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                          A Vision of Change For America

                                 Table of Contents

A New Direction

Legacy of Failure
   Anemic Recovery from Recession
   Stagnating Productivity and Living Standards
   Underinvestment and Slow Growth
   The Alarming Rise in Inequality
   A Government That Doesn't Pay Its Way
   Why Deficits Matter
   Skyrocketing Health Care Costs
   A Government That Doesn't Work Well
   The Price of Not Changing

What We Must Now Do
   Change is Imperative
   Economic Assumptions
   Ensuring Economic Recovery and Creating Jobs: Economic Stimulus
   Investing in the Future: Increasing Public Investment
   Investing in the Future: Reducing the Deficit to Increase Private Investment
   Restoring Fairness
   Making Government Work Better

The Task Remaining
   The Perils of Inaction
   The Role of Health Care Costs
   Conclusion: A Vision of Change for America

Appendix


We have heard the trumpets. We have changed the guard. And now each in our
own way, and with God's help, we must answer the call.

                                                    President Bill Clinton
                                                    January 20, 1993


February 17, 1993

TO THE CONGRESS OF THE UNITED STATES:

To accompany my address to the Joint Session of the Congress, I am
submitting this report, entitled A Vision of Change for America. This
report describes the comprehensive economic plan I am proposing for the
nation.

I am asking you to join with the American people in their call for change.
My vision is one of fundamental change to invest in people, to reward hard
work and restore fairness, and to recognize our families and communities
as the cornerstones of America's strength.

For more than a decade, our government has been caught in the grip of the
failed policy of trickle-down economics. While the rich get richer,
middle-class Americans pay more taxes to their government and get less in
return. My plan will put an end to government that benefits the privileged
few and mark the beginning of an economic strategy that puts people first.

My plan has three key elements: economic stimulus to create jobs now while
laying the foundation for long-term economic growth; long-term public
investments to increase the productivity of our people and businesses; and
a serious, fair, and balanced deficit-reduction plan to stop the
government from draining the private investments that generate jobs and
increase incomes.

The change will not be easy, but the cost of not changing is far greater.
We must ensure that our children's generation is not the first to do worse
than their parents. We must restore the American dream.

We have already heard the clamor of the powerful special interests who
oppose change because they profit from the status quo. But the American
people have demanded change, and it is our responsibility to answer their
call. With that in mind, I ask for your help and support to restore our
economy and give our people hope.
                               A New Direction

When our Founders boldly declared America's independence
to the world and our purposes to the Almighty, they knew that America
to endure would have to change; not change for change sake, but change
to preserve America's ideals: life, liberty, the pursuit of happiness.

Bill Clinton
Inaugural Address
January 20, 1993


Throughout our history, at every critical moment, Americans
have summoned the courage to change, to adapt our nation's policies
and institutions to address new problems in a changing world. Today
we must once again find the courage to change. We must shift our energies
from the Cold War priorities of the past to the economic priorities
of the future. And we must reverse the distorted trends of the last
twelve years slow growth, stagnant family incomes, growing inequality,
an increase in poverty among children, soaring health care costs,
and rising fiscal deficits as far as the eye can see.

It is not enough simply to stay the course. We must
change our course. In the words of Abraham Lincoln, "We must think
anew and act anew ... and then we shall save our country."

Americans have an underlying vision that has sustained
us through previous challenges and that will sustain us through the
challenges we now confront. It is a vision of economic and political
freedom, of the rewards of hard work and initiative, of a fundamental
sense of fairness, of the family and the community as the foundations
of our strength, and of every generation's obligation to create a
better life for the one that follows.

In recent years, our leaders lost sight of this vision.
They embraced trickle-down policies that benefitted the wealthy at
the expense of the middle class and the working poor. We have deluded
ourselves that somehow economic growth and fairness are at odds, when
in fact they go hand in hand. While the privileged few have prospered,
millions of Americans who worked hard and played by the rules have
been left behind.

Our family structures have weakened, often as a result
of economic adversity and government negligence. Greed and financial
scheming have eclipsed the virtues of hard work and sacrifice for
the common good. Debt has soared as individuals, businesses, and
governments have lived beyond their means. Our commitment to invest
in the future and to bequeath a promising future to our children has
somehow fallen by the wayside.

In this report, we share our economic vision for America.
We attempt, candidly and forthrightly, to explain the challenges that
face us. For too long, bland pronouncements and fiscal gimmicks have
obscured harsh economic realities. We offer, instead, a detailed plan
that can, if we work together, transform our vision and values into
reality.

First, we seek an America that can provide rising living
standards for all of its citizens. To achieve this, we must fundamentally
shift our spending priorities away from consumption to investment.
Investment is the key to a growing economy that produces good jobs
and high-quality goods and services for ourselves and for the international
marketplace. We must invest more in our people, our plant and equipment,
our infrastructure, and our research and development if we are to
restore the American dream for our children.

Second, we seek an America that provides opportunities
for all who want to work hard and play by the rules and that offers
assistance to those who want jobs but cannot find them. We seek meaningful
opportunities for all Americans not just for a privileged few.
We must give all of our people a chance to acquire the skills they
need to succeed, understanding that in today's world, education is
a lifelong process. We must support parents in their efforts to balance
the demands of work with the needs of their children. And we must
commit to fundamental change in our health care system, to control
skyrocketing costs and provide security for every individual and family.

Third, we seek an America that fosters a spirit of responsibility
and service to community among its citizens. People must feel responsible
not only for improving their own lives, but also for helping those
in need. We must reject the idea that the individual stands in opposition
to the community and embrace the idea that we are all members of the
same community. There is no them; there is only us.

Fourth, we seek an America in which the government is
viewed not as the enemy of prosperity but as a partner with the private
sector working to foster growth. Only a government that works can
ensure that view. Government must be accessible to those it serves
and to those who pay its bills. It must be responsive to their concerns.
It must be run efficiently and well with respect for the tax dollars
on which it depends. It must be financed by a fair tax system that
rewards work and requires a fair share from those most able to pay.
And it must pay its way and live within its means.

Fifth, we seek an America that recognizes the importance
of the environment to the quality of our life, rejecting false choices
between economic prosperity and environmental quality. We must demand
both for our future, not sacrifice one for the other.

Sixth, we seek an America that is prosperous and confident
enough to continue its role as a world leader. The nations of the
world look to us to strengthen the international trading system, to
preserve the global environment, to nurture the growth of democracy,
and to maintain global peace and security. Whether we will continue
to shoulder these global responsibilities depends on whether we
successfully overcome the economic problems we face at home.
If we fail, America, like other global powers that preceded it,
will ultimately be defeated not by external power but by internal weakness.

Productive jobs and rising standards of living; opportunity
and fairness for all Americans; responsibility and community; a government
that works and that continues to meet its global commitments. That
is our vision. To achieve it, we must change our course.
                           A Legacy of Failure

Raised in unrivaled prosperity, we inherit an economy that is still the
world's strongest, but is weakened by business failures, stagnant wages,
increasing inequality and deep divisions among our own people.

Bill Clinton


The election of 1992 was a mandate for change and no wonder. Twelve years
of neglect have left America's economy suffering from stagnant growth and
declining incomes. They have left the average American family worried
about its future, working harder, and getting less in return. The specter
of rapidly rising health care costs threatens every family and business.
They have left a mountain of debt and a Federal Government that must
borrow to pay more than a fifth of its current bills. Perhaps most sadly,
they have left the great majority of our people no longer dreaming the
American dream. Our children's generation may be the first to do worse
than their parents.

Such is the sorry legacy of 12 years of short-sightedness, mismanagement,
and protection of the privileged. All of this must be changed.


Anemic Recovery from Recession

The U.S. economy grew very slowly in the late 1980s and slid into
recession in the summer of 1990. Sales and profits fell. Unemployment
rose. The National Bureau of Economic Research says that the recession
ended in March 1991. For most Americans, however, the recession has not
ended. The great American job machine has ground to a halt, and the
unemployment rate is higher than it was at the recession's official end
(Chart 2-1). The fraction of the unemployed who have permanently lost
their jobs is near its record high (Chart 2-2).

The 1991-93 recovery has been called a "jobless" recovery a description
that is all too apt (Chart 2-3). The reason is simple: few new jobs have
been created because production has grown so slowly (Chart 2-4). Until the
last two quarters, this was not a recovery worthy of the name. That is the
first thing we must change.

In a strong, durable recovery, people go back to work in great numbers,
and are able to earn the incomes they need to buy the goods and services
that economic growth produces. The increase in sales stimulates
investment, and thus generates still more jobs. The process sustains
itself until the economy is producing at its full capacity and the labor
force is fully employed.

Recently, however, recovery has been slowed by powerful forces that are
reducing the numbers of jobs. Key industries are laying off workers to
become leaner and more competitive. The defense sector is downsizing to
reflect the new realities of the post-Cold War world.

Already we have seen the recovery process begin twice, only to sputter
when early signs of growth were not followed by solid gains in employment.
Now, once again, the long-dormant American economy seems to be waking up.
This time, we must be absolutely sure that the recovery is strong enough
and durable enough to put Americans back to work. The stimulus component
of the Clinton economic program is an insurance policy designed to make
sure that the recovery does not falter again. It is also a downpayment on
the long-term investments that will encourage lasting economic growth.


Stagnating Productivity and Living Standards

But mere recovery from recession is not good enough if we return to the
trickle-down policies of the 1980s. America's economic problems are deeper
than a temporary lull in economic activity. We must aim not only for more
jobs, but also for better jobs at higher wages. We must aim not only to
produce at our current capacity, but also to add to our economy's capacity
to create a better life for all.

The productivity of American labor what an average worker produces in an
hour has been growing at an agonizingly slow pace for about two decades.
In turn, real wages have stagnated (Chart 2-5) and family incomes have
advanced at a snail's pace. These developments, more than anything else,
explain why the American dream is fading for the average worker.

Even a small improvement in a nation's productivity growth rate can yield
much higher standards of living in the long run. Had real hourly
compensation grown at 2.0 percent a year since 1973, instead of the actual
0.7 percent gain, average American workers would make almost $5.00 per
hour more (Chart 2-6). Increasing productivity growth will have a direct
and positive impact on living standards. We simply must do better.


Underinvestment and Slow Growth

The slowdown in productivity growth is partly mysterious, even to experts
who have studied it for years. But no one doubts that part of the cause is
that as a nation we have underinvested: in private business capital, in
public capital, and in "human capital" the skills and capabilities of the
American workforce.

Chart 2-7 shows that the United States devotes a smaller fraction of gross
domestic product (GDP) to business investments than do the other major
nations with whom we compete in the international marketplace. Chart 2-8
shows that American governments at all levels have been spending a
decreasing share of our total resources on civilian public investment
including both physical investment and the research and development that
underpins future growth. Studies indicate that additional investment in
private and government R&D, and in public infrastructure, could yield
substantial economic benefits.

We have also underinvested in education and training. American students
routinely score far below their counterparts in other industrial countries
on tests of mathematical competence and scientific knowledge. Moreover,
recent evidence also suggests that the demand for more highly trained,
better-educated workers has been outrunning the supply. Chart 2-9 shows
that the wages of college graduates have advanced far faster than those of
high school graduates since 1978; similarly, the wages of high school
graduates have risen faster than the wages of nongraduates. These growing
wage gaps indicate that the financial returns to education have been
rising.

This evidence suggests that more investment is vital to raising the growth
rate of productivity and boosting living standards. We must invest more in
business capital, in public infrastructure, and in the skills of our
people. Our future has been shortchanged for too long. We owe it to our
children to change course now. The Clinton program will do precisely that.


The Alarming Rise in Inequality

Throughout the 1980s, slow growth in living standards was accompanied by
growing inequality. The rich got richer while the middle class paid more
in taxes and fell further behind. In fact, income gains were so
concentrated that people at the bottom of the income scale actually lost
ground: measured in inflation-adjusted dollars, their incomes fell between
1977 and 1991. The rising staircase in Chart 2-10 depicts a simple but
doleful message: During this period, the richer you were, the better you
did.

Behind these statistics lay very real problems. Middle-class families grew
disillusioned and cynical while they worked longer hours but had trouble
making ends meet. Tens of millions of families lived in fear of losing
their health insurance; 37 million had none at all. The working poor were
forced to choose between feeding their children and heating their homes.
Hopelessness bred violence in America's inner cities. The nation drifted.

It is time to reverse that drift and reorder our priorities. It will
require those who have profited to bear the greatest burdens and do right
by the people who work hard and play by the rules. Our economic plan will
redress the inequities of the 1980s.


A Government That Doesn't Pay Its Way

For more than a decade, the Federal Government has been living well beyond
its means spending much more than it takes in, and borrowing the
difference. The annual deficits have been huge, both in dollars and as a
percent of GDP (Chart 2-11). As a result of all this borrowing, the
Federal debt has grown as a percentage of GDP since 1981, reversing three
decades of decline (Chart 2-12).

The Federal deficit is currently swollen by two temporary factors. One is
the recession, which has reduced revenues and increased expenditures to
aid those adversely affected; the other is increased borrowing for the
savings and loan cleanup. Even when these temporary factors are behind us,
however, a large structural deficit will remain. The structural deficit
the deficit that would be there even if the economy were producing at full
capacity and the savings and loan cleanup were complete was 3.4 percent of
GDP in 1992. The really bad news is that the structural deficit not only
will remain but will grow even faster than the economy unless the
Government changes course.

The problem of the structural deficit is rooted in the early 1980s, when
we cut income taxes and massively increased defense spending. Subsequent
tax hikes in particular, large increases in regressive payroll taxes and a
slower growth of defense spending during the second half of the 1980s
temporarily halted the growth of the structural deficit. Nonetheless, the
structural deficit remained huge by historical standards, and it once
again began to climb relative to GDP by the early 1990s. Without a real
deficit reduction program, the structural deficit will exceed 4 percent of
GDP by 1997, rivalling the highs of the mid-1980s, and it will grow at an
accelerating rate as a percent of GDP.

At first glance, slowly growing revenues and rapidly rising outlays, both
aggravated by the economy's slowdown during the last two years, appear to
be responsible for our deficit problem. Correcting for these recession
effects, the share of Federal revenues in GDP is 0.5 percent less than it
was at the beginning of the 1980s, while the share of Federal outlays has
increased by 1.1 percent. These trends in total revenues and outlays,
however, mask some important changes in how the Government raises its
revenues and spends its money.

Major reforms of the Social Security system in 1977 and 1983 sharply
raised taxes, stabilized benefits as a percentage of total Federal
spending and caused an accumulation of large surpluses in the Social
Security trust fund. But taxes to support the rest of the Government's
activities have been cut by as much as Social Security taxes have been
raised.

Adjusting for cyclical effects, the share in GDP of revenues to support
the Government's other spending programs has actually shrunk by about 1.5
percentage points since 1980. And the surpluses in the Social Security
fund have been used to fill the gap. Instead of adding to national savings
to fund the retirement of the baby boom generation early in the next
century, these surpluses have camouflaged the true imbalances in the
Government's revenue and spending streams. Consequently, if we do not
change course and revitalize our economy, redeeming the IOUs held by the
trust funds will require major tax increases when the baby boom finally
retires.

While Government spending has increased, its composition has changed.
After a sharp increase in the first half of the 1980s, defense spending
currently accounts for about 22 percent of total Federal outlays, down
slightly from its 1980 share. Spending on non-defense discretionary
programs has fallen sharply, from about 24 percent of total spending in
1980 to about 17 percent today. During the same period, public investment
by the Federal Government measured as the sum of outlays for non-defense
physical capital, non-defense R&D, and education and training has fallen
from 8.2 percent to 6.3 percent of total outlays.

In contrast, health care Medicare and Medicaid and interest payments on
the debt have claimed increasing shares of total spending. Between 1980
and 1992, spending on Medicare and Medicaid rose from 7.8 percent to 13.3
percent of total government spending. To make matters worse, large annual
deficits, together with high interest rates for more than a decade, have
swollen net interest payments on the debt. Interest payments now amount to
almost $200 billion a year. About three-quarters of the money the
Government borrows this year will go to pay interest on the debt piled up
from previous years.

Unless there are meaningful changes in policy, sharp continuing growth in
health care costs and self-perpetuating growth of interest on the debt
will overwhelm projected revenue growth and cuts in defense spending. The
Federal deficit will continue to balloon out of control unless we change
course.


Why Deficits Matter

Deficit reduction is not an end in itself. It is a means to the end of
higher productivity, rising living standards and the creation of high-wage
jobs. In short, it is about securing a better economic future for
ourselves and, even more importantly, our children.

Huge structural budget deficits are harmful for a simple reason: when the
economy is not in recession, each dollar the Federal Government borrows to
finance consumption spending absorbs private savings that would otherwise
be used to increase productive capacity. Large, sustained budget deficits
mean that we must either reduce our investment at home or borrow the money
overseas.

This drain on our savings has caused anemic domestic investment,
especially in comparison with most other advanced industrial countries
(Chart 2-7). It has retarded growth in productivity and living standards.
Meanwhile, borrowing from the rest of the world to maintain investment at
even today's depressed levels has increased interest payments to foreign
lenders. In effect, we have signed over some of the fruits of today's
productivity-enhancing investments to the children of Europe and Japan,
rather than preserving them for our own.

Regardless of whether the debt is owed to foreigners or U.S. citizens, the
interest obligation requires higher taxes. Moreover, our skyrocketing
interest costs squeeze out revenues that would otherwise be available for
other priorities. Since 1988, for example, net interest alone has risen by
$50 billion, making interest payments the fastest growing Federal
"program." This mounting interest burden mocks our efforts to fund token
initiatives for pressing social needs: next year's projected increase in
interest payments by itself could fully fund the Head Start program five
times over.

As a result, the nation has suffered from another deficit the deficit in
public investment in education, training, infrastructure, and civilian
technology. Like private investments, well-chosen public investments raise
future living standards. Deficit reduction at the expense of public
investment has been and will continue to be self-defeating. The Clinton
plan is explicitly and emphatically aimed at reducing the deficit while
increasing much-needed public investment. One without the other will not
work.

Beyond the quantifiable benefits of deficit reduction greater investment
and economic growth are unquantifiable but no less important benefits.

First, deficit reduction could allay anxiety in financial markets. Large
and growing structural deficits could destabilize global capital markets
because of the growing drain of government borrowing on available funds.
Such anxieties help explain why historically high long-term real interest
rates persist despite a weak economy. The threat that the United States
might ultimately inflate the dollar to depreciate its runaway debt
obligations raises the specter of a spike in interest rates, a collapse of
the dollar, or both.

Second, a credible effort to reduce our structural deficit will improve
our ability to coordinate macroeconomic policies with our major trading
partners, who are concerned about our deficit's drain on global capital
markets. Putting our fiscal house in order will improve our leverage in
international negotiations.

Finally, deficit reduction will help break legislative gridlock and
reverse public cynicism about government. Large deficits have virtually
assured that each legislative session has been dominated by the deficit
debate, encouraging budgetary quick fixes that have shortchanged the
nation's long-term public investment needs and created a deficit of trust.


Skyrocketing Health Care Costs

Another legacy of the past 12 years is the crisis of rapidly escalating
health care costs a crisis that threatens the security of every American
family and business. In 1992, Americans spent $840 billion on health care,
or 14 percent of GDP compared with about 9 percent of GDP only a dozen
years ago (Chart 2-13). At this rate health spending will reach an
astonishing 18 percent of GDP by the year 2000: Americans will be devoting
almost one dollar of every five they earn to health care, and the average
family's health costs will rise to almost $10,000 a year.

Rising health care costs are straining the budgets of families,
businesses, and government. They are eating up incomes and squeezing out
other spending. Individuals are facing soaring insurance premiums and
rising out-of-pocket bills. Skyrocketing premiums have forced many
businesses to drop or curtail health coverage for their workers, swelling
the ranks of the uninsured. More than 37 million people do not now have
insurance coverage. Many are dependent on hospital emergency units for
care.

Inflation in health care costs is also robbing government budgets of
scarce resources needed for critical investment in our future education,
job training, infrastructure, and technology development. If current
trends continue, by 1998 the Federal Government will spend one in every
four dollars on health care (Chart 2-14). State and local spending for
health will rise over the same period from 14 to 18 percent of total
outlays. Exploding health costs threaten funding for other public
priorities.

The rise in health care costs now projected will consume between 25 and 35
percent of total projected GDP growth for the rest of the decade and will
account for over 40 percent of the total increase in Federal spending. In
short, containing health care costs has become an economic imperative.
Indeed, the potential "health dividend" is far larger than the peace
dividend promised by the end of the Cold War. If America spent the same
share of GDP on health as our main international competitors do, last year
alone we would have had $230 billion more to invest in our people.
Similarly, if spending by employers on health insurance had remained at
the 1980 percentage of total compensation, cash wages for the average
worker could have been $670 a year higher in 1991 without affecting
corporate profits.

Despite these bleak statistics, widespread evidence suggests that we can
control health care costs and maintain quality. Other advanced industrial
nations have levels of health spending substantially below ours and have
controlled cost growth more successfully even while providing care that
matches and often exceeds our own. Their success offers a strong basis for
hope as we step up to the challenge of fundamental change.


A Government That Doesn't Work Well

Finally, it is clear that the American people have lost confidence in
their government. They believe that government has gotten too big, that it
is out of touch with its citizens, that it wastes money, that it is
ill-equipped for taking on the country's problems or, worse, that it
causes those problems and hears only the voices of the privileged few.

In too many cases they are right. We cannot deny the evidence.

 *   Billions of taxpayers' dollars have been lost to fraud and abuse. The
     worst examples scandalous military purchases, sweetheart deals, the
     saving and loan debacle, and abuse of government perks have made
     headlines, but many remain hidden. We must crack down on these hidden
     scandals and catch problems before they occur, not after.

 *   Millions of Americans every year must deal with the maze called
     "Federal bureaucracy." The American people deserve a government that
     treats them like customers, by giving them more choices and stripping
     away unnecessary layers of management and red tape.

 *   The size and cost of the Federal Government has grown over the past
     twelve years. Despite many promises, administrative costs have
     increased and special perquisites for high-level officials have
     proliferated. That is why we have already made real cuts in the
     Executive Branch and will do so over the coming years.

Our political system has failed to address many of the most urgent
problems facing the American people health care, declining incomes, job
loss, budget deficits. A large part of the blame must go to the lobbyists
and special interests who profit from the status quo. All too frequently
they control the agenda or use their campaign contributions to dominate
the debate. Even as government did less, the ranks of the special
interests grew. By the decade's end, some 80,000 people will make their
living pleading the causes of the special interests. To break the
stalemate in Washington, we must attack the problem at its source:
entrenched power and money.

The Clinton Administration is determined to meet a double challenge.
First, we must cut the waste and make government operations more
responsive to the American people. It is a time to shift from top-down
bureaucracy to entrepreneurial government that generates change from the
bottom up. We must reward the people and ideas that work and get rid of
those that don't.

Second, we must restructure government to deal with new realities, both
foreign and domestic. Our defense and foreign affairs agencies must be
reorganized to reflect the new problems of the post Cold-War era and the
global economy. We must also reinvent our domestic agencies to serve us
more effectively in the twenty-first century.

Public cynicism about government is not merely a political problem. Making
our government more responsive and improving the way it works is essential
to the future of our children and our democracy.


The Price of Not Changing

Reversing the legacy of the last twelve years will not be easy. Nor will
it happen overnight. But the cost of clinging to the status quo will be
born by every family and by our children and their children. Consider:

(1) If we do not change, we could continue to have epidemics of measles
and other preventable childhood diseases; if we find the courage to
change, we could immunize every child.

(2) If we do not change, a college education could become the domain of
the privileged; if we find the courage to change, hundreds of thousands of
Americans could go to college in exchange for national service.

(3) If we do not change, health care costs will continue to terrorize our
families. If we find the courage to change, all Americans can have
affordable quality health care.

(4) If we do not change, the deficit will continue to grow and incomes
will stagnate. If we have the courage to change, we can have a higher
standard of living and a government that pays its way.

The stakes for every American's standard of living are enormous. From
World War II to the early 1970s, we grew more productive year by year and
our standard of living doubled. At today's anemic rate of growth, our
standard of living will no longer double every generation but once every
100 years. If we do not summon the courage of change, our legacy will not
be worthy of the nation we have inherited.

Continuing the failed policies of the past twelve years is a choice
without a future. To restore our nation's economic vitality and reclaim
our vision of America, we must change course. And we must do it now.
                             What We Must Now Do

To renew America, we must be bold.

Bill Clinton


Change Is Imperative

To reverse the legacy of failure and move toward our vision of the future,
drastic changes in Federal policy are needed. We must soberly take stock
of where we are and dedicate ourselves to revitalizing our economic future.

The over-arching theme of the Clinton Administration's economic plan is
increasing public and private investment in the broadest sense. To ensure
more productive, higher-wage jobs and greater economic opportunities for
ourselves and our children, we need to devote a larger share of our
current resources to modernizing factories and equipment, developing
skills, and accelerating the advance of technology. We must increase the
share of the Government's budget devoted to investment in future growth
and must create incentives for the private sector to shift from
consumption to investment. The need to increase investment motivates all
three elements of the Clinton economic plan: stimulus, investment, and
deficit reduction.

The stimulus package is designed to ensure that recovery from recession is
strong and durable. It will provide a boost to the economy in the short
run and create up to half a million new jobs. What we call stimulus in
this plan, however, is not a conventional prescription for adding to
consumer demand by cutting taxes or creating make-work jobs. Instead, it
is a down payment on longer-run investment. We selected some investment
projects that could be started quickly especially those that would create
a significant number of new jobs and get a fast start on these projects.
Spending proposals in the stimulus package will be included in a request
to Congress for supplemental funds for 1993. All of the proposed spending
in the stimulus package is consistent with the proposals for longer-term
public investment. Tax incentives for immediate increases in investment by
large and small business are also a vital part of the stimulus package.

The investment package proposes major additions to ongoing activities that
expand America's capacity to produce and provide more opportunities for
current and future workers. It is designed to help fill the investment
deficit by increasing spending for highways and other infrastructure, to
enhance the opportunities and skills of future workers, to accelerate the
development and use of science and technology, to improve the delivery of
health care for underserved groups, and to increase incentives and
opportunities for productive employment. Tax incentives for business
investment also continue.

The deficit reduction plan makes a vital contribution to increasing
investment and raising standards of living by gradually reducing the
structural deficit in the Federal budget. Cutting the deficit will reduce
the Federal Government's drain on national savings, lower long-term
interest rates, and encourage productive private investment.

The deficit reduction plan is a balanced mix of cuts in ongoing spending
and selected tax increases. We believe it is fair, that it contains many
changes that would be desirable even without the necessity for deficit
reduction, and that it is a bold assault on the structural deficits that
threaten our future prosperity.


TABLE 3-1. HIGHLIGHTS OF THE PLAN
(In billions of dollars)
                                     1993    1994    1995    1996    1997    1998 1994-1997  1994-1998
                                                                                      Total      Total

Baseline Deficit                      319     301     296     297     346     390     1,241      1,630
Spending Changes:
Defense Discretionary                  --      -7     -12     -20     -37     -36       -76       -112
Nondefense discretionary                1      -4     -10     -15     -20     -23       -50        -73
Entitlements                           -*      -6     -12     -24     -34     -39       -76       -115
Social Security                        --      -3      -6      -6      -7      -8       -21        -29
Subtotal                                *     -20     -40     -65     -98    -106      -223       -329
Debt Service                            *      -*      -3      -7     -14     -22       -24        -46
Total spending cuts (-)                 1     -20     -43     -73    -112    -128      -247       -375
Revenue increases (-)                  -3     -46     -51     -66     -83     -82      -246       -328
Gross deficit reduction                -2     -66     -93    -139    -195    -210      -493       -704
Stimulus and investment:
Stimulus outlays                        8       6       2       1       *       *         9          9
Investment outlays                     --       9      20      32      39      45       100        144
Tax incentives                          6      13      17      15      15      17        60         77
Total stimulus and investment          15      27      39      47      55      62       169        231
Total Deficit Reduction                13     -39     -54     -92    -140    -148      -325       -473
Resulting Deficit                     332     262     242     205     206     241       916      1,157
Deficit as a percent of GDP          5.4%    4.0%    3.5%    2.9%    2.7%    3.1%       3.3%       3.2%

*/$500 million or less.

Economic Assumptions

Budget outcomes are determined in part by the performance of the economy.
Hence, any budget proposal must rest upon assumptions about future changes
in the key economic variables: real economic growth, inflation,
unemployment, and interest rates. The more optimistic the assumed path of
those economic variables, the smaller future deficits will appear to be.

Unfortunately, in recent years, unrealistically optimistic economic
assumptions have become a standard substitute for responsible budget
choices. Instead of proposing unpopular measures reducing spending and
raising taxes to bring the deficit down, budget planners have assumed
lower unemployment and higher growth rates to make future deficits look
smaller. But these budget planners could reduce unemployment and raise the
growth rate only on paper not in the real world.

This statistical manipulation has masked the true size of the deficit
problem, postponed necessary choices about how to solve it, and resulted
in higher national debt. Moreover, the use of rosy scenarios has eroded
trust in Government broadly, and in economic policymaking in particular.
The American people have been so disappointed by economic programs that
have promised instant prosperity and failed to deliver that they could
dismiss out of hand even a solid program of private investment through
deficit reduction and carefully targeted public initiatives.

