the important things that we need to
    discuss but because you, as the CEO's of our Nation's top businesses,
    have a vital role to play in providing what our country needs most now,
    economic renewal and an honest facing of our real challenges.
        In recent years, members of the Business Roundtable have often been
    among the most enlightened leaders of our Nation, in any walk of life.
    Many of you have supported the economic program that I have advanced,
    and for your help I am extremely grateful. All of you know there is a
    moment in the life of every enterprise when a CEO looks up and realizes
    that the company has been doing something that simply doesn't work
    anymore, that the time has come for overhaul and change, and though it
    will be painful, it has to be done. When that time comes, if you have
    the courage to do it, you just have to go before the stockholders and
    tell them that things aren't working, that there's some pain in the
    short run, but there's a lot of gain in the long run.
        Many of you have had exactly that experience in the last 10 to 15
    years. You've had to restructure your companies, slim them down,
    eliminate unnecessary layers of management, embrace quality management,
    invest more in the training of your work force and in the quality of
    your equipment and in the competitiveness of your operations.
        And as a result of those calls, American companies now are once
    again the wonder of the world. Detroit turns out much better cars than
    it did 10 years ago. And guess what? It's gaining market share now in
    America, something that a lot of people thought would never happen
    again. Motorola goes head-to-head in Japan and often wins, and
    manufacturing as a whole has come roaring back. Our workers are proving
    once again that they are the best in the world. That's exactly what can
    happen to our Nation as a whole, and what I believe has to happen. If we
    put our shoulder to the wheel and face the issues squarely, I think it
    will happen. We'll come roaring back, too.
        As a new President, I feel the same as many of you did a few years
    ago. I look around and I see what I've inherited, and I realize that,
    just as I said in the campaign, we have been on the wrong track for too
    long. Just as you've overhauled your companies, we've got to work
    together to overhaul this country. And I believe that we can. I promise
    you I'm doing everything I can to get it done.
        The people of this country are just like the stockholders in your
    companies. You can tell them the changes we need. First, the people want
    to know what's wrong and what the problems are. Then they want to know
    what the strategy is for solving the problems. And then they want to
    know what's in it for them, both good and bad. They deserve to have all
    those questions answered, and I'm doing my best to answer them. They are
    tough questions but fair ones. They have to be faced.
        Four months ago when I came to office, our country was suffering
    from a long period of economic slowdown, and the Government's deficit
    figures had been revised upward after the election by $165 billion over
    the next 4 years. After World War II, the income of the average American
    family was doubling about every 25 years, an extraordinary feat that
    created a vast middle class in our country. Everybody thought these good
    times would go on forever, that the next generation would always be
    better off than its parents, that the quality of life and of social
    justice would continue to increase.
        But in the early 1970's, that upward escalator came to a screeching
    halt, brought on by the global economy, its competitive pressures, and a
    lot of problems we had in our own country which slowed down the
    productivity growth rate. The incomes of many Americans started falling
    and average hourly incomes have been stagnant virtually ever since for
    the Nation as a whole, in spite of the fact that the average family is
    spending more hours per week at work than it was in 1969.
        Now we look forward to a doubling of our standard of living not
    every 25 years but every

    [[Page 823]]

