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Budget [1990] (2 of 2) [2]
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John Sununu Issues Files
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Originally Processed With FOIA(s):
FOIA Number:
1998-0004-F[1]; 1998-0251-F
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin: Chief of Staff, White House Office of
Series:
Sununu, John, Files
Subseries:
Issues Files
OA/ID Number:
29137
Folder ID Number:
29137-006
Folder Title:
Budget [1990] (2 of 2) [2]
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15
24
6
3
THE WHITE HOUSE
WASHINGTON
May 9, 1990
MEMORANDUM FOR MARLIN FITZWATER/ALIXE GLEN
FROM:
JOHN UNDELAND
RE:
COMMENT ON BUDGET NEGOTIATIONS
Since Sunday's opening budget talks there has been voluminous
comment on the budget/taxes and what is meant by "no
preconditions." To help you get a handle on who said what when
I've compiled the following digest of comment.
REPUBLICANS
OMB DIRECTOR DARMAN
Richard Darman, in a CNN interview Wednesday, said "an excessive
tax increase or the wrong kind of tax measures could adversely
affect economic growth" and Bush would oppose them. "We would be
very adverse to anything that would threaten continuing economic
growth, " Darman said before apologizing for negotiating through the
media, which summit participants had promised to avoid. (UPI, 5/9)
SECRETARY BRADY
Secretary Brady refused to say [on Nightline Tuesday] whether Bush
was considering a tax hike of some kind. But he did say, "What
we've got here is an election in the fall
Everybody knows
something is going to have to be done and he wanted to start
early.
(USA Today, 5/9)
REP. MICHEL
Rep.
Michel said [after the Sunday meeting] tax increases almost
have to be part of any package. "I don't know how you make these
figures match without doing something on revenues," he told
reporters.
(Boston Globe, 5/8)
Wednesday Michel urged GOP lawmakers to "hold their fire" and stop
criticizing the budget efforts by the White House and congressional
leaders. "Nobody wants to make a tough choice," Michel said after
meeting with House Republicans Wednesday morning.
(AP, 5/9)
SEN. DOLE
"I don't know if you can have discussions [unless everything is on
the table],' Dole said [Sunday]. Asked specifically whether that
meant taxes were on the table, he said:
"Everything,
everything."
(Chicago Tribune, 5/7)
-елош-
SEN. DOLE continued
[On Monday] Sen. Dole said it is time for a summit on the budget.
"The American people should be pushing us to sit down and make
tough decisions about the deficit. We cannot continue to spend
more money and more money and more money and run up the deficit."
(Washington Times, 5/8)
"No preconditions, Sen. Dole said, when asked after a party caucus
[Tuesday]
if income tax increases should be dismissed.
(Washington Times, 5/9)
Sen. Dole Wednesday urged Republicans
to be more flexible.
"Let's not lock ourselves in," Dole said. "Let's give the
president a chance, if you're a Republican, and, if you're a
Democrat, give the Democratic leadership a chance."
(UPI, 5/9)
REP. GINGRICH
Rep. Gingrich said Monday Republicans would not agree to any plan
that would hurt them in an election year. "I'm not going to vote
for anything which causes us to lose politically
and we're not
going to agree to stupid deals," Gingrich said. Asked what kind
of taxes might be raised, Gingrich said: "I don't know. We'll
have to wait and see what the Democrats want to discuss."
(AP, 5/8)
"I would be very surprised if income or corporate tax rates were
on the table," said Rep. Gingrich.
(USA Today, 5/8)
SEN. SIMPSON
"No one is going to come out here and say that we're going to do
anything at all with income tax or income tax rates. Now that's
what people generally think of when they think of taxes," Sen.
Simpson said.
(Washington Times, 5/9)
"Nobody's talking about raising income tax rates
George Bush
is probably the oldest pro in the village as a political man, and
no one is going to come out here and say that we're going to do
anything at all with income taxes or income tax rates, " he said.
(Philadelphia Inquirer, 5/9)
Explaining Bush's change of heart, Sen. Simpson said: "The
president is fully aware that he's got a country to run, and he's
got to do that in a responsible way because lots of figures have
changed."
Simpson
also tested a possible campaign argument --
telling reporters Bush had no intention of raising taxes, just
"revenues." "The President is not talking about new taxes, " he
insisted and observed there were plenty of other ways to raise
money
Asked if those sort of levies weren't taxes, he replied:
"I believe Franklin Roosevelt called them 'revenues, and if it's
good enough for Franklin, it's good enough for me.
(AP, 5/9)
SEN. DOMENICI
Sen.
Domenici said a possible summit is "most welcome news" and
said "everything should be on the table," including taxes.
(UPI, 5/7)
-
SEN. DOMENICI continued
"It could be a sea change if the leadership of the Congress goes
to the table understanding that everything is on the table," said
Sen. Domineici.
(Wall Street Journal, 5/8)
Sen. Domenici said tax talk would not hurt either party. "If the
right agenda is prepared, and it's broad enough to accomplish real
deficit reduction
we'll be able to tell the American people the
deficit is fixed and we're not going to get back in the same
muddle
and I believe that is good policy."
(Washington Times, 5/9)
SEN. CHAFEE
Sen. Chafee complained that the media were getting the emphasis
wrong. "Bush thinks news people are making a great mistake to
center it around taxes, he said.
(AP, 5/8)
SEN. COCHRAN
"We're going to see the economic jitters set in unless somebody
assumes some responsibility for the budget," said Sen. Cochran.
"The president is trying to do this. And I applaud him for it.
(AP, 5/8)
REP. FRENZEL
"I think that taxes are not a good economic way to reduce the
deficit,' said Rep. Frenzel. "On the other hand, I think it's
pretty clear that the Congress is not willing to make the spending
cuts that are necessary without some kind of a tax component. That
being the case, we'll have to consider it." As for Bush's position
Frenzel said, "All we know is that he says he is willing to
consider any of the changes."
(Minneapolis Star-Tribune, 5/8)
"[Having no preconditions] is the only way [the President] can do
the job, said Rep. Frenzel. "There isn't a president who hasn't
tried to make good on his promises. There's no president who
hasn't lived through times that change, and maybe outdate some
promises,' he said.
(Fort Worth Star-Telegram, 5/8)
Anticipating maneuvers by Republicans and Democrats to escape blame
for raising taxes, Rep. Frenzel said, "Everyone devoutly wishes for
an Immaculate Conception scenario. (But) it really can't happen. "
Frenzel said the odds were less than 50-50 that a budget summit
would produce an agreement for substantial deficit reduction, but
he added: "There's more interest and more excitement about making
a long-term budget agreement than ever before."
(Cleveland Plain Dealer, 5/9)
REP. WEBER
"If the Republicans are dumb enough to give up the tax issue, " said
Rep. Weber, "you can bet it's going to hurt us at the polls.
(Wall Street Journal, 5/9)
Rep. Weber described the mood of House Republicans as "very
uneasy -- tempered with anger."
(Washington Post, 5/9)
-more-
REP. WEBER continued
"We should be real quiet about taxes," said Weber. "We shouldn't
be making it appear Republicans are leading the way on taxes.'
(USA Today, 5/9)
REP. ARCHER
Rep. Archer
said Wednesday "taxes are the last thing we need to
consider.
(UPI, 5/9)
REP. MARTIN
Rep. Martin said yesterday that she isn't concerned that Mr. Bush
will somehow undercut her chances [to defeat Sen. Simon] by
agreeing to tax increases in a summit. But she drew a much harder
line on taxes than the administration has, ruling out increases in
personal taxes, corporate taxes and "consumer taxes."
(Wall Street Journal, 5/9)
Rep. Martin, running for the Senate on a "no-tax-increase"
platform, said she would advise Bush against raising taxes and
pointed out that the president had not actually said that he would
increase taxes. "Some of his friends are saying since he's got to
listen to Democrats who are saying, 'Raise taxes,' he's got to
listen to Republicans who say, 'Reading your lips was a good
idea, she said.
(Chicago Tribune, 5/9)
REP. WALKER
"All the president has said is that everything is open to
discussion," he said. "I think it's clear we cannot get anything
done on the budget without sitting down and talking with the
Democrats." But Walker said that while he believes Bush will keep
to his campaign pledge in any future negotiations with the
Democrats, he thinks "the president should make clear that he is
not going to put taxes on the table. We'll let the Democrats do
that."
(Washington Times, 5/9)
REP. KYL
"The president feels about taxes the way he feels about broccoli
-- you can put it on the table in front of him but he's not going
to eat it," Rep. Kyl said on the House floor Wednesday. "If
somebody is going to propose new taxes, it's got to be somebody
other than George Bush."
(UPI, 5/9)
REP. SCHUETTE
"I'm opposed to having taxes be on the table, period," said Rep.
Schuette, who is challenging incumbent Sen. Levin.
(Wall Street Journal, 5/9)
GOV. BRANSTAD, CHAIRMAN OF THE NATIONAL GOVERNORS ASSOCIATION
Iowa Gov. Branstad
warned Bush to expect an uprising from the
states over proposals for a national sales tax. "States are going
to dig in very strongly against a national sales tax," Branstad
said. "I think that would be a big mistake.
(AP, 5/9)
-more-
ED ROLLINS, NRCC
"The biggest difference between Republicans and Democrats in the
public perception is that Republicans don't want to raise taxes,
said Ed Rollins. "Obviously, this makes that go right out the
door. Politically, I think it is a disaster."
