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President Says No To Irresponsible Tax Reform

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The Briefing Room


THE WHITE HOUSE
Office of the Press Secretary


For Immediate Release March 2, 1998



REMARKS BY THE PRESIDENT
TO THE NATIONAL MORTGAGE BANKERS ASSOCIATION

Hyatt Regency Hotel
Washington, D.C.


10:40 A.M. EST

THE PRESIDENT: Thank you all so much. Thank you, Marc,and PaulReid and Mike Ferrell and all the officers and staff of the MortgageBankersAssociation; to our National Treasurer and members of the NationalAssociation ofState Treasurers. I'm delighted to be here, along with Frank Raines, myOMBDirector, who used to spend some time with some of you, and Gene Sperlingandothers on our staff.

I have looked forward to this day for a long time, just tobe ableto thank you for the work that all of you have done in giving America thehighesthomeownership rate in the history of the Republic. It means a lot to a lot ofpeople out there in the country and I appreciate your role in this historicachievement and I thank you very much. (Applause.)

In my State of the Union address I called upon all ourpeople tostrengthen our country for the new century ahead. Historically, that hasalwaysmeant deepening the meaning of America's freedom, strengthening our union,anddrawing our people closer together across all the lines that divide us and,clearly, always widening the circle of opportunity.

Now, we are seeing a remarkable increase in the circle ofopportunity. In addition to reaching the highest level of homeownership inhistory, millions of Americans have been able to refinance their mortgages, whichhas amounted to billions and billions of dollars in tax cuts for familiesputting more money in their pockets, freeing up more for investment andsavings.Access to capital has spread to minorities who for years have been lockedout ofthe economy. And I appreciate what Marc said about going to New York. Wedo seeincreasing homeownership rates for minorities now and I hope it willcontinue.

Our capital markets are the strongest in the world, andclearlythey have played a major role in helping us to do well in this new economy. Today,what I'd like to do is talk to you just for a few minutes about why we have tofollow a consistent strategy of fiscal discipline and investment in ourfuture, inour people. The strategy that has worked for the last five years we mustcontinueinto the next century.

I also want to talk about how all the discussionssurrounding thetax system and the IRS fit into this -- what is the right way to cut taxes, what isthe right way to reform the IRS, what is the wrong way to do it. Iespecially wantto comment on what I believe strongly is a misguided scheme recentlyintroduced inthe Congress that I believe could take us back to policies which havefailed us inthe past.

These are good times for our country, with a new economypowered by technology, nurtured by the ingenuity of the human mind,enlarged by our newfound fiscal discipline at home and increasingtrade among all nations. Over the past five years our new economyhas produced now almost 15 million new jobs, with the highestpercentage of those jobs in the private sector of any recovery inmemory. Unemployment is the lowest in 24 years; business investmentis growing at 11 percent, the fastest pace in 30 years; since 1993,family incomes are up about $2,200.

Today we have fresh new evidence that the economycontinues to grow. Personal income rose six-tenths of one percentlast month alone. Our social problems, from crime to welfare, arebending to our efforts. The welfare rolls are the lowest in 27years; the crime rate the lowest in 24 years. We now have literallya system in which we have opened the doors of college education toall people in this country who are willing to work for it, with taxcredits, with IRAs, with better student loans and tax deductibilityfor the interest on those loans, more Pell Grants, more work-studypositions.

We are adding 5 million children from working familiesto the ranks of those with health insurance. Combined with ourrecord levels of homeownership, the American Dream is clearly withinreach for more and more American families.

This did not happen by accident, but no one alone canclaim credit for it. It was the product of a remarkable concertedendeavor by tens of millions of Americans. But it also was supportedby the economic policies that we have followed with discipline andconsistency over the last five years. We moved beyond the steriledebate between those who said government was the problem and thosewho said it was the solution, to a new way, a new government for theInformation Age that gives our people the tools they need to make themost of their own lives, that is unashamedly a catalyst for new ideaswhere the old ones don't work, that is a good partner with theprivate sector.

We have the smallest government here in Washington sincePresident Kennedy was in office. But it is still more progressive,more active. It is smaller, but the nation is stronger. We put inplace a three-part economic strategy, rejecting these false choicesfrom the past. First, restoring fiscal discipline and conquering thedeficits that hobbled growth, spiked interest rates, and robbed oureconomy of capital for investment throughout the 1980s. Second,investments in our people, in science and technology, in educationand job training and health care, so that everyone has a chance toreap the rewards of growing prosperity. And, third, we responded tothe global nature of the new economy by opening new markets to ourgoods and services.

The strategy is clearly working. There is renewedconfidence in the American economy. Its stability, its strength, itssteady growth are the envy of the world. More than ever we are alsoinvesting in the future. A record two-thirds of Americans almost--as Marc said, almost two-thirds -- now live in their own homes andwe must finish the job. I agree with you that the most importantthing we can do in this session of Congress is to support SecretaryCuomo's plan to raise the FHA loan limit. We can pass it and wemust. (Applause.)