    75 years. That is plainly an unacceptable rate. Many unhappy trends
    accelerated during the 1980's and into the 1990's. Even though the
    wealthiest Americans consistently did better, middle class incomes
    stalled and the percentage of people living in poverty exploded,
    especially the percentage of people working and still living in poverty.
    Our leaders continued to promise us something for nothing. There was
    always an easy answer. There was always a slogan that solved the
    problems. And slogans are always appealing. But as Americans, we can't
    live like that anymore.
        You and I know that a major roadblock to our long-term recovery is
    the Federal deficit. You and I know that it hasn't been tackled
    seriously in the past. And I want you to know today that I am committed
    to tackling this deficit, no matter how much political capital I have to
    spend to do it, because unless we regain control over our economic
    destiny, none of the other things that I would hope to do as President
    will be possible.
        What I faced when I came to office was the prospect that unless we
    acted and acted decisively, deficits would soar out of sight in the
    1990's. And notwithstanding the dramatic drop in short-term interest
    rates, we would continue to have the highest real long-term interest
    rates of any of our competitors. That would cripple the economy. The
    United States would relinquish its place of leadership. And most
    importantly, we would leave our children a mean and surly existence of
    less economic opportunity and more social division.
        That's why I believe so strongly that, as a nation, we have to have
    the courage to change. And so I spent weeks and weeks working on an
    economic plan for the Nation, one that would dramatically reduce the
    deficit while also achieving an equally important aim: investing in a
    very disciplined way in some of the areas we had neglected in the 1980's
    but that are critical to our growth and productivity, especially
    education, training, new technologies for the 21st century, and
    strategies to ease the transition from a defense-based high-tech economy
    to one based on a dramatically reduced level of defense spending but
    increased domestic spending.
        Now, when I first presented this plan to Congress and to the
    American people in February, it received rave reviews. The reaction of
    the financial markets was immediate and very favorable, just as the
    reaction to the financial markets had been favorable right after the
    election when we said we would come forward with a strong deficit
    reduction plan.
        As the plan has moved its way through Congress, the outline of the
    budget resolution passing on time for the first time in 17 years, the
    House of Representatives passing the plan rigorously and quickly under
    enormous pressure, the financial markets have continued to respond in a
    very positive way. And many of you have stuck with us because you
    understand that this is a balanced and fair plan. But most Americans
    don't know about that because ever since February, the last time I had a
    chance to discuss it entirely directly with the American people, we have
    seen a barrage of the same old sloganeering that got us in the fix we're
    in today. There is an easy answer: Just don't raise taxes and cut
    spending. It's a simple, unqualified thing. This, from the people who
    raised all the spending and cut the taxes in the 1980's.
        I want to say again how very grateful I am for the people who have
    supported this program, from the CEO's of companies like Anheuser-Busch,
    ARCO, Ford, NationsBank, Sara Lee, Tenneco, TRW, Apple, Xerox, and
    others, to the Home Builders Association, the Realtors Association, the
    American Electronics Industry Association, and others. I appreciate
    that.
        You might be interested to know that a Congresswoman from California
    told me that after she spent a week at home, after voting for the plan,
    in town meetings she met with people who were angry at her and who left
    supporting the plan for two reasons: Number one, they were astonished to
    find out what it actually did, since they couldn't tell from the
    rhetoric of the last 3 or 4 months; number two, they were astonished to
    know who was for it.
        The other day, the Home Builders Association brought their national
    officers group in to Maryland to meet with me at a homebuilding site to
    reaffirm their support for the program because we got mortgage rates at
    a 20-year low and housing sales at a 7-year high.
        There has been a calculated effort to distort and to destroy this
    program by calling it ``tax and spend.'' Never mind that for years the
    leaders of this effort gave us ``borrow and spend.'' Never mind that
    they were the architects of a program that took us from a $1 trillion to
    a $4 trillion debt in 12 years, from an annual deficit of $74 billion a
    year to over $300 billion a year. Spending increased more than at any

    [[Page 824]]

    time during World War II in the last 4 years, and so did borrowing. And
    we're in a deep hole. But one more time, the apostles of the easy
    answers seek to divert the attention of the American people with their
    simple slogans.
        I've been through a lot of political wars in my lifetime. I've, on
    occasion, gotten knocked down. Sometimes I've knocked myself down. But I
    always try to come back. And this time the administration is going to
    come back, because we're telling the truth to the American people, and
    if we don't face this problem now, we're going to let it get out of hand
    and lose control of our destiny. That is the big issue, and we've got to
    have the courage to face it.
        Because there have been so many distortions, I'd like to go back
    through this program one more time, to tell you about the principles
    that have to be preserved as this plan works its way through Congress.
    First of all, let's take a look at where the deficit is heading. This is
    what I found based on the previous actions of the last 12 years. If we
    fail to act, look at where it's heading and look what the plan now
    before the Congress will do to bring it under control. That's what this
    first chart shows.
        This is the inherited deficit, even after the 1990 plan, the red
    line. The deficit, with our budget, is the blue line. I want to come
    back to that in a minute, but you will see what I want to do with the
    blue line is take it from where it is in 1997 all the way down to zero.
    The slight increase in '98 is due to something you all know very well;
    it's the same thing a lot of you find in your balance sheets. That is
    health care costs.
        If you want to go from where it is in '97 to zero, we have to bring
    health care costs in the Government as well as in the private sector in
    line with inflation. That is the sole reason for that line going up. But
    as you can see, there is a huge difference. That's why there's been a
    drop in long-term interest rates and mortgage rates are at a 20-year
    low, the promise of moving this line from red to blue.
        There are things that I think can be done that will make a huge
    difference. Now, how do we get to the red line? First of all, in the
    1980's, there was a big tax cut in '81 and a huge increase in national
    defense. And even though there were some restraints in domestic
    spending, there was no way in the wide world the domestic spending cuts
    got even close to the defense increases and the tax cuts.
        Then in the mid-eighties, when the defense budget started to go
    down, by that time, two other bad things had happened from the point of
    view of the deficit: Health care costs were exploding at 2 and 3 times
    the rate of inflation, and the interest payments on the debt had become
    a churning engine that kept going up and up and up and were aggravated
    by high interest rates, so that we got no benefit from the defense cuts
    in terms of the deficit because of the health care increase and the rise
    in interest payments. Interest payments now consume about 15 cents on
    the tax dollar. And if we don't do anything about the size of the
    deficit, they will be up over 20 cents on the tax dollar within the next
    10 years. These things have to be faced.
        Now, let's go to the next chart. My opponents have been distorting
    the ratio of spending cuts to tax increase in all manner of ways. First
    they started off saying it was three to one; now they're saying its six
    to one. Again, I will say that this is the crowd that gave you the
    deficits of the eighties, and all I used in trying to determine what the
    ratio of spending to taxes was, was the same thing my predecessors did
    in defining what was a reduction in Federal spending.
        There are some minor differences in the way these things are
    calculated. Actually, the House Budget Committee has given me more
    credit for spending cuts as opposed to tax increases than we do. But the
    rough balance is 50-50. And let me give you an idea of why it's hard to
    be exact, because of all the word games that are played in Washington.
    I'll give you two examples: one that arguably redounds to my favor, one
    that arguably doesn't.
        One of the best things about this program is we increased the
    earned-income tax credit--I'll say a little more about that in a
    minute--to reward people who move from welfare to work; to say that if
    you work 40 hours a week and you've got kids in the house, the tax
    system should lift you above the poverty line. Now, that's a tax cut,
    right? Because the earned-income tax credit involves an outlay by the
    Government, some people count it as a spending increase, even though
    it's a tax cut. I think it's a tax cut. That's the way we count it.
        Let me give you another example. Previous Presidents had counted
    anything that restricted Social Security benefits as a spending
    reduction in entitlements. Now my adversaries say my proposal to extend
    income tax consideration to 85 percent of the incomes of the top 20
    percent