(Washington Post, 5/8)
Ed Rollins, head of the House GOP campaign committee, has been
telling House Republicans that the party could lose as many as 10
House seats this fall if budget talks between Bush and Congress
result in a tax increase.
(Washington Post, 5/9)
###
DEMOCRATS
REP. FOLEY
"The assumption is that everything would be on the table, that we
would not enter any talks with preconditions, " said Speaker Foley
[after the Sunday meeting].
(Boston Globe, 5/7)
"We're willing to go forward and hear what he wants to recommend
in terms of revising the budget, Foley said as he left a meeting
of House Democrats Tuesday. "We are waiting to hear what the
president recommends."
(Washington Post, 5/9)
"I am not presuming there is going to be a tax increase. We
haven't decided anything in these meetings except we go forward,"
Speaker Foley told reporters after a White House meeting Wednesday.
(Reuter, 5/9)
"The leadership in the House and Senate has accepted the
president's invitation" to a budget summit with no preconditions,
declared Speaker Foley
"I trust the White House until I have
reason not to. And I have no reason not to."
(AP, 5/9)
SEN. MITCHELL
"There was no discussion of specifics. There was a general
agreement that any discussions will be without preconditions, if
and when they occur," Mitchell said after Sunday's meeting
[Earlier Sunday], Mitchell said he would be reluctant to enter
negotiations if Bush ruled anything off the table.
(Boston Globe, 5/7)
Sen. Mitchell Wednesday said he hoped for "some real significant
progress" before Congress' Fourth of July recess. "No decisions
have been made other than to begin discussions next week in what
we hope will be a good faith effort to deal with a very serious
national problem," he said.
(Reuter, 5/9)
Sen. Mitchell said Wednesday Bush's invitation was accepted
"without preconditions of any kind. "
(UPI, 5/9)
-erom-
REP. ROSTENKOWSKI
Rep. Rostenkowski
said he was delighted that the President had
initiated the [Sunday] meeting, and hinted that a discussion of
"process was merely the prelude to a more serous agenda that would
ultimately include taxes
I've told the President a big revenue
increase won't hurt him politically, and I'd be most enthusiastic
if we were talking about a big deal, not a small one, Rostenkowski
said.
(New York Times, 5/4)
Rep. Rostenkowski
suggested that any budget discussion would
likely include another strong push by Bush for a reduction in the
tax on capital gains
"I'm a realist, " Rostenkowski said. "If
the president is going to talk about increasing revenues, I'm sure
he could not walk away from a negotiation without a capital gains
[tax reduction]."
(Chicago Tribune, 5/8)
SEN. BENTSEN
Sen. Bentsen said he was willing to consider new levies, including
excise taxes and raising the income tax rate for top-income
taxpayers, particularly if Bush continues to seek a cut in the
capital gains tax. "If he's talking about reducing capital gains
then I think obviously one of the places you look at is" the tax
rate, Bentsen said in an interview.
(Boston Herald, 5/8)
Sen. Bentsen said Democrats would not require Bush to endorse a
specific tax increase as a precondition to agreement. "I think
that it's a question of walking that plank together,' he said.
(Minneapolis Star-Tribune, 5/8)
REP. PANETTA
"It can't just be gasoline taxes, said Rep. Panetta. "It demands
that Democrats be for equity, and that means 'the bubble' [Capitol
Hill jargon for raising the marginal tax rate on the richest
taxpayers above the current 28%] or Moynihan."
Democrats don't
want to be trapped. "They don't want to be blamed for the result, "
said Panetta. "It will take a lot of good faith,' he added. "It's
very tough to find good faith in an election year."
"Sunday
evening, it was no preconditions, everything was on the table,
said Panetta. "That has a lot of members concerned that we're not
getting a clear message here."
(Wall Street Journal, 5/9)
"We need to hear from the White House [why the deficit is expected
to higher than previously forecasted]. "The sense was we need to
have a better explanation of what happened in the economy," Panetta
said after meeting with Democratic colleagues Tuesday.
(Baltimore Sun, 5/9)
Emerging from a 90-minute caucus [Tuesday], Rep. Panetta said, "We
simply will not have a successful summit if we start setting a lot
of preconditions " Panetta also said that Bush would have to
make the case for budget negotiations clear to the public if the
talks were to succeed, because a major deficit-cutting plan would
probably entail controversial spending cuts and tax increases.
(Philadelphia Inquirer, 5/9)
-more-
SEN. SASSER
"If revenues are used to solve this problem," the president will
say, "the Democrats made me do it. When talks begin, Sen. Sasser
vowed, "The first question I'm going to ask [Mr. Bush] is, 'What
is your proposal?'"
(Wall Street Journal, 5/9)
SEN. DECONCINI
"I don't think the Democrats are going to talk taxes until the
president talks taxes," Sen. DeConcini said after Senate Democrats
caucused over lunch [Tuesday]
DeConcini reported "high anxiety
and anguish" among colleagues, many of whom suspect that the
president is trying to saddle them with a problem he failed to
address adequately in the budget proposal he submitted to Congress
in January.
(Baltimore Sun, 5/9)
SEN. SIMON
"Clearly there is an attempt being made to appoint the Democrats
as the ones who are forcing his [the president's] hands on taxes,
said Sen. Simon. "This isn't a game of win or lose or how to
diddle the Democrats. It's called running the country."
(Washington Times, 5/9)
SEN. BOREN
"It's critical for the country that we get a budget agreement,"
Sen. Boren said. "And I hope it won't be about Band-Aids
I
hope it will be a really big, dramatic package and not just a
papering around the edges."
(Washington Times, 5/9)
SEN. BREAUX
Sen. Breaux [chairman of the Democratic Senatorial Campaign
Committee] warned about any package that would freeze [Social
Security COLAs]. "Not in an election year, Breaux told reporters.
"I can't believe there would be an attack on Social Security
benefits this close to November. I would not lead the charge or
recommend it to any of our candidates."
(Washington Post, 5/8)
Sen. Breaux asserted that Bush knows that tax increases of some
sort are necessary. "Reality has now set in, as opposed to
politics," he said. "He would like aggressive efforts on the
part of the Democrats insisting on it, which I don't think is going
to happen.' Breaux said he would prefer a $5-a-barrel oil-import
fee to raising individual income taxes.
(Wall Street Journal, 5/8)
Sen.
Breaux
told reporters he was confident Democrats were not
going to be trapped into passing a tax bill and then be accused by
Republicans again of being "taxers and spenders." Breaux said Sen.
Mitchell would make certain that Bush was brought along "every step
of the way."
(Boston Globe, 5/8)
-поте-
REP. HAMILTON
"We cannot continue to deceive ourselves by meeting deficit
reduction targets on paper while the deficit gnaws away at our
economic future," declared Rep. Hamilton. "We need budget numbers
that command respect, and we need a substantive solution to the
long-term deficit problems."
(Atlanta Constitution, 5/9)
REP. SCHUMER
"The feeling in our caucus is that if there are going to be higher
taxes, the Republicans should initiate them," said Rep. Schumer
He suggested Bush is now willing to consider tax hikes "because
their polls show what our polls show" -- if there's a recession,
the president's popularity could slide fast. (New York Post, 5/9)
REP. DURBIN
"We don't want to walk into a blind alley and be branded again as
the party of tax increases," said Rep. Durbin, a member of the
House Budget Committee. "We should hear it straight from the
president where he stands on taxes.' "
(Washington Post, 5/9)
"We've been sucker-punched so many times on this, I don't want it
to happen again," said Rep. Durbin. "I think this is a rope-a-
dope: As soon as we walk into a room and the tax issue is raised,
Ed Rollins and Newt Gingrich will say, 'There they go -- tax-and-
spend Democrats.
(Baltimore Sun, 5/9)
REP. TRAFICANT
"Two years ago, President Bush said: 'Read my lips: No new taxes'
Now he says, 'I meant no new income taxes.' Tricky, tricky,
tricky," said Rep. Traficant. "This is a joke. A tax is a tax is
a tax.
(Philadelphia Inquirer, 5/9)
REP. WYDEN
"They have just one goal: To put the tax noose around our neck."
said Rep. Wyden.
(Wall Street Journal, 5/9)
GOV. DUKAKIS
"The no-new-taxes pledge during the campaign was as big a fraud as
the Boston Harbor routine. And it's kind of sad, frankly," Dukakis
said
"I know it was effective and the election is over,
Dukakis said. "But to make that kind of commitment given the size
of the federal deficit, this (S&L) disaster was irresponsible.
(Boston Globe, 5/9)
###
THE WHITE HOUSE
WASHINGTON
Date:
5/10/90
TO:
THE CHIEF OF STAFF
FROM: JAMES W. CICCONI
Assistant to the President and
Deputy to the Chief of Staff
The attached has been forwarded
to the President.
THE WHITE HOUSE
WASHINGTON
1000 13 PM 38
May 10, 1990
MEMORANDUM FOR THE PRESIDENT
FROM:
JOHN UNDELAND/NEWS SUMMARY THROUGH MARLIN FITZWATER
RE:
COMMENT ON BUDGET NEGOTIATIONS
Since Sunday's opening budget talks there has been voluminous
comment on the budget/taxes and what is meant by "no
preconditions." To help you get a handle on who said what when
I've compiled the following digest of comment. This document was
updated to include comment in news stories through 5:00 p.m.