Now, last month I submitted to Congress the firstbalanced budget in a generation. If we are fortunate and if we canwork together with our allies around the world to minimize the impactof the recent difficulties in Asia on our own economy, Mr. Rainessays that we'll probably have a balanced budget this year. Insteadof deficits, America can now look forward to about a trillion dollarsin surpluses over the next 10 years.

Now, that is a tempting target in an election year inWashington. But, first of all, let me remind you they have notmaterialized yet. And we shouldn't count those chickens before theyhatch. Secondly, we should remember what we did to the long-termstrength of America when we quadrupled the debt of this country inthe 12 years from 1981 through 1992. And we should not repeat thaterror again.

Finally, we shouldn't use the surplus for any new taxcuts or new spending programs until we have confronted the challengeof saving Social Security first. I think that is very important.(Applause.)

All of you are generally familiar with the problem --it's projected that the Social Security trust fund will not coverpayments starting in the year 2029. That's the year when all thebaby boomers will finally be in the Social Security system; and atpresently projected birth and immigration rates and labor forceparticipation rates, it means that there will be only about twopeople working for every person drawing Social Security.

Now, those things could all change to some extent; butno matter what, it is clear that the generation of the baby boomersentering the Social Security system will be quite larger than thegeneration just following it. Indeed, the generation now in publicschools, starting last year, is the first generation in Americanhistory larger than the baby boom generation. I do not know a singleperson my age or younger -- because I'm the oldest of the babyboomers -- I hate that but it's true -- (laughter) -- I don't know asingle person who doesn't think about the problems we could createfor our children if we don't make the changes now in the SocialSecurity system we need to. No one wants to burden our children andtheir ability to raise our grandchildren.

On the other hand, it is important to remember that it'sjust since 1985 that senior citizens have been less poor than therest of us. That is an astonishing achievement for a country that 60years ago had 70 percent of its seniors living below the povertyline, many of them in abject poverty. Now, if we make small changestoday with discipline, we can deal with this issue. And I also wantto point out something all of you know, which is that hardly anybody-- even though Social Security helps people keep body and soultogether -- hardly anybody in America can retire and maintain his orher standard of living on Social Security alone. So we must also domore to help Americans save for their own retirement. We've done alot of work with the 401(k) plans and other things; we need to domore.

So we're going to work in this next year very hard inwhat I hope will be a completely nonpartisan way to acquaint theAmerican people with the details of the challenge before us, toexplore all the alternatives, and then to come up with a solution,which I hope the Congress will pass early next year to deal withthis. You say, well if you pass it in 1999, 2029 -- that's 30 yearsaway. First of all, those of you in the audience who are my age orolder know that 30 years can pass in the flash of an eye. But,secondly, I would remind everyone that the longer we wait to dealwith this, the more severe actions will be required to deal with it.If we move now, with modest but disciplined changes, we can do agreat thing to ensure the financial strength of America in the 21stcentury and to preserve the compact that binds us together across thegenerations. I cannot emphasize how strongly I feel about this.

Now, there are other economic challenges we face aswell, and I'll just mention two very briefly. One is, how do weextend the benefits of enterprise that have brought so much toAmerica in the last few years to those who still have not felt theimpact of the economic recovery, principally in the inner cities andisolated rural areas. We have a whole range of proposals in thatregard, a lot of them coming out of Secretary Cuomo, a lot of themcoming out of the Vice President's community empowerment initiative.But I think it is very important that we recognize that these peoplewho are still unemployed or underemployed are the great target wehave for the rest of us to keep the economy growing with lowinflation, so we can do what is morally right to try to expandopportunity to people who still don't have it and help the overallAmerican economy as well.

The second point I'd like to make is that if we want tocontinue to see this economy grow, we have to have people who areskilled enough and well trained enough and well educated enough totake positions in tomorrow's economy, not yesterday's economy. Therewas a study which came out a couple of weeks ago, I can't rememberthe exact number, but there was something like nearly 400,000openings in America today for people in information technologyrelated jobs.

And when you go to some of our larger inner-cityneighborhoods where the unemployment rate is still 10 percent, yousay, well, what is wrong with this picture? Well, we got oneindication of what is wrong with this picture last week when we sawthat our 12th graders in the International Math and Science Surveyscored 19th among 21 countries in their performance in math andscience.

So the other big economic issue before America is how tomake our system of elementary and secondary education as good as oursystem of higher education. No one doubts that we have the bestsystem of colleges and universities in the world; we should not rest,and we cannot rest, until we have the best elementary and secondaryeducation in the world. It is a major economic issue for ourcountry. (Applause.)