    [[Page 825]]

    of Social Security earners is a tax increase. In a literal sense, it's a
    restriction on entitlements and a tax increase. You can argue it either
    way.
        Which is better policy? We could restrain cost-of-living allowances
    to Social Security recipients, or we could apply taxation to the incomes
    of upper-income recipients. The fairer way to do it plainly is to ask
    the people who can afford it to pay more as opposed to holding down the
    cost-of-living allowances to people just above the poverty line. One is
    called a tax increase; the other is called a spending reduction. It's
    six of one and half a dozen of the other.
        So there are some arguments around the edges. But basically, this
    plan is roughly equally divided between spending cuts and tax increases.
    And as those of you who follow this closely know, we are moving into the
    Senate where we hope and believe there will be less tax and more
    spending cuts to further improve the ratio.
        But I do want to emphasize that there are significant and very real
    spending cuts in this program and, as all of you know again, that 75
    percent of the new taxes are paid for by people with incomes above
    $100,000, two-thirds of people with incomes above $200,000, me and
    everybody else in this room included in that.
        The spending cuts I want to talk to you about, they're made in
    discretionary programs, entitlement programs, and interest payments on
    the national debt. You can't make cuts of this size unless you basically
    disappoint every interest group in the Congress. For example, in
    agriculture, we have made cuts in commodity support, crop insurance, and
    rural electric. We've asked Federal employees to forego the automatic
    pay increases tied to inflation they have been getting for years and
    years and years to the tune of $13 billion. We're trimming 150,000
    people from the Federal payrolls by attrition and saving $11 billion in
    overall administrative cuts.
        We're replacing the existing system of guaranteed student loans in a
    way that will save $4 billion and is wildly unpopular from the people
    who were making money from the student loan program because it was a
    Government guarantee with no risk. If you ask about Medicare, there's
    about $60 billion in cuts from Medicare from the red line I showed you.
    There are cuts in Medicaid. There are cuts in military and civilian
    retirement, delaying payments for them to reduce our payments on
    retirement this year and in the years ahead. No part of the Federal
    budget has been fully spared.
        Of the cuts that are made--I don't think I have a chart on this--but
    of the cuts that are made, basically we cut over twice as much and apply
    it to the deficit as we cut and apply to new spending. I've been
    criticized because I've advocated some new spending programs. I plead
    guilty to that. But I want you to know exactly what they are.
        I plead guilty to believing that it is worth it to have the
    Government replace some of these defense cuts with investments in
    domestic commercial technologies and new partnerships with the private
    sector. That's what our competitors do. I think we have to compete.
        I plead guilty to wanting to fully fund the Head Start program,
    because we've got all these underprivileged kids out there that need to
    be very privileged and empowered adults, and I think we ought to fully
    fund the program as part of an overall strategy to meet the national
    education goals. I plead guilty to that. I think it's worth the money.
        There are some targeted and limited funds in there to help every
    State in the country work with the private sector to set up a system of
    apprenticeship for all the people who don't go to college and a system
    of lifetime learning because the average worker will change jobs seven
    or eight times in a lifetime. It's not a lot of money, but it needs to
    be spent. I plead guilty. I think it is worth the investment.
        These kinds of things matter to a society over the long run. The
    irony of the last 12 years is that because of, first, our reliance on
    defense spending to boost the economy, and then when defense spending
    was cut, our explosion of health care costs and interest payments, we
    have actually reduced our investments in a lot of the things that make
    us a richer country, even as this deficit has exploded.
        So, those are the things that have been cut. A member of the more
    liberal wing of the Democratic Party called me the other day and said,
    ``We have done you a terrible disservice. You told us we had to cut this
    spending, and we did it. And because there was no conflict, there was no
    publicity on it. Now nobody in America thinks you cut any spending. And
    you cut retirement; you cut Medicare; you cut Medicaid; you went after
    Social Security. You cut all these discretionary spending programs, and
    nobody knows it.'' Well, I'll predict you'll hear more about it in the
    days and weeks ahead