This Administration's economic program provides no gimmicks and promises,
no instant gratification. Instead, it proposes the difficult and often
unglamorous steps necessary to ensure prosperity over the long run. To
make this message clear, and to direct the public debate to the substance
of the program rather than to imagined immediate rewards, the
Administration has deliberately chosen cautious economic assumptions that
some may even regard as overly pessimistic.

In an effort to avoid controversy over the forecast, the Administration
used the economic assumptions that the Congressional Budget Office (CBO)
used in its January 1993 report to Congress. The Administration thus
assumes that the economy will continue to recover from the recent
recession at a pace well below the historical average, with real annual
economic growth peaking at 3 percent. Over the longer term, as the economy
approaches full utilization of its capacity, real growth is projected to
slow gradually to only 2 percent per year. This estimate marks the low end
of the consensus range among economists, and significantly limits the
measured benefit of the Administration's economic program.

Because productivity growth is projected to be slow, even this modest rate
of growth of GDP implies a steady decline in the unemployment rate. The
forecast assumes that unemployment will reach its minimum level consistent
with low inflation about 5.5 percent unemployment shortly after the end of
the five-year forecast period.

In part because of this modest economic growth, the inflation rate is
projected to decline: with slow economic activity and hence limited
consumer demand, producers have little latitude to raise prices. Consumer
prices are expected to increase in the long run by only 2.7 percent per
year; prices of economic output produced in the United States, measured by
the GDP implicit deflator, increase by only 2.2 percent in the long run.
(The GDP deflator increases more slowly than the consumer price index
because computers, whose prices are falling in quality-adjusted terms,
make up a greater share of the former index than of the latter.) Though
the American public might be gratified by such modest inflation, it will
offer little reward in terms of the budget deficit: slower inflation helps
to hold spending down, but it also reduces tax revenues.

The deficit is highly sensitive to interest rates, however, and interest
rates are themselves highly sensitive to inflation. When inflation is
expected to increase, for example, lenders tend to demand higher interest
rates to protect the purchasing power of the money that will be returned
to them. The Administration assumes that the projected decrease in
inflation will be passed through to the long-term interest rates that the
Treasury must pay approximately point for point. This is a cautious
assumption because inflation-adjusted long-term interest rates may have
remained at their current near-record levels in spite of a moderation of
inflation because lenders fear that inflation could accelerate in the near
future. One might expect that several more years of modest economic growth
and low inflation would assuage those fears and bring long-term interest
rates down much closer to their historical average. If they do not, the
Government's projected interest costs and budget deficit will be higher.
Further, the Administration projects that short-term interest rates will
increase by more than a full percentage point, even though growth remains
modest and the inflation rate falls.

Taken together, these assumptions constitute almost a worst-case forecast
of the likely course of the economy. On every score, the elements of the
forecast work against the attainment of the desired budget outcomes.

This Administration does believe, however, that enacting its economic
program will provide significant rewards for both the economy and the
budget. Accordingly, we provide an alternative economic forecast that is
conditional upon enactment of our program (See Table 3-2) (in fact, such a
"post-policy" forecast in the budget document is required by law). Though
we do not present detailed budget data based on this forecast, we do
illustrate the effect of a more favorable economic performance on the
deficit itself.


TABLE 3-2. ECONOMIC ASSUMPTIONS
(Calendar years)
                                    1992 1993 1994 1995 1996 1997  1998
BASELINE ASSUMPTIONS         Percent Change, Fourth Quarter Over Fourth Quarter
Real GDP Growth                      2.7  2.8  3.0  2.8  2.6  2.2   1.8
GDP Deflator Growth                  2.4  2.5  2.4  2.3  2.2  2.2   2.2
Consumer Price Index Increase        3.1  2.8  2.7  2.7  2.7  2.7   2.7
                                           Annual Average
Unemployment Rate (civilian)         7.4  7.1  6.6  6.2  6.0  5.8   5.7
91-Day Treasury Bill Rate            3.5  3.2  3.7  4.3  4.7  4.8   4.9
10-Year Treasury Note Rate           7.0  6.7  6.6  6.6  6.5  6.5   6.4

                                    1992 1993 1994 1995 1996 1997 1998
ADMINISTRATION POLICY       Percent Change, Fourth Quarter Over Fourth Quarter
Real GDP Growth                       2.9  3.1  3.3  2.7  2.5  2.5   2.5
GDP Deflator Growth                   2.4  2.8  2.9  3.0  3.0  3.0   3.0
Consumer Price Index Increase         3.1  3.0  3.1  3.3  3.3  3.4   3.4
                                             Annual Average
Unemployment Rate (civilian)          7.4  6.9  6.4  6.1  5.9  5.7   5.5
91-Day Treasury Bill Rate             3.5  3.7  4.3  4.7  4.8  4.9   5.0
10-Year Treasury Note Rate            7.0  6.7  6.6  6.5  6.5  6.4   6.4


Our post-policy economic forecast assumes that the economy will recover
somewhat more quickly from the current recession, and that its sustainable
growth rate in the long run will be 2.5 percent rather than 2.0 percent.
This increase in growth reflects greater optimism about productivity, at
least partially attributable to the Administration's program of deficit
reduction. It also reflects moves to bring down interest rates (with the
cooperation of the Federal Reserve), a development that will itself
further encourage private investment. The increase in growth is also
expected to stem from the Administration's stimulus package in the near
term, and from its program of investment in productive public and human
capital in the longer run. Even this projected growth rate, however, is
only at the midpoint of the consensus of economists for the average rate
in the economy. In other words, even this more optimistic post-policy
forecast is really rather cautious.

The Administration expects that this more rapid economic growth will help
to bring unemployment down. In contrast to our baseline forecast, we
project that unemployment will reach 5.5 percent on an annual basis before
the end of the five-year period.

We expect that the economic activity added by the Administration's program
will increase inflation slightly. The ultimate rate of increase of the GDP
deflator is 3.0 percent, or almost a full percentage point per year higher
than the baseline forecast; for consumer prices, inflation is about 0.7
percent per year faster in the long run.

Despite the additional inflation, we expect that interest rates will be
about the same as in the baseline forecast. This means that
inflation-adjusted interest rates will be lower. The Administration
believes that this expectation is realistic because our proposed
substantial reduction of the budget deficit will reduce both federal
demand in the credit markets and the risk of a future increase of
inflationary pressures.

The Administration's economic assumptions based on the enactment of its
program are themselves close to the mainstream of economic opinion. We
believe that this forecast presents a reasonable expectation of the
benefits of our program of increased private and public investment. We
supplement our presentation of the program with the resulting deficit
computations to show that sound policy will be rewarded beyond any
transient cost.


Ensuring Economic Recovery and Creating Jobs: Economic Stimulus

First things first. None of the things we want for America can be
accomplished while millions of our citizens are unemployed and hundreds of
billion of dollars of industrial capital lie idle. Americans will not
tolerate another false start; and they shouldn't. We must get our economy
moving again and producing jobs.

Two criteria guided the design of the stimulus package.

Speed. Any tax reductions or spending programs included in the package had
to be fast-acting and job-creating. The unemployed have waited too long.
We consulted with mayors and governors as well as with all the major
agencies to ensure that the money requested in 1993 could be obligated
quickly for projects that were ready to go and that workers would be hired
right away this summer to work on them.

Content. Items selected for inclusion had to be worthwhile on their merits
and consistent with the long-run goal of shifting the nation's attention
to its future. The stimulus package is a down payment on the
Administration's long-run investment program. For example, our long-run
investment plan puts major emphasis on ensuring that all children get a
healthy start in life and come to school ready to learn. To generate major
new efforts for children quickly, we included these elements in the
stimulus package: summer Head Start, an increase in funding for the
Supplemental Food Program for Women, Infants and Children (WIC), and a
fast start on a new immunization initiative. Similarly, the investment
package stresses the improvement of our nation's infrastructure, including
major upgrading of our highway network. Hence, the stimulus package
includes funding for highway projects that can be started quickly,
especially repair and resurfacing projects that can employ workers soon.


The Size of the Stimulus

The Administration proposed its economic stimulus program in part to
provide insurance for the twice-stalled economic recovery. The economy
harbors heavy imbalances: large accumulations of debt by households,
businesses, and governments at all levels; shaky financial institutions;
an enormous overhang of vacant commercial real estate; and extraordinary
competition from imports. These imbalances make the course of recovery far
less predictable than it was after past recessions. The impact of
substantial corporate downsizings, though they were announced over the
last two years, is yet to be fully translated into actual layoffs. The
defense base closings that were absorbed in the national consciousness
over the last three years are just beginning to be realized; and more
defense conversion is yet to occur as the Cold War fades into history.


Thus, we have an economy that may have achieved a self-sustaining
recovery, but that is operating well below its capacity. The unemployment
rate is still higher than it was at the bottom of the recent recession,
and inflation remains well under control in part under intense competition
from imported products. The risks posed by a short-term economic stimulus
are thus small; and the rewards in greater near-term economic growth and
in forestalling any possible relapse into recession are significant.

Under these circumstances, the Administration has chosen a stimulus
program that is substantial enough to provide real impetus to the
recovery, but that is small enough to avoid jarring the financial markets
or triggering inflation. The program is targeted to the investments in the
administration's long-term economic program, on both the tax and the
spending sides of the budget.

In spending, the stimulus program provides additional budget authority
equal to $16.3 billion the amount by which the 1993 appropriations fell
short of the combined discretionary spending caps in the Budget
Enforcement Act. Thus, the discretionary spending proposed in the stimulus
program will not increase the deficit relative to what was outlined in the
1990 budget agreement.

The program also increases the obligation limit for transportation funding
under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)
by $3.0 billion. This increase allows for full funding of the portion of
ISTEA devoted to Federal-aid highways, and also increases potential
obligations for the Airport Improvement Program and mass transit. The
stimulus further includes $3.3 billion to increase loan levels, primarily
for the Small Business Administration 7(a) loan guarantee program. Of that
amount, $220 million is specified as the long-term budget subsidy.

In tax incentives, the program provides over $12 billion in temporary
incremental investment tax credit. This provision will be available
through calendar year 1994; over $6 billion will be received by taxpayers
as reductions in liabilities in 1993.

While much of the additional budget authority will not be spent in 1993,
the near-term economic impact will be greater than the outlay figures
indicate. Many of the investment programs including prominently the ISTEA
highway program will result in binding contracts with private firms within
the fiscal year, even though payments will not be made until the work is
completed in later years. Those contractors will hire workers and begin
work immediately. Thus, the contractual obligations will trigger economic
activity even before outlays register in the budget itself. Likewise,
private investors will commit themselves to investment projects because of
the stimulus program's investment tax credit before they can actually
claim the tax savings on their returns.

This economic stimulus will be felt most directly in the creation of new
jobs; the lack of new jobs especially marks the current recovery, and
constrains the spending needed to create a self-sustaining economic
expansion. Several of the spending programs in the stimulus package
particularly community development block grant assistance to States and
localities, and highway programs promote substantial job creation. The
youth summer jobs program of the Job Training Partnership Act, as well as
the summer Head Start program, will have particularly strong impacts in
the summer months. The investment tax credit and even the longer-term
business incentives will stimulate spending on capital goods and thereby
promote hiring in the private sector. We estimate that the tax and
investment proposals together will create almost 500,000 new jobs by the
end of 1994.

All told, this plan provides almost $30 billion in outlays and tax
incentives in 1993 and 1994. This stimulus will provide insurance against
renewed economic weakness in the near term; create jobs; help boost the
recovery; add to economic growth over the next two years; cushion the
beginning of the Administration's deficit reduction program; and begin the
investment program that will lay the foundations for enhanced
private-sector productivity and prosperity.


Infrastructure

One of the key elements of the Administration's long-term investment
package is the strengthening of our nation's infrastructure. Some of the
initiatives in that area can be advanced into 1993, providing an immediate
impact on jobs and economic growth. In this category, the stimulus package
contains transportation projects, Army Corps of Engineers water projects,
and improvements in deteriorating Department of Veterans Affairs medical
facilities. Details of these investments follow.

Transportation/Federal-aid highway program. The Administration proposes to
expand the Federal-Aid Highway program to the levels contained in the
Intermodal Surface Transportation Efficiency Act (ISTEA) for 1993. This
will require increasing total obligations for Federal-aid Highways from
the current level of $17.7 billion to $20.6 billion, a 17-percent increase
of almost $3 billion. More than one-third of the increase will be directed
to fast-spending resurfacing, rehabilitation, and restoration projects,
which can proceed quickly and bring jobs on line most rapidly. This
measure will create an additional 13,000 jobs in 1993 and 45,000 in 1994.
This increase will improve the conditions and performance of the 155,000
mile National Highway System. This system carries over forty percent of
all highway traffic.

Transportation/Mass transit capital improvements. The Administration
proposes to increase 1993 funding for mass transit capital improvements by
$736 million. The funds will be used to replace over age buses and vans,
and to fund rail cars and rail rehabilitation projects. Of the $736
million, about $270 million will be entirely devoted to quick-to-acquire
bus and van purchases, while the remaining $466 million may be used for
either bus or rail capital purposes. This initiative will create more than
9,000 jobs in 1993 and 1994. The bus/van program will permit the
acquisition of more than 100 full-size buses, 1,800 small buses, and 2,000
vans.

Transportation/Amtrak capital projects. This initiative provides $188
million for AMTRAK to purchase new train cars and locomotives, modernize
stations and maintenance facilities, and overhaul aging equipment. These
will help to improve Amtrak's financial performance, moving it closer to
achieving operating self-sufficiency.

Transportation/Airport grants. Many of the Nation's airports are
congested, resulting in unacceptable delays for air travelers. Growth in
air travel in the future will only add to the problem. Increased airport
capacity can help reduce delays, speed air travel, and increase safety in
many cases. This proposal to add $250 million for airport grants in 1993
will enable airports to undertake safety and capacity improvement projects
that are "ready-to-go".

Army Corps of Engineers water project construction and cyclic maintenance.
The Administration proposes an additional $94 million to speed
construction of about 30 projects nationwide for flood damage reduction,
inland waterway and deep-draft harbor transportation, hydropower,
environmental restoration, and recreation.

Veterans Affairs/Medical Care and Minor Construction. The Administration
proposes $235 million to fund much needed improvements, largely in VA
medical facilities, such as roof repairs, interior finishing, utility
systems upgrades, and projects to ensure compliance with current safety
and fire codes. This investment will create more than 4,000 jobs in an
eight-month period.


A Summer of Opportunity

The Administration's stimulus package seeks to expand the opportunities
for learning for children, youth, and workers while providing thousands of
jobs, particularly during the summer months. In several instances, the
initiatives are the leading edge for a specific program contained in the
long-term investment plan.

HHS/Head Start Summer Program. The Administration is proposing a new Head
Start summer program, which eventually would enroll up to 350,000
disadvantaged children. The purpose of the program is to help the youngest
pre-school and school children to retain the social and intellectual gains
made during the school year. It would expand the proven benefits of Head
Start to the summer months and reduce further the learning disadvantages
faced by children served by the program. This initiative would employ up
to 50,000 Head Start staff (12,500 full-year equivalent) during 1993.

Education: Chapter 1 Summer School Program. The Administration proposes
new, one-time supplemental funding of $500 million to expand summer school
programs in 1993 for educationally disadvantaged children. Funds would be
allocated to schools with concentrations of poor children. About 14,000
full-year equivalent jobs would be created.

Education: Chapter 1 Census Supplemental. The proposal would provide $235
million in 1993 to substantially mitigate the effects on distribution of
Chapter 1 funds caused by changes in the location of poor children in the
U.S. that occurred between the 1980 and 1990 censuses. The Chapter 1
compensatory education program will, for the first time, use 1990 census
data to distribute 1993 appropriations used during the 1993-94 school
year. The total number of poor children ages 5 to 17 increased between
1980 and 1990, and the distribution of those children shifted. Poor
children are increasingly concentrated in the schools of the western
States and less concentrated in the schools of the eastern States. The
supplemental will ease the transition to a smaller compensatory education
program in communities that would otherwise have the size of their Chapter
1 grants substantially reduced for the 1993-94 school year.

Agriculture/WIC Program. The Administration proposes to expand 1993
funding by $75 million for the Special Supplemental Food Program for
Women, Infants, and Children (WIC), which pays for supplemental foods,
health care referrals, and nutrition education for low-income pregnant and
post-partum women, infants, and children under 5 years of age who are
found to be at nutritional risk. The increase will permit the program to
serve 300,000 additional participants, most of whom will be children ages
1-4. It is a down payment on the Administration's commitment in the
long-term investment plan to provide full funding for WIC so that it
serves all eligible children.

Agriculture/Emergency Food Assistance Program. The Administration proposes
to provide $23 million worth of food to the States through The Emergency
Food Assistance Program (TEFAP). This successful program provides surplus
food to about 2.5 million needy households and has been an important
weapon in the Nation's arsenal against hunger.

HHS/Childhood immunizations. The President's plan to increase childhood
vaccinations will immunize one million children during the summer of 1993.
The Administration proposes to award $300 million to support a
community-based effort to finance vaccine purchases and education and
outreach campaigns. This program will help to raise the Nation to the
standards of child immunizations set by other advanced countries, which we
have fallen far behind. Too many families are deterred by outrageously
high costs from having their children immunized. The President intends to
end that problem.

Labor/Summer Youth Employment and Training Program. Young Americans have
an especially hard time finding jobs. The problem is worse for
disadvantaged youth, and worse yet in the cities. The Summer Youth
Employment and Training Program employs economically disadvantaged youth
ages 14 to 21 to work at public and nonprofit agencies during the summer
months. The Administration proposes to boost program funding by $1 billion
in the summer of 1993. This will finance almost 700,000 summer jobs,
bringing to nearly 1.4 million the total number of youth who could
participate in the program. Approximately one-half of this summer's
funding will be concentrated on the 100 American cities small and large
with the greatest number of eligible youth. The public summer jobs program
will be coupled with and complemented by a campaign to expand private
summer job opportunities for young Americans.

National Service. This is a first step in the President's long range
national service initiative. The Administration proposes to implement a
program in the summer of 1993 to train a core group of leaders to spur
service around the country. Combining leadership training with service,
this initial phase of the national service initiative will cost $15
million.

Extension of Emergency Unemployment Compensation. For millions of workers,
the apparent recovery has not brought employment opportunities. The rate
of job growth in the economy relative to past recoveries has been
extremely sluggish. The Administration proposes to extend the current
Emergency Unemployment Compensation program for seven months, through
October 2, 1993. The program provides an additional 20 to 26 weeks of
support for workers who have exhausted their regular unemployment
benefits. The net estimated cost is $5.6 billion over two years.

Education/Pell Grant unfunded shortfalls. The Administration proposes to
make up shortfalls in the Pell Grant program, providing over $2.0 billion
to ensure that the program is funded at estimated current law levels
through school year 1993-94.

HHS/AIDS/Ryan White Act. To initiate the President's long-term investment
plan to fully fund HIV/AIDS prevention efforts under the Ryan White Act,
the Administration proposes to increase funding for 1993 grants by $200
million. These programs focus on AIDS prevention efforts.

Agriculture/Child and Adult Care Food Program. The Administration proposes
an increase of $56 million for the Child and Adult Care Food Program,
which pays for meals and snacks at Head Start centers, to serve the
children in the proposed Summer Head Start program.

Labor/Worker profiling. The Administration proposes establishment of a $14
million program in 1993 and 1994 to assist the States in developing
automated systems to identify laid-off workers who may have difficulties
in finding new jobs, and to assist them in finding employment. This
initiative seeks to respond to the problems faced by many workers laid off
because of business downsizing and restructuring. Federal funding for this
initiative will cover the up-front costs of developing worker profiling
systems in the States.

Labor/Community Service Employment for Older Americans. The Administration
proposes $33 million to expand participation in the Community Service
Employment for Older Americans program, which offers low-income seniors
meaningful work experience in community service projects. This investment
will finance over 5,000 jobs in the current year.

Interior/Bureau of Indian Affairs (BIA) School Operations. The
Administration proposes that $49 million be provided to cover currently
identified shortfalls in funding due to rising enrollments to improve the
educational performance of over 40,000 Indian students at the elementary
and secondary level attending BIA-funded schools.

Equal Employment Opportunity Commission. Financing of $9 million for
additional staff to enforce the Americans with Disabilities Act and the
Civil Rights Act will help stem the ballooning backlog of cases filed
under those Acts.


Technology Investments

A very important part of the Administration's efforts to promote long-term
economic growth is to increase investment in new, productivity-enhancing
technology. A number of such projects are funded in the stimulus package
because they can be initiated quickly, with immediate increases in jobs.

Industry-Led Federal R&D at the National Institute of Standards and
Technology (NIST). The Advanced Technology Program at the National
Institute of Standards and Technology provides matching grants for
industry-led research projects for the development and commercialization
of pre-competitive generic technologies and refining manufacturing
practices. The Administration proposes $103 million for the program in the
current fiscal year.

Commerce/Information Highway Demonstrations. The development of a
broadband, interactive telecommunications network linking the Nation's
schools, libraries, health care facilities, governments, and other public
information producers could pay enormous dividends to the U.S. economy.
Interactive networks such as this are in their very early stages of
development. The Administration proposes to make $64 million available to
the Department of Commerce's National Telecommunications and Information
Administration to accelerate development of such information highways.

National Science Foundation/Research and development. Investments in
research and development (R&D) tend to be the strongest and most
consistent positive influence on productivity growth. Most of the National
Science Foundation's (NSF) investments are in competitively selected
university-based R&D programs. These activities contribute to the nation's
productivity by generating new scientific and engineering knowledge and
contribute to the training of the next generation of scientists and
engineers. The Administration proposes an investment in 1993 of $188
million to restore NSF funding to roughly the level that was planned for
in 1993.

Networking and computer applications. The Administration proposes that
programs be initiated at the National Institute of Standards and
Technology, the National Science Foundation, the National Aeronautics and
Space Administration, and the National Institutes of Health to develop
applications which use advanced computers and communication networks to
solve problems in health care, education, manufacturing, and access to
library information.

National Oceanic and Atmospheric Administration equipment acquisition. The
Administration proposes an investment of $81 million to accelerate the
modernization of National Weather Service and central NOAA data systems,
to procure hardware for more efficient utilization of the nation's
fisheries, to improve weather prediction technologies, and to further
climate and atmospheric research in areas of global concern such as
atmospheric ozone.

HHS/Disability Insurance processing. The Administration proposes that $302
million be provided to help the Social Security Administration reduce
delays in processing of Disability Insurance claims, review cases earlier,
and make other improvements to improve delivery of services. There has
been a tremendous backlog of Disability Insurance claims in recent years,
which this investment would help alleviate.

Treasury/Accelerate implementation of Internal Revenue Service Tax System
Modernization. The IRS is now operating with severely outdated computer
equipment. Through Tax System Modernization (TSM), the IRS is undertaking
a multi-billion-dollar, decade-long effort to re-invent its operations.
The Administration proposes fiscal stimulus funding of $148 million to
enable the IRS to accelerate several TSM projects and replace computer and
telecommunications equipment that in many cases is nearly ten years old.
This is a down payment on a long-term investment in the IRS modernization
program.


Urban Development and Housing Initiative

The fiscal stimulus contains several initiatives to provide additional
resources for housing and other development in the Nation's urban areas.
These efforts are critical to our hopes of reviving our cities.

Housing and Urban Development/Community Development Block Grants.
Community development projects are an important source of jobs and
economic development in America's communities. States and local
governments have a backlog of unfunded projects that are ready to begin,
such as basic street and bridge work, painting and resurfacing, building
rehabilitation, and public service projects. The Administration proposes a
one-time supplemental appropriation of $2.5 billion for Community
Development Block Grants to fund such projects and create about 60,000
jobs during 1993-1995. The Administration will propose modifications to
the program to ensure that projects have an immediate economic impact.

Commerce/Economic Development Administration grants. The Administration
proposes $94 million for Economic Development Administration awards to
economically distressed areas to rebuild basic infrastructure industrial
parks, water and sewer improvements, and access roads to industrial sites.
The grants are also for the purpose of planning for economic development.

Minority Business Development Administration. $2 million is proposed for
the Minority Business Development Administration to support the provision
of technical assistance to minority businesses through a nationwide
network of 107 centers. These centers help minority businesses write loan
applications, develop marketing plans, and upgrade accounting practices.

Housing and Urban Development/Accelerate HOME investment partnership. The
Administration proposes to speed the spendout of $2.5 billion in
previously released affordable housing funds by regulatory and statutory
changes to increase participant flexibility and information, and training
to improve public understanding of the program. These changes will
increase the rate at which existing funds can begin to create jobs and
boost the local economy.

Housing and Urban Development/Accelerate public housing modernization. A
substantial amount of funds in HUD's modernization program remain unspent.
Explanations for this "backlog" of unspent funds the time-consuming
process of getting the funds out of HUD to the public housing authorities,
inefficient management and planning on the part of public housing
authorities make the problem more comprehensible but no more tolerable to
this Administration. Accelerating the spendout will not only stimulate the
economy but also help to ensure a better quality of life for public and
Indian housing residents. This measure will create over 10,000 jobs during
1993-1998. It will result in the repair/restoration of approximately 2,500
more public housing units in 1993 (or 31,800 more public housing units
1993-1998).

Housing and Urban Development/Supportive Housing Program. The
Administration proposes an accelerated investment of $423 million in the
Supportive Housing Program, which assists homeless persons not only with
shelter but also with the root causes of homelessness. The Administration
will propose modifications to ensure that these funds go to projects ready
for immediate implementation. This proposal will create over 10,000 new
jobs during 1993-1995.

District of Columbia. The Federal Government makes an annual payment to
the District to compensate it for the net cost of the large Federal
presence in the nation's capital. The 1993 Federal payment was reduced
below the amount the Mayor requested to help balance the District's
budget. The Administration proposes $28 million to reduce the District's
budget deficit.


Rural Development Initiative

The Nation's rural areas were among those hardest hit by the recent
recession. The fiscal stimulus plan provides a number of key initiatives
to provide needed assistance for the special concerns of rural areas.

Agriculture/Rural water and wastewater loans and grants.  Water quality is
a matter of increasing concern in cities and towns across the U.S.
Drinking water and sewage treatment systems serving small, mostly rural
populations currently have the highest rates of noncompliance with Federal
environmental standards. Without Federal assistance, rural areas often
find compliance very difficult to achieve. The Administration proposes an
estimated additional $470 million in loans and $281 million in grants for
the Rural Development Administration to help poor rural communities comply
with clean water standards.

Agriculture/Food Safety and Inspection Service. The Administration
proposes to add meat and poultry inspectors, at a cost of $4 million, to
improve the Federal meat and poultry inspection system to help reduce the
risk of future food poisoning outbreaks.

Agriculture/Forest Service natural resource protection and environmental
infrastructure initiative. This is one part of an Administration proposal
to protect and rehabilitate America's inventory of natural and cultural
assets, restore the facilities that protect these resources, and improve
public access to them. This funding would complete the inventory of
ready-to-go resource protection projects, facility maintenance,
rehabilitation and construction, and other similar projects that stimulate
economic growth and employment in rural and urban areas. This investment
will total $188 million in 1993.

Agriculture/Farmers Home Administration low-income housing repair loans
and grants. The Administration proposes $6 million in grants and $3
million in loans for a Farmers Home Administration program that helps
rural, very low-income applicants to repair or rehabilitate their homes in
order to remove safety and health hazards.

Agriculture/Single Family Housing Guaranteed Loans. This proposal would
increase the single-family guaranteed loan authority by $235 million. The
1993 level of $329 million is expected to be used by May 1993. Given the
increased demand for this program, because of lower commercial interest
rates, the proposed increase would meet the remaining demand for this
program.

Agriculture/Soil Conservation Service watershed projects. The proposed
stimulus includes $47 million to fund a backlog of projects to address
emergency watershed problems resulting from natural disasters, soil
erosion, sedimentation, and flood damage that affect public health and
safety.

Agriculture/Agricultural Research Service facility maintenance. The
Administration proposes $38 million to finance repairs and accelerate
hazardous waste clean-up at aging Federal agricultural research
laboratories. There are approximately 30 hazardous waste clean-up projects
planned, including removal of underground storage tanks and clean-up of
pesticide spills.

Interior/Economic development on Indian reservations. $39 million is
provided to upgrade roads, improve school facilities, and subsidize loan
guarantees for reservation facilities, hotels, and office buildings.


Environment and Energy Initiatives

The Administration's initiatives offer certain proof that environmental
protection and economic growth can and must go hand in hand. These
proposals represent a down payment not only on longer-term investments,
but also on creating a cleaner world for ourselves and our children.

Interior/Natural resource protection and environmental infrastructure
initiative. This is one part of an Administration proposal to protect and
rehabilitate America's inventory of natural and cultural assets, restore
the facilities that protect these resources, and improve public access to
them. This funding would complete the inventory of ready-to-go resource
protection projects, facility maintenance, rehabilitation and construction
and other similar projects that stimulate economic growth and employment
in rural and urban areas. This investment of $349 million in 1993 would
create over 11,000 jobs. Much of the investment would be earmarked for the
National Park Service alone, including increased operational funds to keep
open areas that were previously scheduled for closure during 1993.

Interior/Historic preservation funding for repair and deferred maintenance
projects. The Administration proposes $23 million to fund a backlog of
brick and mortar rehabilitation projects, emergency surveys, engineering
reports, and deferred maintenance at National Trust for Historic
Preservation Museum properties across the Nation, and other priority
projects.

