ORAL TESTIMONY OF
FRANKLIN D. RAINES
OFFICE OF MANAGEMENT AND BUDGET
COMMITTEE ON THE BUDGET,
UNITED STATES SENATE
February 4, 1998
Mr. Chairman, Members of the Committee, thank you for inviting me here
today to discuss the
President's proposed $1.7 trillion budget for fiscal 1999, the first
balanced budget in 30 years.
I have a longer written statement that I would like to submit for the
record. At this time, I would
like to make brief oral remarks, and then I would be delighted to answer
any questions that you
Mr. Chairman, the "Era of Big Government" Is, Indeed,
Working with Congress, this Administration has made remarkable progress.
We have brought the
deficit down from a record $290 billion in 1992 to just $22 billion in
1997. This budget would
finish the job by reaching balance in 1999 -- three years ahead of schedule
-- and generate
balanced budgets far into the future. In fact, although we project a
deficit of $10 billion in 1998,
if we maintain the fiscal discipline we have exercised for the last five
years, we may very well
reach balance this year.
As I would like to show you, by virtually any measure that you choose,
the "era of big
government" is truly over:
As you see on the chart, we will save a total of $4 trillion by 2003 --
through a combination of
the previous deficit-reduction steps that we've taken and the President's
Just through 1999, as the next chart shows, our cumulative savings will total $1.6 trillion.
The Administration has cut the civilian Federal workforce by over
316,000 employees, giving us
the smallest workforce in 35 years and, as a share of total civilian
employment, the smallest since
1931. In this budget, the size of the workforce declines by 13,000
The President's budget would not only reach balance, it would reach
balance the right way. It
proposes spending that equals 20 percent of the Gross Domestic Product, or
GDP, the smallest
budget as a share of GDP in 25 years.
As the next chart shows, discretionary spending as a percentage of GDP
is at a historically low
As the next chart shows, non-defense discretionary spending as a
percentage of GDP also is at a
historically low level.
We have reached balance by both cutting outlays and increasing
revenues. Revenues have
increased through strong economic growth and changes in the tax law in
1993. Revenue has
increased even though the 1993 and 1997 budget legislation cut taxes for
millions of Americans.
As the next chart shows, the total deficit reduction that we have
accomplished since 1993 has
come 52 percent from spending, and 48 percent from revenues.
This budget continues the President's record of proposing budgets each
year that are smaller, as a
share of GDP, than any budget enacted during the previous two
Now, in reaching balance, let me tell you what we did not do. We
did not balance the budget on
the backs of middle-income families.
As the next chart shows:
-- the income tax burden on a median-income family of four has fallen
significantly since 1984, the
year when the Reagan tax cuts became fully effective, from an effective tax
rate of 10.3 percent to
7.5 percent, and
-- the combined Federal income and payroll tax burden on individuals
also has fallen, from 17.0
percent to 15.1 percent. For families of four at one-half of median
income, the 1984 income tax
rate of 6.5 percent has been totally eliminated.
Balancing the Budget is Enormously Important.
As we have said, total deficits through 2003 will be lower by about $4
trillion -- that is, $4 trillion
of debt that we will not incur; $4 trillion of debt that we will not leave
to our children and
In fact, as the next chart shows, because we have reduced the deficit
so dramatically over the
last five years, we have added comparatively little to the total national
debt -- compared to at least
the last two Administrations.
In 1999, for the fifth straight year, we will reduce the ratio of debt
held by the public to GDP, a
ratio that almost doubled between 1981 and 1993. This lower ratio means
lower Federal net
interest costs in the future which, in turn, will mean that more of our
Federal dollars can go to
productive investments, rather than to financing the debt that earlier
Administrations had incurred.
As the next chart shows, we now expect that debt held by the public,
which was projected to
reach 75 percent of GDP in 2003, will fall to just 35 percent.
Of course, the ultimate test of whether government is growing or
shrinking is to look where the
growth is in the economy.
As the next chart shows, the private sector has grown faster, and the public sector has shrunk much more, under this Administration than under the previous two.
The Budget Continues the President's Record of Investing in the
From the start, the President recognized that deficit reduction alone
would not suffice. He
understood that we also needed to invest in the American people and to open
foreign markets to
Thus, the President's budget continues his efforts to help working
families with their basic needs
-- raising their children, sending them to college, and paying for health
care. The budget invests
in education and training, the environment, science and technology, law
enforcement, and other
priorities to raise the standard of living and the quality of life of
average Americans, both now and
in the future.
