[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

[[Page 826]]

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.