Thursday, May 10th.
REPUBLICANS
OMB DIRECTOR DARMAN
Richard Darman, in a CNN interview Wednesday, said "an excessive
tax increase or the wrong kind of tax measures could adversely
affect economic growth" and Bush would oppose them. "We would be
very adverse to anything that would threaten continuing economic
growth,' Darman said before apologizing for negotiating through the
media, which summit participants had promised to avoid. (UPI, 5/9)
"It's extremely important there be budget process reform," said
Richard Darman
"We've got to change the basic process itself."
(Reuter, 5/10)
Richard Darman tried to put the best face on the administration's
gloomier economic analysis. "It's not that the economy itself is
weakening," he said in an interview on MacNeil-Lehrer News Hour.
"It's that it's not as strong as it should be."
In the
interview, Darman stuck to the administration's general refusal to
predict the outcome of the budget negotiations, but he said that
in principle, the White House was opposed to raising the income tax
rate. "Any solution to this problem has to be one which has a
chance of increasing economic growth, not decreasing economic
growth," he said. "We do not believe that increasing marginal
income tax rates is good for economic growth."
(New York Times, 5/10)
"They have to be willing to consider things of ours they might not
have liked. We have to be willing to consider things of theirs,"
Richard Darman said Wednesday
"That's what a negotiation is
all about, but as we enter the negotiations, we certainly haven't
changed our basic positions."
(Detroit News, 5/10)
-
SECRETARY BRADY
Secretary Brady refused to say [on Nightline Tuesday] whether Bush
was considering a tax hike of some kind. But he did say, "What
we've got here is an election in the fall
Everybody knows
something is going to have to be done and he wanted to start
early.
(USA Today, 5/9)
REP. MICHEL
Rep.
Michel
said [after the Sunday meeting] tax increases almost
have to be part of any package. "I don't know how you make these
figures match without doing something on revenues," he told
reporters.
(Boston Globe, 5/8)
Wednesday Michel urged GOP lawmakers to "hold their fire" and stop
criticizing the budget efforts by the White House and congressional
leaders. "Nobody wants to make a tough choice," Michel said after
meeting with House Republicans Wednesday morning.
(AP, 5/9)
SEN. DOLE
"I don't know if you can have discussions [unless everything is on
the table], Dole said [Sunday]. Asked specifically whether that
meant taxes were on the table, he said:
"Everything,
everything."
(Chicago Tribune, 5/7)
[On Monday] Sen. Dole said it is time for a summit on the budget.
"The American people should be pushing us to sit down and make
tough decisions about the deficit. We cannot continue to spend
more money and more money and more money and run up the deficit."
(Washington Times, 5/8)
"No preconditions,' Sen. Dole said, when asked after a party caucus
[Tuesday]
if income tax increases should be dismissed.
(Washington Times, 5/9)
Sen. Dole Wednesday urged Republicans to be more flexible.
"Let's not lock ourselves in," Dole said. "Let's give the
president a chance, if you're a Republican, and, if you're a
Democrat, give the Democratic leadership a chance."
(UPI, 5/9)
"We're prepared to begin. We may not succeed. It's like putting
Humpty-Dumpty back together again. If not impossible -- almost,
said Sen. Dole Wednesday.
(Washington Times, 5/10)
REP. GINGRICH
Rep. Gingrich said Monday Republicans would not agree to any plan
that would hurt them in an election year. "I'm not going to vote
for anything which causes us to lose politically and we're not
going to agree to stupid deals," Gingrich said. Asked what kind
of taxes might be raised, Gingrich said: "I don't know. We'll
have to wait and see what the Democrats want to discuss."
(AP, 5/8)
"I would be very surprised if income or corporate tax rates were
on the table," said Rep. Gingrich.
(USA Today, 5/8)
"We're going to a budget summit, not a tax summit," said Rep.
Gingrich Thursday.
-
(AP, 5/10)
REP. ARCHER
Rep. Archer
said Wednesday "taxes are the last thing we need to
consider.
(UPI, 5/9)
"We have not discussed revenues, and we will not discuss revenues,"
said Rep. Archer. "The president's not discussing revenues. We
understand that the Democrats control Congress
and when we sit
down and talk, we expect them to put higher taxes as the linchpin
of a deficit-reduction program."
(Washington Post, 5/10)
Rep. Archer suggesed the key change [needed in the budget process]
should be softening the Gramm-Rudman targets. "We're going to have
to extend the Gramm-Rudman targets, probably through the end of the
century," he said.
(Reuter, 5/10)
REP. CONTE
Rep.
Conte
said the process may take months and that nothing may
be decided until after the election. He said it is "hogwash" to
assume that if that happens, voters will be upset.
(Scripps Howard, 5/10)
Rep. Conte said tax increase talk shouldn't cost any congressmen
their seats. "If they're saying they're going to lose their seats
because of what Bush said, they were in trouble before this
happened," he said.
(Washington Times, 5/10)
REP. FRENZEL
"I think that taxes are not a good economic way to reduce the
deficit," said Rep. Frenzel. "On the other hand, I think it's
pretty clear that the Congress is not willing to make the spending
cuts that are necessary without some kind of a tax component. That
being the case, we'll have to consider it." As for Bush's position
Frenzel said, "All we know is that he says he is willing to
consider any of the changes."
(Minneapolis Star-Tribune, 5/8)
"[Having no preconditions] is the only way [the President] can do
the job," said Rep. Frenzel. "There isn't a president who hasn't
tried to make good on his promises. There's no president who
hasn't lived through times that change, and maybe outdate some
promises," he said.
(Fort Worth Star-Telegram, 5/8)
Anticipating maneuvers by Republicans and Democrats to escape blame
for raising taxes, Rep. Frenzel said, "Everyone devoutly wishes for
an Immaculate Conception scenario. (But) it really can't happen."
Frenzel said the odds were less than 50-50 that a budget summit
would produce an agreement for substantial deficit reduction, but
he added: "There's more interest and more excitement about making
a long-term budget agreement than ever before."
(Cleveland Plain Dealer, 5/9)
SEN. SIMPSON
"No one is going to come out here and say that we're going to do
anything at all with income tax or income tax rates. Now that's
what people generally think of when they think of taxes," Sen.
Simpson said.
(Washington Times, 5/9)
-more-
SEN. SIMPSON (continued)
"Nobody's talking about raising income tax rates
George Bush
is probably the oldest pro in the village as a political man, and
no one is going to come out here and say that we're going to do
anything at all with income taxes or income tax rates, " he said.
(Philadelphia Inquirer, 5/9)
Explaining Bush's change of heart, Sen. Simpson said: "The
president is fully aware that he's got a country to run, and he's
got to do that in a responsible way because lots of figures have
changed."
Simpson
also tested a possible campaign argument --
telling reporters Bush had no intention of raising taxes, just
"revenues." "The President is not talking about new taxes, he
insisted and observed there were plenty of other ways to raise
money
Asked if those sort of levies weren't taxes, he replied:
"I believe Franklin Roosevelt called them 'revenues,' and if it's
good enough for Franklin, it's good enough for me."
(AP, 5/9)
SEN. MACK (& 19 RENEGADE GOP SENATORS)
A major crack in the bipartisan budget effort appeared as 20 GOP
senators told President Bush they "unequivocally oppose new taxes.
The breakaway group, led by Sen. Mack, said that taxes should
not be on the negotiating table because the budget can be cut in
many areas. But Mack, asked whether he would support cuts in
important programs like Social Security, refused to name a single
program he wants to cut
Mack said "no preconditions means that
no conclusion has been drawn that taxes are part of the proposal."
(Boston Globe, 5/10)
SEN. MACK
"If there is a package in which there are new taxes included in
it, I will be out opposed to that plan.
(CBS, 5/9)
SEN. DOMENICI
Sen. Domenici said a possible summit is "most welcome news" and
said "everything should be on the table," including taxes.
(UPI, 5/7)
"It could be a sea change if the leadership of the Congress goes
to the table understanding that everything is on the table,' said
Sen. Domineici.
(Wall Street Journal, 5/8)
Sen. Domenici said tax talk would not hurt either party. "If the
right agenda is prepared, and it's broad enough to accomplish real
deficit reduction
we'll be able to tell the American people the
deficit is fixed and we're not going to get back in the same
muddle
and I believe that is good policy."
(Washington Times, 5/9)
SEN. CHAFEE
Sen. Chafee complained that the media were getting the emphasis
wrong. "Bush thinks news people are making a great mistake to
center it around taxes,' he said.
(AP, 5/8)
-more-
SEN. COCHRAN
"We're going to see the economic jitters set in unless somebody
assumes some responsibility for the budget," said Sen. Cochran.
"The president is trying to do this. And I applaud him for it."
(AP, 5/8)
REP. WEBER
"If the Republicans are dumb enough to give up the tax issue, said
Rep. Weber, "you can bet it's going to hurt us at the polls."
(Wall Street Journal, 5/9)
Rep. Weber described the mood of House Republicans as "very
uneasy -- tempered with anger."
(Washington Post, 5/9)
"We should be real quiet about taxes," said Weber. "We shouldn't
be making it appear Republicans are leading the way on taxes."
(USA Today, 5/9)
"House Republicans remain the center of opposition to new taxes,"
declared Rep. Weber. "Somebody's got to convince us that raising
taxes -- any kind of taxes -- will be good for the economy
We're not ready to give up on the basic premises of the Reagan
revolution's economic policies." Weber said he believed Bush would
not give that up, either. "We're nervous about it, but we trust
him," he said.