Environmental Protection Agency/Watershed resource restoration. The
Administration proposes $47 million to reduce non-point source pollution
which poses a threat to the Nation's water quality.

Environmental Protection Agency/Voluntary "Green" programs. The
Administration proposes to expand EPA's voluntary "Green" programs by $23
million in 1993 over the current $8 million funding level. The program
encourages the Nation's business community to seek ways of increasing
energy efficiency.

Environmental Protection Agency/Wastewater treatment project. The
Administration proposes $845 million in capitalization grants for the
construction of sewage treatment facilities. This would accelerate
completion of an $18 billion wastewater treatment grant authorization that
is scheduled to end in 1994. This investment creates about 16,000 jobs
over the four year period 1993-1997.

Cooperative Research and Development Agreements. CRADAs are one of the
mechanisms by which the national laboratories can work with industry to
transfer lab-developed technology and know-how to the private sector.
Current funding for non-defense CRADAs is $9 million in 1993, but there is
more demand from industry for assistance through CRADAs then can be met
with that funding, This increase will allow additional lab scientists to
work with industry. In addition, $47 million in 1993 funds appropriated
for research and development of nuclear weapons at DOE's defense
laboratories will be redirected to research in dual use technologies.

Energy/Weatherization Assistance Program. The Administration proposes $47
million (conditioned on matches from States or utilities) to encourage
State weatherization programs to take advantage of utilities' demand-side
management (rebate and discount) programs, assuring that funds go to
States that demonstrate a serious commitment to low-income weatherization
activities. Approximately 62,500 additional homes will be weatherized over
the currently projected number.

Energy/Building and industrial conservation. The Administration proposes
$19 million in cost-shared funding (50 percent) for "model projects" that
demonstrate or accelerate the commercial acceptance of advanced energy
conservation technologies and products.

Energy/Alternative fuel vehicles. The Administration proposes $28 million
for the acquisition of and/or conversion to additional alternative fuel
vehicles in the Federal fleet.

Federal buildings energy efficiency. An additional investment of $19
million is proposed to improve energy efficiency in facilities throughout
the Federal Government.


Stimulus: Tax Incentives

The plan also contains carefully targeted tax provisions designed to
provide an immediate boost to investment in the short term, and to
encourage capital spending over the long run.

Permanent small business tax credit. Small businesses will now be eligible
for a permanent investment tax credit on their equipment. The credit will
generally be 7 percent in 1993 and 1994 and 5 percent thereafter. Small
businesses operate at the margin and need a permanent incentive to invest,
grow and provide new employment opportunities. At the same time, the
decrease in the rate from 7 percent to 5 percent after two years will
provide an incentive to accelerate investment and add support for the
current recovery.

Temporary marginal investment tax credit for all business. Businesses will
also be eligible for a tax credit on qualifying investments; the credit
will be temporary and will apply only to "marginal" investment acquired
between December 3, 1992 and December 31, 1994. The credit will amount to
7 percent in 1993 and 1994, with somewhat lower rates applicable to
shorter-lived property. To ensure that the credit is targeted to marginal
investment by large companies, the credit each year is applied to
investment over an historic base.

Simplifying and enhancing depreciation provisions for companies subject to
the alternative minimum tax (AMT). Currently, property is depreciated for
AMT purposes over a substantially longer period than for regular tax
purposes. (For example, commercial aircraft are depreciated over 7 years
for regular tax purposes and 12 years for AMT purposes.) In addition, a
corporation subject to the AMT must compute three depreciation schedules
for federal tax purposes. The proposal substantially enhances the
investment incentives for taxpayers subject to the AMT and simplifies the
AMT by using the shorter regular tax depreciable lives for minimum tax as
well as regular tax purposes. Thus, one depreciation period will be used
for computation of both the minimum and regular tax, although the rate of
depreciation will remain less rapid under the minimum tax than under the
regular tax.

Because they reduce the net cost of acquiring depreciable assets, the
investment tax credit proposals will stimulate investment by both small
and large businesses. The investment tax credit proposals, coupled with
the liberalized depreciation under the minimum tax, will provide a strong
and lasting stimulus to investment, encourage modernization of productive
equipment, and help create good jobs.
           Investing in the Future: Increasing Public Investment

We must invest more in our people, in their jobs and in the future...

Bill Clinton


Even after economic recovery is assured, our real economic challenges
remain long term. The Administration's vision of public investment to
improve our people's productivity involves initiatives in a wide range of
critical physical and human capital priorities.


Rebuild America

Transportation

While our economic competitors have invested heavily in their
infrastructure, we have not done as well. To regain our economic edge, we
must invest more. We will upgrade our nation's roads, bridges, mass
transit, and airports; support high-speed rail links between major cities;
and create "information highways" that link homes, businesses, schools and
libraries to databases and public records. These initiatives will put
Americans back to work, spur productivity, and make transportation safer,
faster and easier for all Americans.

DOT/Expand the Federal-aid highway program to the levels contained in the
Intermodal Surface Transportation Efficiency Act (ISTEA). Full-funding of
ISTEA will maintain conditions and performance on the nation's most
important roads, the National Highway System. It calls for $2.6 billion in
obligations in 1994 above baseline spending amounts. The total increase
through 1997 is $5.6 billion in outlays, targeted to high priority
projects. This initiative will create approximately 14,000 new jobs in
1994, and about 150,000 over a four year period.

DOT/Accelerate "Smart cars/smart highways" (part of Federal-aid highway
program). The Intelligent Vehicle-Highways Initiative (IVHS) (also known
as "Smart cars/smart highways") will improve traffic control systems, warn
drivers of dangerous situations, and make more efficient use of the
existing highway infrastructure. It will combine state-of-the-art
communications, warning systems, electronic displays, and computer
technology. IVHS also has the potential to make innovative highway policy
such as "congestion pricing" a reality. The new funding would increase
advanced technology development (including artificial intelligence,
machine vision, and other defense-related technologies) that will make the
highways of the next century both safer and more efficient. 1997
obligations will exceed the baseline by $100 million and 1994-1997
obligations will exceed the baseline by $345 million, a 50 percent
increase over the baseline.

DOT/Increase funding for mass transit capital improvements. This proposal
implemented through the Federal Transit Administration's formula grant
programs will upgrade rail facilities and equipment by beginning to
eliminate a rail investment backlog recently estimated at $14 billion. The
additional funds will also replace ancient buses, vans and rail cars still
in the U.S. transit fleet. These newer vehicles will be not only safer and
more efficient, but also more accessible to disabled persons. Over four
years an estimated $1.2 billion will be invested (outlays), creating about
83,000 jobs.

DOT/Investment in magnetic levitation (maglev) and high-speed rail
transportation. Maglev and high-speed rail systems can meet the
transportation needs of several of the nation's high-density corridors.
These systems could relieve congestion, improve air quality, reduce
consumption of petroleum-based fuels and improve safety. The funds could
be used for construction of a maglev prototype and/or to support the
start-up of private or State/local high-speed rail projects. Total
increased outlays: over 1994-1997 about $646 million; 1997 $258 million.

DOT/Alcohol-related highway safety grants and other DOT capital. These
grants to States will support programs that reduce alcohol-related traffic
accidents and increase the use of safety belts and motorcycle helmets.
Other DOT capital funds two important safety and environmental-protection
projects in the maritime area: (1) state-of-the-art Vessel Traffic Systems
(VTS) in busy ports and harbors, which reduce maritime accidents and the
threat of hazardous materials and oil spills; and (2) replacement of
seagoing and coastal buoy tenders many of which are over 50 years old. The
new vessels carry oil recovery systems and require smaller crews, saving
operating costs. Total increased outlays: over 1994-1997 $201 million;
1997 $88 million.

DOT/Increase funding for airport grants. Investing in airport development
projects at both large and small airports will speed air travel, link
remote communities with opportunities elsewhere, and open up airports to
different aircraft and aviation uses. These projects include building or
expanding runways to increase capacity, removing obstructions to improve
safety, or adding terminal facilities and airport taxiways to speed the
movement of airplanes on the ground. Noise abatement projects permit these
improvements to occur while minimizing the impact on surrounding
communities. Outlays over 4 years: $108 million. 1997 outlays: $44 million.

DOT/Increase funding for air traffic control modernization. Growth in air
travel is expected to result in more than a 25 percent increase in
aircraft operations at our major airports in the next 10 years. The
Federal Aviation Administration's multi-year air traffic control
modernization program, which will help address this growth includes new
radars, computers, controller workstations and communications equipment,
and the supporting R&D. Benefits will include reduced air travel delays,
more efficient aircraft routing, fewer accidents and the more
cost-effective operation of the air traffic control system. Investment
(budget authority) over 4 years: $720 million. 1997 investment: $200
million. Over 2,000 jobs will be created.

DOT/Public land highways and Indian reservation roads. Many national
parks, forests, and Indian reservations are located in rural areas of the
country where roads are unpaved or impassable. Good roads ensure that
visitors have safe access to national parks and forests, and are critical
to economic development opportunities on Indian reservations. Investment
in upgrading these roads will reduce the acknowledged backlog of projects
in excess of $15 billion. Estimated outlays: $295 million in 1994-1997;
$153 million in 1997.


Environment

A healthy environment means a better future for generations of Americans
to come, and it also means jobs. The investments outlined here will create
tremendous new opportunities for Americans to develop advanced systems to
recycle, treat toxic waste and clean our air and water. Together, these
investments prove that there is no choice between spurring economic growth
and protecting the environment that we can and must do both at once.

EPA/Drinking water state revolving funds. Provide $599 million in 1994 and
$1 billion per year for 1995 to 1997 in new grants for low-interest loans
to help municipalities comply with the Safe Drinking Water Act (SDWA)
which is estimated to require $10 billion in water infrastructure upgrades
between now and 1998. Estimated outlays: over four years $1.3 billion; in
1997 $692 million.

EPA/Clean water state revolving funds. Provide $1,198 million in 1994 and
$2 billion per year for 1995 to 1997 under a new authorization for
capitalizing Clean Water State Revolving Funds (SRFs). These SRFs would
make low-interest loans to municipalities for construction of projects to
address water quality problems. If these capitalization grants are
leveraged in the financial markets (as allowed under the Clean Water Act),
States could have up to $6 billion available annually for clean water
project loans. Funding for waste water (as well as drinking water)
projects in rural areas can be obtained also through USDA loans and
grants. Estimated outlays: over four years 1994-1997 $2.7 billion; 1997
$1.4 billion.

Interior and USDA/Natural resource protection and environmental
infrastructure initiative. Building on the stimulus initiative, this
proposal would protect and rehabilitate America's inventory of natural and
cultural assets, restore the facilities that protect these resources, and
improve public access to them. This funding would help to eliminate the
backlog of resource protection projects, facility maintenance,
rehabilitation and construction and other similar projects in rural and
urban areas. The work would be located at resource areas managed by the
Department of the Interior (National Park Service, Fish and Wildlife
Service, Bureau of Land Management, and Bureau of Indian Affairs), and by
the Department of Agriculture (Forest Service). This investment would
create more than 5,500 jobs in 1994. It calls for an estimated investment
of $1.5 billion in 1994-1997 outlays; $509 million in 1997 outlays.

Interior/Bureau of Indian Affairs (BIA) safety of dams. In 1989, the
Department of the Interior's Inspector General reported that more than
half of the high-risk dams on Indian reservations were in poor or
unsatisfactory condition. This proposal will ensure that urgently needed
rehabilitation and repair work can proceed. It calls for outlays of $59
million in 1994-1997; $23 million in 1997.

Reduce backlog of water resource Corps of Engineers cyclic maintenance
projects. Corps of Engineers water projects provide flood damage
reduction, inland and harbor waterway transportation, hydropower, and
environmental restoration benefits. The projects, though, are aging: more
than 50 percent of these projects are over three decades old. Nearly one
quarter exceed 50 years of age. In spite of a growing backlog, resources
for these projects have stayed largely constant. Estimated expenditures:
over four years $544 million; 1997 $160 million.

EPA/Watershed resource restoration. This proposal would double the current
funding level of $50 million annually by 1995 for non-point source grants
under Section 319 of the Clean Water Act. Non-point source pollution, such
as runoff from farms, mining sites and city streets is now the largest
cause of pollution in our Nation's waters. Reductions in non-point source
pollution will help restore watersheds and estuaries, leading to increased
numbers of fish and other aquatic life, and improving fishing and
recreational opportunities in urban, suburban, and rural areas. Estimated
outlays: over four years $139 million; 1997 $47 million.

DOE/Cleanup of non-defense sites and uranium enrichment facilities. The
Department of Energy is responsible for the management and disposal of
radioactive and hazardous wastes resulting from research and uranium
enrichment activities conducted by the Department of Energy. The
investment supported by this Administration reflects the emphasis that it
places on reversing the imbalance in priorities, by placing more priority
on the environment. Outlays will increase $220 million between 1994 and
1997, and $107 million in 1997 alone.

USDA/Forests for the Future. Vice President Gore stated that "forests
represent the single most important stabilizing feature of the Earth's
land surface" in his book Earth in the Balance. The Administration
proposes to invest $30 million in 1994 and $50 million in each of the next
four years, towards the international goal of reducing world-wide
deforestation. At the 1992 Rio "Earth Summit", the U.S. proposed that all
countries join in doubling international forest assistance. This
investment will be a down payment towards that commitment, to fund initial
partnership activities with foreign nations and domestic and international
non-governmental organizations. Funds would be used, in part, to support
integrated resource management, assist scientific research on tropical
forests and biodiversity, assist local communities in forest resource
management, improve inventory and management of large forests, develop
institutions that can attract private investment in forest conservation,
and reforest degraded lands. Estimated outlays; over four years $170
million; 1997 $50 million.

NOAA Weather Service modernization. NOAA is now in the process of
modernizing National Weather Service systems. Under the Administration's
plan, by the turn of this century, NOAA will operate one of the most
advanced weather warning and prediction networks in the world. New
observation systems such as doppler radars and weather satellites will
provide for more accurate and timely forecasts of severe weather events
and for more reliable forecasts. These improvements will translate into
lives saved and damages averted. They will also benefit all sectors of the
economy that rely on accurate warnings and forecasts for planning.
Estimated investment (budget authority): $35 million in 1997; $293 million
over 1994-1997.

EPA/Environmental technology. This proposal would increase funding for
environmental engineering and technology development by $36 million in
1994, a total of $626 million through 1998, and a total of $1.85 billion
over nine years. EPA currently allocates about $120 million annually to
these activities. The focus of this initiative will be long-term research
and pollution prevention by EPA, other Federal agencies, and the private
sector. The goal is to develop more advanced environmental systems and
treatment techniques that can yield environmental benefits and increase
exports of "green" technologies. This investment will aid in the
transition away from a defense-oriented economy, by stimulating the
increased use of private-sector R&D resources for environmental
quality-related purposes. Estimated outlays: over four years 1994-1997
$271 million; 1997 $127 million.

Expand EPA's voluntary "green" programs. EPA launched its "Green Lights"
program two years ago to encourage Fortune 500 companies to convert
profitably into more energy-efficient lighting, which will reduce
electricity generation and greenhouse gas emissions. EPA identifies
profitable opportunities for companies to conserve energy and enlists
participants to install the energy conservation measures. As of October
1992, Green Lights participants had committed over 2.8 billion square feet
of facility space to the program the equivalent of all the office space in
our eight biggest cities. EPA estimates that expanded "green" programs
such as this one can reduce greenhouse gas emissions by 75-108 million
metric tons of carbon by year 2000. Estimated outlays: over four years
1994-1997 $69 million; 1997 $25 million.

USDA/Tree planting initiative. Reforestation on the huge tracts of poorly
managed private, nonindustrial forests can result in increased
environmental benefits such as removing more carbon dioxide from the air.
These benefits of tree planting also make it important for urban forests
because of their location in and around population centers. In addition to
the environmental benefits, urban forestry programs can provide productive
seasonal jobs for inner city youth. Estimated outlays 1994 $33 million;
1994-1997 $246 million.

USDA/National research initiative (NRI) grants. Top flight R & D is needed
to assure the continued competitiveness of U.S. agricultural products in
global trade, ensure the food supply's safety and quality, and sustain
natural resources. NRI grants are awarded competitively after a stringent
peer-review process to ensure that the most qualified research proposals
are chosen. The NRI funds research in animal and plant biotechnology
(including genome mapping), food safety, sustainable agricultural
production practices, and technologies to manufacture new agricultural
materials. Because the competitive grants program focuses primarily on
basic research, the results of many projects would be useful to scientists
in other disciplines. Five hundred more projects will be funded each year
by this increase. Estimated increased outlays: over four years $188
million; in 1997 $110 million.

USDA/Forestry research initiative. Managing the Nation's forest resources
relies increasingly upon scientific information and technology. This
includes areas as diverse as understanding forest ecosystems and the
wildlife/urban interface, to research on extending the use of wood as a
raw material. This investment will allow the Forest Service and other USDA
research agencies to increase the breadth and depth to which forestry
research areas are investigated, providing the necessary information to
help the Nation develop sound forest-related policies that will both
provide resources to meet ever-increasing demands from the population and
sustain forest ecosystems. The initiative would be funded at $287 million
over four years. Estimated outlays: 1994 $16 million; 1994-1997 $261
million.


Rural Development Initiative

Family farmers have made a unique contribution to this nation's growth,
feeding our people and caring for our land. This initiative would provide
resources to improve rural infrastructure, which provides the necessary
underpinning for rural economic development. It would also directly assist
rural communities and businesses to improve the quality of rural life and
increase employment opportunities in rural areas.

USDA/Increase RDA rural water and waste water loans and grants. Federal
and State regulators report that drinking water and sewage treatment
systems serving small, mostly rural populations currently have the highest
rates of noncompliance with Federal environmental standards. To comply
with clean water standards set by EPA, rural America's water and waste
water needs total roughly $10 billion by the year 2000. Often these small
rural communities are unable to meet these expensive standards without
Federal assistance. The Rural Development Administration (RDA) administers
a water and waste water loan and grant program that targets rural
communities of up to 10,000 in population whose average income is at or
below 80 percent of State median income. This proposal increases RDA loan
authority from $600 million to $780 million, and its grant authority from
$390 million to $510 million in 1994; and to $900 million and $590 million
respectively each year 1995 through 1997. Additional funding for drinking
water and waste water construction is proposed through EPA for new
drinking water and clean water grants to State revolving funds. Estimated
RDA outlays: over four years 1994-1997 $331 million; 1997 $176 million.

Community and business assistance. This initiative would provide Federal
assistance to rural communities, businesses, and individuals, by
leveraging Federal investment to allow rural areas to help themselves.
Farmers Home Administration (FmHA) direct loans for community facilities
would be increased by $300 million in 1994, and $500 million thereafter,
for construction of rural health care clinics, fire stations and
equipment, and other vital facilities. Rural Development Administration
(RDA) guaranteed loans for rural businesses and industries would be
increased by $300 million in 1994 and $500 million thereafter to assist
rural businesses in securing start-up capital and financing for expansion,
creating jobs and helping diversify the rural economy. Additional rural
business assistance would be provided through the RDA Intermediary
Relending Program that provides one percent loans to State-sponsored rural
development programs who, in turn, re-lend to rural businesses. These
funds (an additional $150 million in 1994 loans, and an additional $250
million in loans each year through 1997) would be targeted to small,
emerging "micro-enterprises." In addition, RDA rural development grants
would be increased by $30 million in 1994, and $50 million thereafter.
Business assistance would be coordinated through RDA's existing State
Rural Development Councils, whose members include representatives from
Federal, State and local government agencies, as well as the private
sector.

These investments would provide increased employment opportunities for
rural individuals, and upgrade community infrastructure to improve the
quality of life for all rural residents. The investment proposal also
would improve the housing conditions of low-income, rural individuals.
FmHA direct and guaranteed homeownership loans would be increased by $300
million each in 1994, and by $500 million each year 1995 through 1998.
Rental assistance in rural areas would also be provided through housing
vouchers and grants for use in FmHA-financed rental units. Vouchers would
be targeted for areas where rental units are available, but not currently
affordable for low-income persons. A total of $150 million in additional
rental assistance would be provided through these programs in 1994, and
$300 million each year from 1995 to 1998. Estimated RDA outlays for
community and business assistance; over four years 1994-1997 $1,115
million; 1997 $454 million.


Energy

Without thoughtful energy policies, our nation will remain dependent on
foreign oil and special interests. The Administration will launch
initiatives to develop new, clean, renewable energy sources that cost less
and preserve the environment. We will also encourage energy efficiency and
conservation to lower the energy bill for middle-class Americans, and
lessen our vulnerability to events outside our control.

DOE/Increase funding for renewable energy and energy conservation
programs. The Energy Policy Act of 1992 contains new responsibilities for
the Federal government including: (1) establishment of new energy
efficiency standards; (2) authorization for enhanced research programs;
and (3) new demonstration/commercialization programs for renewable energy
and energy conservation. This initiative progressively increases funding
in these areas, reaching an increase of $500 million in 1997, for a
four-year total increase of $1.3 billion. The increased funding will be
distributed roughly equally among the four major program areas: solar and
renewable energy, and industrial, transportation, and buildings
conservation R&D. The largest increases will go to technology transfer and
commercialization, advanced materials (especially ceramics), industrial
wastes and materials processing, electric and hybrid vehicles, and
modeling of building systems interactions. By making a major effort to
develop and commercialize these environmentally "clean" technologies,
substantial energy cost savings will be realized by consumers while
creating enormous opportunities for economic growth and increased jobs.

DOE/Increase weatherization assistance program. This Department of Energy
program provides funds to States to help pay for home weatherization
improvements for low-income citizens. The increase proposed here, $60
million in 1994, and $100 million per year in 1995-97, would be
distributed differently than the typical "formula grants," in order to
increase the leverage received on taxpayer funds. Matching funds (at least
1:1) will be required from States or utilities. This will encourage State
weatherization programs to take advantage of utilities' demand-side
management (rebate and discount) programs, and will ensure that the funds
go to States that demonstrate a serious commitment to low-income
weatherization activities. With 1:1 leveraging of these funds, an
additional 450,000 homes will be weatherized over the currently projected
number for the 1994-97 period.

Increase the energy efficiency of Federal buildings and facilities.
Current Federal investment in energy efficiency improvements is running
around $150 million per year. This initiative will increase spending to
almost $500 million per year by 1996. The cumulative increase will be $1
billion over four years. The four biggest energy-consuming agencies
Defense, Energy, Veterans Affairs and the General Services Administration
will receive increased funding for their in-house energy management
programs directly. In addition, a fund will be established at the
Department of Energy for energy efficiency improvements proposed by all of
the remaining Federal agencies. Over 700 energy managers will be trained
in 1994, and over 2,000 per year in 1995-98. Outside energy audit teams
will review 600 Federal sites in 1994, starting with the largest energy
consumers, and 1,000 sites per year in 1995-98. By 1997 these investments
should payoff heavily, saving the Government about $350 million per year.

Provide increased funds for acquisition of alternative fuel vehicles for
the Federal fleet, and for conversion of existing vehicles. This
initiative provides $18 million in 1994, and $30 million per year from
1995 through 1998 for the purchase and/or conversion of petroleum based
gasoline powered motor vehicles to alternatively fueled vehicles. This
expands upon the Alternative Motor Fuels Act (AMFA) purchases currently
funded by appropriations to the Department of Energy.

DOE/Increase natural gas utilization R&D. This initiative will roughly
double the combined natural-gas spending of the Conservation and Fossil
R&D programs. A critical new feature is to involve segments of the natural
gas industry in the design and operation of research programs. This will
help ensure that the enhanced R&D is relevant to the needs of industry and
the market place. It will also provide an opportunity for private sector
cost-sharing, thereby increasing the overall level of gas research. In the
combined programs, this initiative will increase spending on natural gas
utilization by $14 million in 1994, increasing to $119 million in 1997,
for a total of $263 million in additional spending over that four-year
period.

Build an advanced neutron source a user facility for applied research and
development. This proposal would fund the design and construction of a
national user facility to produce rare isotopes for medical diagnosis,
treatment and research and to perform applied research using neutron
scattering and neutron irradiation techniques. The facility, called the
Advanced Neutron Source (ANS), would be used by approximately 1,000 user
groups each year. Users would come from industry, universities, and
Federal laboratories. The medical isotopes produced could help tens of
thousands of patients. Neutron scattering is a relatively new experimental
technique with applications for materials science, metallurgy,
crystallography, chemistry, industrial radiography, forensic detection of
trace elements, biology, and biotechnology. The heart of the facility
would be a new research reactor that would have the most intense beams of
steady-state neutrons in the world approximately five to ten times higher
than the current world leader at the Institute Laue-Langevin in Grenoble,
France. The total projected cost of the facility is about $2.7 billion.
The proposal adds $243 million in outlays over the baseline between 1994
and 1997.

DOE/Increase funding for fusion energy research. Fusion offers the promise
of abundant energy from readily available fuels with low environmental
impact. The centerpiece of the research effort in magnetic fusion energy
is a collaboration among the United States, the European Community, Japan,
and Russia to build an International Thermonuclear Experimental Reactor
(ITER). Design and construction of ITER will be a multi-billion dollar
effort that could take two decades to complete. The United States must
maintain a vital domestic research program to support our efforts on ITER.
Yet, the U.S. has not commissioned a major new machine for fusion research
since the early 1970s. This investment would fund moderate growth in the
U.S. fusion energy program above inflation to allow construction of a new
facility, the Tokamak Physics Experiment (TPX). Estimated additional
spending 1994 and 1997 is $210 million in outlays; ($90 million in 1997).


Community Development and Defense Conversion

If we are going to rebuild our nation, we will have to do it from the
bottom up. These initiatives will empower the Americans who create jobs
and raise incomes small businesses, entrepreneurs, and the dreamers with
an idea and the initiative to make it work. They will make sure that the
skills of our defense workers are not lost, but harnessed to the peacetime
projects our future demands. And these initiatives will create real
opportunity in America's inner cities because America will not prosper
until our urban areas once again become engines of economic growth.

HUD/Provide additional funding for Community Development Block Grants
(CDBG). Community development projects are an important source of jobs and
economic development both in the short- and long-term. States and local
governments have a backlog of unfunded "ready to go" projects such as
basic street and bridge work, painting and resurfacing, building
rehabilitation, and public service projects. However, the State and local
needs continue to exceed the existing Federal contribution. The
Administration's proposal would provide an additional $690 million between
1994-1998 to continue much-needed investment in America's communities.
This additional funding would directly create about 60,000 jobs over the
next five years, with even more jobs being created indirectly in the local
economy. These funds are targeted at low- and moderate-income residents,
providing assistance in areas with the greatest need. Because communities
can select eligible activities most appropriate to their local
circumstances, this additional funding will help communities where they
need it most.

Enact enterprise zones legislation in order to promote investment and job
creation in Federally-designated zones. The Administration's enterprise
zone proposal will promote entrepreneurship and job creation in distressed
urban and rural communities through a number of employment and investment
incentives. The proposal includes such policies as an employer wage credit
and an expansion of the targeted jobs tax credit in order to encourage
low-income inner-city and rural residents to obtain employment, become
self-supporting, and leave welfare. It also includes investment incentives
designed to encourage individuals to invest in zones. Taken together,
these incentives will be a critical factor in helping poorer cities and
rural areas become economically more vital. Estimated outlays reach $2.4
billion over four years, with 1.2 billion in 1997.

Community Development Banks. Many American communities face problems of
deteriorating housing, loss of jobs, lack of private enterprise, and
declining economic and social infrastructure. A network of community
development banks will be created to provide loans for business and
housing purposes in distressed communities that have previously been
underserved by traditional lending institutions. Government investment and
technical assistance would supplement private funds and expertise to
ensure community development banks' effectiveness in restoring healthy
economic development in these communities. Estimated cost: over four years
$354 million; 1997 $110 million.

SBA/Increase Section 7(a) loan guarantees. This program helps small
businesses struggling to attract bank lending because of the general
weakness of the economy. Building on a stimulus proposal, increased
funding levels will be extended to assure that creditworthy small
businesses have access to capital. These funds will make about 14,000
loans to individuals otherwise unable to expand or start small businesses.
Estimated cost: over four years $501 million; 1997 $157 million.

Defense Conversion Program. With the end of the Cold War, the nation faces
the challenge of the defense transition. How should we address the needs
of the men, women, companies and communities who helped us win the Cold
War but who now feel the impact of declining defense budgets? How do we
best reinvest in the industrial, technological and workforce capabilities
of the Cold War so they can play a role in our effort to make the nation
globally competitive? Our economic plan is designed to face this challenge
and to seize this opportunity.

Our defense conversion program builds on current efforts and increases
investment funding. In the Department of Defense, we will propose
additional funding for dual-use technology programs and for the community
adjustment assistance activities of the Office of Economic Adjustment. In
the Department of Labor, significant new investment funding will be
requested to provide for the training and retraining of America's
workforce, including those parts of the workforce displaced by defense
spending reductions. In the Department of Commerce, we will request
additional funding both for National Institute of Science and Technology
programs helpful to industry and for the work of the Economic Development
Administration supporting the economic diversification of communities hurt
by defense reductions.