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    from the people who feel that they have been rolled and gotten no credit
    for it. There are a lot of budget cuts in this program, and there will
    be some more. But the lion's share of the work has been done there.
        As I said before and as you can see--and I might as well make full
    disclosure since I'm here with you--the effect of the new taxes is
    highly progressive, with almost all the real burden falling on people in
    the top one percent of the income category and 75 percent of the money
    being paid for by the top 6 percent. Now, that tracks income growth and
    tax reductions in the eighties. That is, it reverses the fact of the
    eighties where middle class taxes were increased through the Social
    Security tax while middle class incomes declined. But we do ask, through
    the energy tax, a contribution from virtually all Americans, not
    including those with incomes under $30,000 with one or two kids in the
    family. Otherwise, everybody else is asked to pay something.
        Now, as I said, I want to mention a couple of other things. In
    addition to the spending programs, there are some incentives in this
    program that a lot of people asked for; maybe some of you in this room
    did. But I want to run through them, because they cost money, too, but I
    think they're worth it. And you have to decide whether you think they
    are.
        The small business community for years has been asking us to
    increase the expensing provisions from $10,000 to $25,000 on the theory
    that they're creating most of the new jobs, and this will help them to
    do it. So that's what this bill does. The Venture Capital Association
    for years has been asking us to adopt a venture capital gains tax that
    would provide huge incentives for people to start new enterprises. We do
    that in this bill. It costs some money. I think it's worth it.
        After the Tax Reform Act of 1986, many businesses, including
    businesses in this room, said there had to be some changes in the
    alternative minimum tax provisions of the Tax Code if we wanted people
    to continue to invest in plant and equipment in this country because of
    the unfair way the alternative minimum tax works. And we changed it in
    this Tax Code. We were asked to do it by many people. I think it makes
    sense. We did it. It's in the Code. It costs money.
        For years, Republicans and Democrats alike who actually live out
    there where people are struggling to make a living have believed that if
    we wanted to do something meaningful for inner cities and poor rural
    areas, we had to try to get the private sector more involved, and we had
    to use market mechanisms. And there are any number of suggestions under
    the so-called enterprise zone rhetoric about that.
        We have, in this proposal, an empowerment zone concept which is by
    far the most ambitious incentives program ever offered to try to get the
    private sector involved in distressed areas in America on an
    experimental basis: to pick 15 or 20 communities and say, ``If you hire
    people from there, you get a credit; if you invest there, you get a
    permanent credit,'' and to provide all kinds of other resources in terms
    of training and support to people who will try to make the private
    sector work. It's almost 100 percent a private sector initiative. But it
    costs money.
        Is it worth it? I think it is. There's not enough Government money
    in the world to rebuild south central Los Angeles or some of the most
    distressed areas in other cities in our country or the Mississippi Delta
    where I live. But it costs money. But we have to try, I think.
        So you have spending reductions. You have tax increases. You have
    some new spending, and you have a significant amount of private sector
    incentives in this bill. I think it's all worthwhile.
        The most interesting thing is the signals that have been sent to the
    markets and the result. Now, if I had told you in December--to me this
    is the most amazing thing of all, and I can't take credit for this. This
    chart, in some ways belongs to my friend John Scully at Apple Computers.
    He came in last week, and he said, ``Bill, I know you must be low, and I
    read all the press and the polls and everything.'' He said, ``I am happy
    as a clam.'' And I said, ``Are you happy as a clam because you're a
    Republican, and I'm in trouble?'' He says, ``No, I'm happy as a clam
    because I'm an American.'' He said, ``If somebody had told you 4 months
    ago that by June 1st unemployment would drop below 7 percent for the
    first time in 17 months, that we'd have 755,000 new jobs, over 90
    percent of them in the private sector, that we'd have a 20-year low in
    mortgage rates and a 7-year high in housing sales, and that people would
    be responding to the program to seriously reduce the deficit and grow
    the economy, would you have been happy?'' He said, ``I don't know why
    everybody's not happy.'' He said, ``I make

    [[Page 827]]