(Washington Post, 5/10)
REP. VANDER JAGT
"The Democrats are tax addicts. They are not comfortable unless
there are taxes around. They won't even negotiate unless there
are taxes around. So in an effort to get them to the table, there
are no preconditions to the budget negotiations."
(Washington Times, 5/10)
REP. MARTIN
Rep. Martin said yesterday that she isn't concerned that Mr. Bush
will somehow undercut her chances [to defeat Sen. Simon] by
agreeing to tax increases in a summit. But she drew a much harder
line on taxes than the administration has, ruling out increases in
personal taxes, corporate taxes and "consumer taxes."
(Wall Street Journal, 5/9)
Rep. Martin, running for the Senate on a "no-tax-increase"
platform, said she would advise Bush against raising taxes and
pointed out that the president had not actually said that he would
increase taxes. "Some of his friends are saying since he's got to
listen to Democrats who are saying, 'Raise taxes,' he's got to
listen to Republicans who say, 'Reading your lips was a good
idea, she said.
(Chicago Tribune, 5/9)
REP. WALKER
"All the president has said is that everything is open to
discussion," he said. "I think it's clear we cannot get anything
done on the budget without sitting down and talking with the
Democrats." But Walker said that while he believes Bush will keep
to his campaign pledge in any future negotiations with the
Democrats, he thinks "the president should make clear that he is
not going to put taxes on the table. We'll let the Democrats do
that."
-
(Washington Times, 5/9)
REP. KYL
"The president feels about taxes the way he feels about broccoli
-- you can put it on the table in front of him but he's not going
to eat it," Rep. Kyl said on the House floor Wednesday. "If
somebody is going to propose new taxes, it's got to be somebody
other than George Bush."
(UPI, 5/9)
REP. SCHUETTE
"I'm opposed to having taxes be on the table, period," said Rep.
Schuette, who is challenging incumbent Sen. Levin.
(Wall Street Journal, 5/9)
GOV. BRANSTAD, CHAIRMAN OF THE NATIONAL GOVERNORS ASSOCIATION
Iowa Gov. Branstad warned Bush to expect an uprising from the
states over proposals for a national sales tax. "States are going
to dig in very strongly against a national sales tax," Branstad
said. "I think that would be a big mistake.
(AP, 5/9)
ED ROLLINS, NRCC
"The biggest difference between Republicans and Democrats in the
public perception is that Republicans don't want to raise taxes,"
said Ed Rollins. "Obviously, this makes that go right out the
door. Politically, I think it is a disaster."
(Washington Post, 5/8)
Ed Rollins, head of the House GOP campaign committee, has been
telling House Republicans that the party could lose as many as 10
House seats this fall if budget talks between Bush and Congress
result in a tax increase.
(Washington Post, 5/9)
###
DEMOCRATS
REP. FOLEY
"The assumption is that everything would be on the table, that we
would not enter any talks with preconditions, " said Speaker Foley
[after the Sunday meeting].
(Boston Globe, 5/7)
"We're willing to go forward and hear what he wants to recommend
in terms of revising the budget, Foley said as he left a meeting
of House Democrats Tuesday. "We are waiting to hear what the
president recommends."
(Washington Post, 5/9)
"I am not presuming there is going to be a tax increase. We
haven't decided anything in these meetings except we go forward,"
Speaker Foley told reporters after a White House meeting Wednesday.
(Reuter, 5/9)
"The leadership in the House and Senate has accepted the
president's invitation" to a budget summit with no preconditions,
declared Speaker Foley
"I trust the White House until I have
reason not to. And I have no reason not to."
(AP, 5/9)
-erom-
REP. FOLEY (continued)
"I think the understanding of everyone present is that we should
have a good-faith negotiation here without political posturing,"
said Speaker Foley.
(New York Times, 5/10)
"It would be extremely difficult, obviously, to come up with that
number [the $100 billion that OMB Director Darman told GOP senators
may have to be cut]," said Speaker Foley [after meeting with the
president Wednesday].
(Washington Times, 5/10)
Rep. Foley's press secretary, Jeff Biggs, said that during the
speaker's phone conversation Thursday with Bush, Foley "expressed
his concern about the article in the paper [quoting a senior
administration official aboard Mrs. Bush's plane rejecting a tax
increase] but I think he came away from the conversation (feeling)
that the president still meant what he said -- no preconditions."
(UPI, 5/10)
SEN. MITCHELL
"There was no discussion of specifics. There was a general
agreement that any discussions will be without preconditions, if
and when they occur," Mitchell said after Sunday's meeting
[Earlier Sunday], Mitchell said he would be reluctant to enter
negotiations if Bush ruled anything off the table.
(Boston Globe, 5/7)
Sen. Mitchell Wednesday said he hoped for "some real significant
progress" before Congress' Fourth of July recess. "No decisions
have been made other than to begin discussions next week in what
we hope will be a good faith effort to deal with a very serious
national problem," he said.
(Reuter, 5/9)
Sen. Mitchell said Wednesday Bush's invitation was accepted
"without preconditions of any kind.
(UPI, 5/9)
Sen. Mitchell called on the White House to confirm the accuracy of
the statements and to identify the speaker [aboard Mrs. Bush plane
who rejected discussing tax hikes]. "Obviously the statements are
a matter of concern," Mitchell said at a luncheon with reporters.
"Whoever said them, they were very ill timed."
(AP, 5/10)
REP. GEPHARDT
Gephardt on Wednesday spoke modestly of his perceived role as chief
Democratic critic and chief peacemaker in what could be testy
talks. "I don't know I qualify for either role," he said. If the
budget summit "is just a political high-ground exercise, then it
won't go anywhere,' he added. "The test is: can anything be done
for the country in this area."
(AP, 5/10)
[Talk from Republicans that Democrats will push a tax increase] led
Rep. Gephardt to complain: "If people simply see it as a
political high-ground exercise, then it won't go anywhere."
(Wall Street Journal, 5/10)
-етош-
REP. ROSTENKOWSKI
Rep. Rostenkowski
said he was delighted that the President had
initiated the [Sunday] meeting, and hinted that a discussion of
"process was merely the prelude to a more serious agenda that would
ultimately include taxes
I've told the President a big revenue
increase won't hurt him politically, and I'd be most enthusiastic
if we were talking about a big deal, not a small one, Rostenkowski
said.
(New York Times, 5/4)
Rep. Rostenkowski
suggested that any budget discussion would
likely include another strong push by Bush for a reduction in the
tax on capital gains
"I'm a realist," Rostenkowski said. "If
the president is going to talk about increasing revenues, I'm sure
he could not walk away from a negotiation without a capital gains
[tax reduction].
(Chicago Tribune, 5/8)
Talk on Capitol Hill Wednesday continued to center on taxes.
Referring to Bush's "No New Taxes" pledge, Rep. Rostenkowski said
that "we won't have to worry about lips anymore" but instead can
"start digging into our pockets."
(Wall Street Journal, 5/10)
Rep. Rostenkowski said political spats may foil the negotiators:
"I don't think we're going to be able to come up with anything out
this group. He cited comments made by Rep. Gingrich blaming
Democrats for any tax boost.
(USA Today, 5/10)
Rep. Rostenkowski shrugged off the remarks [by a senior
administration official aboard Mrs. Bush's plane on taxes] and said
he assumes higher taxes will be part of the negotiations "unless
George Bush says again 'no new taxes. Speaking at the National
Press Club, Rostenkowski said it was Bush -- not Sununu -- who
invited congressional leaders to negotiate, "and that's
encouraging.' still, Rostenkowski said, "I have no intention of
moving on taxes until the president does. I will not repeat the
partisan warfare that marked last year's budget debate [referring
to capital gains].
(AP, 5/10)
SEN. BENTSEN
Sen. Bentsen said he was willing to consider new levies, including
excise taxes and raising the income tax rate for top-income
taxpayers, particularly if Bush continues to seek a cut in the
capital gains tax. "If he's talking about reducing capital gains
then I think obviously one of the places you look at is" the tax
rate, Bentsen said in an interview.
(Boston Herald, 5/8)
Sen. Bentsen said Democrats would not require Bush to endorse a
specific tax increase as a precondition to agreement. "I think
that it's a question of walking that plank together," he said.
(Minneapolis Star-Tribune, 5/8)
-erom-
REP. PANETTA
"It can't just be gasoline taxes, said Rep. Panetta. demands
that Democrats be for equity, and that means 'the bubble' [Capitol
Hill jargon for raising the marginal tax rate on the richest
taxpayers above the current 28%] or Moynihan."
Democrats don't
want to be trapped. "They don't want to be blamed for the result,"
said Panetta. "It will take a lot of good faith," he added. "It's
very tough to find good faith in an election year."
"Sunday
evening, it was no preconditions, everything was on the table,
said Panetta. "That has a lot of members concerned that we're not
getting a clear message here."
(Wall Street Journal, 5/9)
"We need to hear from the White House [why the deficit is expected
to higher than previously forecasted]. "The sense was we need to
have a better explanation of what happened in the economy," Panetta
said after meeting with Democratic colleagues Tuesday.