These programs will address the need for defense transition assistance in
the industries, the workforce and the communities that experience the
impact of declining defense budgets. In addition, our investment
initiatives in high technology will help stimulate the "market pull" to
provide new opportunities for high technology businesses and the highly
skilled workforce currently in the defense market. To meet this goal, we
are proposing spending for the Departments of Energy, Transportation and
Commerce, and NASA, among others, on such technologies as high performance
computing, aviation and aeronautics, transportation, space and
manufacturing technology.

To ensure that the parts of this defense conversion program work together,
activities will be coordinated through the Executive Office of the
President and interagency committees.

This proposal provides additional funding of $555 million in 1997 for
defense conversion, of which $480 million will go to the Department of
Defense for dual-use technology and manufacturing programs. Funding of $20
million will be provided to DoD's Office of Economic Adjustment and $55
million to the Economic Development Administration in the Department of
Commerce for community diversification. For the programs of the other
agencies described above, additional initiatives in the investment package
include about $2 billion for job training and $4 billion for the
acquisition of high technology products and R&D. Estimated outlays of the
Department of Defense and the Economic Development Administration parts of
this proposal: over four years $1.5 billion; 1997 $520 million.


Revitalizing Technology

To move ahead of our competitors in technological research and
development, this initiative will provide incentives to explore new
technologies. It will create high-wage jobs and help push America toward
the cutting edge of groundbreaking technologies. It will create markets
that encourage the use of defense technology for civilian purposes and
bring together businesses and universities in an effort to ensure that
innovative products have the label "Made in America."

NSF/Enhancing university-based competitive science and engineering
research in the U.S. Studies show that investments in research and
development (R&D) tend to be the strongest and most consistent positive
influence on productivity growth. Most of NSF's investments are in
university-based R&D programs which are competitively selected on their
merit by members of the science and engineering community. These
activities contribute to the Nation's productivity by generating new
scientific and engineering knowledge and contribute to the training of the
next generation of scientists and engineers. In 1992, NSF had $1 billion
of unfunded proposals that were rated excellent through peer review. Thus,
it appears that NSF has the capacity to invest more funds in a broad range
of important research areas, including strategically targeted research in
improving our understanding of the climate system and improved engineering
approaches to mitigate environmental problems; advanced computers and
digital networks; biotechnology; materials processing; advanced
manufacturing; math and science education; and smart highways, bridges,
and other civil infrastructure. This proposal which adds $2.3 billion over
four years, and $954 million in 1997 also includes funds to support the
Nation's university-based research facilities and instrumentation.

Commerce/Increase civilian R&D at the National Institute of Standards and
Technology (NIST). America's competitiveness rests ultimately with the
private sector. Yet, the Federal Government has an important role to play
in promoting economic growth, in part by supporting research and
development. This proposal provides aggressive growth for the National
Institute of Standards and Technology (NIST). NIST is the only Federal lab
with the principal mission of supporting U.S. industry and has provided a
steady stream of technology support to U.S. firms for over 90 years. This
proposal provides for: 1) an increase of $138 million in 1994, rising to
$680 million by 1997, for the Advanced Technology Program to provide
matching grants for industry-led R&D projects, including funding for
consortia like SEMATECH; 2) over 100 manufacturing extension centers
nationwide by 1997 to assist manufacturers to modernize their production
capability; and 3) doubling the amount of R&D performed in the NIST labs
by 1998. This proposal would increase total NIST funding from $381 million
in 1993 to $1.2 billion in 1997 (budget authority).

Commerce/"Information Highways" Demonstrations. The development of a
broadband, interactive telecommunications network linking the Nation's
businesses, schools, libraries, hospitals, governments, and others could
pay enormous dividends to the U.S. economy. Engineers working on the same
problem, teachers and students, and patients and doctors would all be able
to communicate instantly no matter how much distance separated them. This
proposal builds on the 1993 stimulus initiative by providing new seed
money to "jumpstart" the development of these networks. In 1994, $54
million will be made available to the Department of Commerce for grants to
States, local governments, universities, school systems, and non-profits
to link public facilities in such a network. Between 1995 and 1998, $150
million annually would be made available.

Federal Coordinating Council for Science, Engineering, and Technology
(FCCSET) initiatives. As the fields of science and technology have
progressed, and as applications of scientific advances have improved, it
has become obvious that a single field of science can have applications in
numerous different areas, governed by different Federal departments and
agencies. In order to coordinate scientific advances among agencies and to
avoid duplication of efforts, the Federal Coordinating Council for
Science, Engineering and Technology (FCCSET) has established interagency
committees.

There are currently six specific areas, which have been identified as
important national research and education activities. They are: improving
our understanding of the climate system, advanced supercomputers and
computer networks, math and science education, materials processing,
biotechnology, and advanced manufacturing. The climate initiative, for
example, is focused on understanding the processes involved in climate
change and was a key component of the U.S. action plan in the recent
"Earth Summit" negotiations. The advanced manufacturing initiative will
focus on areas such as intelligent manufacturing cells and computer-based
tools for production design. Over a dozen Federal agencies, including
NASA, Defense, Energy, the National Science Foundation, Commerce,
Agriculture, and the National Institutes of Health, have programs which
address one or more of the six specific areas.

Crosscutting high performance computing (NSF/NIH/NASA/NIST). This
investment builds directly on a stimulus program to develop applications
which use advanced computers and communication networks to solve problems
in health care, education, manufacturing, and more. For example, under a
pilot test in Boston, a physician could transmit images (X-rays, CAT
scans, photos) quickly to a specialist across town for immediate
consultation. This program would be part of the multi-agency High
Performance Computing and Communications program and would be coordinated
by the Office of Science and Technology Policy's Federal Coordinating
Council for Science, Engineering, and Technology (FCCSET). 1997 $320
million; four year total $784 million.

NASA/Civil aviation. The quality of the air transportation system has a
direct impact on the quality of life of every U.S. citizen. This
investment option would expand NASA aeronautics research in its support of
the aviation industry and its enhancement of the safety and capacity of
the national airspace system. One area for investment, advanced subsonics
research, would focus on developing technology that would increase the
competitiveness of U.S. commercial transport aircraft and enhance the
safety and productivity of the national aviation system. The other area
for investment, high-speed research, would focus on resolving critical
environmental issues and establishing the technology base for an
economical, supersonic aircraft. These investments will help counter
aggressive government-supported foreign competition. In addition, it will
provide technologies that improve the environmental compatibility of
existing and future aircraft by reducing noise and engine emissions.
Funding will reach an additional $222 billion in 1997, for a four year
total increase of $550 million.

NASA/Short-haul aircraft research. This initiative will expand NASA
aeronautics research to develop technologies for short-haul aviation.
Short-haul aircraft includes commuter aircraft, rotorcraft, and general
aviation airplanes. There are roughly 220,000 short-haul aircraft in the
United States, making up 98 percent of the total civil aviation fleet. To
help bolster the competitive position of the U.S. short-haul industry,
NASA would develop technologies for both rotary and fixed wing aircraft to
enable a new mode of high utility, safe, fast, and direct transportation
linking thousands of smaller communities. The program would take advantage
of ongoing and new Federal Aviation Administration (FAA) and industry
cooperation to accelerate application of these advanced technologies to
U.S. aircraft and engine manufacturers. Estimated outlay increase: in
1997, $20 million; over four years, $50 million.

Greatly increase non-defense Cooperative Research and Development
Agreements (CRADAs) at the national labs. Cooperative Research And
Development Agreements (CRADAs) are one of the mechanisms by which the
national laboratories can work with industry to transfer lab-developed
technology and know-how to the private sector. The funds go to the labs to
pay for their share of the jointly agreed-upon R&D in the CRADA. The
laboratory work under each CRADA is proprietary to the private-sector
partner, who also hold the patent rights to inventions made under the
CRADA. The current funding for CRADAs to transfer technology developed by
DOE non-defense programs is $9 million, but there is more demand from
industry for assistance through CRADAs than can be funded with that amount
of money. This investment initiative provides an additional $30 million in
1994 and $50 million per year over the baseline in 1995-97.

Modernizing Social Security Administration computer systems. The Social
Security Administration (SSA) relies heavily on its information systems to
provide services and pay benefits. To meet current and future demands, SSA
and State Disability Determination Services (DDSs) must abandon their
labor-intensive, paper-driven tradition and automate. The proposal would
invest in the pilot tested Intelligent Workstations and Local Area
Networks and (IWS/LAN), creating a standard, state-of-the-art, computing
network for all of SSA and DDSs. The investment funding includes modular
workstations, and design/site preparation/installation. Estimated cost:
over four years $880 million; 1997 $245 million.

Modernize Internal Revenue Service. IRS currently processes tax returns
using technology from the 1960s. These out-of-date systems result in long
delays for taxpayers and extra costs for the Federal government. Tax
Systems Modernization (TSM) represents IRS's effort to move to an
up-to-date, automated approach to processing taxes. With TSM, tax returns
will be processed and stored using modern technology. Tax returns will be
available in electronic files instead of remote warehouses. As a result,
IRS employees will be able to provide immediate responses to most taxpayer
questions over the phone. TSM will enable IRS to reduce the risks and
costs associated with operating their current systems while also improving
their ability to serve the public in the administration of the nation's
tax system into the 21st century. Estimated cost: over four years $1.8
billion; 1997 $0.7 billion.


Housing

These initiatives will help make housing more affordable, and streets and
neighborhoods safer. In conjunction with other measures, they will also
provide the help that the homeless need. By empowering our people, these
measures will go far toward creating real choices for Americans at every
income level and help them achieve the American dream.

HUD/Assist more households with housing subsidies. The Department of
Housing and Urban Development currently provides housing subsidies to 4.7
million low-income and very-low-income households to overcome their
housing problem. Nevertheless, an estimated 3.6 million families and
elderly very-low-income renters still face severe housing problems because
they either have a "worst case need" for housing with (1) rent that
exceeds 50 percent of their income or (2) live in a severely substandard
housing unit. Additional Federal investments are needed to eliminate these
remaining very-low-income rental housing problems. This investment would
substantially increase assistance through HOME grants and housing
vouchers. HOME funds would double to the full amount authorized of $2.2
billion; housing vouchers would increase from nearly 40,000 annually in
1993 to 100,000 by 1998. Estimated investment: over four years $716
million; 1997 $422 million.

HUD/Supportive housing program. This investment is targeted towards the
problem of homelessness. It increases funds for rehabilitation of housing
that serves the homeless as well as other services which seek to address
the root causes of homelessness. The $138 million increase in 1997 and
$241 million over four years represents a doubling of the program.

HUD/Public housing operating subsidies. The rent paid by residents of
public and Indian housing often does not cover the operating costs
incurred by housing authorities. The Department of Housing and Urban
Development's Payment for the Operation of Low-Income Housing program pays
the housing authorities for those operating costs not covered by rental
payments, thus permitting housing authorities to provide and maintain
safe, sanitary and decent housing. This investment of an additional $121
million in 1997 and $206 million over four years, by meeting the estimated
cost of providing quality public housing, will strengthen our nation's
stock of public housing and enable the people who reside there to have
decent shelter.

HUD/Preserving and renovating low-income rental housing. The
Administration proposes to increase funding to repair and restore the
nation's stock of assisted rental housing, most of which is 20 to 30 years
old. Many units are in deteriorated buildings. Many operators of buildings
are also financially troubled. In the worst cases, hundreds of project
operators have defaulted on federally insured mortgages, turning HUD into
the lender and, ultimately, the landlord-of-last-resort. Another 360,000
units of HUD-assisted low-income housing face a problem of a different
sort. These properties are nearing the end of the long-term HUD subsidies
that helped them to remain as low-income rental housing. Without
additional Federal subsidies, some owners could convert these affordable
rental units into luxury apartments or even condominiums, leaving their
low-income tenants out in the cold. Congress created the Low-income
housing preservation program in 1990 to provide landlords the necessary
incentives and subsidies to preserve this federally subsidized low-income
housing as affordable low-income housing. The Administration proposes
increasing funding for this program to ensure that no existing tenant
loses his or her housing benefits as a result of adverse landlord actions.
The cost of this additional investment in preserving and renovating
low-income rental housing will be $858 million over the next four years.
For 1997, spending will total $384 million.

HUD/Community Development Block Grants (CDBG). Since 1974, the CDBG
program has been an important source of flexible Federal aid to State and
local governments. CDBG funds directly help fund local economic and
community development projects that benefit low- and moderate-income
residents in large cities and urban counties and smaller communities. The
Administration's proposed investment would directly create more than 7,300
jobs over the next five years, with even more jobs being created
indirectly in the local economy. Because communities can select eligible
activities most appropriate to their local circumstances, this additional
funding will help communities where they need it most. Total spending
would increase $137 million in 1997 and $430 million between 1994 and 1998.

HUD/Crime in public housing. The Administration proposes an Urban
Partnership Against Crime initiative to address the increase in gang- and
drug-related crime activity in many public housing developments across the
country. Crime has exacted a profound and intolerable toll on public
housing residents. Living in a constant state of fear of physical harm,
residents have been robbed of their sense of community and personal
well-being. Meanwhile, they have witnessed an ever-increasing expenditure
of scarce public resources on repairing the damage done by crime to the
physical environments of these developments. This initiative, costing $138
million in 1997 and $312 million over four years, would allow the
Department of Housing and Urban Development to work with public housing
and other local officials in an intensive effort to reduce crime in public
housing. It focuses resources on those developments with greatest need,
and gives flexibility to local officials to develop solutions (like
community policing, neighborhood watches, youth activities) to the
problems of crime in their communities.

HUD/Restore dilapidated public housing. This investment would provide an
additional $138 million in 1997 and $241 million over the next four years
to rehabilitate and restore severely dilapidated public housing projects
that today are not only uninhabitable, but also contribute to the economic
and social problems of the surrounding neighborhoods. These economically
viable public housing units would then provide, once again, decent, safe,
and affordable housing for low-income renters.


Lifelong Learning

Becoming a productive member of the community requires certain basics:
like a healthy, supportive childhood; safe, sound schools; a chance to
serve your country; and the opportunity to be retrained for the challenges
of today's global economy. The Administration's commitment to major
investments in these kinds of "human capital" promises payoffs for the
nation far beyond their original price.

HHS/Full funding of Head Start. Children who participate in Head Start do
better in school and become more productive as adults. By giving them the
caring, stimulating environment they need, Head Start programs enable
at-risk children to become problem-solvers instead of problems. Thousands
of parents and selected studies have testified to the program's success,
but for years our government despite promises has failed to make Head
Start available to all the children who need it. With this initiative, one
of our country's most cost-effective programs will become far more widely
available and help change countless lives. The Administration will
increase funding for Head Start by $3.2 billion in 1997, $8 billion over
four years, achieving full funding for an estimated 1.4 million eligible
disadvantaged children by 1999.

USDA/Head Start-related child care feeding. Pay for meals at Head Start
centers and serve them to the participants added by the Administration's
Head Start initiative; $237 million in 1997; $590 million over four years.

HHS/Head Start related Medicaid. Fund new entrants in the Medicaid program
resulting from Head Start expansion; $116 million in 1997, $275 million
over four years.

USDA/Full funding of WIC program. If our nation is going to prosper, our
children will have to grow up healthy, not hungry. This special
supplemental food program for women, infants, and children (WIC), helps
make sure they do. By the end of 1996, all eligible children ages 1 to 4,
including some 2 million who were not served last year, can be assisted
with the proposed investment of $1 billion in 1997, $2.6 billion over four
years.

HHS/Parenting and family support. These initiatives stem from a simple
reality: governments don't raise children; parents do. These proposals
will empower parents with the skills and the tools they need to help raise
their children. They will support disadvantaged parents, including
activities to help them work with their children at home and parenting
classes, with an investment of $500 million in 1997, $900 million over
four years.

Department of Education/Reforms and initiatives. All American children
need greater access to better education not just to make the American
Dream more available, but to make the American economy more productive.
These initiatives will provide $2.7 billion in 1997, $6.2 billion over
four years, to support reforms and reauthorizations in elementary,
secondary, and postsecondary education, including state and local systemic
reforms, a new SAFE Schools program, student assistance program
improvements, and support of Historically Black Colleges and Universities.

National Service. The national service initiative will help young people
pay for college and other postsecondary education by serving their
country. In conjunction with income-contingent loan repayment, which will
help Americans take low-paying community service jobs and still pay off
their student loans, the program will provide dramatic new opportunities
to serve our country. Young people will meet pressing national needs in
areas including education, public health, environmental protection, and
public safety. In return for one or two years of service, they will be
able to receive a significant educational benefit. As it enables Americans
of all backgrounds to help themselves and their country at once, the
initiative will reinvigorate American citizenship lifting our country up
and bringing our people together. The Administration's commitment to a
fully realized program of national service is behind its plan to invest
$7.4 billion in the next four years, building from $389 million in budget
authority in 1994 to $3.4 billion in 1997.

Labor/Dislocated workers program. Legislation will be proposed for a new
program to replace and improve upon two existing programs to help workers
who lose their jobs because of restructuring of their industries,
international competition, or defense downsizing to secure rapid
reemployment or train for new careers. The program will cost an additional
$2 billion in 1997, $4.6 billion over four years.

Labor/Job Corps expansion. Provide resources to increase the size of the
Job Corps program by 50 percent by 2001. This will increase the number of
Job Corps participants to 104,000, from the current 70,000. Job Corps
provides remedial education, occupational skills training, supportive and
job placement services to severely disadvantaged youth in its network of
110 residential centers. The plan would finance 50 new residential
centers. The 1997 cost is $202 million; the 1994-97 cost is $341 million.

Labor/Job Corps maintenance. Spend $50 million in 1997 and $105 million
over four years to repair and renovate Job Corps' aging residential
centers.

Labor/Summer youth employment and training program (SYETP). The SYETP
offers economically disadvantaged youth age, 14 through 21, work
experience in minimum wage jobs in public and nonprofit agencies during
the summer months. This investment of $625 million in 1997 and $2.0
billion over four years would finance about 2 million additional summer
youth jobs. The plan includes an enriched program of work experience,
basic skills training, testing and counseling, and closer coordination
with schools.

Labor/One-stop career shopping. This program would make it easier for
adults seeking to change jobs or careers or upgrade their skills to obtain
access to the confusing array of Federal programs and services by
developing "one-stop shop" career centers. Over four years, the proposed
investment is $900 million, $250 million of which is to be spent in 1997.

Labor and Education/Youth apprenticeship. This program would finance a
nationwide system of school- and work-based learning programs for high
school youth who do not plan to attend college, in order to reduce
drop-out rates and help them make a successful transition to meaningful
careers in technical occupations. The proposal provides $500 million in
1997, a total of $1.2 billion over four years.


Rewarding Work

Earned Income Tax Credit (EITC). In America, no one who works should have
to raise a family in poverty. The EITC currently provides refundable tax
credits to low-income working families with children. By expanding the
EITC, we will assure that a family of four will not be forced to live in
poverty, if one of the parents works full-time at a minimum wage job. The
cost of the entire proposal is $6.7 billion in 1997 and $19.9 billion over
four years.

Welfare Reform. Later this year, the Administration will present a
comprehensive reform plan to end welfare as we know it. The President's
plan will carry out his pledge that no one with a family who works
full-time has to live in poverty, that parents who bring children into the
world should be held accountable for raising them, and that welfare ought
to be a second chance, not a way of life. The plan, coupled with the
Earned Income Tax Credit, tougher child support enforcement to crack down
on deadbeat parents, increased training, parenting, and family support for
moving people from welfare to work, will move toward a time-limited system
of welfare. This will give people on welfare the education and training
they need for up to two years, but after that, require all those who can
work to go to work.


Justice

Justice/Crime initiative. A comprehensive program to support and improve
all aspects of the criminal justice system. The initiative includes: (1) a
new Community Policing/"Cops on the Beat" grant program to localities to
create safer streets and to community policing, thereby building a bond of
trust between citizens and police so that they can work together to fight
crime; (2) a new Police Corps program, to provide scholarships to would-be
police officers in exchange for a commitment to service as a State or
local police officer; (3) a Criminal Records Upgrade program to assist
States in improving their criminal records infrastructure and link with
the FBI's criminal information databases; (4) increased funds to meet
costs associated with detaining and incarcerating the growing Federal
prison population, which has resulted from increased arrests and the
imposition of minimum mandatory sentences; and (5) increased funds for
existing Federal law enforcement activities. The budget authority
investment is $900 million in 1997, $2.8 billion over four years.

Equal Employment Opportunity Commission (EEOC)/Enforcement. Increase EEOC
enforcement staff in field offices to provide full enforcement of the
Americans With Disabilities Act and the Civil Rights Act of 1991. The
proposed outlays are $18 million in 1997, $63 million over four years.


Health Care

HHS/AIDS, immunizations, NIH research, and other public health
initiatives. This investment provides substantial new funding $3.4 billion
in 1997 and $8.2 billion over four years for a number of public health
initiatives including: (1) HIV/AIDS research; (2) research on women's
health issues; (3) the President's plan for increasing childhood
immunizations; (4) teen pregnancy programs, and (4) other efforts to
promote public health.

HHS/Substance abuse prevention and treatment. Challenge grants to the
States to create substance abuse treatment capacity where is it needed
most and for hard-to-treat populations. It will serve 30,000 people in
1994 and more in years after. The outlays are $800 million in 1997, $1.5
billion over four years.

USDA/Food Safety and Inspection Service. Improve the existing meat and
poultry inspection system by increasing the number of Food Safety and
Inspection Service inspectors available in order to ensure that visibly
diseased animals are not processed, slaughterhouses and processing plants
are clean and follow safe food handling procedures, and plant employees
follow proper hygiene. Food safety research would also be enhanced. This
responds to a clear need for improvements, highlighted by the recent food
poisoning outbreak in Washington State. The initiative adds 200
inspectors. The investment is $34 million in 1997, $111 million over four
years, and it would create some 275 jobs in 1994.

Rural Health Initiative. This proposal provides grants and other
assistance to small rural hospitals to upgrade needed services. Grants may
be used to launch integrated health systems and telecommunications links
for remote consultation and diagnosis in low manpower areas. Estimated $50
million in 1994.

VA/Medical care. This four-year investment provides a $2.5 billion
increase over the baseline to ensure high quality health care for veterans
by such measures as providing adequate staff levels to meet requirements
on residency education programs and automating drug dispensing in VA
hospitals.

HHS/Social Security Administration/Disability insurance processing.
Increase resources for the processing of dramatically increased disability
benefit claims by $200 million in 1995-98. This will cut down on the
significant delays that have occurred in recent years and reverse the
general decline in service.

HHS/Ryan White Act. HIV/AIDS is now the ninth leading cause of death
overall. Currently, approximately 1 million people are infected with HIV
in the U.S., and about 60,000 new AIDS cases are reported each year. The
President has pledged to respond to this need by fully funding the Ryan
White Act and increasing Federal support for HIV/AIDS prevention efforts.
To begin fulfilling these pledges this year, this proposal would increase
funding for grants authorized under the Ryan White Act by $120 million in
1994. The proposal includes additional funding of approximately $1 billion
over the next four years.

State and Local Relief. Within the Health Care, Rewarding Work and
Lifelong Learning investment packages, the Administration will design a
program to offset the impact of refugees and undocumented residents on the
budgets of State and local governments, including those in California,
Texas and Florida.


Investment Package: Tax Incentives

We recognize that the only way to lay the foundation for renewed American
prosperity is to spur investment. New investment will create jobs, putting
people back to work today, and will provide the productive equipment that
we need to compete in the global economy.

Our overall program consists of outlays for physical and human capital and
investment tax incentives for the private sector. Outlays for physical
capital will help rebuild the crumbling foundations of the United States,
create millions of high-wage jobs, and smooth the transition from a
defense to a commercial-based economy. Our program will concentrate on the
transportation, environment, and communications infrastructure. The
program of tax incentives will increase private investment over the long
run. Like the outlay programs, these incentives are designed to increase
investment in human and physical capital. These incentives will be
particularly helpful to small business which generates the lion's share of
jobs.

Permanent small business tax credit. As discussed in the stimulus package,
the plan provides that small businesses will now be eligible for a
permanent investment tax credit on their equipment. The credit will
generally be 7 percent in 1993 and 1994, and 5 percent thereafter. Small
businesses operate at the margin and need a permanent incentive to invest,
grow and provide new employment opportunities.

Incentive for investment in small business. The program provides relief
from the capital gains tax for investors in small businesses. This
proposal will allow investors generally to exclude 50 percent of the gains
earned from investment in the stock of a qualified small business (less
than $25 million capitalization) when held at least 5 years. Furthermore,
50 percent of the excluded gain is not subject to taxation under the
alternative minimum tax. The tax incentives will both stimulate job
creation over the short-run and increase investment over the long-term.

Research and experimentation tax credit. The economic plan will
permanently extend the research and experimentation credit. This will
encourage firms to undertake the research necessary to develop the
technological innovations required to increase the supply of good jobs.

Real estate. The plan also permanently extends both the low-income housing
credit and mortgage revenue bond provisions. Doing so will provide a
stimulus to increase the supply of housing for low-income families. In
addition, the program modifies the passive loss rules for persons in
certain real estate trades or businesses, relaxes restrictions on pension
investments in real estate and extends the depreciable life of
nonresidential real estate.

Enterprise zones. This part of the program authorizes the establishment of
a number of enterprise zones. Businesses located in enterprise zones will
be eligible for a wage credit for the hiring of enterprise zone residents
and accelerated depreciation or expensing of investments in enterprise
zone property. In addition, small businesses in qualifying economically
distressed areas will be eligible to obtain low interest rate loans
through tax-exempt financing even if the area is not selected as one of
the zones. Combined with the other tax incentives and other non-tax
initiatives targeted to urban areas, these benefits should help promote
investment and job creation in these areas.

Simplifying and enhancing depreciation provisions for companies subject to
the alternative minimum tax (AMT).  As noted in the discussion of the
stimulus package, the plan substantially enhances the investment
incentives for taxpayers subject to the AMT and simplifies the AMT by
using the shorter regular tax depreciable lives for minimum tax as well as
regular tax purposes. Because they reduce the net cost of acquiring
depreciable assets, this proposal will provide a lasting stimulus to
investment for affected companies.

Targeted jobs tax credit; employer-provided educational assistance. The
plan permanently extends these two provisions, thus providing an incentive
for American businesses to continue to invest in human capital. The plan
also expands the targeted jobs tax credit to include workers in an
apprenticeship program. An educated workforce will be more productive and
better able to adapt to the challenges of a modern information-based
economy.

Health insurance deduction for the self-employed. The plan calls for an
extension of the 25 percent deduction for health insurance premiums of the
self-employed through the end of 1993. This will retain the current law
tax treatment of these premiums for affected individuals until the
Administration's comprehensive health care proposals are enacted.

Small issue bonds and high speed rail facilities. The ability to issue
tax-exempt bonds for qualifying small businesses and certain farmers would
be extended permanently under the plan. In addition, in order to promote
the development of high speed rail facilities, tax-exempt bonds issued for
that purpose will not be subject to the State private activity bond volume
limitations.
                           Investing in the Future:
              Reducing the Deficit to Increase Private Investment

Why this plan?

The Federal budget deficit is too high, and must be reduced. But how fast?
A lower deficit will strengthen the economy in the long run by increasing
national saving, lowering long-term interest rates, and encouraging
private investment. But reducing the deficit too rapidly could weaken the
economy in the near term. Every dollar of Federal spending, worthy or
unworthy, is someone's income. If that income is cut, and that recipient
reduces his or her spending as a result, the loss of income cascades
through the economy. Tax increases produce the same effect. So deficit
reduction must be prudently sized, carefully timed, and coordinated with
other Government policies (and with the Federal Reserve's monetary policy)
to limit the economic cost.

The impact of a deficit reduction package on the economy is best measured
by the relative sizes of the two that is, by the amount of the deficit
reduction amount as a percentage of the gross domestic product (GDP). The
larger the deficit reduction at any given time, the greater the risk of
economic dislocation. History suggests that annual deficit reduction of
less than one-half of 1 percent of the GDP is safe, and that deficit
reduction of under 1 percent of the GDP is manageable, as long as the
Federal Reserve cooperates by easing the money supply. Further, to limit
that risk in a substantial program of multiyear deficit reduction, the
size of the bite out of the deficit should be held to a relatively even
percentage from year to year.

Relying on these principles, this Administration's economic program is
designed to impose policy deficit reduction savings of slightly less than
one-half of 1 percent of the GDP per year over four years. This pace
maintains a substantial margin of safety and provides the Federal Reserve
with ample notice to expand the supply of credit in compensation, but also
accumulates to a significant reduction of the Federal Government's drain
on the Nation's savings by the end of the period.

Apart from growth miracles, there are only two ways to reduce a deficit:
spending can be cut or taxes can be raised. Both are controversial and
bound to arouse vociferous opposition. We have attempted to put together a
balanced plan of deficit reduction that includes both spending cuts and
tax increases.

We believe the plan is fair. It spreads the necessary contributions
broadly. It does not bear heavily on any one group or region or industry.
The proposed spending cuts do not fall on the most vulnerable members of
our society, but on those best able to shoulder the cost. The tax
increases included in the plan fall disproportionately on the wealthiest.
They place a fair share of the burden of deficit reduction on those who
profited the most from the uneven prosperity of the last decade and who
enjoyed the greatest reduction in their share of the burden of Government.
Those earning more than $100,000 will contribute over 70 percent of the
total new revenue.

