Software Vault: The Gold Collection/Software Vault - The Gold Collection (American Databankers) (1993).ISO/cdr11/wh930610.zip/06-10F.TXT

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From @lex-luthor.ai.mit.edu:[e-mail]  Thu Jun 10 19:47:48 1993
Date: Thu, 10 Jun 1993 16:50-0400
From: The White House <[e-mail]>
To: [e-mail],
Subject: President's REmarks to Business Roundtable 6.9.93



                           THE WHITE HOUSE

                    Office of the Press Secretary
______________________________________________________________
For Immediate Release                               June 9, 1993


                       REMARKS BY THE PRESIDENT
                        TO BUSINESS ROUNDTABLE

                         J.W. Marriott Hotel
                           Washington, D.C.

3:22 P.M. EDT

         THE PRESIDENT:  Thank you.  (Applause.)  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
CEOs 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 four 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 1970s, 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 75 years.  That is plainly an
unacceptable rate.  Many unhappy trends accelerated during the 1980s
and into the 1990s.  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 1990s.  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 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 1980s, 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 1980s.

         I want to say again how very grateful I am for the
people who have supported this program, from the CEOs of companies
like Anheiser-Busch, ARCO, Ford, Nations Bank, Sarah Lee, Tenneco,
TRW, Apple, Xerox and others, to the Homebuilders 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 three or four
months; number two, they were astonished to know who was for it.

         The other day, the Homebuilders 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 seven-
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 time during World
War II in the last four 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.

         These 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 1980s, 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-'80s, 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
two and three 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 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 increases in all manner
of ways.  That now -- first they started off saying it was three to
one; now they're saying it's six to one.  Again, I will say that this
is the crowd that gave you the deficits of the '80s, 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 -- 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 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 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
the incomes -- 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 and
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 applied to
new spending.  I've been criticized because I've advocated some
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 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 six percent.  Now,
that tracks income growth and tax reductions in the '80s.  That is,
it reverses the fact of the '80s where middle-class taxes were
increased though 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 four months ago that
by June 1st unemployment would drop below seven 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 seven-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 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 five years from now?  It would be hard for all of you to adopt
five-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, that 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 advisor 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 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.  (Applause.)

         Q      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?

         Q      Mr. President, as one who just refinanced my own
home mortgage, I want to thank you for that.  (Laughter.)

         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 hear 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 if
you -- 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 value -- the total money raised -- and make it up
in various kinds of cuts.  And that would -- 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 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 slight 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.

         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 four or
five-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 four or five 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 if you -- 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 percent down to about 2.7
percent or 2.6 percent 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-'70s, 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-'70s.  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 eight or nine 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 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
anymore in this five-year budget.  Based on what we now know, we are
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 anymore 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 one 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
two and three times the rate of inflation -- because you've got more
people on the government roles, about 100,000 a month losing their
health insurance; you have more people on the government roles,
prices going up and the ability to churn the system, if there's a
fee-for-service system, you've got some real problems.

         Now, that brings me to his -- there are several
suggestions which have been made that would essentially require us
over the next five 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.

         So I'm willing -- 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 five-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.

         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.  (Laughter.)  But I agree that it
needs to be changed, and I'm certainly open to changing it.  It's --
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 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.)

         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.  (Laughter
and applause.)  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 Mexicans 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 is 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 three
or four 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 on if there
is one violation, but if there is 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 it's 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 the 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've 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 whereby any objective
measure we are competitive 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.

         And if you look -- 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 every held this job.  But I know what's
happened to American productivity growth in the last five or six
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.

         And I think -- 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.  (Applause.)

                                 END4:13 P.M. EDT