(Baltimore Sun, 5/9)
"If this summit is going to come up with very strong proposals, on
deficit reduction, we're going to have to lay some groundwork with
the country why it's necessary," said Rep. Panetta. He suggested
major deficit-cutting action would "face a very tough time in the
House and Senate on both sides of the aisle" in this election year.
(Boston Herald, 5/9)
Emerging from a 90-minute caucus [Tuesday], Rep. Panetta said, "We
simply will not have a successful summit if we start setting a lot
of preconditions
"
(Philadelphia Inquirer, 5/9)
The assertion [rejecting a tax increase which came from a senior
administration official aboard Mrs. Bush's plane] "raises the
potential it's all a political trap," said Rep. Panetta
Panetta
said Bush himself has to clearly state what the
conditions for the talks are. "The time has come to hear from the
president," Panetta said.
(AP, 5/10)
SEN. SASSER
"If revenues are used to solve this problem," the president will
say, "the Democrats made me do it.' When talks begin, Sen. Sasser
vowed, "The first question I'm going to ask [Mr. Bush] is, 'What
is your proposal?''
(Wall Street Journal, 5/9)
SEN. MOYNIHAN
Sen. Moynihan accused the GOP of "character assassination of the
Democratic Party" by trying to paint the Democrats as tax-happy
Moynihan -- who said Rep. Gingrich was trying to "stigmatize the
Democrats as the authors of a tax increase" -- warned that the
budget talks could turn into a political trap. "will we come
together on these matters or will they be used as a setting for the
character assassination of the Democratic Party?" he fumed on the
Senate floor.
(New York Post, 5/10)
-елош-
SEN. DECONCINI
"I don't think the Democrats are going to talk taxes until the
president talks taxes, Sen. DeConcini said after Senate Democrats
caucused over lunch [Tuesday]
DeConcini reported "high anxiety
and anguish" among colleagues, many of whom suspect that the
president is trying to saddle them with a problem he failed to
address adequately in the budget proposal he submitted to Congress
in January.
(Baltimore Sun, 5/9)
SEN. SIMON
"Clearly there is an attempt being made to appoint the Democrats
as the ones who are forcing his [the president's] hands on taxes,"
said Sen. Simon. "This isn't a game of win or lose or how to
diddle the Democrats. It's called running the country."
(Washington Times, 5/9)
SEN. CRANSTON
Sen. Cranstron demanded Bush spell out what he means by his "read
my lips -- now new taxes" policy before the budget talks begin so
"we can have a meeting where the cards are plainly on the table.
(New York Post, 5/10)
SEN. BOREN
"It's critical for the country that we get a budget agreement,"
Sen. Boren said. "And I hope it won't be about Band-Aids
I
hope it will be a really big, dramatic package and not just a
papering around the edges."
(Washington Times, 5/9)
SEN. BREAUX
Sen. Breaux [chairman of the Democratic Senatorial Campaign
Committee] warned about any package that would freeze [Social
Security COLAs]. "Not in an election year,' Breaux told reporters.
"I can't believe there would be an attack on Social Security
benefits this close to November. I would not lead the charge or
recommend it to any of our candidates." (Washington Post, 5/8)
Sen. Breaux asserted that Bush knows that tax increases of some
sort are necessary. "Reality has now set in, as opposed to
politics," he said. "He would like aggressive efforts on the
part of the Democrats insisting on it, which I don't think is going
to happen. " Breaux said he would prefer a $5-a-barrel oil-import
fee to raising individual income taxes.
(Wall Street Journal, 5/8)
Sen.
Breaux told reporters he was confident Democrats were not
going to be trapped into passing a tax bill and then be accused by
Republicans again of being "taxers and spenders." Breaux said Sen.
Mitchell would make certain that Bush was brought along "every step
of the way."
(Boston Globe, 5/8)
-
REP. HAMILTON
"We cannot continue to deceive ourselves by meeting ,deficit
reduction targets on paper while the deficit gnaws away at our
economic future," declared Rep. Hamilton. "We need budget numbers
that command respect, and we need a substantive solution to the
long-term deficit problems."
(Atlanta Constitution, 5/9)
REP. TORRICELLI
Rep. Torricelli accused Bush of "intellectual dishonesty" [in a
speech on the House floor Wednesday].
(New York Times, 5/10)
"It is time for the president to speak," said Rep. Torricelli.
"What is it that he would bring forward? The president waits, but
the nation deserves to hear."
(AP, 5/10)
REP. SCHUMER
"The feeling in our caucus is that if there are going to be higher
taxes, the Republicans should initiate them," said Rep. Schumer
He suggested Bush is now willing to consider tax hikes "because
their polls show what our polls show" -- if there's a recession,
the president's popularity could slide fast. (New York Post, 5/9)
"Read our lips. Democrats will not initiate any new taxes."
(CBS, 5/9)
"Whether that was Chief of Staff John Sununu or someone else
[identified as a senior administration official aboard Mrs. Bush's
plane rejecting increased taxes], we have a message to the whole
White House," said Rep. Schumer Thursday. "Don't worry --
Democrats will not put taxes on the table. After all, it was the
White House that called the summit, the president that called the
summit. It's up to the president to tell us, one, what the crisis
is, and number two, what he intends to do about it," (AP, 5/10)
REP. DURBIN
"We don't want to walk into a blind alley and be branded again as
the party of tax increases," said Rep. Durbin, a member of the
House Budget Committee. "We should hear it straight from the
president where he stands on taxes."
(Washington Post, 5/9)
"We've been sucker-punched so many times on this, I don't want it
to happen again," said Rep. Durbin. "I think this is a rope-a-
dope: As soon as we walk into a room and the tax issue is raised,
Ed Rollins and Newt Gingrich will say, 'There they go -- tax-and-
spend Democrats.
(Baltimore Sun, 5/9)
REP. STARK
Rep.
Stark
says he thinks the budget summit is a good time to
consider environmental taxes. "Environmental taxes can raise
billions of dollars, they punish the polluters, change consumption
patterns, and benefit the environment and the economy," Stark says.
(Christian Science Monitor, 5/10)
-
REP. MOODY
After the [Tuesday Democratic caucus] Rep. Moody said Democrats
were wary of the White House. "We've been snookered before," says
Moody, who advises Bush to "be upfront with us and the American
people." Moody says the Democrats want to know why everything has
changed [regarding the deficit prediction].
(Christian Science Monitor, 5/10)
REP. LEVIN
"It's really confusing. The president calls for a summit saying
that all is on the table, and then some of my Republican colleagues
come here on the floor and say it isn't so,"
(CBS, 5/10)
REP. SLATTERY
"This year, nobody is going to be talking about freezing COLAs
absent some sort of a major economic downturn," " said Rep. Slattery.
(Philadelphia Inquirer, 5/10)
REP. TRAFICANT
"Two years ago, President Bush said: 'Read my lips: No new taxes'
Now he says, 'I meant no new income taxes.' Tricky, tricky,
tricky, said Rep. Traficant. "This is a joke. A tax is a tax is
a tax.
(Philadelphia Inquirer, 5/9)
REP. WYDEN
"They have just one goal: To put the tax noose around our neck."
said Rep. Wyden.
(Wall Street Journal, 5/9)
GOV. DUKAKIS
"The no-new-taxes pledge during the campaign was as big a fraud as
the Boston Harbor routine. And it's kind of sad, frankly," Dukakis
said
"I know it was effective and the election is over," II
Dukakis said. "But to make that kind of commitment given the size
of the federal deficit, this (S&L) disaster
was irresponsible.
(Boston Globe, 5/9)
###
is
DRAFT
The highlights of President Bush's domestic Agenda for 1990,
as outlined in his budget released January 29, include:29 PM 7:19
1. Economy
* The President's plan calls for a balanced federal budget by
the year 1993, and includes a proposal to begin paying off the
national debt.
* He'll push to maintain our economic strength by encouraging
increased investment and productivity, and reduce the deficit
with no new taxes.
* The President will work to reduce tax rates for capital gains
and create a new tax exempt Family Savings Account to encourage
individual savings.
2. Social Security
* The President has pledged he will not jeopardize the integrity
of the Social Security system.
3. Education
* The budget request for education is the highest ever proposed,
including a half billion dollar increase for the Head Start
program.
* Agreement was reached at the President's historic education
summit with the nation's governor's to establish unified goals
for education, which the President will announce in his State of
the Union speech.
* Enacting the provisions of the President's Educational
Excellence Act is a top priority.
4. Child Care
* The President seeks to enhance parental choice in child care,
by offering tax credits designed to let low and moderate income
parents - not the federal government - decide what sort of child
care best suits their needs.
5. Drugs
* The President's $10.5 billion dollar national drug strategy is
aimed at ending the scourge of drugs through a comprehensive
program of drug treatment and prevention, interdiction and law
enforcement.
* The second phase of his drug strategy calls for tougher laws
and the death penalty for drug kingpins. The President has also
singled out five areas as designated high intensity drug zones.
Highlights of the President's 1990 Agenda - Page Two
6. Environment
* Enacting tough new Clean Air requirements to reduce acid rain,
urban smog and air pollution are among the President's chief
priorities. He wants to elevate the Environmental Protection
Agency to Cabinet level status.
* His "America the Beautiful" initiative expands federal
parkland, creates additional wildlife refuges, and a establishes
a new reforestation program that calls for the planting of more
than a billion new trees.
