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OMB Director Speaks before the Urban Institute

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Remarks by Jack Lew
Director of the Office of Management and Budget
The Urban Institute

May 2, 2000

The FY 2001 Budget:
The Choices Before Congress and Why They Matter in a Time of Surplus

I am happy to be here today at the Urban Institute, and it is a particular pleasure to be hosted by my old friend Bob Reischauer. The Institute is lucky to have Bob back.

Yesterday, the Treasury Department announced that the federal debt will be reduced by $216 billion this year. This progress in debt reduction is yet another measure of our sustained economic success -- success built on the policy of fiscal discipline, expanded trade and investments in our future. President Clinton forged this approach in 1993, and by holding to it, we have helped to provide enormous benefits throughout the economy.

We have reduced the deficit by a total of $1.8 trillion, ending an era of deficit spending that extended through the 1980's and into the 1990's. We have balanced the budget and produced budget surpluses for three years in a row for the first time in half a century. By the end of this fiscal year, it now appears that we will reduce publicly held debt by more than $350 billion, or almost ten per cent, in just three years. And we have created the conditions for an economy that, in seven years, has produced 21 million new jobs, historically low unemployment rates for black and Hispanic workers, the lowest welfare rolls in 30 years and the Nation's highest home ownership in history.

Now we are poised -- if we choose to take the right steps -- to make America debt free by 2013. As we consider the prospect of a debt-free America, it is important to note that we are 110 months into the longest economic expansion in our Nation's history. In contrast to the fiscal and economic conditions when the President took office seven years ago, this is a time of plenty.

Seven years ago, the budget deficit was nearly $300 billion and growing, with the debt projected to reach nearly $6 trillion. By the year 2012, it was projected that twenty five cents on every tax dollar would be needed to pay interest on the debt. In 1993, most fiscal policy experts saw only one reasonable policy -- to reduce the deficit and begin to reduce our mountain of debt. In 1993, the question was whether political leaders could rise to the difficult task of putting our economic house back in order.

Because we rose to that challenge, we now live in a time of unprecedented prosperity. We have the opportunity and responsibility to make real and significant choices over how to allocate substantial resources. These choices embody our values, reflect our goals, define who we are as a people and how we want to set our economic course and shape our Nation's future.

President Clinton has called this a "magic moment of possibility". With prosperity at home and relative stability abroad, we can invest resources in a way that will make a difference well into this new century. Here are the choices before us. Will we provide the resources needed to strengthen and secure Social Security and Medicare? Will we stay on a path to eliminate the Nation's debt by 2013, keeping our economy strong for years to come? Will we use these resources to provide a new generation with the educational opportunities they deserve? Will we invest in science and technology to sustain prosperity in this new economy?

There are fundamental questions about how we will treat the elderly and the vulnerable, and how we will honor the social contract that has done so much to improve the quality of life in this Nation over the past half-century. Will we extend the life of Social Security and Medicare and provide a voluntary prescription drug benefit to extend and improve the quality of life? Do we use these resources to help those left out of the current wave of prosperity, by providing more low-income children with access to health insurance, and by making health insurance available to their parents as well?

And do we take responsible steps to plan for a rainy day? In the middle of a boom it is tempting to believe it will go on forever. Yet we all know the risk that it will not. The best way to prepare for such a rainy day is to eliminate the national debt in short-order, so that Americans reap the benefits of lower interest rates and our fiscal position will be stronger, whether or not the boom continues. Will we plan ahead with realism and responsibility or simply live for the moment, hoping that everything will be just fine in the future?

It is hard to imagine choices that more fundamentally define our course at the dawn of a new century. Yet the steps taken by Congress up to this point, and the path Congress charted in its budget will preclude our ability to consider many of the choices I have just described. By calling for an oversized tax cut, Congress has effectively made the decision that tax cuts are more important than any of the other choices that might be made -- further debt reduction, Medicare prescription drugs, expanded health insurance coverage for low-income families, and investing in education and technology, to name a few. We have been down this road before and the consequences are as serious now as they were last year when Congress passed an irresponsibly large tax cut, which President Clinton vetoed. We need only look back to the deficits of the 1980's to see the results of a tax cut designed to leave inadequate resources for other critical purposes. We ended up with a national debt that quadrupled in the twelve years prior to this Administration.