We believe that the specifics of the plan contain many desirable policies
that could be defended on their merits, quite apart from the need to
reduce the deficit. On the spending side, cuts have been aimed at
low-priority programs. The purpose of deficit reduction is to transfer
resources within the economy from low-priority uses to additional public
and private investments that add more to our economic strength. A changing
world makes some Government programs obsolete just as it leaves some
private businesses in abandoned corners of the marketplace. The
Administration proposes to rationalize or eliminate programs that have
outlived their usefulness; that provide unnecessary or excessive subsidies
to narrow groups at great expense to society at large; or that reduce the
overall efficiency of Government. Continued support for such programs
would weigh down the economy as a whole with a burden that can only grow
in the future. It is time to put the national interest ahead of the
special interests. On the tax side, the proposed new tax on energy will
encourage socially responsible behavior such as energy conservation and
environmental protection.

We also believe that the plan is bold. There is no way to reduce the
deficit without incurring the opposition of politically powerful groups
and lobbies. This Administration has not shrunk from proposing necessary
spending cuts or tax increases for fear of offending powerful interests.
Deficit reduction is essential to the economic health of the nation, and
all groups must contribute to the solution of this common problem.

Much of the deficit reduction that we propose can and should be legislated
in this fiscal year. Some of it, however, will depend upon actions in
later years that cannot be determined now. For this reason, we propose an
extension of the Budget Enforcement Act of 1990 to set the conditions for
decisions in the future; and we also propose an enhanced rescission
procedure that will give this President and all future Presidents the
opportunity to require a simple majority vote on individual spending
items. These procedural changes will safeguard the deficit reduction we
need.

The heart of the benefit from deficit reduction is the additional private
investment that it allows. Those investment dollars, driven to their best
uses by an intensely competitive marketplace, will add to wages for
workers and profit for entrepreneurs. However, the private sector also
needs tools that only the public sector can efficiently provide: the
skills and the infrastructure upon which businesses can build.

Accordingly, this Administration proposes to dedicate a modest share of
its deficit reduction about one dollar in five in 1997 to selected public
investments in physical infrastructure; technology development and
dissemination; environmental protection and energy conservation; the
education and training of our work force; incentives for work; and
preventive health care and public health. A further share of the deficit
reduction less than 10 percent will go toward tax incentives for private
investment and work effort.

This combination of increased private investment through deficit reduction
and targeted incentives and increased public investment through a
reorientation of Federal Government priorities will help to reverse the
self-destructive consumption binge of the last decade and to solidify the
economic base upon which our nation can grow in the competitive world of
the next century.

Based on cautious economic assumptions, this program will begin to rein in
the Federal budget deficit, which now is growing faster than the economy;
that is an unsustainable condition that will deal with us if we do not
deal with it. We chose that cautious base to avoid the overconfidence that
has led to foolish and impossible commitments in the past, and to the
resultant reversals of economic policies. However, the Administration is
confident that the additional public and private investment will stimulate
growth and reduce interest rates, both of which will narrow the deficit
gap still further. There remain unfinished economic policy tasks. Other
commitments must be addressed and other economic policies reformed. These
will be identified later in this report.

The Clinton Administration's approach to deficit reduction accepts change
as its point of departure. Because the world has changed, America's armed
forces must redefine their roles and missions, and translate those updated
missions into new resource requirements. Similarly, old verities no longer
work on the domestic side. Indeed, a drastic restructuring of Federal
priorities is overdue on both fronts.


Facing New International Challenges and Opportunities

While this report focuses on our economic plan, the nation faces a host of
new international challenges and opportunities that will affect the
prospects for domestic economic renewal. World economic growth, our
national security and the health of our domestic economy are integrally
linked. When our economy is growing, we have more strength in
international negotiations, our institutions and values hold more
attraction abroad, and our international engagement is more affordable and
sustainable. Moreover, our willingness to confront the global issues and
problems of the post-Cold War era will determine whether we will shape
global change in ways that advance our interests, or let those changes
engulf us. The agencies of government that defend and promote American
interests and values abroad must be redesigned to deal directly with new
international challenges and to operate efficiently in a streamlined
government.

This economic plan and the budget that will follow redirect and
reinvigorate our national security priorities and institutions to meet new
international challenges and take advantage of new opportunities. This
plan is an investment in preventing regional wars and international crises
that could consume scarce resources. It also invests in new initiatives
that will yield economic and environmental benefits for the American
people.


International Affairs

United States foreign policy seeks a world community increasingly
receptive to democracy, market economics and international cooperation as
we face new international challenges. While spending for international
affairs must share in the reductions we are carrying out across the
government, our budget plan has made room for a number of important new
initiatives, while maintaining those existing programs that advance our
enduring interests.

Few issues are more vital to our long-term security than the progress made
in Russia and other states, from Eastern Europe to Latin America and
Africa, toward democracy and the establishment of market economies. We
already have made a significant investment in supporting this evolution;
our new budget increases our commitment to progress in this area. For
example, we are committing funds to such new initiatives as a Radio Free
Asia, to carry news and hope to China and other Asian nations.

Our national security is also linked to helping prevent or resolve
conflicts that can grow out of ethnic, regional, or religious tensions
throughout the world. International peacekeeping and peacemaking
activities have increasing value in such conflicts. Somalia, Bosnia,
Cambodia and Mozambique provide current examples of multilateral
peacekeeping efforts; more such exercises are likely in the future. Our
budget plan accommodates the likelihood of greater peacekeeping
commitments.

The proliferation of weapons of mass destruction and the means of their
delivery poses a serious long-term threat to international peace and
stability. This administration is shaping a coherent non-proliferation
strategy, which will be supported by our budget plan.

The competitiveness of U.S. firms in the global market is another foreign
policy priority. We will create a dynamic two-way relationship with the
business community that responds to its needs rapidly and creates a more
level playing field for international trade.

We also plan to address more coherently the many challenges posed by the
degradation of the global environment, through strong support for
international agreements and programs to protect that environment. We are
building a strong base for a new approach to global environment problems.
Finally, our budget plan increases our commitment of resources to active
population programs, and significant on-going support for refugee and
humanitarian assistance festering problems that, unattended, will create
tomorrow's crises.

In order to fund these priorities and initiatives, we are also working to
streamline and modernize the structure of our national security machinery.
Some current programs, designed to meet the needs of the Cold War era,
need new focus. We are reshaping the Department of State, as well as the
Office of the Secretary of Defense and the National Security Council
staff, to give new strategic emphasis to problems such as assisting the
former Soviet Union, non-proliferation, new global issues and our economic
competitiveness. We are reviewing such programs as international security
assistance, development assistance, and information and broadcasting, many
of which were designed for the Cold War. We will be taking a close look at
future priorities for international development lending through
multilateral development banks, and at export guarantee and promotion
programs. Over time, we hope to restructure many of these activities,
streamline their operations or redesign them, while meeting our existing
international commitments and enhancing American interests.


National Defense

The world remains a dangerous place, but the nature of those dangers has
dramatically changed. Our military forces and intelligence capabilities
must, therefore, continually be redesigned in a changing world.
Unquestioned American military power remains essential to the success of
our diplomacy and to strengthening our international relationships.

Reducing the size of the military to provide funds for other needs,
therefore, is not our purpose. Rather, our goal is to reshape our forces
to provide us with the capabilities we need to defend our continuing
interests, deal with new problems and threats, and contribute to the
promotion of democracy, prosperity, and security in a new world.

Our defense strategy will be driven by a fresh assessment of the
challenges that require the use of American military force because they
threaten our interests or require our engagement. Many of these already
are known: from the continuing confrontation in Iraq, to our humanitarian
operations in Somalia. Other risks are equally real: the potential for new
conflict in such places as Korea or the Middle East; the international
dangers of ethnic, religious or regional conflicts in other regions, such
as the Balkans; and the proliferation of weapons of mass destruction and
the means of their delivery.

The forces we design to address these challenges will continue to be built
on the superb capabilities and training of our military personnel and the
continuing technological superiority of our weapons. The men and women who
proudly serve America in our military constitute the finest fighting force
in the history of the world; we must ensure they remain so. We are
determined to avoid a hollow military. Our defense program will fulfill
this promise. Together with active diplomacy and a strong economy, our
military will maintain deterrence, reduce the incentive for others to
proliferate, reassure our friends and democratic allies and discourage
potential adversaries, preserve freedom on the high seas, protect our
global economic interests, combat terrorism and drug-trafficking, and
enable us to take part in global peacekeeping and peacemaking activities.

These forces will be consistent with the design we have promised: 1.4
million men and women on active duty, a strong, integrated reserve and a
capable forward presence of roughly 100,000 troops in Europe. Our military
will be mobile (with the sealift and airlift it requires), agile (with new
technologies and integrated doctrine which allows it to dominate by
maneuver, speed and technological superiority), precise (to reduce the
loss of life in combat), flexible (to operate with diverse partners in
diverse regions), smart (with the intelligence and communications it needs
for the diverse threats it will face) and, especially, ready (given the
unpredictability of new threats).

Our defense planning also confronts a new fiscal and management challenge.
The most recent five-year budget projection of the previous administration
may underestimate the true costs of the forces and hardware in their plan.
In addition, we may well face greater than previously anticipated
liabilities, such as environmental cleanup costs at our bases and
facilities, as we downsize the Cold War defense establishment. Finally,
the budget we inherited may overstate the savings that would result from
planned defense management reforms and overhead consolidations. A task
force has been appointed to review this problem and report back to the
Secretary of Defense. Our defense plan delivers on the savings we
promised; we plan to deliver, as well, on our commitment to honest
budgeting and tight management in the Defense Department.

Our plan will also redesign defense administration and operations to carry
out new initiatives and face post-Cold War challenges. A restructured
Defense Department will focus on the new issues and threats, on sound
financial and cost management, on military personnel and readiness, and on
creating a streamlined, efficient acquisition process. In addition, we
intend to do more to integrate and harmonize the roles and missions of the
services.

Finally, we plan to attend to the needs and problems of the nation's
defense industrial and technology base, defining the core skills and
industries we require for our defense and working to integrate more
closely defense and commercial technology and manufacturing. As we reduce
the size of our forces, we must repay the debt of gratitude we owe to the
men and women in the services and the defense industries who have served
their nation over the past 45 years. Our budget plan includes a firm
commitment to assist the transition for military and civilian personnel to
private life and other work. Elsewhere, we have described our defense
reinvestment and transition program, including new technology investments
and programs, job retraining, and community diversification assistance.

This military program will also be affordable. Planned funding for
national defense over the next four years fulfills the promise of an
additional $60 billion in program savings. Combined with government-wide
pay and benefit changes and additional reductions to offset projected
underfunding, this program will yield $37 billion in outlay savings in
1997. (See Table 3-3.) We will implement those reductions carefully as
part of our effort to redesign the force. As we undertake a major
strategic review over the coming months, we will identify new changes,
savings and additions that will fit our new strategy.




TABLE 3-3. SUMMARY OF NATIONAL DEFENSE BUDGET ADJUSTMENTS
(In billions of dollars)
                                                         1997 Outlays
Bush adjusted baseline                                          287
Adjustments to baseline:
Program reductions/1                                            -26
Pay and benefit changes                                          -6
Additional reductions to offset projected underfunding           -5
Total adjustments                                               -37

Revised budget level/2                                          249

Note: Details may not add due to rounding.
1/These outlay savings reflect 1994-1997 budget authority reductions of
about $60 billion from national defense programs
2/These estimates do not include the investment package initiatives for
defense conversion and for energy efficiency in Federal buildings.


Restructuring Domestic Government


Our founders saw themselves in the light of posterity. We can do no less.
Anyone who has ever watched a child's eyes wander into sleep knows what
posterity is. Posterity is the world to come the world for whom we hold
our ideals; from whom we have borrowed our planet; and to whom we bear
sacred responsibility.

Bill Clinton



It is critical that we reduce long-term budget deficits in order to make
room for greater private investment in the economy. Some savings are
justified on those grounds alone. But part of the effort to remake
government means eliminating spending that is unnecessary or wasteful,
that provides unjustified subsidies to particular industries or areas,
that goes to programs that simply do not work or which are no longer
useful in a changed world, or that contribute to growing health care
costs. There are some savings we must also enact to ensure that all groups
contribute to the success of our efforts. The detailed deficit reduction
plan follows. Unless otherwise noted, savings are in outlays for 1997 and
the four-year period of 1994-1997.


Reform programs that don't work or are no longer needed

Making government work for the next century means reforming programs that
don't work and updating policies and programs that were designed to meet
the needs of an earlier era.

USDA/Federal Crop Insurance. The Federal crop insurance program suffers
from high losses and low farmer-participation. Over the period 1981-1990,
total Federal Crop Insurance Corporation (FCIC) indemnities exceeded total
premiums by $2.5 billion. For every dollar paid in premiums, one dollar
and forty cents is paid out by FCIC in indemnities. The Administration
proposal for reform builds on an ongoing FCIC pilot project by changing to
"area-yield" insurance. Area-yield would set premiums and pay indemnities
based on an area's (e.g. a county's) performance, rather than that of an
individual farmer. Farmers who purchase area-yield insurance would be paid
whenever the county yield for a particular crop dropped below a specified
level for a given area. Farmers could select a desired "trigger" yield and
amount of protection per acre. Higher, individual insurance coverage would
be available only through the private sector without Federal subsidies.
Discretionary savings would result from reduced loss adjustment
activities. Entitlement savings would come from a reduced FCIC loss ratio,
from the present 1.4 to roughly 1.1. The estimated savings are $171
million in 1997, $551 million over four years.

USDA/Economic Research Service. USDA's Economic Research Service (ERS)
provides economic and other social science information and analysis to
USDA and others. However, much of its work duplicates that of other USDA
bureaus. This proposed reform would result in reduced duplication as well
as direct ERS efforts toward the most essential information activities.
The estimated savings are $17 million in 1997, $61 million over four years.

Commerce/Economic Development Administration Trade Adjustment Assistance
Program. The Administration proposes to eliminate the Department of
Commerce's Trade Adjustment Assistance Program (TAAP), which provides
technical assistance to firms that are adversely affected by increased
imports. There is no evidence that the TAAP succeeds in restoring the
international competitiveness of the firms it assists. It simply diverts
resources and attention away from competitive businesses and eases the
problems of non-competitive businesses. This proposal would not affect the
Department of Labor's Trade Adjustment Assistance Program for individuals
in industries affected by international trade. Estimated savings are $14
million in 1997, $30 million over four years.

State Justice Institute. The Administration proposes to eliminate the
State Justice Institute, a Federally-assigned agency. The program serves
States well but fulfills no clear Federal purpose. The estimated savings
are $17 million in 1997, $51 million over four years.


Energy/Eliminate unnecessary nuclear reactor research. The Administration
proposes necessary funding in the research and development area for
maintaining the operation of the current generation of reactors and the
licensing actions for reactors that have commercial interest. It also
includes the necessary funding to support the high-level waste program.
This proposal eliminates the research and development funding support and
related facility funding for nuclear reactors that have no commercial or
other identified application. It provides necessary funding for
termination costs as well as for safety-related activities that are
required to place the test facilities in a safe-shutdown condition.

Termination of Commissions. The Administration proposes to eliminate a
number of commissions which are no longer necessary, for savings of $11
million in 1997, $41 million over four years. They are:

 *   National Space Council

 *   National Critical Materials Council

 *   Commission on the Bicentennial of the U.S. Constitution

 *   Competitiveness Policy Council

 *   National Advisory Council on the Public Service

In addition, the President has issued an executive order requiring the
elimination of more than 200 advisory committees now operating throughout
the government.

USDA/Rural Electrification Administration. The Administration proposes to
maintain electric and telephone loan levels but eliminate loan subsidies
on most REA loans by increasing loan interest rates from 5 percent (and in
some cases 2 percent) to Treasury rates (currently 6.8 percent). $25
million in 5 percent loans for electric distribution "hardship" borrowers
would be maintained each year through 1998. REA was created in 1935, when
only 11 percent of farms in the U.S. had electric service. Now nearly 100
percent of rural areas have this service. Many REA loans are currently
made to suburban and resort areas. In addition, many current telephone
borrowers are subsidiaries of major telephone corporations. The vast
majority of REA borrowers can afford private financing without significant
increase in rural subscriber rates. The estimated savings are $150 million
in 1997, $374 million over four years.

USDA/Farmers Home Administration. The Administration proposes to reduce
Farmers Home Administration (FmHA) direct farm loans 25 percent and
replace them with an equal amount of subsidized guaranteed loans. Lower
interest rates have created greater opportunities for use of subsidized
guaranteed loans rather than direct loans, and given the projected
continuation of these lower rates, the same individuals can be assisted at
less cost to the taxpayer, while farmers gain valuable, lasting
relationships with their local lending institutions. Estimated savings are
$10 million in 1997, $31 million over four years.

Commerce/Bureau of Export Administration. The Bureau of Export
Administration is the principal Federal export control agency. Since the
break-up of the Soviet bloc and the dissolution of the Soviet Union, the
workload associated with export control licenses on dual use technologies
has precipitously declined. Estimated savings are $7 million in 1997, $27
million over four years.

HHS/Health Professions Curriculum Assistance Grants.  The Federal
government, through HHS, awards health professions curriculum assistance
grants to support the training of various types of health professionals.
Recognizing that most health professionals are no longer in short supply,
targeted support through the health professions curriculum assistance
grants would continue to be available for primary care, nursing, and the
effective elements of disadvantaged student assistance. Estimated savings
are $27 million in 1997, $87 million over four years.

Environmental Protection Agency/Completion of Wastewater Treatment
Construction Grants. This proposal reflects savings due to the completion
of the current wastewater treatment grant funding authorization that was
designed to end Federal assistance for wastewater funding. With the $846
million in wastewater stimulus funding provided in 1993, the $18 billion
authorization under the 1987 Water Quality Act will have been largely
completed a year ahead of schedule. Under this authorization, wastewater
State Revolving Funds will have been capitalized at $10.3 billion
(including the State 20-percent match) for the purpose of making loans to
municipalities for construction of wastewater treatment plants. As these
loans are repaid, States will be able to make a new round of loans due to
the self-sustaining nature of the State Revolving Funds. Also, one of the
long-term investments proposed by the Administration is a new $2 billion
annual authorization for capitalizing Clean Water State Revolving Funds
for low-interest loans to municipalities to address water quality
problems. Estimated savings resulting from the completion of the
wastewater treatment authorization are $1.9 billion in 1997 and $4.1
billion over four years.

Commerce/Appalachian Regional Commission. The Administration proposes to
freeze spending for the Appalachian Regional Commission at the 1993 level
of spending. The Commission was established in 1965 to help improve
economic and social conditions in the 13-state Appalachian region.
Approximately 70 percent of its funding supports highway construction.
More than two-thirds of the Appalachian Highway System has been funded.
Increases in federal-aid highway funding will more than compensate for the
reductions necessitated by this proposal, which saves $11 million in 1997
and $20 million over four years.

Community Investment Program. This program will be fully funded in 1994.
However, the new crime initiative proposed by the Administration provides
substantially increased funding for the social service and anti-crime
programs supported by the Community Investment Program, making this
program duplicative. Streamlining these programs will allow for increased
Federal coordination and lead to efficient and effective policies of
community revitalization and crime fighting throughout the country.
Estimated savings are $552 million in 1997, $1.2 billion over four years.

Tennessee Valley Authority. The Administration proposes to terminate the
Tennessee Valley Authority's fertilizer research activities and its
economic development program. The fertilizer industry is fully capable of
financially supporting fertilizer research without the need for taxpayer
subsidized work in TVA. With regard to economic development, while these
activities have a long and noted history, other much larger programs with
similar purposes have been put into place, and are slated to receive
substantial increases from the Administration's stimulus and investment
proposals. The estimated savings from this proposal are $188 million from
1994 to 1997, including $50 million in 1997.


Eliminating Subsidies; Charging Fees for Government Services

The nation can no longer afford subsidies and giveaways to those who don't
need them, and we must assure that the taxpayer is fairly compensated for
services or resources provided by government.

USDA/Phase out below-cost timber sales. Timber sales from some National
Forests do not cover the costs to the government of making the timber
available for sale. This proposal would gradually eliminate sales in those
forest regions where timber-sale program costs exceed timber-sale revenue.
This gradual phase-out would reduce the economic impacts on rural
communities dependent on the timber industry. Below-cost forests would be
reviewed periodically to determine if sales could proceed at no net loss
to the Government. Estimated savings are $86 million in 1997, $274 million
over four years.

Expand Agriculture user fees. New user fees for three USDA agencies (the
Federal Grain Inspection Service, the Agricultural Marketing Service, and
the Agricultural Cooperative Service) to recover costs for Federal
services being provided to a specific group. Estimated savings are $16
million in 1997, $59 million over four years.

USDA/Meat and poultry fees. Requires all slaughterhouses and processing
plants with overtime shifts to reimburse the government for the full cost
of Federal meat and poultry inspections. Estimated savings are $104
million in 1997, $416 million over four years.

HHS/Food and Drug Administration user fees. Identifiable beneficiaries of
government services should pay for the value conferred by certifying the
safety and efficacy of drugs and medical devices. Estimated savings are
$336 million in 1997, $1 billion over four years.

Bureau of Alcohol, Tobacco and Firearms (BATF) user fees.  BATF is
required to approve all alcoholic beverage labels and conduct various
laboratory analyses to assure compliance with Federal law. There is
currently no charge for these services, though manufacturers receive real,
tangible benefits from them. Collection of these fees to cover BATF's
costs will save $20 million over the 1994-1997 period, and $5 million in
1997.

SEC/Higher registration fees for securities being sold to the public. The
Administration proposes to raise this charge to corporations to cover the
SEC's costs. The proposal would raise the rate at which this fee is
collected, and at the same time increase the amount that helps to fund the
SEC directly. Estimated savings are $54 million in 1997, $203 million over
four years.

DOE/Power Marketing Agencies (PMAs) debt repayment reform and market
incentives for conservation. The Federal Government owns and operates five
Power Marketing Agencies (PMAs), which sell electric power generated at
123 Corps of Engineers and Bureau of Reclamation dams across the country.
Congress intended that the full cost of the power portions of these
facilities be repaid by power customers. Proposals to cover the full cost
of PMA-supplied power have been studied for years. The Administration's
initiative, however, is different from previous proposals. It combines a
modest repayment reform, which does not involve changing interest rates,
with a powerful market-based incentive for customers to reduce electricity
consumption through demand side management programs and switching to the
direct use of natural gas. Under the proposal, the PMAs would use straight
line amortization of project appropriation debt to help recover more of
the government's full cost of providing the power. The proposal also
creates incentives for conservation by allowing PMA wholesale customers to
resell power saved through demand side management activities or through
switching to the direct use of natural gas. Customers' profits from the
resale of the conserved power would be shared 50/50 with the Federal
government until the power portions of the projects were repaid. The
Federal government would collect over $500 million in 1997 from both of
these initiatives, about $1.7 billion from 1994 to 1997. The straight line
amortization schedule (requiring a fixed percent of the outstanding
principal to be repaid each year) would have a de minimus effect on retail
rates.

Phase-in increased Inland Waterway user fees. The Nation's inland
waterways are the most heavily subsidized form of commercial freight
transportation. Since the system was constructed for commercial navigation
beneficiaries, they should pay for all operation and maintenance costs.
Existing inland waterway fuel taxes collected on applicable segments of
the system only offset half of the Corps of Engineers' cost of
construction and major rehabilitation (estimated at $430 million in 1993).
This proposal would increase the 1994 Federal inland waterway fuel tax
from 19 cents to $1.19 per gallon in a series of increasing steps to a
total of $1.00. Estimated savings are $460 million in 1997, $820 million
over four years.

USDA and Interior/Increase grazing fees. The Administration proposes an
increase in grazing fees on public lands as negotiated by the Secretaries
of Interior and Agriculture. Grazing fees are the charge for an annual
permit to graze cattle, sheep, or horses on Federal lands. The permits are
based on a fee per "Animal Unit Month" (AUM). The AUM for cattle is the
acreage needed to support a cow and calf with one month's worth of forage.
Today, grazing fees are based on a formula established by the 1978 Public
Rangelands Improvement Act for a seven-year trial period. The formula was
continued by Executive Order in 1985 when the trial period ended. Th
formula calculation resulted in a fee of $1.92 per AUM in 1992, and a
reduction to $1.86 per AUM for 1993. Recent estimates of fair market value
for public range are two to five times higher. This proposal would give
Secretaries of the respective departments the authority to negotiate a fee
schedule that would generate estimated revenues of $76 million in
1994-1997 ($35 million in 1997).

Interior/Implement a Federal irrigation water surcharge. Authorize a per
acre-foot surcharge on water sales to Reclamation projects throughout the
West (except for the Central Valley Project in California, for which a
similar surcharge was recently enacted). Revenue from the surcharge would
be deposited into a special fund for use (subject to appropriations) in
mitigating harm to fish and wildlife caused by irrigation. These costs are
currently paid by the Federal taxpayer or repaid by project beneficiaries
(without interest) over 50 years. The surcharge would also encourage more
rational water use that would reduce the harmful impacts of non-point
source pollution. Estimated savings are $15 million in 1997, $45 million
over four years.

Army Corps of Engineers/Increase recreation fees at existing Corps of
Engineers areas. This proposal would give the Corps of Engineers authority
to increase certain camping fees and eliminate free camping sites in order
to increase the amount of Corps of Engineers' costs that are offset by the
users of these facilities. Additionally, the Corps could add fees for use
of some facilities. The fee increases would be in the range of $1 to $3
per site or activity, but in no case greater than $3 per site or activity.
Fees would not be charged for wayside exhibits, overlook sites, general
visitor information, or comfort facilities. The increased fees would be
collected in a special account to be used (subject to appropriation) to
offset recreation program costs. No Corps of Engineers entrance fees would
be charged. The Corps of Engineers currently charges camping fees,
averaging $6 per site, and special-use fees for activities such as use of
group picnic shelters. Estimated savings over four years, $72 million,
including $18 million in 1997.

Interior/Increase recreation fees at certain national parks and other
recreation areas. Authority would be given to the Secretary of the
Interior to increase entrance fees for certain National Park Service and
Fish and Wildlife Service areas. Also establish entrance fees at other
National Park units and Bureau of Land Management developed recreation
sites where justifiable. Where appropriate, the Bureau of Land Management
would also increase special-use permit charges. With the exception of
entrance to national parks, increases in current fees would be no greater
than $3 per entry. This proposal would generate an anticipated $147
million in 1994-1997 receipts ($45 million in 1997) to be used, subject to
appropriation, to maintain and enhance recreational opportunities
furnished by the Department of the Interior.


Interior/Permanently extend hardrock mining holding fees. There are over
one million hardrock mining claims on Federal lands operating under the
1872 Mining Law. Hardrock minerals include gold, silver, lead, copper,
zinc, and numerous other minerals. The 1872 Law requires claimants to
annually perform $100 worth of work to develop and maintain their claims.
Claimants must pay only a filing fee to the Federal government for the
right to mine this land. This proposal would permanently authorize
charging a $100 per claim holding fee on all hardrock claims on Federal
lands (extending a fee enacted for 1993). The claimant would be relieved
of annual work requirements, which should increase his or her flexibility
on timing the development of claims. It will also reduce unnecessary
ground disturbance to satisfy current law. The proposal would increase
revenues to the Treasury by an estimated $80 million per year, after
covering the costs of administering the entire hardrock mining program,
including environmental compliance. It would generate estimated revenues
of $320 million in 1994-1997.

Interior/Institute hardrock mining royalties. Establish a 12.5 percent
royalty on the gross value of the hardrock minerals extracted from mining
claims on public lands. There are over one million hardrock mining claims
on Federal public lands operating under the 1872 Mining Law. Hardrock
minerals include gold, silver, lead, copper, zinc, and numerous other
minerals. The 1872 Law was one of many laws intended to encourage the
settlement and development of the West. It allows miners to prospect, make
claims, and extract minerals from Federal lands for the cost of filing a
claim. There is no current authorization to charge a royalty on hardrock
minerals privately extracted from public lands. Laws enacted early in this
century provide for Federal leasing and collection of royalties from oil,
gas, coal and certain other minerals extracted from Federal lands.
Hardrock mining, however, remains under the rules of the 1872 Law. The new
royalty would be phased in over three years. The time necessary to set up
and administer the royalty in the most effective way would delay
initiation of royalty collection until 1995. Receipts from hard rock
mining royalties would be shared with the States where the mining occurs.
This proposal is expected to pay for the costs of enforcement and
collection. It would generate estimated revenues of $471 million in
1994-1997, including $277 million in 1997.

Treasury/Improve enforcement of harbor maintenance fees. Provide up to $5
million annually from the Harbor Maintenance Trust Fund for the Department
of the Treasury (Customs Service) to improve compliance with existing
harbor maintenance fees. Harbor maintenance fees paid by shippers consist
of an ad valorem tax applied to the value of cargo shipped through U.S.
harbors. Currently, the Customs Service administers the Harbor Maintenance
Fee only at a minimum level, and many fee collections are on a voluntary
basis. Estimated savings: over four years, $165 million; 1997, $65 million.

USDA and Interior/Permanently extend 50 percent net receipt sharing (on
shore minerals). Permanently extend 50 percent net receipt sharing for
on-shore minerals. States sharing mineral receipts should also share the
costs of administering the mineral receipts program. Net receipt sharing
occurs when the Federal government, prior to distribution of gross mineral
receipts to the States and Federal Treasury, deducts a portion of the
costs of administering the Federal minerals program. Since 1991, Congress
has placed language in the Interior Appropriations bills directing 50
percent net receipt sharing (deducting 50 percent of the cost of the
programs before distribution to States and the Federal Treasury). This
proposal would save an estimated $170 million in 1994-1997 outlays ($45
million in 1997).