7. Housing
* The President has proposed a special homeless initiative which
is designed to develop innovative approaches to providing housing
for homeless individuals and families. Additionally, his new
"Shelter Plus" program would help the homeless who are mentally
ill or drug or alcohol abusers.
* The President's HOPE project sets out a comprehensive new
housing and urban development agenda. It will help low income
families become homeowners and increase housing opportunities for
other low income families. Enterprise zones will help revitalize
distressed low income communities.
8. Competitiveness
* Tort Reform, an expanded budget for Space exploration, record
high budget proposals for research and development, and a
permanent tax credit for research and experimentation are all
part of the President's plan to make sure America is competitive
in the world.
9. National Defense
* In the wake of the dramatic changes that are taking place
abroad, the President has proposed a defense budget that begins
the transition to a restructured military.
* To help preserve our national security and advance America's
interest abroad, the President will move ahead with programs such
as the Strategic Defense Initiative and the Stealth Bomber.
10. Thousand Points of Light
* Through his Thousand Points of Light campaign, the President
has promoted community service in America and encouraged
Americans to give of their time and effort to help others in
need.
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
January 30, 1990
1990 JAN 30 PM 8: 04
MEMORANDUM FOR THE PRESIDENT
FROM: MICHAEL J. BOSKIN mms
RE: Accuracy of the Economic Assumptions for the Budget
As you undoubtedly have noted, we are being accused of
using overly optimistic economic assumptions. This
accusation is much less true today than in the past.
Although our Mid-Session forecast was viewed as more
realistic than the forecast we inherited, our forecast was
also criticized as being "too optimistic" when it was
released. As it turns out the economy behaved almost exactly
as we expected:
Real GNP growth between 1988 and 1989 was 2.9 percent
in 1989, exactly what we forecast. We were also exactly
on the button for the unemployment rate and long-term
interest rates. We were off by only 0.1 percentage
point for short term interest rates. And despite
earlier criticism, we turned out to be too pessimistic
on inflation; overestimating consumer price inflation
by 0.2 percentage point (Table 1).
The Administration forecast was more accurate than all
52 forecasters that are regularly surveyed by the Blue
Chip Economic Indicators (Table 2 and Figure 1).
This was the most accurate current year forecast in the
history of the Mid-Session Review of the Budget dating
back to the late 1970's.
Our forecast for real GNP growth of 2.6 percent for
fourth quarter over fourth quarter of 1990 is only 4/5
of the average rate of growth the United States has
experienced over the last 40 years, a period that
includes seven recessions.
Economic forecasting is an inexact science, and
undoubtedly there was a certain amount of luck as well as
good judgement involved in the Administration's very
accurate 1989 forecast. But these results should suggest
that we are taking the economic outlook and forecasting very
seriously.
Table 1
COUNCIL OF ECONOMIC ADVISERS
Administration Forecast Accuracy For 1989¹
Forecast2
Actual
Real GNP
2.9
2.9
Unemployment Rate
5.2
5.2
10-Year Treasury Notes
8.5
8.5
3-Month Treasury Bills
8.0
8.1
Consumer Price Index
5.0
4.8
GNP Deflator
4.5
4.1
1 Administration forecast prepared for the July 1989 Mid-session
Review.
2 Data for real GNP and prices are percent change year-over-year.
Data for interest and total unemployment rates are annual
averages.
Table 2
Comparison of 52 Private "Blue Chip" Forecasts Made in
July with Administration Mid-Session Forecast for 1989
Number of Private Forecasts which were
than Administration Forecast:
More
As
Less
Accurate
Accurate
Accurate
Real GNP
0
5
47
Unemployment Rate
0
15
37
Long-term Interest Rate
0
11
35
3-Month Treasury Bills
6
18
25
Consumer Price Index
6
7
39
GNP Deflator
8
7
37
Combination
0
0
52
Accuracy is defined as the smallest absolute deviation from the
actual figures for 1989. The combination category is the sum of
the absolute deviations on all six categories. Data are for real
GNP growth (Yr/Yr), the change in the GNP deflator (Yr/Yr), the
change in the CPI (Yr/Yr), the unemployment rate, the 3-month T-
bill interest rate, and a long-term interest rate.
Figure 1
COMPARISON OF FORECAST ACCURACY: ADMINISTRATION, BLUE CHIP CONSENSUS, AND CBO
Sum of absolute errors for real GNP growth (Yr/Yr), the change in the GNP deflator (Yr/Yr), the
change in the CPI (Yr/Yr), the unemployment rate, the 3-month T-bill interest rate, and a
long-term interest rate
Sum of absolute errors
2
1.5
1
0.5
0
1984-88 Average
1989
Congressional
Blue Chip
Administration
Budget Office
Consensus
Note: Long-term interest rate for Blue Chip is the corporate AAA bond; for the Administration, it is the 10-year bond rate; for CBO,
it is the corporate AAA in 1984-85, and the 10-year bond rate in 1986-89.
1/29/90
COUNCIL OF ECONOMIC ADVISERS
Administration Forecast Accuracy For 1989¹
Forecast2
Actual
Real GNP
2.9
2.9
Unemployment Rate
5.2
5.2
10-Year Treasury Notes
8.5
8.5
3-Month Treasury Bills
8.0
8.1
Consumer Price Index
5.0
4.8
GNP Deflator
4.5
4.1
1 Administration forecast prepared for the July 1989 Mid-session
Review.
2 Data for real GNP and prices are percent change year-over-year.
Data for interest and total unemployment rates are annual
averages.
COUNCIL OF ECONOMIC ADVISERS
Administration Near-Term Outlook
January 29, 1990
(Calendar Years)
Actual
1989
1990
1991
(Percent Change, 4th Quarter to
4th Quarter)
Real GNP
2.4
2.6
3.3
Ex-Drought*
1.9
GNP Implicit Price Deflator
3.8
4.2
4.1
Consumer Price Index (CPI-W)
4.5
4.1
4.0
(Annual Average)
Unemployment Rate (Total)
5.2
5.4
5.3
3-Month Treasury Bill Rate
8.1
6.7
5.4
10-Year Treasury Note Rate
8.5
7.7
6.8
* Excludes the one-time rebound in real GNP in 1989 from the
effects of the previous year's drought. The recovery of farm
output to more normal levels raised growth in 1989 by
approximately 1/2 percentage point.
COUNCIL OF ECONOMIC ADVISERS
1/29/90
Comparison of Administration, cBo, and Blue Chip Forecasts*
1990
1991
(Percent Change, 4th Quarter
to 4th Quarter)
Real GNP
Administration
2.6
3.3
CBO
1.8
2.5
Blue Chip
1.8
2.4
GNP Implicit Price Deflator
Administration
4.2
4.1
CBO
4.1
4.0
Blue Chip
4.0
4.0
Consumer Price Index (CPI-U)
Administration
4.1
4.0
CBO
4.1
4.4
Blue Chip
4.2
4.2
(Annual Averages)
Civilian Unemployment Rate
Administration
5.5
5.3
CBO
5.6
5.5
Blue Chip
5.6
5.6
3-Month Treasury Bill Rate
Administration
6.7
5.4
CBO
6.9
7.2
Blue Chip
7.1
7.2
10-Year Treasury Note Rate
Administration
7.7
6.8
CBO
7.8
7.7
Blue Chip
N.A.
N.A.
* Published January 1990.
COUNCIL OF ECONOMIC ADVISERS
Administration Economic Projections
January 29, 1990
(Calendar Years)
Actual
1989
1990
1991
1992
1993
1994
1995
(Percent Change, 4th Quarter to 4th Quarter)
Real GNP
2.4
2.6
3.3
3.2
3.1
3.0
3.0
Ex-Drought*
1.9
GNP Implicit
Price
Deflator
3.8
4.2
4.1
3.8
3.5
3.2
2.9
Consumer Price
Index
(CPI-W)
4.5
4.1
4.0
3.8
3.5
3.2
2.9
(Annual Average)
Unemployment
Rate (Total)
5.2
5.4
5.3
5.2
5.1
5.0
5.0
3-Month Treasury
Bill Rate
8.1
6.7
5.4
5.3
5.0
4.7
4.4
10-Year Treasury
Note Rate
8.5
7.7
6.8
6.3
6.0
5.7
5.4
* Excludes the one-time rebound in real GNP in 1989 from the
effects of the previous year's drought. The recovery of farm
output to more normal levels raised growth in 1989 by
approximately 1/2 percentage point.
COMPARISON OF FORECAST ACCURACY: ADMINISTRATION, BLUE CHIP CONSENSUS, AND CBO
Sum of absolute errors for real GNP growth (Yr/Yr), the change in the GNP deflator (Yr/Yr), the
change in the CPI (Yr/Yr), the unemployment rate, the 3-month T-bill interest rate, and a
long-term interest rate
Sum of absolute errors
2
1.5
1
0.5
0
1984-88 Average
1989
Congressional
Blue Chip
Administration
Budget Office
Consensus
Note: Long-term interest rate for Blue Chip is the corporate AAA bond; for the Administration, it is the 10-year bond rate; for CBO,
it is the corporate AAA in 1984-85, and the 10-year bond rate in 1986-89.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
January 29, 1990
PRESIDENT BUSH'S 1991 BUDGET
FACT SHEET
The President submitted the Budget of the United States Government, Fiscal Year 1991
to Congress today. The following is a summary of selected highlights. Parenthetical
notes refer to pages in the Budget at which further discussion and detail are provided.