Families and children: For five years, the
President has sought to help working families balance
the demands of work and family, and he now proposes a major effort to make
child care more
affordable, accessible, and safe. His Child Care Initiative provides tax
breaks to help families pay
for care; tax incentives to help businesses create or expand child care
facilities; direct subsidies for
over two million poor or near-poor children; increased funding for before-
programs; and funds to help States enforce safety and quality, to train
child care staff, to promote
early childhood development, and to improve the health of young children in
child care. Also, the
President proposes tax incentives to encourage small businesses to create
pension plans for more
Health care: The President has worked hard to
expand health care coverage and improve the
Nation's health. The budget gives new insurance options to hundreds of
thousands of Americans
aged 55 to 65 and proposes new initiatives to ensure that as many uninsured
children as possible
are covered. In addition, it provides for unprecedented investments in
biomedical research at the
National Institutes of Health; advocates bipartisan national legislation
that would reduce tobacco
use among the young; expands access to new AIDS therapies through the Ryan
enables more Medicare recipients to receive promising cancer treatments by
easily in "clinical trials"; expands substance abuse prevention and
treatment activities; and
enhances food safety. The budget also funds full participation in the
Nutrition Program for Women, Infants, and Children (WIC), which will
provide benefits to 7.5
million people by the end of 1999.
Education and training: The President has
worked to enhance access to, and the quality of,
education and training, and the budget takes the next step -- helping
States and school districts to
reduce class size by recruiting and preparing thousands more teachers and
more classrooms, and creating new Education Opportunity Zones to provide
needed support for
high-poverty, low-achieving urban and rural districts while holding them
accountable to boost
student achievement. The budget also proposes to move further toward the
commitment to put a million disadvantaged children in Head Start by 2002;
begin field testing
voluntary national tests; mobilize and train reading tutors for children;
help parents, teachers, and
communities create more charter schools that are free of most State
technology into the classroom as we connect every classroom to the
Internet; enable more
Americans to serve their communities and earn money for college; expand
college work-study to
a million students; make it easier for parents and students to borrow and
repay college loans; raise
the maximum Pell Grant college scholarship to its highest level ever;
expand assistance to workers
dislocated as a result of global trade and technological change; increase
G.I. bill educational
benefits for veterans; and expand resources for veterans who lose their
The environment: The Administration, which
helped engineer the global agreement in Kyoto to
address climate change, proposes to launch the U.S. effort with tax
incentives and spending that
will spur energy efficiency and help develop low-carbon emission energy
sources. The proposal
includes incentives for buying new, highly fuel-efficient cars; for
investing in energy-saving
equipment for commercial and residential buildings; for commuting by public
transit or vanpool;
and for developing innovative energy generation techniques, such as
biomass, wind, and
photovoltaics. The budget also would restore and rehabilitate national
parks, forests, and public
lands and facilities; expand efforts to restore and protect the water
quality of rivers and lakes;
continue efforts to double the pace of Superfund clean-ups; extend the
"Brownfields" initiative to
promote local cleanup and redevelopment; better protect endangered species;
continue to restore
Florida's Everglades and California's Bay-Delta and protect Yellowstone
National Park and
California's Headwaters Forest; improve the roads through national parks;
and expand the public's
access to information about environmental conditions in their
Research: The President has sought to tap the
full potential of our boundless future by investing
heavily in basic and applied research. Along with increasing funds for
biomedical research at the
National Institutes of Health, the budget would promote science and
engineering research at the
National Science Foundation; support space-related activities that enhance
our knowledge of
Earth; invest in Federal-private ventures to more quickly develop
cutting-edge technologies that
create jobs; strengthen university-based research; invest in environmental
research on safe food
and clean air and water; expand support for energy efficiency and renewable
enable Americans to travel more safely, more quickly, and more efficiently;
and put commercial
industry's technical know-how and economies of scale to work for national
The Budget Creates Three New Funds for America.
Challenging times demand innovative solutions, and this budget meets the
challenge by proposing
three new investment funds for America -- for research, the environment,
and transportation --
that will focus attention on these critical priorities. Together, the
funds provide $75.5 billion, a
$4.7 billion increase over the 1998 level for the programs they contain.
