Online NewsHour: 1998 Federal Budget Plan -- February 6, 1997

THE 1998 FEDERAL BUDGET PLAN

FEBRUARY 6, 1997

TRANSCRIPT

The President has released a $ 1.69 trillion budget that includes middle class tax cuts, and new spending for education, children's health care, and crime prevention. The GOP leadership says the plan is a "good first step," but needs work. Of most concern are cuts in the "wrong" places, and not enough middle class tax relief. Office of Management and Budget Director, Franklin Raines, discusses the plan with Elizabeth Farnsworth, followed by a critique by Sen. Pete Domenici (R-N.M.), who speaks with Margaret Warner.

A RealAudio version of of this segment is available.
Kwame Holman provides background on the 1998 Federal Budget Plan.
February 6, 1997:
Sen. Pete Domenici's critique of the President's 1998 budget plan.
January 30, 1997:
The NewsHour historians look at the history of bipartisanship.
November 12, 1996:
Kwame Holman reports on the latest rounds of budget negotiations.
November 12, 1996:
Elizabeth Farnsworth discusses the budget negotiations with Senate Majority Leader Trent Lott (R-MS).
Browse the NewsHour's coverage of the Budget
Outside Links:
The Office of Management and Budget has placed President Clinton's FY 1998 Federal Budget request on the Internet.