The President's budget meets the legally required G-R-H deficit targets of $64 billion
for fiscal year 1991 and zero for fiscal year 1993.
The FY 1991 budget is presented in relation to five themes:
I. Investing in the Future
II. Advancing States as Laboratories
III. Reforming Mandatory Programs
IV. Acknowledging Inherited Claims
V. Managing for Integrity and Efficiency
I. INVESTING IN THE FUTURE (page 23)
A. INCREASING SAVING, INVESTMENT, AND PRODUCTIVITY (page 25)
1. Balance the Federal budget by 1993, as required by the G-R-H law. This should
increase saving and investment and reduce the need for U.S. foreign borrowing.
(pages 3, 46)
2. Protect Social Security integrity and reduce the national debt after 1993. The
Administration is proposing legislation to assure that the intended build-up in
Social Security reserves is not used to mask the non-Social Security deficit. This
would have several favorable effects: national saving and investment should rise;
real interest rates should be lower; and U.S. competitiveness should be
strengthened. (pages 10, 46, 267)
3. Reduce tax rates on capital gains for long-term investments by providing a
permanent, sliding scale exclusion. This proposal promotes long-term investment
to increase economic growth; helps U.S. business compete in an increasingly
competitive global environment; produces increased receipts for the Treasury;
and, most importantly, increases jobs and the quality of life for all Americans.
(pages 17, 47, A-51)
4. Create Family Savings Accounts and Modify IRAs. The Family Savings Account
(FSA) is proposed by the Administration to give individuals and families an
1
extra incentive to save for the future. The proposal would exempt from income
tax the interest income on certain nondeductible contributions to FSAs that are
held for seven years. In addition, the Administration proposes to modify current
individual retirement account rules to allow a waiver of the 10 percent excise tax
penalty for early withdrawals of up to $10,000 if the withdrawn funds are used
for first-time home purchases. (pages 17, 47, A-51)
B. EXPANDING THE HUMAN FRONTIER-SPACE AND BIOTECHNOLOGY, AND
THE SUPERCONDUCTING SUPER COLLIDER (page 49)
SPACE
The 1991 budget proposes to allocate a record $15.8 billion in budget authority
for space activities, including $15.2 billion for NASA. The NASA budget will
increase by $2.9 billion, or 24 percent. (page 49)
1. Building Space Transportation Infrastructure: The budget proposes funding for
Space Shuttle production and operations of $4.2 billion, an increase of $752
million, or 22 percent, over 1990. This will support the 10 shuttle flights planned
for 1991, one more than planned for 1990, plus the continued acquisition of
long-lead time spare parts, support for shuttle payloads and shuttle improve-
ments such as the advanced solid rocket motor. (page 52)
2. Expanding the Space Frontier through Manned Exploration: (page 53)
Space Station Freedom: For 1991, the budget proposes a total of $2.6 billion
in budget authority for the continued development of Space Station Freedom.
This is an increase of $699 million or 36 percent above 1990. It will provide for
the critical transition from design to actual fabrication of the first long-lead
time hardware elements.
The mission back to the Moon and to Mars: The President has lifted the
sights of the space program with his call for the establishment of a manned
presence on the moon and a manned mission to Mars. The budget reflects the
Administration's commitment to this mission by proposing $1.27 billion in
budget authority, an increase of $408 million, or 47 percent above 1990 levels,
for space exploration activities.
3. Using Space to Increase Scientific Understanding: The budget proposes to
increase funding for space science missions for planetary exploration, astronomy
and Earth observations over the next decade by $593 million in budget authority
or 22 percent, over 1990 levels. The budget will also allow for the continuation of
the development of important projects such as the Advanced X-ray Astrophysics
Facility, planned for launch in 1995, and the Comet Rendezvous/Asteroid Flyby
and Cassini mission to Saturn. The budget will provide support for thousands of
researchers and students to acquire and analyze data from previously launched
missions. (page 56)
Understanding and observing global change: The budget proposes over $1
billion in budget authority to extend U.S. leadership in understanding global
environmental change. This represents a 57 percent increase over 1990. NASA
is a major participant in the U.S. Global Change Research Program
(USGCRP) through its Mission to Planet Earth. NASA will develop and launch
2
a number of satellites and instruments, including TOPEX (to analyze surface
ocean circulation) and the Upper Atmosphere Research Satellite (UARS) (to
analyze the chemistry of the upper atmosphere.) The 1991 budget proposes a
major new program, the Earth Observing System (EOS) which is a series of
space-based instruments and platforms, developed by the U.S., the Europeans
and the Japanese.
4. Developing the Commercial Potential of Space: The 1991 budget will continue the
Administration's strong support for the commercialization of space. NASA will
allocate $229 million in budget authority to continue to procure all of its
expendable launch vehicle services from private launch service providers. In
addition, the budget will provide $101 million for NASA's Office of Commercial
Programs, including new funding for a special initiative through its Centers for
the Commercial Development of Space (CCDS) to provide flight opportunities for
innovative experiments in microgravity. (page 58)
5. Other Space Activities: The 1991 budget proposes $258 million in budget
authority for the Department of Commerce space satellite programs. This
includes $174 million for the development and launch of replacement satellites
for the polar-orbiting and geostationary weather satellite systems and $47
million to operate those systems; and $37 million for the launch of Landsat 6.
(page 58)
BIOTECHNOLOGY (page 59)
Advances in biotechnology can help improve the availability and quality of the food
supply; prevent, identify, and cure disease; and reduce the hazards of industrial waste.
The budget proposes $3.6 billion in budget authority, an increase of $213 million over
1990, for biotechnology research and development.
To spur biotechnology R&D, the budget supports speeding up regulatory review where
appropriate. The Food and Drug Administration would establish a system of user fees
for the review of drugs and medical devices, including products that use techniques
developed through biotechnology. By substantially increasing the resources available to
the FDA, user fees will enable that agency to speed its review of biotechnology products
and, in turn, allow firms to bring their products to the marketplace sooner.
SUPERCONDUCTING SUPER COLLIDER (page 64)
The Superconducting Super Collider will help scientists explore aspects of matter that
are unreachable using any existing facility, and it holds the potential for new
breakthroughs in science, technology and education.
The 1991 budget provides $318 million in budget authority for the SSC, an increase of
$100 million over the 1990 level. The budget supports work to complete the design,
development, and testing of the magnets that will propel proton beams around the
tunnel. R&D on other SSC technical systems will continue.
3
C. ENHANCING RESEARCH AND DEVELOPMENT (page 67)
The budget proposes to allocate almost $71 billion in budget authority for
research and development in 1991. This is an increase of $4.5 billion, or 7
percent, over 1990 enacted levels. Civilian R&D will increase by 12 percent while
Defense-related R&D will increase by 4 percent. Within this total, $12 billion will
be allocated for basic research, an increase of $1 billion, or about 8 percent over
FY 1990.
1. Doubling of the National Science Foundation: A 14 percent increase will continue
progress toward doubling the NSF budget by 1993. (page 74)
2. Global Change: An increase of 57 percent for the U.S. Global Change Research
Program (USGCRP), to a total of over $1 billion. This program continues the
U.S. world leadership role in climate change research. (page 75)
3. Agricultural Research Initiative: The budget proposes $100 million in budget
authority as the first step of a new agricultural research program, designed to
enhance production efficiency, food safety, and environmental quality. (page 77)
4. Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome: An
overall increase of 18 percent in allaspects of the Federal response to HIV/AIDS:
research, prevention, treatment, and income support. (page 78)
5. R&D for Advanced Technology: $192 million in budget authority, an increase of
28 percent for robotics R&D, and continued support for R&D on high
performance computing, semiconductors, superconductivity and advanced imag-
ing. (page 84)
6. Magnetic Levitation Transportation: An increase of nearly 400 percent to $10
million in budget authority to explore this potentially important transportation
technology. (page 84)
7. Science and Engineering Education: The budget proposes over $1 billion in
budget authority, an increase of 26 percent above 1990 in direct spending, for
science and engineering education activities in five agencies. In addition, the
budget provides research grants to universities in direct support fellowships and
other forms of education support. (page 87)
8. R&E Tax Credit: The budget proposes to make the Research and Experimenta-
tion Tax Credit permanent. (page 91)
9. R&D by Transnational Companies: The budget proposes to make permanent the
rules for allocation of R&D expenditures by transnational companies. (page 91)
4
D. INVESTING IN HUMAN CAPITAL (page 93)
EDUCATION (page 93)
The total 1991 budget requests for the Department of Education are the highest
ever: $24.6 billion in budget authority. Included is $19.7 billion in budget
authority for discretionary programs, $1.2 billion more than Congress provided in
1990.