In its budget resolution, Congress calls for a five-year tax cut from $150 to $215 billion. But when you tally up the tax cuts that have done piece by piece, the cost reaches $384 billion over ten years, and $458 billion with interest. Of course, using five-year projections in the budget resolution understates the true size of the tax cut, which could reach as high as $1 trillion over the standard ten-year projection.

In recent months, it has been encouraging that we appear to have reached consensus that the Social Security surplus should be used for debt reduction and not to finance either spending or a tax cut. We must continue to move forward on the President's lockbox proposal, which would dedicate interest savings to extending Social Security solvency. However, I am concerned about recent proposals that appear to use the Social Security surplus to finance a new approach to retirement savings, not only because of the programmatic concerns, but as a matter of fiscal policy. If we spend the Social Security surplus for any new purpose, we will backslide on the commitment to debt reduction, which is critical to our continued economic prosperity.

While we must protect the Social Security surplus, we must also work to protect the non-Social Security surplus from being squandered. The large tax cut called for in the Republican budget plan cannot be accomplished without putting in jeopardy other goals that are vital to our future. It sacrifices the opportunity for further debt reduction and unnecessarily limits our ability to invest prudently for the future.

There is still time to work toward a consensus, both on the appropriations bills and in other key areas important to the American people -- the Patient's Bill of Rights, minimum wage, Medicare prescription drugs, hate crimes, and gun control. We must also pass a balanced and targeted tax cut for American families. While we may not accomplish everything we set out to achieve, we can get many of the most important things done. Unfortunately, for the annual funding measures that must be completed this year, Congress has left itself with inadequate resources to pass responsible appropriations bills for 2001. Moreover, by assuming that savings from these inadequate appropriations levels can finance a tax cut, this budget reflects a bankrupt approach which would lead either to misguided spending policies or undermine our ability to pay down the debt.

While we believe we can work together to address these issues, absent significant improvements to the appropriations and other bills, the President simply cannot and will not sign them. For example,

  • A Patient's Bill of Rights bill that fails to offer real protections is unacceptable.
  • A Labor/HHS bill that fails to provide for our schools, our students and their teachers is unacceptable.
  • A Commerce/Justice/State or Foreign Operations bill that fails to protect Americans at home and abroad is unacceptable.
  • And bills that fail to preserve our Nation's open green spaces with funding for the President's Lands Legacy program are unacceptable.

There is still time for Congress to avoid these problems. It is not necessary to make room for an oversized and irresponsible tax cut. I hope Congress will choose a more balanced, responsible course so that we can work together between now and the fall.

Let's look a bit more closely at the implications of the discretionary spending levels that the congressional budget calls for.

On average the congressional budget would cut most domestic discretionary spending by ten percent below the President's Budget in 2001. As Congress gets to work this week on appropriations, on funding levels for each of the thirteen appropriations bills, it will become clear that these limits have real policy consequences -- that unrealistic targets lead to unacceptable cuts. The American people deserve a full and open debate as the Congress moves forward. It would be cynical to simply rely on past experience to conclude that by the fall, one way or another Congress will find a way to meet needs that cannot be satisfied within their own budget. The budget should be a clear statement of priorities and not a puzzle that even skilled professionals cannot decipher.

Let me begin with education. It is by investing in education that we can best prepare our young people to meet the challenges of this increasingly demanding economy. As you know, the President believes we must invest in our future and has proposed Federal funding to build and modernize 6,000 schools, along with funding to move us 20,000 teachers closer to the goal of 100,000 new teachers. The funding level provided for appropriations simply does not permit these initiatives to be funded without dismantling other education or health programs.