    a living thinking about the long run and thinking about what's
    happening. This is working.''
        I believe it's working, too. Now the program is going into the
    Senate, and they will change it some in cooperation with the House
    Members, I might add. There's an unusual amount of cooperation here
    among people who really want to do something. There will be at least one
    meeting a day between Senators and House Members before the Senate even
    votes, something that's almost unheard of. People just trying to work
    together to work this out.
        Here's what I think ought to come out of that. There should be some
    less tax and some more spending cuts. We should have $500 billion in
    overall deficit reduction, all the cuts in the taxes ought to be in a
    trust fund so they can't be put anywhere else. There ought to be an
    enforcement mechanism for the first time that requires the President--
    because who can foresee what's going to happen 5 years from now? It
    would be hard for all of you to adopt 5-year budgets with absolute
    certainty. Nobody can do that. This bill has an enforcement mechanism
    that says if we miss the deficit target every year, the President has to
    come in and offer a plan to fix it. Not just shrug your shoulders and
    say, oh, it's too bad, the economy was down, or something else went
    wrong, but a plan to fix it, to live with the discipline that the
    numbers will impose. That's something new, and it ought to stay in
    there.
        The third thing that ought to be in there is the progressivity of
    this program. Middle class Americans are being asked to pay a modest
    amount, much less than most of them think now because of the rhetoric of
    the last few months but a modest amount. It still ought to be
    progressive because of the tax history and the income history of the
    last 12 years. So it should be progressive.
        We should leave the empowerment initiatives there. The empowerment
    zones, the small business incentives, the new business incentives, the
    changes in the alternative minimum tax, in my judgment, ought to be left
    in there. We should have the targeted investments. And I believe there
    must be some sort of broad-based energy tax.
        I must say that when I first started on this--and my economic
    adviser over here, Bob Rubin, as most of you know, has laughed a lot
    when he sees people say, oh, this is such a liberal program--Rubin,
    Bentsen, and Panetta, my three deficit hawks, were the people who
    convinced me that it was worth it even to raise a little more tax if we
    had to do it to get the deficit down and the interest rates down to get
    the country going again, not the liberals in my Cabinet who were worried
    about all of that. The others, the business people did it, the people
    who understood the financial markets. They said, ``We've got to get the
    interest rates down, and we've got to get the deficit down, even if we
    have to take a little more heat for the taxes.''
        So we are trying to come to grips with this. But I know when we
    started I was told by person after person after person in New York, ``If
    you want to have an influence on interest rates, you've got to do two
    things: deal with entitlements and have an energy tax, because that
    looks real to us.'' Well, we did those things and cut a lot of other
    spending besides.
        So, is this a perfect program? No, there's no such thing. Is it a
    good one? You bet it is. You can tell by the results. Is the Senate
    going to work on it? Yes, it is. The Senate will work on it. Then the
    House and the Senate and the White House will confer. And we'll try to
    come out with a program which meets these principles. I believe we will.
        The main thing I want to say is, it is hard to quarrel with results.
    And I hope to goodness it is going to be very hard to go back to the
    same old siren song we've heard time and time again. I've heard all
    these people say, ``Well, just cut spending.'' It turns out they always
    want somebody else's spending cut. And we have cut a lot of spending.
    There are some kinds of spending that everybody in this room wouldn't
    support. If we don't have it quite right, you can tell us what you
    think.
        Now, let me just also say, the House passed the modified line-item
    veto. And if the Senate would pass that, I'll give you some more
    spending cuts. If the Senate will give me that, I'll be happy to give
    you some more spending cuts and bring it down a little more. And I'm
    hoping that will come out of this whole budgetary process, so the
    President can have some more discipline on spending.
        But the thing we have to do most of all is to act. We have to act.
    We have to act, because that is the only thing that will produce
    results. I believe that we're going to do that. I think you will see the
    Senate act. I think you will see the Senate and the House come forward

    [[Page 828]]

    with a program that meets the basic principles that I have outlined. I
    think you will see America in control of its economic destiny. I think
    interest rates will stay down and growth will stay up, and we'll
    continue to generate jobs for this economy.
        But it requires a lot of courage when all you hear, day-in and day-
    out, are people trying to paralyze action with the same old rhetoric
    that put us to sleep for 12 years and got us in the fix that the first
    chart showed. I like these results better than that first chart. And if
    you do, I hope you'll support our efforts.
        Thank you very much.
        Moderator. Mr. President, we thank you for a very substantive and
    significant speech. The President, ladies and gentlemen, has offered to
    answer some questions, so I'll turn it over to him for that purpose.
        The President. Is somebody carrying a microphone?

    Taxes

        Q. Mr. President, as one who just refinanced my own home mortgage, I
    want to thank you for that.
        My question really goes to the apparent demise of the Btu tax, which
    was announced by Secretary Bentsen yesterday, and obviously, the work
    with Congress that's required in the last administration or this one to
    make anything really happen. I heard you say that another broad-based
    energy tax would be recommended. I appreciate any comment you'd have on
    that and why you think another broad-based energy tax might get more
    reception or, rather, not have the same treatment that the Btu tax did.
        The President. Well, let me say I'm still not sure how it's all
    going to come out. And let me try to answer this very carefully.
    Secretary Bentsen did not so much announce as to grudgingly
    acknowledge--[laughter]--the state of play in the Senate. And it's quite
    interesting, because he's from an energy State, and he came to this Btu
    tax after going through a lot of other issues.
        Let me tell you what the state of play in the Senate is, first of
    all. You've got essentially a Senate Finance Committee where no
    Republicans will vote for this bill because they are not going to be for
    any taxes. And the Boren substitute is a massive shift of the burden to
    elderly people and the working people just above the poverty line. And
    if it got on the floor of the Senate, I bet it wouldn't get 20 votes. So
    there is no other viable alternative out there.
        But with an 11-to-9 majority, the Democrats cannot lose any votes on
    the Senate Finance Committee and get any bill out. Now, Secretary
    Bentsen had what I thought was a great suggestion for modifying the Btu
    tax which would essentially have drastically alleviated, all but
    eliminated, the burden on production, whether industrial or
    agricultural, but would have otherwise left the tax in shape, so that it
    applied to all forms of energy and, therefore, was less burdensome to
    any region of the country but got out of the whole business of whether
    we were being uncompetitive with people from--when we exported our
    products or whether imports would acquire a competitive advantage, and
    whether we were putting too much of a burden on energy-intensive forms
    of industry which had led the House to make too many exceptions to it.
    So if you just essentially had a blanket alleviation of the production
    sector, which is what Secretary Bentsen was talking with them about, it
    looked to us like that was the best thing.
        There had been so much said about the wording of the Btu tax--and, I
    must say, some legitimate concern about the whole administrative
    difficulty of starting a new one--the Senate seems disinclined to go
    forward. That does not mean that the House will give up on a modified
    Btu tax. I don't know what's going to happen from here on in. And we
    have not agreed to anything or disagreed with anything. We have been in
    consultation with the Senate and would go to any meeting they asked us
    to. But they're going to have to come up with their own program. And
    they know what the principles I have outlined are. And I just gave them
    to you. So I don't know what's going to happen now.
        Senator Breaux has some ideas that he wants to float, and some
    others have some ideas. I think you'll have plenty of time to react to
    them. A lot of them want to rely more on a broad-based transportation
    tax, but that also has some economic difficulties even if you raise less
    money.
        The number one thing: 100 percent of us agreed and the House Members
    agreed that we would lower the dollar volume of the energy tax, the
    total money raised, and make it up in various kinds of cuts. And I think
    that's where everybody is now. Everybody is there.
        And let me just run a few other things out here. There is also a
    discussion about whether