Anyway, it's against this background that I think youhave to see the emerging debate, or, if you will, the continuingdebate, on the tax system -- what taxes should be cut and how; andthe IRS, how should we go about collecting taxes. This is ahazardous discussion that it's easier for me to enter into maybebecause I'm not on the ballot anymore. (Laughter.) Since there's nosuch thing as a positive thing anyone ever wants to say about this.

But we need to think about it. This debate can be avery healthy thing. We should always be examining, you know, whetherthere are changes in the tax system we could have which would eitherbe fairer, or which would achieve our common objectives more, orwhich would grow the economy faster. And we should always be lookingfor ways that through either common sense or new technology we canease the burden on our people of paying taxes -- always. The doorshould never be shut to reform and there will always be more to do,no matter what system we adopt. I think all of us know that.

But the point I want to make today is that this debatemust occur within the context of our commitment to a long-termeconomic strategy that will work for our people. It should occurwithin a context of our commitment to maintain economic confidence inthe future. There is a right and a wrong way to do reform. And theright way must involve our continued commitment to fiscal discipline,to investing in our people and to making the future a predictable andconfident one in terms of our economic policy.

Now, within that context, over the last five years we'veworked hard to reform our tax laws. We've honored ourresponsibilities as parents with the $500 per child tax credit.We've rewarded work by more than doubling the Earned Income TaxCredit, which basically is designed to say if you're a parent and youwork 40 hours a week your child ought not to be in poverty. Over 2million children have been lifted out of poverty because of thechanges in the Earned Income Tax Credit. (Applause.)

We've recognized the importance and the cost of collegeeducation -- with the HOPE Scholarship tax credit, which is worth$1,500 a year for the first two years of college; lifetime learningcredits for junior and senior years and graduate schools; the taxdeductibility of student loan interest payments; and otherinitiatives.

We've encouraged homeownership by eliminating capitalgains on almost all home sales. And we've helped Americans save fortheir retirement, for their education and health care costs, byexpanding IRAs. At the same time, billions of dollars in taxloopholes that were more wasteful have been closed.

This year, the balanced budget proposal I presented toCongress continues to help working families with new tax cuts to makechild care more affordable, our economy stronger, and our environmentcleaner by meeting the challenge of climate change.

We also had to continue our work to improve theoperations of the IRS. Like every American and the majority of IRSemployees, who are trying hard to do their jobs well, I get outragedwhen I hear about abuses in the IRS. But we are making changes, andwe must continue to do so. I've already signed into law 40 taxsimplification measures and a new Taxpayer Bill of Rights.

As of February the 20th, less than two weeks ago, 10.7million Americans had filed their tax returns electronically for thisyear -- that's a 19 percent increase over last year; 3.8 millionAmericans have filed by telephone -- that's a 25 percent increaseover last year. The average telephone conversation is 10 minutes. Ithink that's pretty good, and I hope more will continue to do that.

We are having problem resolution days, which have beenwidely publicized by the media, and I thank them for that, in everyIRS district, at least once a month, where the IRS employees are open-- they open the offices at night or on the weekends, people come inwith their tax problems, and we try to resolve them in a quick andinformal way.

I think all these things are very important. We justapproved new regulations to protect so-called innocent spouses, whoare left with tax liabilities by their spouses, that they had no rolein undertaking. Now, there's more to do, but a lot has been done.Among the new reforms proposed are new citizen advocacy panels, newsystems to file taxes by phone or computer to make it even more easyand more widely used, stronger taxpayer advocates, phone lines opened24 hours a day, further relief for innocent taxpayers.

Late last year, the House passed these reforms almostunanimously. I think there were over 400 votes for them, and onlythree or four against. So, again let me say, I hope that the Senatewill quickly pass this legislation and send it to me for mysignature. It's a good bill, and it will do a lot of good forAmericans.

Now, we need to continue to do these kinds of things,and we need to be open to broader reforms of the tax system. Butthere are some people in Congress who have made a proposal that Ithink would not fit within the formula of economic discipline andconfidence that I believe we have to stay with. Under the guise ofreform, they have proposed what, to me, is an irresponsible scheme --to eliminate our tax laws without any system to replace them.

Now, at first glance, this might look good. Sunset thetax code, when everybody knows there will be no more tax code thatwill shake everyone up, and then they will come forward with aresponsible alternative. And, trust me, everything will be fine.That's the message. Once you know that the old code is gone and on adate certain it won't be there, well, everyone will surely have tocome up with something, and it must be something that will be better.Don't worry about the details. That's what this proposal is, and ithas a lot of appeal.

It's like saying you can't go on a diet until therefrigerator is empty. But if you think about it, it only works ifyou know that you can fill the refrigerator up again and what will bein there.