The Congress would need to cut funding for Title I programs for low-income youth by $1 billion from the President's request, reducing or eliminating services to almost 1.6 million low-income students.

I believe that the Labor/HHS/Education subcommittees on a bipartisan basis would prefer not to make these kinds of reductions, but the numbers simply do not add up. It is no surprise that the Republican chairman of the House Labor/HHS/Education Subcommittee described the appropriations target as a noose around his committee's neck.

In the VA/HUD appropriations bill, we can see how the congressional budget forces untenable choices between meeting our commitments to the past, present and future. Overall, this bill is cut by 8 percent. If VA medical programs are protected, as both Congress and our budget call for, the cut to remaining programs exceeds 10 percent.

The congressional budget will force appropriators to choose between funding veterans health programs or providing affordable housing to Americans who have not yet shared in our economic prosperity. The President's budget proposes increased funding for veterans health and 120,000 new housing vouchers, including 18,000 for homeless people, at a time when, in spite of our great prosperity, the number of poor families with severe housing needs has reached a high of 5.4 million. VA/HUD funding at levels consistent with the congressional budget simply does not provide adequate resources to fund housing, science, environmental protection and veterans programs, along with the many other important programs such as AmeriCorps, our national service program.

The congressional budget also cuts funding for important law enforcement activities. Their budget would require a major cut in the President's successful COPS program and would cut his request for additional police officers, seriously undermining the President's goal of funding up to 150,000 additional officers by FY 2005. It would also force lower funding levels for gun crime, drug enforcement, and the FBI. Inadequate resources threaten significant reductions in a broad range of law enforcement activities: DEA could lose 400 agents, the FBI approximately 1,100 agents, and the INS nearly 1,700 Border Patrol agents.

Other key areas that appear to be shortchanged under the congressional budget include:

  • a $480 million reduction to the National Science Foundation, resulting in almost 18,000 fewer researchers, educators and students receiving NSF support that is vital to the research and workforce needed for the Nation's future.
  • no new resources for long-term research in supercomputing or in the area of Nanotechnology -- which offers the promise of surgical techniques that are far less invasive and the detection of cancerous tumors when they are only a few cells in size.
  • underfunding FAA operations by almost six percent, forcing the FAA to choose between employee furloughs or terminating critical safety-related contracts.
  • hundreds of millions of dollars below the President's request for EPA's core budget, eliminating all major EPA initiatives in the President's budget, including funding increases for the Clean Water Action Plan as well as efforts to clean up the Great Lakes and to address polluted run-off, the largest source of water pollution.
  • cuts to EPA's Superfund program totaling $152 million, eliminating funding for all 15 new federally led cleanups and 25 ongoing federally led cleanups in FY 2001.
  • cuts to international commitments that would substantially increase U.S. arrears to the U.N. and jeopardize the negotiations for reforms mandated by Congress. The allocations will impair the bipartisan effort to improve embassy security and the safety of Americans working abroad, and debt reduction, intended to help the poorest Nations who are undertaking reforms manage their debt, alleviate poverty and move toward joining the global economy.

And so, as we consider the decisions members of Congress have to make before going home to campaign this fall, let us consider what is at stake.

We have at this moment both resources and opportunity. Our policy makers and legislators should live up to the promise of this moment by strengthening our Nation's future. If we do not strengthen our fiscal position by an aggressive program of debt reduction, that will certainly be a lost opportunity. And if Congress rejects prudent investments for a prosperous future, that will certainly be a failure.

A tax cut that jeopardizes these goals jeopardizes our health, our wealth, and our values as a Nation. In a time of resources and opportunity such as this, we need a balanced approach that includes targeted tax relief and important health care policy reforms, not a tax cut that leaves no room for initiatives to benefit our people and strengthen our economy. We should dedicate the benefits of reducing our debt by saving the Social Security surplus to extending Social Security solvency. The course we are on is working. Changing direction would be worse than short-sighted
-- it would be wrong.

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