    [[Page 829]]

    or not there should be a delay in the effective date of the taxes, the
    income taxes. That's being discussed, the economic grounds for that. And
    there are all kinds of discussions about that.
        I want to red-flag one issue for all of you who provide
    comprehensive health policies for your employees, though, again, because
    sometimes things are not what they seem. We cut about $60 billion in
    Medicare expenditures over and above the red line I showed you. That is,
    that was a big part of our deficit reduction. There are those who say,
    ``Well, we ought to cut a lot more, and we can freeze provider fees and
    we can do all this kind of stuff with Medicare.'' I would urge all of
    you as employers to look at that very closely because, again, it's a
    sleight of hand. You know, yes, we can cut the fool out of Medicare. But
    if we don't have some sort of comprehensive resolution to the health
    care crisis, what will happen? The same thing that's been happening the
    last 12 years: All those people will send you the bill.
        There will be massive cost-shifting with certain kinds of Medicare
    cuts unless it is part of an overall health care strategy, which just
    means a hidden tax on employers and their employees, which is the very
    thing I'm trying to get away from, anything hidden. And it contradicts
    one of the essential goals of our long-term strategy, which is to bring
    health costs in line with inflation and fairly apportion the burden
    throughout society, which it's not now. Most of you are paying too much
    and your employees are because of the way the thing is.
        So I'm not trying to avoid your question, I'm just trying to tell
    you I do not know what the Senate will do. My position has been to try
    to tell them what my principles are; make Secretary Bentsen and Mr.
    Panetta available to them to discuss everything; ask them to be faithful
    to the House by involving the House Members in the discussions, because
    a lot of House Members passed this budget on the understanding there
    would be some less tax and some more spending cuts and that they would
    be a part of it. And I don't know what's going to come out of there yet.

    Deficit Reduction

        Q. My question is this: We in the Roundtable, of course, have made
    deficit reduction a major issue for a long, long time. And we applaud
    your efforts in that regard and certainly are hopeful that the $500
    billion sort of reduction over the 4- or 5-year period will be
    forthcoming. And we're working, as you know, with your administration
    and Bob Rubin and Leon and others. But even if that objective is
    achieved, it's clear we have a very significant continuing deficit
    problem. What is it, $1 trillion over the next 4 or 5 years? The deficit
    only goes from the baseline number of 3.3 percent to about 2.7 percent
    of GDP. We still have a big, big deficit problem.
        My question is, how do you feel about the proposals for process
    reform that I gather are gaining some currency in the Congress, to put
    the spending caps on the entitlement programs, the nondiscretionary
    programs, as well as the discretionary programs, with the fire walls and
    with the sequestration. How do you look at that whole issue of process
    reform to deal with this underlying problem of a deficit that doesn't
    seem to come under manageable proportions?
        The President. I want to answer it, but I'd like to ask for--where
    did those charts go? Are they still up here? I just wanted the first one
    back to try to highlight the point you're making. Just bring me back the
    first one, the one with the red and blue lines.
        This is what he's talking about. This line here ought to go down to
    here. And I want to answer your question, but I've got to put it into
    context. This deficit here is actually about--it's more, it's about--
    it's over 5 percent of GDP, and we're going to cut it from 5.2 down to
    about 2.7 or 2.6 here, to a pretty good cut. But it does continue to
    increase the total national debt by what's down here.
        Now, in the mid-seventies, I started looking at what other countries
    had done on this. This is not an unusual problem for a Western country
    with a lot of support systems coming out of the Government and
    difficulty generating jobs and income. I mean, a lot of these Western
    countries are in the same shape we're in, and I include Japan with that.
        Japan had a huge operating deficit in the mid-seventies. And they
    had a 10-year plan to bring it into balance which they did over a 10-
    year period, thinking that to rush it any faster might cause a
    recession, but to delay it would be a terrible mistake. So I thought to
    myself, maybe we could do it in 8 or 9 or something like--in that range,
    if we could just deal with this. This is where you have to take the
    curve down.
        Now, to get the curve down, I can just tell