USDA/Increase Forest Service recreation fees. The Forest Service manages
156 national forests that provide a wide spectrum of outdoor activities,
including over 33 million acres of wilderness, 5,800 facilities, and
approximately 116,000 miles of trails. Currently, the Forest Service
charges user fees for fully equipped camping sites. In order to generate
revenue to maintain and enhance recreation on National Forests, the Forest
Service would selectively charge entrance fees for developed recreation
areas, such as areas where all-terrain vehicles are allowed. These fees
would range from $1 to $3. User fees would be increased by no more than $3
per site or activity. These proposed recreation fees would generate an
additional $10 million in 1994 and would be placed in a special account to
be used, subject to appropriation, to maintain and enhance recreational
opportunities in National Forests. Estimated savings are $13 million in
1997, $46 million over four years.

USDA/Eliminate subsidies to honey producers. All Commodity Credit
Corporation (CCC) price-support payments to honey producers would be
terminated. There are roughly 3,500 individuals enrolled in USDA's honey
program. These represent slightly more than 1 percent of all honey
producers in the U.S. Roughly 350 individuals get over 50 percent of
payments made by the honey program. Due to the large number of pollination
servicers whose bees are not in the program, pollination of the Nation's
crops would not be significantly affected by this proposal. Estimated
savings: $4 million in 1997, $32 million over four years.

USDA/Target CCC farm subsidy payments to farmers with off-farm incomes
below $100,000. Make ineligible from receiving CCC crop subsidies (price
support loans and income support payments) any producer receiving $100,000
or above in off-farm adjusted gross income. USDA farm programs are
criticized for unfairly supporting large farms and wealthy producers
rather than smaller farms and lower-income farmers. U.S. farm producers
have an annual income more than twice the national average. The
Congressional Office of Technology Assessment concluded that most big
farms "do not need direct government payments and/or subsidies to compete
and survive." The proposed targeting of subsidies would direct farm
payments to smaller, family farms, which deserve Federal financial help
more than large agricultural enterprises. It would cause an estimated 1-2
percent of program participants to drop out of USDA farm programs. Most of
these wealthiest participants include corporations and individuals for
whom farming is not their primary occupation or source of income. Savings:
$470 million in CCC outlays during 1994-1997, and $140 million in 1997.

USDA/Increase non-eligible payment acres (triple base) starting in 1996.
Under "triple base," instituted in the 1990 Omnibus Budget Reconciliation
Act, 15 percent of a farm's crop acreage base is ineligible for CCC
deficiency payments (authorized for wheat, feedgrains, cotton, and rice).
Most crops still can be raised on those acres, and the farm's crop acreage
base for future CCC payments in later years is preserved. This proposal
raises the percentage of "triple base" acres from 15 percent to 25 percent
in the 1995 Farm Bill. The resulting budget savings do not reduce farm
income dollar-for-dollar. Crops raised on the ineligible acres receive the
market price, and the producer responds more directly to markets, rather
than to CCC rules for its farm programs. Since triple base began in 1991,
farm income has been at record levels. The triple base provision in CCC
programs is good for the environment. It gives farmers more flexibility to
plant as the market indicates, and to rotate crops as sound environmental
practice indicates, rather than as the goal of maximum Federal subsidies
dictates. Triple base moves the U.S. farm sector toward the global future
of less subsidized, competitive production. Savings: $1 billion during
1994-1997 and $720 million in 1997.

USDA/Eliminate 0/92 and 50/92 (PAY/92) programs starting in 1996. USDA's
PAY/92 program is an example of paying farmers not to plant. The program
allows farmers to not plant their crop base ordinarily devoted to wheat,
feed grains, cotton, or rice in return for receiving income-support
payments. The producer must set aside a minimum of 8 percent of his
maximum payment acres without pay, while all additional set-aside acreage
may receive income-support payments. For wheat and feed grains, producers
may elect to plant none of their acreage the "0/92 option" and then
receive 92-percent of their normal deficiency payments. For cotton and
rice, producers must plant at least 50 percent of their acreage base
("50/92"), with most of the rest eligible for clover and deficiency
payments. PAY/92 was introduced in the 1985 Farm Bill during a time of
substantial excess production. Because CCC target prices and loan rates
have been capped or reduced since the 1985 Farm Bill, excess production
has declined. Other Farm Bill provisions, like the marketing loan and the
Acreage Reduction Program, help to ensure that USDA will not be forced to
purchase large quantities of commodities under CCC loan. Also, because of
the paid set-aside of the PAY/92, exports have been less than they would
have been otherwise. While U.S.-planted acreage fell by 10 percent over
the period when PAY/92 was introduced from the previous decade
(1975-1984), planted acreage in other countries virtually replaced
America's idled acres on an acre-for-acre basis. Estimated savings are
$937 million over four years, including $664 million in 1997.

USDA/Increase assessments on "non-program" Federally-subsidized crops
starting 1996. This proposal would increase projected receipts on
"non-program" crops such as sugar, tobacco, honey, peanuts, soybeans, wool
and mohair by 67 percent in the 1995 Farm Bill, in line with the
percentage increase in non-eligible acres in the Administration's "triple
base" proposal. Some crops receive a subsidy through Federally-restricted
markets rather than from the Treasury directly. Federal support for these
crops arises not from direct subsidy payments from the U.S. Treasury but
from U.S. government loans and restrictions on production or imports.
These laws cause consumers, rather than taxpayers, to pay most of the
subsidy through higher market prices. A proposal to increase triple base
non-eligible acres for subsidy payments affects the "program" crops and so
favors the "non-program" crops. For equitable treatment of all subsidized
crops, fees on "non-program" crops should be increased in tandem with the
triple base increase. If not, crop production patterns could be distorted,
leading to increased CCC costs. These assessments will be designed so as
to avoid, to the extent possible, any serious impact on small family
farmers. The proposal would reduce net CCC outlays by $900 million during
1994-1997, and $450 million in 1997.

USDA/Limit payments on wool and mohair to $50,000 per person. USDA's wool
program was authorized in 1954 to ensure the Nation a strategic reserve of
wool in times of war and other emergencies. Wool can no longer be
considered a "strategic" material. Mohair never was. Under this proposal,
income-support payments from the wool and mohair program would be limited
to $50,000 per producer. The 1993 payment limitation is currently $150,000
each for both wool production and mohair production (a maximum of $300,000
per producer). Payments are heavily concentrated. In 1991, less than 1
percent of producers received 54 percent of the payments. Thirty percent
of all producers receive checks for $100 or less. Producers on average
receive from the Federal government almost 210 percent of the market value
of their production. Estimated savings over four years, $212 million; in
1997, $66 million.

FDIC/Assess examination fees for state-chartered, FDIC-insured banks.
Although all FDIC-insured banks and thrifts must be examined every year,
State-chartered banks (unlike federally-chartered banks and thrifts) are
not assessed fees for their Federal examinations. Many federally-chartered
banks and thrifts have converted to state charters to avoid the higher
Federal examination fees. The Administration proposes that state-chartered
banks pay the same rates as national banks, but that they also be allowed
to take credit for amounts they pay to state regulators. Estimated savings
are $286 million in 1997, $1.1 billion over 4 years.

CFTC/Institute a fee on all U.S. futures exchange transactions. Currently,
traders, brokers, hedgers, speculators, exchanges and others who benefit
from Federal regulation of U.S. futures exchanges do not pay for its cost.
The Administration proposes to institute a fee on all U.S futures exchange
transactions. The revenue from this fee would cover the costs of the CFTC.
To the extent this fee may adversely affect the competitiveness of U.S.
futures exchanges, the Commodity Futures Trading Commission (CFTC) would
be given the discretion to correct for any adverse competitive effects
that may arise. Estimated savings are $235 million over four years,
including $63 million in 1997.

SEC/Higher registration fees for securities being sold to the public.
Corporations which raise money through our securities markets must file a
registration statement with the Securities and Exchange Commission (SEC)
and pay a fee. The revenues collected from this fee cover a portion of the
SEC's costs. The Administration proposes to raise the rate at which this
fee is collected, and at the same time increase the amount that is
deposited to the General Fund of the Treasury. Estimated savings over four
years, $188 million; $50 million in 1997.

Postal Service/Require payment of outstanding retirement and health care
costs. When the U.S. Postal Service (USPS) was reorganized in the early
1970s, it assumed assets and liabilities. One of the liabilities was the
retirement costs associated with former USPS workers. These workers,
however, have been covered by health and benefit payments managed by the
Office of Personnel Management (OPM). The USPS has made payments towards
OPM's costs but only well after the costs have been incurred. As a
consequence, when the Federal Government's interest costs are included
USPS's payments have fallen $1 billion short of OPM's costs. This proposal
would require USPS to make payments of $347 million in 1995, 1996 and
1997. Estimated savings over four years are $1.0 billion, $347 million in
1997.

Commerce/Permanently extend patent and trademark fees. The Patent and
Trademark Office (PTO) is self-financed through various user fees. The
standard patent fee was increased by the Omnibus Budget Reconciliation Act
(OBRA) of 1990 by adding a surcharge, which is set to expire in 1995. This
proposal raises the standard fee to incorporate the surcharge and allows
the standard fee to fully cover patent operation costs with annual
adjustments to the Consumer Price Index (CPI). It does not propose new
fees. The proposal also assures that the patent and trademark process
continue to be fully funded by fees. Estimated savings: $115 million in
1997, $226 million over 1994-1997.

DOT/Increase registration fees for general aviation aircraft. General
aviation aircraft account for about 26 percent of the Federal Aviation
Administration's cost of running our aviation system, but pay fees
covering just 7 percent of these costs. Airlines and their passengers pay
all the costs they impose on the system. As a result, taxpayers provide
general aviation operators with an annual subsidy of about $2 billion.
This proposal would gradually increase current general aviation
registration fees over 4 years and require annual, rather than 3-year,
renewals. The increased fees will result in general aviation operators
still paying only a fraction of their "fair share" costs. Estimated
savings over four years are $151 million, including $58 million in 1997.

Social Security Administration/Fee for State SSI administration. The
Administration proposes that states reimburse part of the cost of Federal
administration of state supplements to the Federal Supplemental Security
Income (SSI) benefit. Estimated savings: over four years, $520 million; in
1997, $180 million.

VA/Increase housing loan fees to 2 percent. The VA Home Loan Program
guarantees mortgages made by private lenders to veterans, active duty
service-persons, and selected reservists. Beneficiaries obtain mortgage
credit on favorable terms (e.g., no-downpayment and a loan fee that is
below the fees for a private mortgage). The Administration will propose
legislation to increase most loan fees by .75 percent (e.g., the
no-downpayment fee would go from 1.25 to 2 percent). This fee increase
would reduce the taxpayer subsidy to this program, while continuing to
offer veterans a downpayment and fee package that would be below
conventional loan requirements. Estimated savings are $157 million in
1997, $620 million over four years.

Treasury/Permanently extend Customs Service merchandise and passenger
processing fees. The current fees are set to expire in 1995. The
Administration will propose legislation extending them indefinitely, in
order that the government may continue receiving payment to cover the
costs of these necessary services. Over the 1994-1997 period, this will
save $1.1 billion; in 1997, savings will be $579 million.

FCC/Auction spectrum for communication services. Today many multimillion
dollar industries including television and radio are built around the free
use of a scarce and valuable Federal resource: the electromagnetic
spectrum. The traditional practice of assigning spectrum rights by lottery
or hearing has often resulted in huge windfalls being distributed to
individuals and businesses at the taxpayers expense. In the cellular
industry alone, for example, many overnight fortunes were made by
speculators who won spectrum rights through a lottery and resold them days
later to large communications companies. The bottom line is that an
"auction" of these rights already occurs today; the question is whether
the taxpayer will benefit. The Administration will seek legislation to
transfer 200 megahertz now used by the Federal Government to the FCC for
private use, and to grant the FCC authority to assign this new spectrum,
and make all other future license assignments, using auctions. Enactment
of the legislation will help to ensure that new licensees do not reap
large financial windfalls at the taxpayer's expense. The proposal does not
apply any fees or royalties to existing licensees so as not to disturb
settled arrangements. Estimated savings are $2.1 billion in 1997, $4.1
billion over four years.


The Administration is concerned about so-called "earmarking" of projects
in various Federal programs. The following options for deficit reduction
identify such projects with the understanding that the Congress may find
offsetting savings within the same program areas to preserve these
initiatives.

USDA/Cooperative State Research Service (CSRS) earmarked research grants.
Congressional earmarking of CSRS research funding has increased
significantly in recent years. In report language for the 1993
appropriations, 126 grants, totaling over $50 million, were funded through
specific earmarks. These grants were not peer-reviewed, competitively
awarded, or specifically authorized. Many of the research projects funded
could be financed by the agribusinesses that directly benefit from the
research (e.g., the floral, timber, and seafood industries). Another
source of funds for projects with scientific merit is the National
Research Initiative (NRI) competitive grants program, also administered by
CSRS, which is proposed at higher funding levels in 1994. Estimated
savings over four years are $96 million, $42 million in 1997.

USDA/Cooperative State Research Service (CSRS) earmarked facilities
construction. The CSRS Buildings and Facilities account has become a main
example of Congressional earmarking of scarce Federal research dollars.
The projects funded often are not high national priorities and would be
better funded by States, or the agribusinesses that directly benefit from
them. Estimated savings over four years are $86 million, including $44
million in 1997.

USDA/Earmarked special ES grants. Each of the Extension Service's (ES)
earmarked special extension grants that would be eliminated could be
financed through funds each State receives from USDA to support the
Extension Service's general operations in each State. The use of these
State funds, which are awarded by formula, is not restricted and can be
used to address high-priority projects identified by each State. Estimated
savings are $14 million in 1997, $54 million over four years.

Commerce/Low-priority NOAA programs, projects, and demonstrations.
Approximately 47 National Oceanic and Atmospheric Administration projects
have been identified as low priority. Many of these projects have had
funding "earmarked" for them in the past, thereby bypassing NOAA's project
competitive review process. Estimated savings: $70 million in 1997, $220
million over 1994-1997.

Army Corps of Engineers, Interior/Reduce or stretch out construction
funding for low priority water projects. Funding for these projects is not
high priority because the projects are either: (1) not economically
justified, (2) not a Federal responsibility, (3) exempted from standard
non-Federal cost sharing, or (4) environmentally unacceptable. Estimated
savings are $398 million over four years, including $92 million in 1997.

DOT/Lower-priority programs and projects. There are a wide variety of
lower-priority projects which have been funded by the Department of
Transportation. Estimated savings over four years, $1.3 billion, including
$428 million in 1997.

HUD/Eliminate individual HUD grants (special purpose). For the past three
years, Congress has added money for 408 projects that are awarded by HUD's
Appropriations Act. Past projects included art centers, drainage
improvements, health care facilities, and business centers. The ten states
with the highest per capita income receive 33 percent of the funding in
1992. Estimated savings over four years: $565 million; in 1997: $278
million.

SBA/Funding for SBA earmarked grants. Appropriations were provided to SBA
in 1993 for a number of unnecessary earmarked grants. Estimated savings
over four years, $315 million; $110 million in 1997.


Managing Government for Cost-Effectiveness and Results

Making our government more effective and efficient means abandoning
structures and practices that impede flexibility, waste resources, and
frustrate service delivery.

White House staff reductions. The Administration will share in the
sacrifices all Americans will be asked to make in working together to
reduce the Federal deficit. The President has already taken action to
reduce the size of the White House staff by 25 percent. The newly
reorganized White House will be better suited to promote the agenda for
change and economic growth. Through greater emphasis on policy councils
and the Cabinet, the President will reach beyond the White House for
policy development and ideas. Estimated savings are $40 million in 1997,
$129 million over four years.

Federal salaries. Reflecting the President's intention to ensure that
government makes the first contribution to the major deficit reductions
that he is calling for, the Administration proposes that there be no
national pay increase or locality pay increase for Federal employees in
calendar year 1994. National pay increases in 1995-1997 would be one
percent less than current law in each year. Locality pay would be
implemented beginning in 1995 under a revised system that will permit more
equitable and accurate determinations to be made than would occur under
the current, flawed methodology. The savings from these initiatives are
$2.7 billion in 1997 and $8.0 billion over four years.

Agency streamlining, employee reductions, administrative cost-cutting. The
Federal Government today employs over two million workers, not counting
the armed forces or the Postal Service, with an annual payroll of about
$100 billion. Many are employed in inefficient work settings, using
obsolete equipment and antiquated work processes. The use (and abuse) of
government-owned aircraft and limousines, executive dining facilities, and
attendance at conferences held at vacation resorts have in the past
entailed unjustifiable costs to the taxpayers. Overhead costs of Federal
agencies are excessive and can be reduced significantly by more efficient
and frugal management and by modernization of equipment, facilities and
processes.

The Administration has taken a number of steps to reduce administrative
and overhead costs, increase productivity, streamline agency operations,
and improve delivery of services to the public. The President has issued
Executive Orders requiring a reduction of 100,000 civilian personnel
positions by the end of 1995; reduction of at least 50 percent in the
number of executive motor vehicles owned or leased by Federal agencies by
the end of 1993; elimination of non-essential air travel and use of
government-owned aircraft where commercial air travel is available;
guidelines for selection of conference sites and Federal employee
attendance at conferences; closing or placing on a full-cost-recovery
basis all executive dining facilities; abolition of at least one-third of
the 700 non-statutory Federal advisory commissions now in existence; and
reduction of Federal administrative costs by 14 percent by 1997. These
measures are estimated to save taxpayers $15.6 billion over the next four
years.

Agriculture/Consolidation into one Farm Service Agency. The Administration
proposes to create a new Farm Service Agency (FSA) from the USDA programs
and staffs serving farmers from county offices. The agencies that would be
consolidated are the Agricultural Stabilization and Conservation Service
(ASCS), the Soil Conservation Service (SCS) and the Farmers Home
Administration (FmHA). Currently USDA maintains more than 12,000 offices
for these county-based agencies, with separate computer systems and State
and National office support staffs. Most farmers must visit different
county offices of these agencies and often are required to fill out
redundant paperwork. The proposed FSA would maintain a USDA field office
at the county level, and would improve service to farmers. Savings would
result from a streamlined county office structure and from efficiencies at
the National and State offices, as these agencies are consolidated.
Estimated savings are $307 million in 1997, $730 million over four years.

Agriculture/Reform agricultural crop disaster payments made by the CCC.
Each year since 1987, Congress and the Administration have provided ad hoc
disaster payments to farmers. Under existing 1990 Farm Bill law, disaster
payments are subject to appropriations. This proposal would reform ad hoc
disaster payments. The option assumes a continuation of the Federal Crop
Insurance Corporation (FCIC). Under 1990 Farm bill law, a farmer must
suffer a 35 percent loss (40 percent if the farmer has not purchased
Federal crop insurance, even though it was available). In addition,
disaster payments would only be available contingent upon a Presidential
declaration of an emergency as defined by the Budget Enforcement Act.
Because disaster payments are not assumed in the baseline, no savings are
scored for this proposal. However, savings would be realized upon the
enactment of the next disaster bill.

Justice/Prison construction. There remains a need for new prison
construction to accommodate the rapidly increasing prison population.
However, more than $1.6 billion already authorized has not been spent due
to a construction lag. The Administration proposal permits the continued
spending of already authorized funds, so that the current rate of
overcrowding 40 percent, compared to 70 percent in 1990 will be reduced to
less than 6 percent by 1997. It allows limited new construction in 1994
and 1995. Estimated savings are $181 million in 1997, $331 million over
four years.

Education/Reform campus-based aid. Today, the three campus-based student
aid programs (supplemental grants, work-study, Perkins loan capital)
overlap and duplicate aid available from the much larger Pell Grant and
Family Federal Education Loan Programs. They represent less than 9 percent
of total aid made available by the Department of Education's major student
aid programs. Pell and guaranteed loans have requirements that assure that
those who are most in need benefit most from Federal funds. Campus-based
programs, however, while need-tested, permit schools to select less needy
students for awards. The Administration proposal reduces spending for
campus-based student aid programs by $200 million but gives schools
complete flexibility to use the remaining $1.2 billion for whichever aid
approaches best meet student needs. In combination with other budget
policies, total aid available from the Education Department's major
student aid programs is estimated to increase, despite the reduction in
campus-based funding. Also, the new flexibility increases the efficiency
of the campus-based programs in addressing student needs and should enable
more funding to be used for high priority purposes, such as funding
additional community service jobs. The estimated savings from the proposal
are $275 million in 1997, $732 million over four years.

Education/Impact Aid "b" Payments. The proposal would phase out Impact Aid
"b" payments to school districts over a three-year period. The Impact Aid
program makes payments to school districts to partially offset the
presumed adverse impact on the school district of the presence of Federal
property and federally connected children. However, "b" payments, unlike
"a" payments, are based on children who either do not actually live on
Federal property or whose parents do not work on that property. Most "b"
children live in the community on property that is taxed by the school
district and have families who pay State and local taxes used to finance
local education. Estimated savings are $145 million in 1997, $404 million
over four years.

DOE/Superconducting Super Collider. The Administration is committed to the
development of the superconducting super collider as a major contribution
to scientific information for the future. The Administration believes,
however, that in order to ensure that all of the components of this
project are technologically effective, the project schedule should be
extended.

Energy/Uranium enrichment. The Department of Energy's uranium enrichment
program will become a government corporation, known as the U.S. Enrichment
Corporation, on July 1, 1993. It will be required to operate as a
commercial business enterprise on a profitable and efficient basis. The
Administration is moving in this direction by proposing several actions to
enhance the cost effectiveness of Federal uranium enrichment-related
activities while reinforcing the Administration's nuclear
non-proliferation policies. These Administration initiatives provide for:
(1) the phase-out by 1996 of one of the operating diffusion plants; (2)
lower Federal costs for power purchased for Federal uranium enrichment
operations; and (3) speed-up of the purchase of highly enriched uranium
from the republics of the former Soviet Union. This will allow former
weapons grade uranium to be recycled into commercial power reactor fuel,
provide a valuable commercial activity for the former Soviet republics,
and advance mutual nuclear weapons non-proliferation goals. Estimated
savings are $386 million in 1997, $1.3 billion over four years.


Energy/Strategic Petroleum Reserve. The Strategic Petroleum Reserve
currently contains over 570 million barrels of oil. This stockpile has
served well in defusing the impacts of oil disruptions such as that
experienced during Iraq's invasion of Kuwait, and in deterring market
manipulations by oil-exporting countries. The U.S. today obtains less than
one-quarter of its oil from OPEC countries, and the rate at which we
continue to fill the Reserve can be slowed, saving money for the taxpayer.
The Administration proposes to reduce the fill rate by one-third, from
20,000 barrels of oil per day to 13,300 barrels per day.

Transportation/Federal Aviation Administration streamlining. Major growth
has occurred in the budget of the Federal Aviation Administration (FAA) to
upgrade operations following the 1981 firing of almost 10,000 striking air
traffic controllers. The controller work force has been reestablished. In
addition, air traffic growth has slowed. These factors lead the
Administration to propose a modest decrease in operational funding. This
reflects reduced requirements as the agency transitions from a period of
rapid growth to one of maintaining existing operating levels in the face
of slowed aviation traffic growth. Estimated savings are $62 million in
1997, $241 million over four years.

Housing and Urban Development/Modify fees for Federal housing. The
Administration proposes to reduce gradually to a uniform level the fee
that the Department of Housing and Urban Development pays to local
entities to administer several Federal housing subsidy programs.
Independent studies by the General Accounting Office and a HUD contractor
determined that the current fee substantially exceeds the costs of
services the local administrative agents provide. The plan will reduce
Federal housing costs and eliminate windfall gains to administrative
agents. Estimated savings are $193 million in 1997, $454 million over four
years.

Housing and Urban Development/Consolidate several HUD programs into HOME.
This proposal to consolidate funding for several HUD housing programs into
the HOME program allows states and large urban cities greater flexibility
and efficiency in providing low-income housing assistance. HOME allows
local officials to determine and pay for the housing assistance new
construction, tenant based assistance, rehabilitation of existing housing
that best meets the needs of the community. Several current HUD housing
programs are very costly. Budget pressures have continuously reduced the
number of additional housing subsidies these specific programs can
provide. Consolidation will increase the amount of total resources
available to mayors and governors to address their most critical
low-income housing needs. The HOME program calls for states and locals to
match 25-30 percent of the Federal funds provided to the community. With
this leveraging of local resources, this proposal to shift funding to HOME
provides savings for the Federal government without reducing the amount of
public resources dedicated to meeting the housing needs of low-income
people. Estimated savings over four years: $178 million. Estimated savings
in 1997: $150 million.

Housing and Urban Development/Low-income housing preservation,
homeownership grants. Preserving the affordability of as many as 360,000
units of low-income housing is one of the Administration's investment
proposals. To avoid paying excess subsidies to landlords to ensure
preservation, this proposal limits the maximum preservation subsidy that
landlords can receive to the same amount that a tenant would receive in
the same circumstances. In addition, the proposal eliminates homeownership
grants from the Preservation program. The Administration supports the goal
of helping low-income tenants to become homeowners through other programs.
This proposal would save over $190 million from 1994 to 1998.

EPA/Increase private sector financing of Superfund cleanups. In line with
the "polluter pays" principle, this proposal will increase the proportion
of hazardous waste sites cleaned up by private parties (as allowed by
law). The proposal would preserve Federal Superfund money only for sites
where there are no viable private parties to undertake the cleanup.
Estimated four-year savings are $308 million, including $109 million in
1997.

NASA programs. The Administration is committed to a cost-effective space
station program. To control serious cost overruns in the present program,
the Administration recommends a restructuring of the space station.
Employment associated with the program would be maintained, and additional
funds would be directed to other NASA space missions.

Small Business Administration/Reduce subsidies. The Administration
proposes to reduce losses on loans made to small businesses by private
lending institutions under the SBA Section 7(a) loan program. This would
be accomplished by decreasing the Federal guarantee on loans to an average
of 75 percent. Requiring private lenders to take a greater share of the
risk would increase their scrutiny of loan applications, ultimately
resulting in a lower default rate and better recovery rate on loans
repurchased. Estimated savings are $118 million in 1997 and $423 million
over four years.

U.S. Postal Service/Reduce subsidy payments. The Administration proposes
to reduce the subsidy paid to the Postal Service for the reduced postal
rates paid by certain non-profit organizations. This postal subsidy is an
inefficient means of supporting charitable and non-profit organizations,
particularly compared to the support provided by the tax deduction allowed
for charitable contributions. Additionally, loopholes exist that allow
some mailers to take advantage of this system; for example, certain
special interest lobbying groups can mail at reduced rates. The estimated
savings from this proposal are $43 million in 1997, $152 million over four
years.

Justice/Freeze grants. The Administration proposes to freeze at 1993
levels funding for Office of Justice Programs grants. Estimated savings
are $56 million in 1997, $138 million over four years.


Education/Streamline programs and other program reform. This proposal
saves $620 million in 1997 and $1.5 billion over four years by
eliminating, restructuring, or combining some of the many small programs
in the Department of Education that are low priority, have achieved their
purpose or can be made more effective by merger with other authorities, as
well as by maintaining funding at 1993 levels for other categorical
programs for which there are not compelling policy reasons to increase or
decrease funding.

Education/Require States to share default costs in the Student Loan
Program. Student loan defaults cost the Federal Government $2.5 billion in
1992. This proposal would require States to share default costs for
student loans, as a way of encouraging better State management to prevent
excessive defaults. The fee, assessed against new loan volume, would be
equal to one half the percentage by which the default rate in the state
exceeds 20 percent: a 22 percent default rate would yield a one-percent
fee on new loan volume.

States would be authorized to charge schools in their State a fee based on
the school's default rate and the State's implementation costs. States
would have an additional incentive to tighten licensing provisions,
monitor schools more intensely and take corrective action early to prevent
high defaults. Schools would work harder to avoid defaults. Schools that
could justify high default rates would be exempt. Savings would be $131
million in 1997 and $459 million over four years.

Agriculture/Foreign Agricultural Service. The Administration proposes to
streamline Foreign Agricultural Service (FAS) programs to better assist
U.S. agricultural overseas market development. The proposal would decrease
funding for FAS program operations, while making changes to enable FAS to
utilize its funds more effectively. Savings from this proposal are $10
million in 1997, $35 million over four years.

Overhead costs for university research and development. Federal research
grants to colleges and universities by the Departments of Agriculture,
Health and Human Services, and Defense, and the National Science
Foundation and other agencies, cover both direct research costs and
overhead administrative costs. In 1972, each dollar of direct research
funding paid to universities cost an additional 30 cents for the overhead
allocated to Federal research. By 1990, 46 cents in overhead was paid for
each dollar spent on direct research. Consistent with the Administration's
actions to streamline overhead costs in Federal departments and agencies,
the budgets for civilian research and development grant-making agencies
have been adjusted to place an upper limit on overhead charges. This
proposal and the substantial new investment in civilian research and
development included in the President's economic plan represent a
concerted effort to shift national spending from overhead to funding
research. Savings from this overhead change are $383 million in 1997, $1.2
billion over four years.