ELIZABETH FARNSWORTH: Now, two views of the new budget. First, the president's point man on this, Franklin Raines, Director of the Office of Management & Budget. Thanks for being with us.
FRANKLIN RAINES, Director, OMB: Well, thanks for having me.
ELIZABETH FARNSWORTH: This is the FY ‘98 budget, but it's also a five-year plan supposedly ending in a balanced budget. Explain how that works. You said earlier that there are policy changes outlined here that will provide a wedge towards a balanced budget. Explain how that works.
FRANKLIN RAINES: We've provided a five-year plan of decisions to be made today that will create more and more savings each year and in 2002 we'll have a budget surplus. This isn't a plan that puts off until later years decisions for congress. Indeed, we hope congress will vote on it this year and vote on the whole five-year plan; therefore, they wouldn't need to take any additional steps in future years to achieve the balance that we're looking for.
ELIZABETH FARNSWORTH: And like any budget it gives in, it takes away, so let's start. Let's go through some of these items, first, on the saving side. The biggest chunk, $100 billion in savings, comes out of Medicare. If I were receiving Medicare right now, how would that affect me?
FRANKLIN RAINES: Well, it won't affect the beneficiaries. It will affect the providers. We're trying to get the same savings in Medicare that private companies have been able to get in their programs that they're buying from exactly the same providers. We haven't benefitted as much as they have, but we believe that the policies we're pursuing will yield that kind of saving while continuing the Medicare benefit for beneficiaries.
ELIZABETH FARNSWORTH: And then there are other savings from Medicaid. If I were receiving that, how would that affect me?
FRANKLIN RAINES: Again, we're looking at the payments that we're making to providers for that as well. It's very important to us to maintain the Medicaid benefit and the Medicaid entitlement. And this budget will do that, but we're trying again to be good shoppers, good buyers of services through the Medicaid program.
ELIZABETH FARNSWORTH: And program cuts throughout government, there are certain programs you've gotten rid of and some programs you've just cut. Could you just give us a few examples of that.
FRANKLIN RAINES: Well, there are total cuts for about $350 billion. We have a $98 billion tax reduction, so our net cuts are $252 billion. And we've looked at programs across the government and made adjustments in mandatory programs, as well as discretionary program, and so it's everything from charging a little bit more for some fees that, that are paid by businesses to insisting that projects of the Army Corps of Engineers are economically viable, and, if they aren't, we cut those out of the budget.
ELIZABETH FARNSWORTH: So these were fairly not small but these were very specific items all throughout government.
FRANKLIN RAINES: Exactly. We have gone department by department, program by program, and made the policy decisions, so that all Congress has to do is vote for it. It's not a matter of us putting off the decisions to a later day.
ELIZABETH FARNSWORTH: This all sounds rather easy, as if nobody has to sacrifice anything, but in order to get these cuts, there must be sacrifices, or is there something that we're missing here?
FRANKLIN RAINES: Well, now, and there's--for every dollar the federal government spends, there's real people on the other side, and so when we talk about reductions that are going to affect providers, that's going to affect hospitals and doctors and others. There's no question about it that if you cut $250 billion in spending, there will be--there will be effects. That's why it's so important to get it done now while we have a strong economy. And if people lose their jobs on one side, they can obtain a job in the private sector. We are shrinking the size of the federal government as a percent of our economy from over 21 percent of the economy to 19 percent of the economy. At the same time, we're growing the private economy. And so we think that's the shift that the American people are looking for.
ELIZABETH FARNSWORTH: Okay. Now, let's look at what you're giving. As I said, a budget gives, and it takes away. The tax cuts, these targeted tax cuts, especially the $500-per-child tax credit and the education tax credits. Tell us something about that. Why is that so important?
FRANKLIN RAINES: Well, we're trying to help families. We're trying to help families as they raise their kids by giving them a tax credit or trying to help them as they educate their kids by having the Hope Scholarship tax credit, $1500 to help pay for the first two years of school, as well as a $10,000 deduction, and we're helping them save, save for the important events, including education, save for their retirement, save for a first home, and so we're having an expanded IRA program. But all of this is targeted on families. How can we help families deal with what they have to deal with year by year? Our tax cuts are not aimed at business. We believe our overall fiscal policy is providing an environment where businesses can prosper, but we believe tax cuts should be aimed at people.
ELIZABETH FARNSWORTH: You also have some expanded health care for children built into this, and how does that work?
FRANKLIN RAINES: Well, there are about 10 million children that aren't covered by health insurance. About 3 million qualify for Medicaid but don't get it, so we're going to reach out and bring more of those kids into the Medicaid program. We're providing grants to states so they can work creatively with providers and their states to include children. And once a child is qualified for Medicaid, now they could be qualified one month and not qualified another, once they are qualified for Medicaid, they'll be able to stay on for a year.
ELIZABETH FARNSWORTH: Now to some of the criticisms that the Republicans have already begun to express. Basically, as you heard in the piece before we started talking, they're saying it doesn't go far enough; that it's too timid, not bold enough. How do you respond to that criticism?
FRANKLIN RAINES: Well, it goes--it does what the President promised to do, balance the budget while protecting our priorities. It achieves each of the promises he's laid out, extend the Medicare Trust Fund by 10 years, fund $51 billion for his increased focus on education. It does all those things. It reduces the size of the government as a percentage of the economy. What it doesn't do is to ravage the federal government and make it so small and insignificant that it can't deal with the needs of the people. And we plead guilty; that we have not attempted to ravage the government. We've promised to balance the budget. This plan does balance the budget.
ELIZABETH FARNSWORTH: And the criticism that rather than cut government, this budget actually begins many new entitlements, how do you respond to that criticism?
FRANKLIN RAINES: Well, I think there is some misunderstanding. There are a number of programs that are considered in budgetspeak as mandatory programs, but most of them are not entitlements. They are not if you show up you're guaranteed a benefit. Indeed, most of them have a cap. For example, we have a program to help build new schools--$5 billion over the five-year period. There's a cap. Once we hit $5 billion, that's it, so it isn't as though every school comes in, we have to--we have to support them. And so sometimes the language gets a little confusing between mandatory entitlements, but we have been very careful. Indeed, we've cut mandatory spending by $121 billion over this period.
ELIZABETH FARNSWORTH: You said that there are not cuts that are delayed too much, but as I read it--and I may have misunderstood--much of the significant cutting occurs at about 2001. And the Republicans have criticized that too.
FRANKLIN RAINES: Well, no, actually what happens is the cuts begin now. They get bigger and bigger and bigger every year. And so that by 2001 and 2002, they're quite large. So, for example, in the Medicare program we have cuts of $100 billion over five years, $35 billion in the fifth year. It's even larger in the sixth year, and it keeps growing. And that's what you want to balance the budget. You want to make sure that these cuts just don't go out and then suddenly stop. Indeed, our balanced budget, as the President said in the clip that you showed, will continue the budget in balance for many years after 2002.
ELIZABETH FARNSWORTH: Where is there “not” room for compromise with the Republicans?
FRANKLIN RAINES: Well, there are certain fundamentals that the President's tried to outline. For him, the issues he outlined in the State of the Union address are very important. We're not going to compromise in preparing the American people for the 21st century. We think that's vitally important. We're not going to compromise on the entitlements for Medicaid. We think that we need to have that program. We're not going to compromise on ensuring that Medicare is there for senior citizens.
Those are things that we're not going to compromise on, and I think the people on the other side of the aisle know that. They knew it from last year's discussions, but we have--are not trying to say that everything in the budget is sacrosanct and everything has to be what we want. But, on the other hand, they have to make their case as to why their proposals are better than the President's proposals. And I'll be very interested to hear that.
ELIZABETH FARNSWORTH: Can you say where there would be room for compromise?
FRANKLIN RAINES: Well, I think as we look through a variety of priorities, that they think that we've put a little too much money in one place, and they think they should be in another place as long as it doesn't fundamentally change the priorities the President campaigned on, that's something we'd be willing to look at.
ELIZABETH FARNSWORTH: How do you see this process working out in the weeks ahead?
FRANKLIN RAINES: Well, I hope what will happen is that we'll have a chance to present our budget on the Hill, people can ask questions about it, criticize it, and then people will then propose the specific changes they want to make; that we think the President's wrong here, here's our alternative proposal, and what we would do differently. And if they will do that, then we can have our chance to then debate their changes, and the American people can have a budget that will balance by the year 2002.
ELIZABETH FARNSWORTH: And finally then briefly, the budget is based on certain economic projections. What happens if there is an unexpected and severe recession?
FRANKLIN RAINES: If there's a severe recession, the automatic stabilizers will come into effect, and we will still try to reduce the structural deficit, but we will not try to keep cutting the budget so that we keep worsening a severe recession.
ELIZABETH FARNSWORTH: That's what you mean by automatic stabilizers?
FRANKLIN RAINES: The automatic stabilizer is unemployment insurance, food stamps, additional coverage of Medicaid.
ELIZABETH FARNSWORTH: Yes.
FRANKLIN RAINES: That's what's kept recessions from being as deep as they used to be. We need to let those work. Indeed, that's one of our arguments against the balanced budget amendment, is that they would get in the way of those automatic stabilizers doing their job, dampening the effect of recessions.
ELIZABETH FARNSWORTH: Well, Mr. Raines, thank you very much for being with us.
FRANKLIN RAINES: Well, thanks for having me.

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