    [[Page 830]]

    you, we have to do a number of things. But let me say what we cannot do
    and then what we must do, and then I'll come back to your cap device.
    There is a limit to how much we can responsibly cut defense within a
    short time. I think we are right at that edge. I do not want to cut any
    more in this 5-year budget. Based on what we now know, we are at that
    limit, unless there--the only other way you can do it that I know of is
    the Vice President has this reinventing Government task force on. If we
    can have significant procurement reform, we might be able to have some
    savings. But in just terms of ``slash and burn,'' we don't need to do
    any more in my opinion.
        Secondly, as I said earlier, there are some things that any
    government has to do to maintain its competitiveness. And thirdly, there
    are just human concerns that have to be taken care of, even though
    they're subject to constraints of the budget. For example, a lot of
    people don't know this, but actual out-of-pocket costs on welfare and
    food stamps haven't kept up with inflation in the last 10 or 15 years.
    The reason those costs have gone up is that there's a whole lot more
    poor people. You've got 1 in 10 Americans on food stamps now.
        But this number, anyway, to go back to his comment, is being driven
    by two things. One is the entitlements and the fact that things like
    retirement, wages, Social Security, and whole lot of other things have
    automatic cost escalators. The one that is not a problem is Social
    Security. Social Security is no more of our national income than it was
    20 years ago, and the tax is higher. And it's producing a $60 billion a
    year surplus that makes our deficit look smaller than it is. If
    anything, the payroll tax is too big. But it is producing that.
        On the income tax side, what you've got, though--here's the problem
    with paying for the rest of that stuff that's paid for with income
    taxes. We are now indexing income taxes, which is fair. That is, people
    don't get pushed into higher brackets by inflation. But the flip side of
    that is, if you index income taxes downward and you index income upward
    for people who are getting tax money, you don't have to be a
    mathematical genius to realize that there is a conflict there. Then, if
    you have health care costs increasing at 2 and 3 times the rate of
    inflation--because you've got more people on the Government rolls, about
    100,000 a month losing their health insurance; you have more people on
    the Government rolls, prices going up and the ability to churn the
    system, if there's a fee-for-service system, you've got some real
    problems.
        There are several suggestions which have been made that would
    essentially require us over the next 5 years to adopt a disciplined
    system of bringing the cost of entitlements in line with inflation, plus
    population, to be fair. They're all acknowledging that if there's a
    growth in poverty or an unexpected downturn in the economy, we would
    take that into account. I would be open to that as a part of the health
    care reform issue. That is, what I would like to see is the budgetary
    discipline on the entitlement issue taken up with health care reform for
    this reason: If we impose the entitlement caps and we don't face health
    care reform because it's too controversial or we can't bear to do it,
    then if the entitlement caps trigger, we will be massively shifting our
    cost to you, like I said earlier.
        The other tough decisions can be made within the budget discipline.
    But the health care cost issue which is driving it, in my judgment,
    should be dealt with at the time we impose the overall entitlement
    restrictions over a 5-year period. That protects the employers and the
    employees of the country from having mass cost-shifting and forces us to
    make the tough decisions in Government. But anyway, I know it's a long
    answer, but I had to explain it in the context that we're operating.
        There was a question over here, I think.

    Superfund

        Q. The Business Roundtable believes that the only way to fix
    Superfund is to make some fundamental change in the law. If you agree,
    would you support a legislative fix?
        The President. To change the Superfund?
        Q. Yes.
        The President. Oh, sure I would, but I would want to know what the
    details are first. But I agree that it needs to be changed, and I'm
    certainly open to changing it. Lawyers are making more money than
    cleanup folks are right now.
        Let me say as a general proposition on the spending issue, too,
    there are two other opportunities that the Congress and the President
    will have to deal with, Government spending and the efficiency of
    Government programs, this year in addition to this reconciliation
    process

    [[Page 831]]

    which is going on, and that is that all the appropriations committees
    are reviewing all their spending.
        Keep in mind, what you see now in the budget only includes tax cuts
    or tax increases and the entitlement programs and the overall spending
    limits. The specific programs, whether they're cut, increased, or kept
    the same, that's all handled by the Appropriations Committee, and that's
    going on now, too. And that will offer other opportunities for dealing
    with the spending issues.
        And the third thing that's going to happen is in September the Vice
    President is going to come in with this report about reexamining the
    whole functioning of the Federal Government, and that will open a new
    avenue of opportunities for dealing with a lot of these issues also.
        Is there another question back there? I thought I saw one more hand
    up. The boss here says we can do one more. Am I going to get out without
    one more? I accept if--go ahead. I'll do two more. Mr. Morecott once let
    me play golf with him, so I owe him a question. [Laughter]