Veterans Affairs/Improving management of construction. The Major
Construction program of the Department of Veterans Affairs primarily
supports the veterans' direct delivery health care system. To meet
veterans' future needs, the Administration proposes $362 million in 1994
budget authority for construction, maintenance and improvements of VA
medical facilities. In addition, to improve the planning and management of
VA's construction program, the Department will take into account the
following major factors in planning and proposing future construction
projects: (1) the projected demand from veterans who are likely to use the
VA system; (2) the relationship of the project to the VA system as a
whole; and (3) the health care resources available to veterans in the
community. Estimated savings are $134 million in 1997, $282 million over
four years.

Veterans Affairs/Improve management of VA hospitals. To ensure that VA
resources are used more efficiently, the Administration proposes to use a
prospective payment system, similar in concept to Medicare's, for
allocating funds to VA medical centers. In general, the current resource
allocation system simply retains the past year's allocation among medical
centers and then adds funds for inflation and special projects. Little or
no changes are made to the "base budget" to reflect potential improvements
or efficiencies in current operations. Estimated savings from this
proposal are $400 million in 1997 and $1 billion over four years.

Agriculture/Market Promotion Program. The Market Promotion Program
provides commodity associations, cooperatives and private for-profit
companies subsidies in order to promote the utilization of U.S.
commodities overseas. Because the program has a large and fixed funding
level, the Department acts to use all funds. Consequently, a number of
questionable and controversial funding decisions have been made.
Therefore, the Administration proposes freezing the program at the 1993
level, encouraging the Foreign Agricultural Service to more effectively
target the funding toward those industries that would otherwise be unable
to promote their products abroad. Estimated savings are $52 million in
1997, $208 million over four years.

Housing and Urban Development/Real Estate Mortgage Investment Conduits
(REMICs). The Administration proposes to have the Government National
Mortgage Association (GNMA) guarantee prompt payment to all investors in
secondary mortgage market securities known as Real Estate Mortgage
Investment Conduits or REMICs. These mortgage-backed securities,
established after the 1986 Tax Act removed a tax impediment, will increase
the funds available to make Federal Housing Administration (FHA) and
Department of Veterans Affairs (VA) insured mortgages, and consequently
decrease mortgage interest rates for FHA and VA homebuyers. This proposal
saves $146 in 1997, $584 million over four years.

Housing and Urban Development/FHA insurance reforms. The Department of
Housing and Urban Development (HUD) provides mortgage insurance through
its FHA programs to help low and moderate income homebuyers obtain
mortgage financing and to help owners and developers finance the
construction or rehabilitation of low and moderate income rental
properties. The Congress enacted reforms in the 1990 National Affordable
Housing Act (NAHA) to restore the single family FHA insurance program to
an actuarially sound financial position. Unfortunately, the original
financial goals established in NAHA have not yet been achieved and further
reforms appear necessary. In addition, HUD continues to encounter major
losses in its insurance for multifamily properties. Legislative and
regulatory impediments, as well as poor management, have added to these
excessive insurance losses. Reforms will be proposed to help reduce these
insurance losses and reestablish these FHA insurance programs as effective
government financing vehicles. Savings from these reforms are expected to
reduce spending by $81 million in 1997 and by $336 million between 1994
and 1998.

Education/Reform student loan programs. The Administration proposes to
modify and expand the current direct lending pilot program, with the goal
of replacing guaranteed lending now provided under the Federal Family
Education Loan Program (FFELP) with direct loans in 1997. Federal capital
and schools largely would replace private capital and banks as loan
originators. The direct lending program is to be built up gradually, to
permit development and implementation of the administrative systems
necessary while maintaining proper management of the outstanding
guaranteed loan portfolio. At the same time, as part of the President's
goal of enhancing people's ability to work in community service jobs, new
systems will be devised to permit eligible borrowers to repay their loans
under flexible repayment options, including options where repayment varies
with annual income. This will permit many individuals to take lower paying
community service jobs without fear of inability to pay their student loan
debt. Estimated savings over five years are $3.2 billion, including $1.3
billion in 1997.

Office of Personnel Management/Federal employee child-survivor benefits.
Under the Federal employee retirement programs, child survivors may
continue to receive survivor benefits until age 22 if they are full-time
students, 18 if not. (Disabled children may receive benefits indefinitely
and would not be affected by this proposal.) The Administration proposes
to conform the maximum entitlement age for CSRS/FERS child-survivor
benefits to that of Social Security. Child survivors would receive
benefits until age 18 unless they are full-time students in a primary or
secondary school, in which case they would receive benefits until age 19.
The proposal does not affect those receiving benefits before October 1,
1994. Estimated four-year savings are $50 million, including $20 million
in 1997.

Office of Personnel Management/Federal employee survivor annuities.
CSRS/FERS retirees may elect survivor benefits in exchange for a reduced
annuity for themselves. The survivor benefits are equal to a percentage
(up to 55 percent) of the retiree's unreduced annuity. This proposal would
base the survivor annuity on the retiree's reduced annuity, thus slightly
reducing the government's subsidy to survivors. Estimated savings over
1994-97: $350 million. Estimated 1997 savings: $140 million.

Veterans Affairs/Down payment, fee for multiple use of loan guarantees.
Under current law, there is no limit on how many times a beneficiary may
use the VA loan guaranty program. Multiple-users are charged the same fees
as one-time users, and are not required to make a down payment. Allowing
borrowers who have already received home-ownership assistance to remove
the equity from their existing homes and purchase another home (with zero
equity) with VA-guaranteed financing, exposes the Government to additional
risk. The Administration proposes to require a 2.5 percent fee and a 10
percent down payment for multiple-use of the loan guaranty benefit. This
will provide savings because of the fees and because it will reduce
foreclosures. Estimated savings are $17 million in 1997, $68 million over
four years.

Veterans Affairs/Permanently extend resale loss provision. When a private
lender forecloses on a VA guaranteed property, VA uses a formula for
determining whether to pay the guarantee to the lender or acquire the
property from the lender and resell it. The Administration proposes to
make permanent the inclusion in that formula of expected losses on the
resale of foreclosed properties. This requirement makes property
acquisition more cost-effective to the Federal government and is
consistent with the practices of private mortgage lender. Estimated
savings over four years are $80 million, including $21 million in 1997.

Treasury/Reform U.S. Customs Inspector overtime laws. Customs Inspectors
receive compensation for overtime work at rates different from most other
Federal employees. Current law contains quirks that tend to provide strong
incentives for wasteful overtime scheduling practices and other abuses.
The Administration proposes to eliminate these opportunities for abuse,
reducing required overtime payments by an estimated $72 million over the
1994-1997 period, and $18 million in 1997 and to make necessary changes in
the law to ensure that savings from overtime reform are used to reduce the
deficit.

Interior/Mariana Islands funding agreement. A recent agreement with the
Commonwealth of Northern Mariana Islands, a U.S. territory, reduces
Federal support for the Commonwealth and directs it toward infrastructure
projects only. In addition, the agreement gradually eliminates Federal
funding. Implementation of this agreement would save an estimated $31
million in 1994-1997, including $10 million in 1997.

Veterans Affairs/Insurance administration costs. The Administration
proposes that the administrative costs of three of the five VA life
insurance programs be paid with excess revenues from those programs,
rather than from annual appropriations. This would reduce the
$30-million-a-year taxpayer subsidy to these programs, which pay dividends
of over $1 billion per year to policyholders. The estimated savings are
$31 million in 1997 and $113 million over four years.

Veterans Affairs/Internal Revenue Service income verification. The
Administration proposes to extend permanently the Department of Veterans
Affairs' authority to access IRS tax data to verify income reported by
pension and medical care beneficiaries. There are no savings from this
extension in the 1994-97 period. Savings in 1998 are $197 million.

Veterans Affairs/Permanently extend pensions-Medicaid nursing home
provisions. The Administration proposes to extend permanently the current
$90 monthly limit on pension benefits paid to any veteran or survivor
without dependents who receives Medicaid coverage in a Medicaid-approved
nursing home. This proposal would reduce an indirect federal subsidy from
veterans programs to state Medicaid programs. There are no savings in the
1994-97 period. Savings in 1998 would be $300 million.

Veterans Affairs/Service members' contributions to the Montgomery GI Bill
Education Program. The Montgomery GI Bill program provides monthly benefit
payments to eligible service members and veterans who are enrolled in a
post-secondary education program. To become eligible, military personnel
agree to contribute to the program through a reduction in their basic pay
during their first year of service. In two steps over the last three
years, Congress has increased the monthly benefits by 33 percent without
increasing individuals' payroll contributions to the program. Before the
increases in benefits, the program funding match was 9:1
(government:service members). This proposal would prospectively increase
their contributions to restore the 9:1 match. Estimated savings are $339
million over four years, including $98 million in 1997.


Controlling Health Care Costs

Systemwide health care reform is a top Administration priority, but some
additional short-term savings proposals, focusing on providers rather than
beneficiaries, make immediate sense.


Medicare:

HHS/10 percent capital reduction, inpatient. The proposal would extend
current law beyond 1995. Hospitals receive payments for Medicare's share
of capital expansions and improvements of both inpatient and outpatient
department (OPD) facilities. The current payment level was reduced in OBRA
90 by 10 percentage points to 90 percent of Medicare's share of capital
costs in every year. Estimated savings: over four years $680 million; 1997
$380 million.

HHS/10 percent capital reduction, OPD. The proposal would extend current
law beyond 1995. Hospitals receive payments for Medicare's share of
capital expansions and improvements of both inpatient and outpatient
department (OPD) facilities. The current payment level was reduced in OBRA
90 by 10 percentage points to 90 percent of Medicare's share of capital
costs in every year. Estimated savings: over four years $260 million; 1997
$150 million.

HHS/Maintain calendar year 1995 ratio of premium collections to program
outlays with a 27 percent ceiling. Under this proposal, beginning in
January, 1996, the monthly Part B premium would be set to maintain the
percentage of program costs covered by premium collections in the previous
year, but with a ceiling of 27 percent. The monthly Part B premium amount
currently is set in law through the end of calendar year 1995 ($36.60 in
CY93, $41.10 in CY94, $46.10 in CY95), and premium collections are
projected to cover about 27.5 percent of program costs in 1995. When
originally established, SMI premiums were intended to cover 50 percent of
program costs. They eroded significantly over the years, however, and
TEFRA 1982 established a temporary 25 percent premium floor, beginning in
1984. Congress extended the floor twice, and OBRA90 set fixed premium
amounts in law through 1995 at levels then estimated to be approximately
25 percent of program costs. Beginning in 1996, calculation of the premium
is scheduled to increase by the lower of the OASI COLA adjustment to the
previous year's premium, or to be set at 50 percent of program costs.
Estimated savings: over four years $5 billion; 1997 $3.9 billion.

HHS/Eliminate add-on payment for hospital-based HHAs. This proposal would
eliminate the separate add-on payment that hospital-based home health
agencies (HHAs) receive in addition to payment under the Medicare cost
limits. Eliminating the add-on would create a level playing field on which
all home health agencies can compete. Estimated savings: over four years
$840 million; 1997 $250 million.

HHS/Eliminate skilled nursing facility return on equity payments. The
proposal would eliminate the Medicare payment policy that pays proprietary
skilled nursing facilities (SNFs) a return on equity (ROE) invested in the
SNF. Medicare should pay for services rendered to beneficiaries; it should
not subsidize private investment. Estimated savings: over four years $560
million; 1997 $160 million.

HHS/Lower IME to 5.65 percent. This proposal would gradually lower the
Medicare indirect medical education (IME) from 7.7 percent to 5.65 percent
for each .1 increase in the intern and resident to be a ratio (IRB ratio).
Teaching hospitals currently receive an additional 7.7 percent payment to
the Medicare DRG payment for each .1 increase in their IRB ratio, above
their base year levels. The adjustment is intended to compensate these
hospitals for the higher costs of delivering care incurred by
inexperienced residents. In addition, teaching hospitals tend to have
sicker case mixes than non-teaching hospitals. The General Accounting
Office (GAO) and the Prospective Payment Assessment Commission (ProPAC)
have both found that the 7.7 percent adjustment overcompensates teaching
hospitals for these costs and have recommended that the adjustment be
reduced. ProPAC has recommended setting the adjustment at 5.4 percent.
Lowering the IME adjustment would also encourage teaching hospitals to
instill within their residents more cost-effective patterns of care at an
early stage in the residency. Estimated savings: over four years $1.94
billion; 1997 $1.4 billion.

HHS/Permanently extend 2 percent laboratory fee update. This proposal
would extend the 2 percent annual update of Medicare reimbursement rates
for clinical laboratory services. OBRA 90 established a 2 percent update
through the end of 1993, after which laboratory fees would be updated by
the urban component of the Consumer Price Index (CPI-U), approximately 3.5
percent annually. There is no evidence, however, to indicate that
laboratory costs are increasing by the rate of inflation. Medicare
payments to laboratories should more closely reflect decreasing costs due
to technological advances, such as increased automation, and changes in
the market, such as lower-cost equipment. Medicare payments to
laboratories are already excessive. An OIG study found that Medicare paid
laboratories 90 percent more than physicians paid for the same tests.
Moreover, a GAO study indicated that laboratories use higher profits from
Medicare to subsidize discounts to other, private payers. Estimated
savings: over four years $740 million; 1997 $380 million.

HHS/Provide incentive to encourage submission of claims via electronic
format. In total, Medicare Part B outlays were projected to be $59.8
billion in 1993. The proposal would save 0.1 percent of the 1994-98
Medicare Part B baseline. The proposal would encourage physicians and
other Part B providers to submit claims via the more administratively
efficient electronic format by charging physicians and other providers $1
for each paper claim filed. The proposal would not take effect until
January 1, 1996, to give providers lead time to adjust their filing
systems. Estimated savings: over four years $265 million; 1997 $175
million.

HHS/Medicare Secondary Payer (MSP) reforms. The MSP requirements currently
vary depending upon the category of enrollee. This proposal would create a
consistent MSP threshold for the aged, disabled, and end stage renal
disease (ESRD) patients all employers of 20 or more would be primary
payers. Current law already requires that Medicare enrollees with
employer-based health insurance use their private health insurance before
drawing upon their Medicare policies. This applies more consistent
standards and more efficient enforcement of these provisions to save
Medicare costs. Estimated savings are $947 million for 1994 through 1997;
and $305 million in 1997.

HHS/Permanently extend reduction of payments for hospital outpatient
services by 5.8 percent. OBRA 1990 reduced Medicare reimbursement for
hospital outpatient department (OPD) reasonable costs by 5.8 percent
through 1995. This proposal would extend that provision permanently.
Depending on the service, OPDs are paid based upon varying formulas, some
of which take into account the OPDs' reasonable costs. The overall
reduction to OPDs would be much less than 5.8 percent, because less than
half of Medicare reimbursement is based on reasonable costs. Because
hospital inpatient reimbursement rates are constrained by DRGs, hospitals
have shifted services and costs to the outpatient setting. As a result,
outpatient services are one of the fastest growing components of the
Medicare program, rising by an average of 17 percent per year in the
1980s. Legislators approved a 5.8 percent reduction in OBRA 1990 in an
attempt to counter this rapid growth. If this provision is allowed to
expire, outpatient costs, which continue to grow in the double-digits,
will start growing even faster. Support for this proposal is
well-established through previously approved legislation. Estimated
savings are $950 million for 1994 through 1997; and $525 million in 1997.

HHS/Reduce hospital outpatient department reimbursement by an additional
4.2 percent. In total, Medicare Part B outlays were projected to be $59.8
billion in 1993. The proposal would save 0.5 percent of the 1994-98
outpatient services base. Currently, Medicare reimbursement for outpatient
services is based in part on the OPD's reasonable costs minus 5.8 percent,
while reimbursement for outpatient capital costs is reduced by 10 percent.
This proposal would reduce reimbursement for OPD services by an additional
4.2 percent beginning in 1996, to a 10 percent reduction. This would make
payment for both categories consistent by reimbursing both at 90 percent
of costs. Estimated savings: over four years $690 million; 1997 $375
million.

HHS/Ban physician self-referrals. A Physicians may not refer a Medicare or
Medicaid patient to a clinical laboratory in which the physician or the
physician's relatives have a financial interest. Several exceptions are
specified in statute. This proposal would extend ownership and referral
prohibitions to additional services, such as physical and occupational
therapy, durable medical equipment, and parenteral/enteral nutrition
equipment and supplies. Estimated savings: over four years $250 million;
1997 $100 million.

HHS/Set EPO at non-U.S. market rates. The proposal would reduce the amount
Medicare pays for erythropoietin (EPO) from $11 per 1,000 units to $10 per
1,000 units. EPO is the drug used by patients suffering from kidney
failure, to counter anemia by increasing the body's production of red
blood cells. Medicare is virtually the sole purchaser of EPO and should
exercise its market power to pay reasonable costs while maintaining access
for all Medicare beneficiaries. Estimated 1997 savings are $50 million.
Estimated savings 1994-1997 $160 million; savings for 1994-1998 $210
million.

HHS/Resource-based practice expense phase-in. This proposal is an interim
step toward a resource-based system for practice expenses. It would reduce
practice expenses in relation to the relative value work units by one-half
of the difference between practice expense and physician work relative
value units, rent no lower than 110 percent. Phase-in to a resource-based
system for practice or overvalued expenses under the physician fee
schedule would begin in 1997. The recently implemented physician payment
reform system divided payment into three distinct components overhead,
work, and malpractice expenses. The work component is based on an
extensively-researched relative value system, developed in 1991. The
existing practice expense component is based upon an obsolete fee schedule
and bears no relationship to the reformed work component of the fee
schedule. This proposal would only reduce the practice component in
extreme instances when it exceeds the value of the work component. More
comprehensive reform of the practice component is expected to take several
years to develop. This proposal provides a simple, intermediate step to
address immediately the most egregious inequities in the reimbursement
framework. Estimated 1997 savings $875 million. Estimated savings
1994-1997 $2,025 million; savings for 1994-1998 $2,975 million.

HHS/Pay hospitals for inpatient services by hospital-based physicians.
Include payment for radiology, anesthesia, and pathology (RAP) services as
an add-on to the hospital DRG payment. Separate billing by physicians for
these services would not be allowed. Quality of care would be improved and
unnecessary utilization would be minimized. Estimated 1997 savings are
$160 million; 1994-1997 $390 million.

HHS/Single fee for surgery. The fee paid to a primary surgeon would be
reduced by the amount paid to assistants-at-surgery. HHS would establish
exceptions by regulation in which the difficulty of the procedure or the
condition of the patient necessitated the use of physicians as
assistants-at-surgery. Whether assistants are used and what type of
personnel are used are primarily dependent on geographic practice patterns
and the practice styles of individual surgeons, rather than on
characteristics related to the specific patient and the surgery performed.
Evidence does not show that quality of care would be jeopardized.
Estimated 1997 savings is $120 million; 1994-1997 $380 million.

HHS/Durable Medical Equipment (DME) options Set DME at market levels.
Initially, fee schedules for DME would be adjusted downward with an upper
limit based upon the median DME fee schedule, rather than the national
average. The fee schedule for prosthetics and orthotics would also be
recomputed with a national median cap. The HHS Secretary would be
authorized to adjust DME rates based upon market factors, including
surveys of what other providers, such as the VA, DoD and the private
sector, pay for DME. The Secretary also would be authorized to initiate
competitive bidding programs for DME supplies where appropriate. Granting
broader HHS discretion would allow adjustments to be made to reflect
changes in technology, utilization patterns and other market factors.
Estimated savings are $510 million for 1994-97; and $160 million in 1997.

HHS/Direct medical education. This proposal would base Medicare direct
medical education payments on a national per resident amount derived
solely from the average of salaries paid to residents. Direct medical
education payments would reflect differential weighing of the national
average resident salary, based on the specialty area a resident is
pursuing and the length of the residency. A resident in a primary care
specialty would be weighted at 240 percent, a non-primary care resident in
the initial residency period would be weighted at 140 percent, and a
non-primary care resident beyond the initial residency period would be
weighted at 100 percent. The average weight would be 175 percent of the
national average resident salary, down from the average weight of about
215 percent under current law. Estimated savings: over four years $1.4
billion; 1997 $330 million.

HHS/Set laboratory rates at market levels. The proposal initially would
limit the Medicare Part B laboratory fee schedule to 76 percent of the
median of all fees (as opposed to current maximum of 88 percent). Later,
based on market surveys, the Secretary of HHS would adjust Medicare
payment rates to laboratories to account for technological changes or
other market factors. This proposal would address excessive Medicare
payments for laboratory tests. An OIG study found that Medicare paid
laboratories 90 percent more than physicians paid for the same tests.
Moreover, a GAO study indicated that laboratories use higher profits from
Medicare to subsidize discounts to private payers. In addition, the
proposal would control growth in Medicare Part B laboratory payments,
which more than doubled from 1985 to 1990. Estimated savings: over four
years $3.1 billion; 1997 $1.1 billion.

HHS/Reduce default Medicare volume performance standard and update. The
effect of this proposal is to reduce the amount of increases in physician
fees in future years. This proposal would reduce the Medicare volume
performance standard (MVPS) default formula and the default update for
Medicare payments to physicians. These two factors determine annual
aggregate physician payment levels. Estimated savings: over four years
$850 million; 1997 $650 million.

HHS/Permanently extend three current Medicare Secondary Payer (MSP)
provisions. The proposal would extend three OBRA '90 Medicare Secondary
Payer provisions due to expire at the end of 1995 including: (1) 1862(b)
of the Social Security Act authorizing MSP for disabled active individuals
with employer group health plan (EGHP) coverage; (2) 1826(c) of the Social
Security Act amended by OBRA '90 authorizing MSP for individuals with ESRD
after 18 months (expanded from 12 months); and (3) 8051 of OBRA '90
authorizing an IRS/SSA data match for MSP. The data match authorizes
access to tax data to identify the existence of EGHP for MSP purposes.
Estimated savings over four years $1.845 billion; 1997 savings $1.115
billion.

HHS/Put hospitals on calendar year update. Medicare payments to hospitals
for inpatient care are updated October 1 of each year. Most other Medicare
services are updated January 1 or July 1. This proposal would move the
hospital update to January 1. Estimated savings: over four years $4.6
billion; 1997 $1.3 billion.

HHS/Fully increase primary care fees; modestly increase doctor fees in
1994. The proposal would update in full the physician fee schedule in CY
1994 for primary care services only. For all other physician services, the
update would be two percentage points less than the full update. Estimated
savings: over four years $1.3 billion; in 1997 $400 million.

HHS/Reduce Medicare hospital update market basket by 1 percent in 1994 and
1 percent in 1995. This proposal would extend the current law practice of
PPS updates of less than the hospital market basket index (HMBI). The 1993
update of the PPS standardized amount is set at the HMBI minus 1.55
percent for urban hospitals and HMBI minus 0.55 percent for rural
hospitals, as set in OBRA 1990. Under current law, the update for urban
hospitals will equal the market basket rate of increase in 1994 and 1995.
For rural hospitals the update is set at market basket plus 1.5 percent
for 1994 and the HMBI plus an adjustment needed to match the urban rate in
1995. Estimated savings: over four years $5.19 billion; 1997 $1.7 billion.

HHS and others: Third party liability enhanced identification of other
health coverage. Federal and State taxpayers spend over $1.5 billion a
year for health care that should be paid for by others. Inappropriate
payments have been identified in most federally-assisted or financed
health programs including: Medicare, Medicaid, Veterans Affairs Health,
CHAMPUS/DOD Direct Care, and the Indian Health Service. This proposal
removes many of the structural impediments hindering proper identification
and billing of third party liability (TPL) by: (1) requiring employers to
report employment based health coverage data annually on the W-2; (2)
granting access to this data to all federally-assisted and financed health
programs; (3) reinforcing existing coordination of benefits (which payer
pays and in what order) laws and regulations; and (4) removing impediments
that hinder states from collecting from private insurers. Rather than the
current `pay and chase' procedures where federal programs pay first and
chase payers afterwards, this proposal focusses on avoiding erroneous
payments by identifying the appropriate coverage before payment.


Medicaid:

HHS/Tighten estate recovery/transfer of assets rules. Total Federal
Medicaid outlays for 1993 are projected to be $80.3 billion. This proposal
would save approximately 0.1 percent of the 1994-98 Medicaid baseline.
This proposal would strengthen transfer-of-asset rules to restrict further
the diverting of property to qualify for Medicaid. In addition, the
Federal government would require States to operate estate recovery
programs and would enhance States' abilities to implement these programs.
Estimated savings: over four years $395 million; 1997 $155 million.

HHS/Remove prohibition on State use of drug formularies. This proposal
would repeal the OBRA 1990 statutory provisions that prohibit States from
using formularies. Before OBRA 1990, States were allowed to limit the
number of drugs listed on their formularies, e.g., States could cover only
the generic alternative of a multiple-source drug. The OBRA 1990 formulary
restriction resulted in increased expenditures for States and the Federal
government. Estimated savings: over four years $70 million; 1997 $25
million.

HHS/Eliminate mandatory Medicaid personal care. This proposal would ensure
that personal care remains an optional benefit after 1994. The Medicaid
statute requires States to cover home health services for all individuals
who are eligible for nursing home services. Currently, States also have
the option to pay for personal care services to these individuals. Due to
a legislative drafting error, OBRA-90 designated personal care as a home
health service. Therefore, coverage of personal care services would become
mandatory for all States in 1995, if Congress does not amend the statute.
In an era of increasing fiscal pressures and growing Medicaid spending,
Congress should avoid imposing additional mandates upon State Medicaid
programs. Moreover, maintaining personal care as an optional service would
allow States continued flexibility in designing and administering Medicaid
long-term care strategies. Estimated savings: for four years $4.1 billion;
1997 $1.5 billion.


Shared Contribution

For deficit reduction to succeed, all groups must contribute. Only if
there is a sharing of the load can the entire country be sure that
everyone is participating.

Social Security/Conform taxation of benefits to private pensions. Up to 50
percent of Social Security and Railroad Retirement (Tier I) benefits are
currently included in taxable income for those recipients with income and
benefits exceeding $25,000 for individuals, and $32,000 for couples. The
Administration proposes including up to 85 percent of benefits in adjusted
gross income, for those with income and benefits exceeding the current
$25,000/$32,000 thresholds. This would move the treatment of Social
Security and Railroad Retirement Tier I benefits toward that of private
pensions. Under current law, pension benefits that exceed an employee's
after-tax contributions to qualified pension plans are subject to tax at
distribution. Extending this approach to Social Security would mean
including at least 85 percent of benefits in taxable income for nearly all
recipients. However, maintaining the existing income thresholds protects
most low- and middle-income beneficiaries from benefit taxation.

HHS/Strengthening child support enforcement. Of the over 10 million women
living alone with their children, only half have child support orders and
only half of those women receive full payment. Child support enforcement
will be strengthened by streamlining paternity establishment; using the
IRS to collect seriously delinquent child support; making sure that absent
parents who can pay child support do; setting up a national registry to
track down deadbeat parents; requiring employees to report child support
obligations on IRS W-4 forms; and improving medical support for children.
Better child support enforcement will ensure both parents' responsibility
for the well being of their children and decrease the burden of welfare on
the taxpayer. Estimated Savings: over four years $328 million; 1997 $109
million..

HHS/Equate matching rates for welfare programs. Currently, States are
reimbursed by the Federal Government at different rates for the various
costs of administering Aid to Families with Dependent Children (AFDC),
Food Stamps, and Medicaid. The Administration proposes to set the Federal
reimbursement rate at a uniform 50 percent for all administrative costs of
each of these three programs. There will be waivers for some States, in
hardship cases. Estimated savings: over four years $1.8 billion; 1997 $600
million.

OPM/End lump-sum benefit retirement. The lump-sum retirement option allows
Federal civilian employees to elect upon retirement to receive a lump sum
roughly equal to employee contributions in exchange for a reduced annuity
for life. The Omnibus Budget Reconciliation Act suspended the lump sum for
5 years, through 1995, for all employees except those who are critically
ill, involuntarily separated or activated for Desert Shield/Storm. This
proposal would eliminate the lump sum for all employees retiring on or
after October 1, 1995. Estimated 1994-97 savings: $5.1 billion. Estimated
1997 savings: $3 billion.

Veterans Affairs/Permanently extend medical care cost recovery. The VA
operates a nationwide health care delivery system for our nation's
veterans. This proposal would make permanent VA's authority to collect the
cost of medical care from health insurers of veterans with
service-connected (military related) disabilities when the care is
provided for non-service-connected conditions. This proposal would hold
private health insurance companies responsible for the costs of their
beneficiaries' care. VA already has permanent authorization to collect
costs from insurers of veterans without service-connected conditions.
Estimated savings: over four years $1.2 billion; 1997 $407 million.

Veterans Affairs/Permanently extend prescription charge/copayment. The VA
operates a nationwide health care delivery system for our nation's
veterans. This proposal would make permanent VA's authority to collect
from most veterans a $2 copayment for each 30-day supply of outpatient
prescription drugs that is not related to treatment of a service-connected
(military related) disability. Cost sharing encourages more appropriate
utilization of prescription drugs. This proposal has been enacted three
times by the Congress (currently through 1997). Estimated savings in 1998
$42 million.


Deficit Reduction: Revenues

The Administration had hoped to achieve the twin goals of economic growth
and deficit reduction without asking those who were squeezed the hardest
in the 1980s to contribute more. But the deficit has grown substantially
and, if we are to invest in our people and achieve fundamental change, we
must all do our part.

