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.