    Trade Negotiations

        Q. Mr. President, we heard this morning, some of us, from Mickey
    Kantor about trade issues, North American trade agreement, Uruguay
    round, and negotiating with Japan. Can you just comment on those
    subjects briefly, starting with NAFTA?
        The President. Yes. I'm for it, number one. I'm for it.
        Number two, we can't pass it in the House of Representatives today,
    but I think we'll be able to when the time comes.
        Number three, the reason we can't pass it and what we're doing with
    the Mexican and the Canadian Governments are tied together but not--it's
    not an exact fit, but let me--you know that there's just an awful lot of
    economic insecurity out there now in this country. And a lot of the
    Members are rebelling against NAFTA because they see it as the first
    trade agreement we've ever made where we're making investment easier in
    another country for the purpose of setting up production to sell in our
    market, not theirs.
        So that's the basic tension, because of the wage differentials. My
    argument back is the argument that most of you would make, I think,
    which is that, first of all, you've got a free-market oriented
    government in Mexico that has unilaterally dropped trade barriers and
    taken us from a $5 billion deficit to a $6 billion surplus in trade,
    creating an awful lot of jobs in America.
        Secondly, two-thirds of our new jobs in the last 3 or 4 years have
    come from expansion of trade. Our unemployment problems today are
    directly related to the fact that our economy, even though it's in a
    fragile recovery, is in better shape than a lot of other economies which
    is making our trade situation worse because people don't have the money
    to buy our products.
        What will happen in Asia and in Europe is unpredictable in the years
    ahead, but we believe we need to establish a relationship not only with
    Mexico but with the other market economies to the south. Opportunities
    with Chile, with Venezuela, with Argentina, with all kinds of other
    countries could open up. So I'm for it.
        What Mickey Kantor--he's already talked to you about this--but we're
    trying to get an agreement on labor standards and the environment with
    the Mexican and Canadian Governments which would enable us to have some
    sort of enforcement mechanism, not only if there is one violation but if
    there is a whole pattern and practice of violations as found by a
    neutral finder of facts. So that's what we're trying to work out. My gut
    feeling is that will get worked out pretty soon. We'll go forward with
    it, and we will pass it. That's what I think will happen.
        On GATT, as you probably saw in the press this morning, the French
    Government has withdrawn some of its objections on the agriculture
    points of view. That makes me elated. I think that's where--that's a
    real winner for us and is likely to face less opposition in Congress.
        Not very long ago, I met with the central bankers and the finance
    ministers of the G-7. And I told them that on behalf of the United
    States I would make exceptional efforts to get a GATT agreement if they
    would, and I thought we ought to stop talking about it and do it and do
    it before the year is over because we all needed the global growth. And
    so I'm hopeful there. And I think the French action is a big plus, and I
    thank them for that.
        On Japan, basically, we're trying to move toward a more results-
    oriented trade policy with Japan, not to get to the managed trade quota
    point that they're criticizing us for but in recognition of the fact
    that there are several areas where by any objective measure we are
    competi-

    [[Page 832]]

    tive in price and quality for various products and services. And while
    they don't have stated tariffs and quotas and barriers that keep us out,
    we nevertheless aren't in and don't get in and can't get in. And so what
    we're trying to do is to find our way into dealing with that issue on
    the theory that it's just--I don't want to close American borders to
    Japanese products, but I do expect more opportunities for Americans in
    Japan if we're going to play this.
        I know the Japanese have been very harsh in their criticism of our
    new approach. But that could be because it might work. And I know that
    they've been harsh in their criticism, but I also know that,
    notwithstanding all of the problems around, they not only have a massive
    surplus with us, they're about the only country I know that's got a
    massive trade surplus with all the Third World countries they deal with,
    all of them.
        So I just think a new approach is called for. And I say that not in
    the spirit of hostility. I think I probably have more pure admiration
    for Japan and what they do right and well than any other person that's
    ever held this job. But I know what's happened to American productivity
    growth in the last 5 or 6 years. And I know what we can do there if
    given the chance. And I think we've got to do our best to do it.
        If you think we're on the wrong track, feel free to tell us. But I
    believe we've got to keep pushing forward to try to show you some
    results from all this talking. We've been talking until we're blue in
    the face for a long time now. I'd like to show a little bit of result.
        Q. That was the question I had.
        The President. Let me just say to all of you, we're going to need
    your help on NAFTA because to pass it, the Congress, and particularly
    the House, must believe that over the long run it is good for American
    jobs and incomes. I believe it is. I believe it is. I wouldn't be for it
    if I didn't think it was. And it just doesn't make sense to me that we
    can ever grow this economy unless we expand the number of our trading
    partners and unless we are doing more trade with people whose incomes
    are rising rather rapidly.
        The Mexicans have reached out their hand to us. I want to reach out
    my hand to President Salinas. And I think we can get over this
    negotiating impasse we're at now and then go forward. And that's what I
    intend to do.
        Thank you very much.

    Note: The President spoke at 3:22 p.m. at the J.W. Marriott Hotel. In
    his remarks, he referred to John Ong, chief executive officer, B.F.
    Goodrich.