Because the funds rely on
budget offsets to help finance the spending, they, in effect, apply
pay-as-you-go principles to
The funds are:
The Research Fund for America, which includes a broad range of
investments in knowledge,
including programs of the National Institutes of Health, the Centers for
Disease Control and
Prevention, the National Science Foundation, the National Aeronautics and
the Energy Department, the Commerce Department's National Institute of
Technology, Agriculture Department research programs, the multi-agency
Technology Initiative, and other programs. The budget finances this Fund,
in part, through
receipts from tobacco legislation and savings in mandatory programs.
The Environmental Resources Fund for America, which encompasses the
Water Initiative; the new Land, Water, and Facility Restoration Initiative
of the Interior and
Agriculture Departments; the Agriculture Department's water and wastewater
program for rural
communities; and the Environmental Protection Agency's programs for
cleaning up hazardous
waste sites (within the Superfund) and upgrading clean water and safe
infrastructure. The budget finances the Fund, in part, through an
extension of Federal taxes that
support the Superfund.
The Transportation Fund for America, which includes the Transportation
highway, highway safety, and transit programs; the Flight 2000 free flight
and the Federal Aviation Administration's programs, including Airport
Grants. The budget
finances the Fund, in part, through a new Federal aviation user fee.
All of our Investments are Fully Paid For.
The President's budget continues the fiscal discipline that we have
exercised for the last five years
by fully paying for all of our investments. For every additional dollar
that the President proposes
to invest in health care, in education and training, and in other
priorities, he proposes to offset the
In that way, the President's budget is consistent with the Budget
Enforcement Act, with its pay-as-you-go rules for mandatory spending and
tax cuts and its yearly "caps" on discretionary
spending. It is also consistent with last year's Balanced Budget Act. In
fact, the budget deviates
from the BBA in only one respect -- it reaches balance three years ahead of
schedule, in 1999.
On behalf of the President, I would ask that as we move ahead, let us
continue to abide by the
discipline that has proven so successful. Let us agree that we will not
pursue tax cuts or new
spending unless the proposals meet a simple test -- they do not add a dime
to the deficit or
subtract a dime from the surplus.
And speaking of the surplus...
The President Believes that We Should "Save Social Security
As you know, Mr. Chairman, prospects for a budget surplus are spurring a
wide array of ideas
about how to use it. At this point, the Government has not yet reached the
surplus milestone, and
the President believes strongly that "we should not spend a surplus that we
don't yet have."
More specifically, he believes the Administration and Congress should
not spend a budget surplus
for any purpose until we have a solution to the long-term financing
challenge facing Social
Security. With that in mind, the budget proposes a reserve for the
projected surpluses for the
years 1999 and beyond.
A Balanced Budget and a Strong Economy Go Hand-in-Hand.
When the President announced his 1993 economic plan, long-term interest
rates fell. After
Congress enacted the plan, rates remained low. Those lower rates spurred a
chain reaction of
lower financing costs, more business and personal investment, more rapid
and new job creation.
That cycle has sustained itself over time. Interest rates have fallen
further and investment has
continued to grow at unprecedented rates.
As the next chart shows, in inflation-adjusted terms, business
equipment investment has grown
at over 11 percent a year under this Administration -- almost three times
faster than under
President Reagan, and six times faster than under President Bush.
With this boom in investment serving as its foundation, the economy has
created over 14 million
new jobs in the last five years, 93 percent of them in the private sector.
The economy as a whole
has grown at a 3.0 percent annual rate, while the private sector of the
economy has grown at an
even faster 3.7 percent a year -- far faster than the growth under the two
Administrations. The Federal Government's share of the economy has
actually shrunk by 2.6
percent a year.
As the next chart shows, the current economic expansion is the third
longest in our history and
the second longest in our peacetime history.
At the end of this year, the Administration, and the overwhelming
majority of economic
forecasters, expect the expansion to become the second longest, behind only
growth of the 1960s.
Unlike earlier expansions, the current expansion is not fueled by
deficit spending. Quite the
contrary, the economy has been expanding at the same time that the deficit
has been shrinking as a
percentage of GDP.
In this way, as the next chart shows, the current expansion is unique
among the four longest
The unemployment rate in November hit 4.6 percent -- the lowest figure
since 1973. Core
consumer price inflation in 1997 was at its lowest level since the
And, as the next chart shows, the "misery index" -- the combined rates
of inflation and
unemployment -- is at its lowest level in 30 years.
Clearly, our efforts to reduce the deficit and, by 1999, balance the
budget have served us well.
The President believes strongly that we should continue to exercise budget
discipline as we move
* * *
Mr. Chairman, this concludes my oral remarks. I would be delighted to answer any questions that you have.
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