Revenue increases, by necessity, must play a role. In raising new revenue,
we had two goals. First, raise the bulk of new revenue from those who can
most afford to pay. Second, minimize any increases in the burden on the
middle class and the working poor. These goals were met; those earning
more than $100,000 will contribute over 70 percent of the total new
revenues.

Most Americans, however, will be asked to contribute a small amount
towards reducing pollution and lowering our dependence on foreign oil
through a new broad-based energy tax. The direct impact of the new energy
tax, even when fully phased in, will be less than $10 per month for a
typical family of four earning $40,000. And special offsets will fully
insulate low-income households from any increase in their tax burden.

In 1997, the deficit reduction package will yield a net increase of $74
billion, the result of $78 billion in new revenues minus $4 billion to
offset the impact of the energy tax. Non-energy sources will account for
approximately three of every four dollars of this increase. Those who can
most afford to pay will bear the vast majority of the burden.

Raising taxes on the wealthiest. The 1980's saw the personal income tax
rate on the most affluent Americans drop from 70 percent to 28 percent; at
the same time, middle income families paid a rising share of their incomes
in income and payroll taxes. Our plan reverses that trend.

Personal Income Taxes. The plan increases the top income tax rate from 31
percent to 36 percent for taxpayers with high incomes. The 36% tax rate
will apply to taxable income in excess of $140,000 for couples and
$115,000 for individuals, beginning this year. Average taxpayers with
taxable income in excess of the $140,000/$115,000 thresholds will have
adjusted gross income in excess of $180,000 on joint returns and $140,000
on individual returns. In addition, the package applies an additional 10
percent surtax for those people with taxable income over $250,000,
resulting in a 39.6% tax rate for those income levels; and increases the
Alternative Minimum Tax rate to 26 percent on AMT income of less than
$175,000 and 28 percent on AMT income over $175,000.

These changes affect just over 1 percent of taxpayers and produce $26
billion of new revenues in 1997. Yet tax rates remain well below previous
highs, preserving incentives to work and save.

The plan also extends existing law rules on itemized deduction limitations
and the personal exemption phaseout that are targeted to high income
taxpayers. Those provisions are scheduled to expire in calendar years 1996
and 1997, respectively.

The package also includes a number of other personal income tax changes
that are designed to improve fairness. It reduces compensation that can be
taken into account for purposes of benefits and contributions under
qualified retirement plans to $150,000 (1993 cap is $235,840). This change
will better target the benefit of tax deferral to middle income Americans
and will raise almost $1 billion in 1997. It also disallows deductions for
closing costs and meals incurred as a result of moving to a new residence.
These expenses that are generally not deductible for other taxpayers
should improve the equity of the tax system. The change in the moving
expense rules raises $0.5 billion in 1997.

Hospital Insurance Taxes. Higher income individuals are also required to
increase their payments under the Medicare tax. The proposal eliminates
the current cap ($135,000) on earnings subject to the Hospital Insurance
(HI) portion of the Social Security tax. Imposing the HI tax on all
earnings increases revenues by $7 billion in 1997 and ensures that those
who can afford to pay more for their health care in retirement do so. The
additional revenue will bolster the HI Trust Fund, which is estimated to
be exhausted by about 2002.

Estate Taxes. Current law imposes a tax on the cumulative value of gifts
and bequests. The rates range from 18 percent on the first $10,000 of
taxable estate to 50 percent on transfers of more than $2.5 million as of
January 1993. Our proposal extends the additional marginal rates of 53
percent and 55 percent that were in effect in 1992. Extending these rates
will affect only the wealthiest taxpayers, while raising nearly a $1
billion in 1997.

Business Taxes. The investment tax credits, the corporate alternative
minimum tax changes and the favorable capital gains provisions in the
stimulus and investment packages will spur investment and encourage the
growth of all businesses, especially small business. At the same time
however, large highly profitable companies will have to pay a greater
portion of their net earnings in taxes. The package increases the
corporate tax rate from 34 percent to 36 percent for taxable income above
$10 million, raising $6 billion in 1997. Of the 2.2 million corporations,
only about 2,700 large corporations will be affected by this proposal in
any year.

Deductions. The package also contains a proposal to reduce the deductible
portion of meals and entertainment from 80 percent to 50 percent. This
will increase revenues by almost $4 billion in 1997. Meals and
entertainment expenses involve a substantial component of personal
consumption. A 50 percent split reasonably balances the mixed benefits of
meals and entertainment expenses.

The plan would deny certain other business deductions, including the
deduction for compensation in excess of $1 million, unless linked to
productivity. The goal is to encourage corporations to focus more
carefully on their compensation policies and to shift business spending
from excess pay to investment. This proposal would raise $.2 billion in
1997.

Possessions tax credit. In a package in which enterprise zones are being
established throughout the United States for economically distressed
areas, we must reassess the extremely costly tax incentives provided in
Puerto Rico. At the same time, we must recognize our unique relationship
with Puerto Rico and its unusual circumstances. The package seeks to
strike a balance by capping the tax incentives available to American
corporations in Puerto Rico at 65 percent of compensation paid to workers
there.

Tax compliance. The package also contains a series of international
compliance reforms and related provisions. Two provisions are designed to
improve the tax compliance of both foreign and domestic corporations by
preventing the improper shifting of U.S. profits to foreign jurisdictions.
The principal provision would require multinational enterprises to
establish their transfer prices before they file their tax returns. A
related provision restricts the ability of U.S. corporations with foreign
shareholders to avoid tax on their earnings distributed as interest. In
addition, the Administration will institute a sweeping new enforcement
initiative targeted at transfer pricing abuses. It is expected that marked
improvement in compliance will result from this investment of IRS
resources.

Another set of provisions will reduce the tax incentives for U.S.
corporations to operate abroad. These include encouraging research and
development to be performed in the United States and the related products
to be manufactured here as well, preventing multinational oil companies
from sheltering foreign earnings by inflating their working capital
reserves abroad, and compelling multinationals to pay tax on excessive
passive earnings accumulated abroad.

Securities dealers will no longer be permitted inventory accounting rules
that have allowed the recognition of losses, but not gains and will
generally be required to conform their tax treatment to their accounting
practices. This will result in additional revenues of $1.1 billion in
1997. In addition, certain businesses which have acquired troubled savings
and loans will not be allowed deductions for asset losses subject to
Government reimbursement. This proposal will result in additional revenues
of $200 million in 1997.

The tax gap the difference between what people owe in taxes and what is
actually paid is a persistently large number. The lion's share of this
shortfall is attributable to unreported income, often by business. The
package includes several provisions raising over $2 billion in 1997 to get
at this problem and improve compliance with the tax laws in other ways.

Introducing a broad-based energy tax. The package introduces a broad-based
tax on all types of energy, based on the energy content of the fuel
(measured in British Thermal Units or BTUs), to be collected at the
source. The tax is designed to promote energy conservation and to reduce
harm to the environment. Coal and natural gas will be taxed at the rate of
$.257 per million BTUs, while oil will be taxed at the rate of $.599 per
million BTUs. The higher rate on oil is intended to promote energy
security and the use of cleaner burning fuels. The new tax raises $18.3
billion in 1997 (net of the offsets described below).

Energy taxes will encourage conservation by making energy more expensive,
reducing pollution, and decreasing the country's dependence on foreign
energy suppliers. Despite a drop in oil prices during the Persian Gulf
War, this country still depends on foreign sources for nearly half of its
oil and about one-fifth of its total energy.

Without some form of adjustment or offset, the broad-based energy tax
would impose a particularly heavy burden on low-income households. To
avoid such an outcome, the energy tax is accompanied by proposed increases
in transfers under the Low-Income Home Energy Assistance (LIHEAP) and Food
Stamp Programs. Since many low-income households are outside of the labor
force and the tax system, these programs are needed to alleviate the`
burden of the energy tax.

Other Provisions. The package includes a number of other miscellaneous
revenue-raising proposals, including extension of the 2.5 cents per gallon
gasoline tax currently scheduled to expire in 1995.

Distribution of Burden Among Taxpayers. The plan distributes the burden of
the changes in tax treatment in a fair way, ensuring that taxes rise
proportionately more for high-income households than for households with
less income. Those earning more than $100,000 will contribute over 70
percent of the total new revenue. The impact of the revenue raising
component of the deficit reduction package is shown below.


Budget Enforcement Proposals

A strong, workable enforcement mechanism is essential to the credibility
of any deficit reduction package. As part of the process of implementing
the President's economic program, the Administration will propose specific
measures to ensure that the deficit reduction contained in the plan, once
enacted, is maintained.

The current Budget Enforcement Act (BEA) expires at the end of 1995. If
the BEA is not extended, there will not be an adequate mechanism for
enforcing deficit reduction decisions. The budget will propose to extend
the BEA with limited modifications, including specifically the extension
of discretionary spending caps through 1998, and extension of
"Pay-As-You-Go" provisions through 2003 in order to reach the outyear
effects of entitlement and tax legislation and the use of sequestration to
enforce compliance. In addition, the budget will support enactment of
enhanced rescission authority legislation that would require expeditious
Congressional action on Presidential rescissions, similar to H.R. 2164 as
passed by the House last year.
                              Restoring Fairness


Distributional Effects of the Spending Proposals

Some of the outlay proposals in the Administration's program have effects
that spread across the population. Others, however, have identifiable
effects on incomes, or on services targeted to particular income groups.
We have sought to impose the principle of fair contribution so that the
burden is concentrated on those most able to bear it. Similarly,
investment programs are targeted to those in need and pursue greater
productivity growth and standards of living for the population as a whole.

Table 3-4 shows the distributional effects of those program increase
proposals that are amenable to such analysis including Head Start, the Job
Training Partnership Act and the Job Corps, housing assistance, WIC,
dislocated worker training, one-stop career training centers, and veterans
medical care and hospital construction. Also included are three spending
reductions: Federal employee health benefits; Federal employee pay; and
the premium increase for Medicare Part B. Table 3-4 reflects 1997 spending
levels deflated to 1994 dollars. This year was chosen to correspond to the
fully implemented tax proposals displayed on subsequent tables. The total
of analyzed spending increases is $8.9 billion; the total of analyzed
spending reductions is $6.6 billion. Not all of the spending proposals
constitute changes to the disposable incomes of families. Some spending on
services, such as Head Start or Job Corps, would brighten the economic
futures of participants but would not change their families' incomes
directly.

Table 3-4 shows that families and single people with incomes below $10,000
benefit from $3.6 billion of additional spending. Those with incomes below
$20,000 benefit from an estimated $4.9 billion. Further, these groups will
benefit from almost all of the proposed increases of $8.2 billion in
outlays for the earned income tax credit, food stamps and the low-income
home energy assistance program (LIHEAP) when tax policies discussed below
are fully phased-in. Table 3-4 also shows that families with incomes above
$50,000 would bear virtually the entire burden of the budget savings. Most
of the savings are the result of the proposal to hold Federal salaries
below projected levels.

Although Table 3-4 includes a significant proportion of the proposed
changes in outlay programs, many proposals are not reflected. Stimulus
outlays for 1994 are not included. Some spending proposals would not
affect beneficiaries directly, such as Medicare changes that would affect
providers but not beneficiaries, and so are not included. When proposals
are intended to affect the economy as a whole or everyone more or less
equally, such as increased spending to improve the national
infrastructure, no attempt was made to distribute the effects by income
level. In a few cases, such as enterprise zones, education proposals for
schools in low-income neighborhoods, or community development block grants
(CDBGs), there were no bases for a reasonable distribution by income
level, and they were omitted from the analysis. The outlay programs not
included in this analysis are a substantial part of the overall
recommended policy changes, and so these estimates of the ultimate
distributional impact should be used with caution.


Distributional Effects of the Tax Proposals

The impact of the revenue raising proposals is shown in Table 3-5. As
discussed above, the major revenue changes in the deficit reduction
proposal are higher rates under the personal income tax, removal of the
earnings cap for the Medicare tax, higher rates for the estate tax, and
increased taxation of large businesses. These taxes primarily affect
wealthy individuals and have virtually no impact on taxpayers in the
lower- and middle-income groups.

To control pollution and alleviate our dependence on imported oil, the
package also contains a broad-based energy tax. The energy tax by itself
would place a relatively heavy burden on many taxpayers with limited
ability to pay. For this reason, the introduction of the energy tax was
combined with several offsets, including an expansion of the earned income
credit and an increase in transfers under the Low-income Home Energy
Assistance Program (LIHEAP) and under the Food Stamp program. These three
offsets eliminate any increased burden at the low end of the income
distribution. Middle-income families experience only a slight increase in
their tax liabilities, and the tax burden rises with family income
thereafter.

Table 3-5 summarizes the combined impact of all revenue raising provisions
in the stimulus, investment, and deficit reduction combined, including the
offsets to the energy tax. This table confirms that our plan distributes
the tax burden in a fair way, ensuring that low-income families are spared
any tax increase and that middle-income families experience only a slight
rise in their taxes; most of the burden falls on higher-income households.


Overall Distributional Effects of the Program

Table 3-6, which combines the tax and outlay changes as a percentage of
pre-tax income, shows that the effects of the Administration's program on
the two sides of the budget ledger are consistent and mutually reinforcing.

The lowest income category receives both a small tax cut and a benefit
increase under the administration's program. Other income categories up to
$30,000 have little net tax change. At higher income levels, there are
spending cuts that are quite small, but tax increases that are more
substantial.

The program effects identified here, however, will not affect all families
within any income group in the same way. In fact, many families will not
be affected at all by any of the program changes, while others (Federal
employees, low-income program beneficiaries) may be affected by several.
Thus, the ultimate impact on the population may vary considerably from
family to family. On the whole, the burden is borne mainly by those most
able to bear it.



Table 3-4. Change in Federal Outlays for Social Programs and  Federal Pay /1
(Positive numbers are additional tax revenues, negative numbers are outlays)
Family income       Amount (billions of dollars) As a Percent of Pre-tax income
$0 to $10,000                               3.6                             3.7
$10,000 to $20,000                          1.3                             0.5
$20,000 to $30,000                          0.0                             0.0
$30,000 to $50,000                         -0.8                            -0.1
$50,000 to $75,000                         -0.9                            -0.1
$75,000 to $100,000                        -0.6                            -0.1
$100,000 and more                          -0.6                            -0.1
 Total                                      2.3                             0.1

1/1997 spending levels deflated to 1994 dollars. Includes increases of
$8.9 billion and savings of $6.6 billion for a net proposed change of $2.3
billion. Increases are for Head Start and associated nutrition programs
($3.4 billion), youth titles of JTPA ($0.8 billion), housing programs
($1.1 billion), WIC ($0.9 billion), dislocated workers ($1.8 billion),
one-stop career shopping ($0.2 billion), and veterans medical care and
construction ($0.6 billion). Savings are for lower Federal salaries ($3.0
billion), Federal employees health benefits ($0.02 billion), and higher
Medicare premiums ($3.6 billion).



Table 3-5. Change in Federal Taxes and Certain Transfer Payments /1
(Positive numbers are additional tax revenues, negative numbers are outlays)
                      Amount            As a Percent      As a Percent
                    (billions            of Pre-tax        of Post-tax
Family income           of                  income           income
                     dollars)
$0 to $10,000         -0.2                   -0.2             -0.2
$10,000 to $20,000     0.0                    0.0              0.0
$20,000 to $30,000     0.4                    0.1              0.1
$30,000 to $50,000     4.4                    0.5              0.6
$50,000 to $75,000     7.6                    0.7              0.9
$75,000 to $100,000    5.9                    0.7              0.9
$100,000 to $200,000   8.0                    0.7              0.9
$200,000 and more     34.3                    2.9              3.7
Total                 60.5                    1.0              1.3

1/Effects as if policies were fully phased in CY 1994. Transfer payments
include increases of $3 billion for Food Stamps and $1 billion for LIHEAP.



Table 3-6. Combined Effects of Tax and Transfer Changes
(Positive numbers are additional tax revenues, negative numbers are outlays)
Family income /1          Amount (billions)     As a Percent of Pre-tax income
$0 to $10,000                    3.8                            4.5
$10,000 to $20,000               1.3                            0.4
$20,000 to $30,000              -0.3                           -0.1
$30,000 to $50,000              -5.2                           -0.6
$50,000 to $75,000              -8.5                           -0.8
$75,000 to $100,000             -6.4                           -0.7
$100,000 and more              -42.8                           -1.8
Total                          -58.2                           -1.0

1/ The concepts of family income used in the tax and spending tables above
are not strictly comparable. The tax table reflects the Department of the
Treasury's concept of economic family income. The outlay table reflects
the concept of money income employed by the Bureau of the Census. To
combine the tax and outlay effects, amounts of taxes and outlays were
compared to aggregates of Treasury family income by income level from the
tax table.
                         Making Government Work Better

This beautiful capital, like every capital since the dawn of civilization,
is often a place of intrigue and calculation. Powerful people maneuver for
position and worry endlessly about who is in and who is out, who is up and
who is down, forgetting those people whose toil and sweat send us here and
pay our way. Americans deserve better. And in this city today there are
people who want to do better.

Bill Clinton
January 20, 1993


A crucial element of the President's economic plan, and of the success of
our Nation in the coming years, is to improve the way Government works.
Before we ask the American people to change, Government must change. It
must work effectively and efficiently if it is to help encourage economic
growth. We must restructure our defense and international mechanisms to
adjust to the new realities of the post-Cold War era. Moreover, the
American people have a right to Government that is honest, that is
responsive to their concerns, and that serves them well.


Adapting to a Changing World

The institutions of Government that handle national security and our
foreign relations must be redesigned. Constrained budgets necessitate
efficient management of our defense and foreign relations. In addition,
the many new challenges and opportunities of the next decade mean that
structures designed for the Cold War must be reorganized so that they can
carry out new policy initiatives successfully.

The major restructuring of our foreign relations institutions, as
announced by the Secretary of State, has begun. Through the consolidation
of functions and a one-third reduction in the number of deputy assistant
secretaries, we will significantly streamline the operations of the State
Department. In addition, the undersecretaries are acquiring new
responsibilities, consonant with such new international missions as
peacekeeping, democratization, and U.S. economic competitiveness, and such
global issues as non-proliferation, the environment, refugees and
population. To manage the critical relationship with the countries that
were part of the Soviet Union, we have also created the position of
Special Advisor to the Secretary of State for the New Independent States.
And we are also initiating a review of current international affairs
programs and structures in such areas as international development,
finance and promotion, and international radio broadcasting, intending to
streamline and redesign operations while ensuring we meet our current
commitments.

A similar restructuring is under way in the national security arena. As
the defense budget declines, we must become more efficient in managing the
operations of the Department of Defense. Even as we build down and reshape
our forces, we must assure an effective military capability, structured to
meet new international challenges. The management structure of the
Department of Defense must also be realigned for the new tasks ahead. The
Office of the Secretary of Defense is being reshaped for efficiency and
effectiveness by reducing the number of officials who report directly to
the Secretary of Defense and by giving the undersecretaries responsibility
for key departmental operations: defense policy, financial management,
personnel and readiness, and technology and acquisition. In addition,
defense policy offices are being restructured to focus on such new
challenges as counter-proliferation, peacekeeping, economic and
environmental security, and democratization. These changes promise to
ensure that the Department of Defense is managed to achieve key strategic
results, rather than simply conducting business as usual. As we develop a
new defense strategy this year, we will be paying close attention to other
defense management issues, such as defense overhead and business
practices, acquisition reform and the future of the defense industrial and
technology base.

Finally, the National Security Council staff is also being reshaped to
focus on the new challenges we face internationally, so that it can lend
effective support and coordination for interagency activities.


Restructuring for Domestic Change

Here at home, the President has already taken a number of direct actions
to reduce the size and cost of Government, improve its honesty, and reduce
the privileges that too often fostered insensitivity and arrogance in
previous administrations:

 *   An executive order requiring that the Federal civilian workforce be
     reduced by 100,000 by 1995, with at least 10 percent coming from the
     ranks of management.

 *   An executive order requiring a reduction of at least 14 percent in
     administrative costs throughout Government over the next four years,
     which, along with the reduction in personnel, will save over $15
     billion over that period.

 *   An executive order requiring the elimination of more than 200
     non-statutory Federal advisory committees that currently operate
     throughout the Government.

 *   A 25 percent reduction in the size of the White House staff, with
     savings of $10 million in 1994.

 *   An executive order that imposes on top-level Administration employees
     the most stringent ethical standards in the nation's history.

 *   A Presidential memorandum sharply reducing the availability of
     Government automobiles and drivers for high-level officials.

 *   A Presidential memorandum requiring that executive dining rooms, if
     they remain open, fully recover their costs.

 *   A Presidential memorandum restricting air travel by high-level
     officials.

In addition to these steps, the Administration will make more effective
management of Government a top priority. Government is not a business. But
there are business management techniques which can help improve the
performance of Government, streamline bureaucracies, and reduce costs.
Overcoming years of neglect is a difficult task. But it is essential that
we begin now.

Managing for results. Too often, Government agencies and programs have
only the vaguest goals. As a result, they have little to guide their
efforts, and there is no way for an Administration, or the American
people, have no way to measure the results of their work. Businesses set
goals and evaluate managers and workers based on their performance in
meeting those goals. Government can and should do the same. The
Administration is studying possible ways of testing performance-based
management to help agencies and their employees do their jobs better, and
to enable managers and the public to evaluate their work.

Restructuring Government.  20The Federal Government is more complex than
it needs to be. Often, many different agencies deal with the same issue,
and individuals, businesses, communities, and states find it impossible to
have their problems addressed. Departments and agencies are already
consolidating and simplifying their operations, and the Administration
will seek to rationalize and streamline functions Government-wide.

More responsive Government. Well-run businesses seek to maintain good
relations with their customers, but Government is too often arrogant
toward those it serves. This Administration will seek to improve the
delivery of services, using client-oriented, "user-friendly" approaches,
such as "one-stop shopping" for multiple services.

Unnecessary spending.  Wasteful spending is sometimes the result of
legislative mandates that escape scrutiny through their inclusion in large
appropriations bills. Under current procedures a President cannot single
out wasteful items in an appropriations bill for a veto; he must veto the
entire measure. The President intends to work with the Congress to enact a
modified line-item veto that will enable a President to reject wasteful
items from an appropriations bill and will require the Congress to cast a
separate vote on those items. Items that have broad support will survive;
but over time millions, perhaps billions, of dollars will be saved by the
defeat of items without broad support.

Campaign reform. A primary reason for the cynicism of the American people
about politics and Government has been the pervasive influence of special
interests. Much of that influence is related directly to the impact of
money on the political system. The President is already working with the
Congress to develop strong campaign reform legislation that will curb the
influence of special interest political action committees (PACs) and
control election spending.

Lobbying reform. The American people have a right to know who is lobbying
their Government leaders, who is paying them to lobby, and how much they
are being paid. The Administration is working with the Congress to enact
legislation that would impose strict disclosure rules on lobbying. In
addition, the President's deficit-reduction plan includes a tax provision
eliminating the deduction of the expenses special interests incur in
lobbying the Congress or state legislatures. No longer will the average
taxpayer have to subsidize this search for Government benefits by
high-priced lobbyists. The Administration is committed to enactment of
campaign finance reform legislation. If such legislation calls for public
resources, funds raised by the repeal of the provision are a possible
source of funding for this purpose.

Taken together, these actions will help bring about Government that is
better able to meet its responsibilities at home and abroad, that is more
responsive, effective, efficient, and honest. This Administration is
making a full-time commitment to improving Government and making it truly
the servant of the people.
                             The Task Remaining

The urgent question of our time is whether we can make change our friend
and not our enemy.

Bill Clinton



The plan presented in these pages is as bold as the challenges it
confronts are daunting. It calls for fundamental change to invest in
people; to reward hard work and restore fairness; to recognize our
families and communities as the cornerstones of America's strength; to
reclaim our future.

This plan promises rising standards of living, productivity and national
savings. It stimulates job growth and provides insurance that the current
slow recovery will be lasting and strong. It invests in the education,
training and health of our people. It encourages the private sector to
modernize and acquire the tools and technology to compete in the global
economy. And it confronts our deficit head on, with a serious, fair plan
to bring it under control and generate economic growth.


The Perils of Inaction

Achieving this change will not be easy. But the cost of not changing is
far greater.

After the fiscal failures of the last twelve years, we cannot accept the
status quo. While every American can sense the weakness in our economy
from day to day, the real cost of inaction becomes clear only when we
examine the course that our economy and budget will follow if we do not
change.

Under the policies left by the previous Administration and taking a
cautious view of the economic outlook, the budget deficit will decline for
the next two years, and then begin to grow even as the economy continues
to recover and expand (Chart 4-1). As a percentage of the GDP, a better
measure of its impact on the economy, the deficit declines through 1996,
but then begins to climb (Chart 4-2).

Far more troubling, however, these deficits will be so large that the
national debt will grow faster than the economy (and thus will increase as
a percentage of the GDP) all the way to the forecast horizon (Chart 4-3).
This path cannot be sustained. If rising deficits are left to cascade into
debt, hence into interest costs, and then back into still higher deficits,
there can be no good economic outcome. And the longer this vicious cycle
is left to build its momentum, the more painful the jolt when inevitably
it is broken.

The Administration's economic plan controls the deficit before the deficit
controls our economy. In a fair and measured way, the plan will bring the
deficit down until, by 1997, it will be $140 billion lower than it would
be if we cling to the status quo. The deficit under this program falls
from 5.4 percent of the GDP in fiscal year 1993 to 2.7 percent in 1997.
This is 1.9 percent of GDP lower than would occur under the policy left
behind by the previous Administration.

To be cautious, we have based our deficit projections on an extremely
unfavorable path of economic growth, with slow progress of productivity
and real economic output growing less than two percent per year in the
long run. Under those circumstances, the deficit would rise slowly after
1996 even with the aggressive deficit reduction policies recommended by
this Administration. Though much improved relative to past economic
policies, this outcome is unacceptable (Chart 4-1). As a percentage of the
GDP, the deficit would rise in the long run (Chart 4-2); and the growth of
the national debt relative to the GDP would continue (Chart 4-3).

This Administration believes that its policies of deficit reduction and
public and private investment will increase the growth of productivity and
incomes, thereby increasing Federal revenues, retarding the expansion of
Federal spending, and forcing the deficit down. If the economic outcome is
more favorable than we have assumed, the deficit will grow more slowly.
Under the more optimistic assumptions, the deficit will be nearly
stabilized as a percentage of the GDP. The economy will grow more rapidly
than the national debt, and so the debt as a percentage of the GDP will
fall slowly. Eventually we will reverse the borrow and spend legacy of the
1980s.


The Role of Health Care Costs

Even the most favorable scenarios for economic growth under our plan leave
unfinished business, however. The budget totals conceal rapidly rising
health care spending that threatens to bankrupt our national treasury.

Recently, health care costs have accounted for almost half of the increase
in Federal spending; if we do nothing, by decade's end one in every four
Federal dollars will go to providing health care. Relentlessly rising
costs will continue to stunt long-term economic growth and terrorize
American families unless and until we achieve fundamental change.

Later this spring we will deliver to the Congress a comprehensive plan for
change. That plan will control health care costs and will provide security
to families, so that they cannot be denied the coverage they need. It will
root out fraud and outrageous charges, and make sure that paperwork no
longer chokes consumers or doctors. And it will maintain American
standards the highest quality medical care in the world, and the choices
we all deserve.


Our health care plan will bring costs under control. And while the savings
we achieve will go mostly to the private sector, taxpayers will benefit as
well. Federal funds will be freed for investments in education, training,
and the technologies of tomorrow.

That reform will control the growth of Medicare and Medicaid spending in
the long term, and thereby supplement the deficit reduction in this
economic program. If the growth of Federal health care costs can be
limited to the rate of growth of the population, plus the rate of
inflation, plus two percent, the deficit will decline in dollar terms and
as a percentage of the GDP (Charts 4-1 and 4-2); and the increase in the
ratio of the national debt to the GDP of the 1980s will be reversed (Chart
4-3).

Enactment of the economic plan and health care reform together will
reverse the failures of the 1980s, and put the economy on a sound footing
for the next century. It will reduce the threat of financial instability
posed by a national debt rising faster than our income. It will stop
sending the signal to the rest of the industrialized world that our
economic policy is out of control. Most important, it will add to the
prosperity and security of the American people and allow us to compete
more effectively in the global economy.


Conclusion: A Vision of Change for America

Throughout our history, at every critical moment, Americans have summoned
the courage to change, to adapt our nation's policies and institutions to
changing problems and a changing world. Once again we face such a
challenge. Now we must change our course.

We need a change to restore what makes America great: a vision of economic
and political freedom; of the rewards of hard work and initiative; of a
fundamental sense of fairness, of our families and our communities as
foundations of our strength; and of every generation's obligation to
create a better life for those that follow.

The plan we present invests in our people and promises an America where a
growing economy produces rising living standards and high-wage, high-skill
jobs. It rewards hard work and restores fairness, providing opportunity in
return for responsibility. It ends twelve years of government that served
only the privileged and returns that government to its rightful owners:
the American people.

Here in Washington, the powerful special interests are already doing their
best to suffocate change. They oppose it because they profit from the
status quo. They refuse to listen to the American people's call for change.

It is our responsibility to answer that call and restore hope to our
people. The voices of conventional wisdom will first whisper and then
shout that it cannot be done. But we must summon the wisdom and courage to
reject convention and embrace the new direction that we have needed for so
long.