Now, instead of proposing reform, this proposal isreally economic uncertainty. What we have done is to restore someconfidence and predictability to the American economy. When you knewthat we were going to stay on a path of fiscal discipline and thedeficit was not going to go to $300 billion a year, was not going togo to $370 billion a year -- which was what it was predicted to befor this year when I took office -- instead of $10 billion or zero,which is what it's going to be. This is a way of going back to thatera -- a total economic uncertainty.

What would it do? Think about your business. It wouldcripple families' and businesses' ability to plan and save for thefuture while the uncertainty existed. It would undermine the fiscalprogress of the last five years. No one concerned about fightingcrime would even think about saying, well, three years from now we'regoing to throw out the criminal code and we'll figure out what to putin its place. No one would do that. That is what this proposal is.That is exactly what some people in Congress are proposing to do.

Now, think about what repealing the tax laws with noknown alternative would mean. It would mean that you would knowthere would be no home mortgage deduction, but you wouldn't know whatwould be in its place. There might be no charitable contributiondeduction, but you wouldn't know what would be in its place. Wewould repeal the Roth IRA, but you wouldn't know what would be in itsplace. All that would be certain about this proposal is uncertainty.And again I say, as all of you in this room well know, uncertainty isthe enemy of economic growth.

We live in a world where there is a lot of change andunpredictability and uncertainty by definition in the nature of thisnew economy. But to do well you have to at least know what the rulesare. Our economy is growing because consumer confidence and businessinvestment are at record highs. Last week the two indexes ofconsumer confidence came out -- one was at a 30-year high, the otherwas at an all-time high. What people think is going to happen, asall of you know, in an economy, is just as important as what, infact, is happening today.

Almost every business investment has tax consequences.With no ability to predict the consequences, businesses might decideto postpone, cancel or pare back on plans to buy new computers, builda new factory, hire new workers. How could you plan, construct orfinance a new apartment complex or shopping center if you couldn'tcalculate the return on investment, because you couldn't determinethe tax consequences. Business growth would stall in that kind ofuncertainty.

And economic uncertainty is no friend to families. Thescheme to abolish the tax code could threaten nearly every Americanfamily's best laid plans for the future. For example, mortgage ratesare low now. People are refinancing their mortgages all the time.This has been a wonderful thing for America. What would happen tofamily behavior with regard to homeownership if people thought thehome mortgage deduction might disappear. Would students be asserious about going to college if they thought the HOPE scholarshipsand the other tax credits and interest deductions wouldn't be there.Would families think twice about how much they were going to give totheir church or their synagogue or their favorite charity if theythought there would be no tax deduction for it.

We were just talking about the Social Security reformand how no matter how we reform Social Security, people have to savemore for their retirement. Will young families who have a hardenough time paying their bills really be setting aside money fortheir retirement if they think the tax incentives or pensions or401(k)s and IRAs are about to evaporate. In other words, I justthink it's wrong to shut down the old tax system and tell people it'sgoing to be shut down by a date certain without saying, at the sametime, what is going to be in its place.

None of us would say that no one on earth couldn'tdevise a better tax system than we have. There may be betteroptions. But I think before we say we're going to get rid of the onewe have on a date certain, we need to know what we're going toreplace it with. And I would implore you, if you agree with me, tomake that case to your member of Congress without regard to party.

Again, I don't see this as particularly a partisanissue. I just think it sounds great. I will vote for a bill to getrid of this cursed tax code. Thank you very much. (Laughter.) It'salmost irresistible, you know, but so was the siren's song. We mustcontinue to have predictability in the investment climate. We mustcontinue to have predictability when it comes to savings. We mustcontinue to have a framework, which will keep us doing what we'vebeen doing for the last five years.

And that means, by the way, it means we have to continueto be open to changes in the tax law and in the way the IRS operates,and in all of these systematic things that we have to continue tomodernize. Of course we must. But we mustn't buy a pig in a poke.We have to continue to proceed with discipline: scrapping the homemortgage deductions. Scrapping other middle class tax cuts withoutpresenting a clear alternative is simply reckless for the economy,reckless for businesses, reckless for families' budgets. I will notpermit it if I can stop it. But it shouldn't pass in the firstplace, and I hope you will help us on that. (Applause.)

Now, again I say, Congress should pass the IRS reformsthat are before it. It should pass further tax cuts. But we shouldbalance the budget, do nothing with the surplus until we have savedSocial Security, not abolish the tax code until we know what we'regoing to replace it with.

We're going to change around here. This system hasproved that we are capable of change. No one should stand in the wayof constructive change, but we should stay with the plan that we knowworks. You look at where we are today in your business compared towhere we were five years. Look at where we are today with the peoplethat you work to serve compared to where we were five years ago.Imagine where you want to be 10 years from now. Imagine what youwant the future to look like for your children and yourgrandchildren, to do those things, which will build that future.

Thank you very much. (Applause.)


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