1. Preparing Children to Learn: (page 99)
a. Head Start: increase by $500 million in budget authority, to a record high
total of $1.9 billion. This 36 percent increase over the 1990 level would enable
Head Start to enroll up to 70 percent of the eligible poor four year olds. (page
100)
b. Even Start: double funds to $48 million in budget authority, allowing
significantly increased participation in this program designed to provide basic
education services in low-income areas to parents together with their
children, aged one through seven. (page 101)
c. Handicapped Infants: $83 million for the Education Department to develop
and expand systems to find, and coordinate services for handicapped infants
and their families. (page 101)
d. Handicapped Children: $258 million in budget authority under the Preschool
State Grant program to pay for part of the excess cost of education and
related services for handicapped children aged three to five. (page 102)
2. Targeting Resources for Those Most in Need: (page 102)
a. Elementary and Secondary Education: increase the largest program for
remedial education services for the disadvantaged-Chapter 1 Local Educa-
tion Agency and Concentration Grants-to its highest level ever: $4.96 billion
in budget authority, an increase of $366 million, 8 percent over 1990. (page
102)
b. Educational Excellence Act: $401 million in budget authority. This proposed
legislation would give incentives to schools to improve educational achieve-
ment, expand the use of magnet schools, reward excellent teachers and
students, promote the hiring of persons with proven subject matter knowl-
edge and management abilities to be teachers and principals, increase the
endowment funds of Historically Black Colleges and Universities, and provide
special funding for the school districts with the worst drug abuse problems.
(page 103)
C. Math and Science: $230 million in budget authority for the Dwight D.
Eisenhower Mathematics and Science Education programs, a 70 percent
increase over what Congress provided in 1990. These programs provide funds
to States to improve the knowledge and teaching abilities of mathematics and
science teachers. (page 104)
d. Literacy: $239 million in budget authority for the Adult Education programs
of the Department of Education, an increase of more than 25 percent over
what Congress provided in 1990. These programs include an Adult Literacy
5
Clearinghouse at the Department of Education. (In addition, funding is
proposed to be doubled from $3 million to $6 million in 1991 for the
VISTA-Volunteer in Service to America-Literary Corps of the ACTION
agency.) (page 104)
e. Historically Black Colleges and Universities: $95 million in budget authority
to support the operations of historically black colleges and universities and
graduate institutions. An additional $15 million is provided for matching
endowment grants for these institutions, triple the amount provided in 1990.
(page 104)
3. Education Research and Statistics: The budget provides for an increase of $34.5
million in budget authority for primary research and statistics activities of the
Education Department. This includes a 50 percent increase for statistics, from
$40 million in 1990 to $60 million in 1991. Among the most important new
research investments proposed are: (page 98)
a. $5 million for new research on dropout prevention. (page 99)
b. $22 million for support for a network of national research and development
centers conducting research on educational technology, reading, effective
teaching for the disadvantaged, school leadership, and other subjects. (page
99)
C. $7 million for the Educational Resources Information Center. (page 99)
d. $20 million for the regional education laboratories to support local school
improvements efforts. (page 99)
JOB TRAINING
4. Improving Job Training Opportunities: (page 104)
a. The Job Training Partnership Act: The budget seeks to refine the Federal
Government's role in the Job Training Partnership Act (JTPA) by: revising
eligibility criteria to ensure that the most disadvantaged receive services;
providing more intensive and comprehensive services to participants; and
improving coordination among Federal, State and local human resource
programs. (page 106)
b. Youth Opportunities Unlimited: The Administration has proposed a new,
multi-year challenge grant program entitled Youth Opportunities Unlimited
(YOU). Targeting high poverty inner cities and rural areas, this program is
designed to have community-wide impact, serving as a model in developing a
local coordinated human resource policy for at-risk youth. (page 108)
C. Job Opportunities and Basic Skills: This program was enacted as part of the
Family Support Act of 1988. The 1991 budget includes $1 billion for this
program. (page 108)
ENHANCING PARENTAL CHOICE IN CHILD CARE (page 194)
Respecting the many ways that American families care for their children, the President
has based his child care policy upon parental choice. The budget reproposes the two tax
credit initiatives for child care that were advanced last year: (1) a new refundable Child
6
Tax Credit for low-income working families of up to $1,000 for each child younger than
age four, and (2) refundability of the current Child and Dependent Care Tax Credit.
E. ENDING THE SCOURGE OF DRUGS (page 111)
The 1991 Federal drug control budget totals $10.6 billion in budget authority.
This budget will provide $9.7 billion in outlays, $2.8 billion more in outlays than
last year-a 41 percent increase.
1. Attacking the Drug Market at the Source and on the Street: (page 112)
a. At the source: (page 112)
an increase of $175 million in budget authority in economic assistance for
the Andean nations to complement military and law enforcement programs
begun in 1990. If the Andean nations show demonstrable progress in 1990,
the total assistance package will reach $440 million in 1991.
A $15 million in budget authority increase is proposed for drug control pro-
grams in countries that now produce marijuana and heroin, or serve as
trans-shipment points for those substances.
$35 million in budget authority is requested for domestic marijuana eradi-
cation.
$2.4 billion in budget authority proposed for air, land, and maritime inter-
diction operations would provide obstacles to drug smugglers, including sei-
zure of illegal shipments, and can ultimately reduce the availability of drugs
in the U.S.
b. On the street: (page 113)
$330 million in budget authority for the 13 regional Organized Crime Drug
Enforcement Task Forces. This represents a 54 percent increase over 1990.
$50 million in budget authority, a $25 million increase over 1990, proposed
to be targeted on high intensity drug trafficking areas.
An estimated $238 million in budget authority from seizures will be shared
with State and local law enforcement agencies-their fair share of Federal
seizures of drug dealers' assets.
$700 million in budget authority for the Drug Enforcement Administration
(DEA). The $151 million increase over 1990 represents one of the largest
annual increases in the history of the agency.
Within the DEA budget request is a 30 percent increase for State and local
task forces to $42 million in budget authority in 1991.
$172 million in budget authority, a $32 million increase over 1990, is requested
for the FBI's anti-drug abuse activities.
$182 million in budget authority for the U.S. Attorneys to prosecute drug
dealers and users, a $45 million increase over 1990. A 30 percent increase,
a total request of $201 million, for the U.S. Marshals is also proposed.
7
$79 million in budget authority increase for the Judiciary branch, for a total
of $403 million, to try accused drug offenders.
$492 million in budget authority is requested for State and local law enforce-
ment grants, a 10 percent increase over 1990.
The Administration has proposed legislation to require States to adopt drug-
testing programs throughout their criminal justice systems as a condition for
receipt of Federal criminal justice funds.
2. Treating the Drug User: (page 114)
For 1991, the Administration requests nearly $1.7 billion in budget authority for
drug treatment activities, a 12 percent increase over 1990. This includes:
a. $760 million for Alcohol, Drug Abuse and Mental Health Administration
(ADAMHA) drug treatment grants and technical assistance for the States, an
increase of 11 percent over 1990. (page 116)
b. $300 million for the Department of Veterans Affairs to provide drug
treatment services. (page 116)
c. Tripling the assistance for the smallest victims of the drug problem, "crack
babies." (page 116)
d. An increase of $30 million for treatment research and data collection by HHS.
(page 116)
3. Preventing Drug Abuse: School, Workplace, and Community Prevention: (page
116)
The 1991 budget requests an increase of 12 percent over 1990, or a total of $1.4
billion in budget authority for drug prevention and education activities. This
includes:
a. $496 million for drug prevention programs in the Department of Health and
Human Services: Many of these programs fund prevention demonstration
projects and research for high-risk youth populations. Drug prevention efforts
for pregnant women remain a priority. (page 118)
b. $593 million for the Education Department's Drug-Free Schools and Commu-
nities Program: This represents a $54 million increase over 1990. (page 118)
c. $150 million for drug programs for the Department of Housing and Urban
Development, of which approximately half will be directed at preventing drug
abuse in and around housing projects. (page 118)
Federal efforts will continue to support a drug-free Federal workplace. The
Administration also will propose to strengthen drug-free workplace requirements
for Federal contractors and grantees. (page 118)
8
F. PROTECTING THE ENVIRONMENT (page 119)
The budget provides over $2 billion in new budget authority for initiatives to
protect the environment.
1. Exercising Responsible Stewardship of America's Natural Resources: (page 120)
a. America the Beautiful: The budget proposes to establish a new "America the
Beautiful" initiative comprised of the following: (page 120)
Land Acquisition: The budget proposes to expand acquisition of high priority
national parks, refuges, forests, and other public lands. The budget requests
$250 million in budget authority in 1991 for these purposes.
Reforestation: The budget proposes $175 million in budget authority for the
first year of a multi-year initiative with these objectives: planting a billion
trees on private land across America; and launching a community trees
program, designed to plant another 30 million trees in towns and cities across
America.
Enhancing recreation and restoring natural resources: Legacy '99: The budget
includes $205 million in budget authority, 40 percent above 1990, for improved
resource protection and restoration (including wetlands conservation and
endangered species activities) and enhanced recreational opportunities in
national parks, wildlife refuges, and other public lands.
b. Protecting America's Wetlands: The budget proposes an increase of $88
million in budget authority, 24 percent above 1990, for wetlands research,
protection, preservation, and enhancement. (page 123)
C. Mitigating the Environmental Effects of Water Resource Development: (page
124)
The budget proposes $16 million in budget authority for the Army Corps of
Engineers to construct juvenile fish passage facilities on the Columbia and
Snake Rivers in Washington, Oregon, and Idaho.
The budget provides $20 million in budget authority to begin the acquisition
of 88,000 acres needed to mitigate environmental losses caused by the con-
struction of the Tennessee-Tombigbee Waterway project in Alabama and Mis-
sissippi.
d. Managing America's National Forests: The budget proposes to end "below-
cost" timber sales, on nine test forests where recreation and other uses have
been increasing. "Above cost" sales on these forests will be allowed. (page 123)
2. Providing Tools for Effective Pollution Control: (page 126)
a. Increase EPA's Operating Budget: $230 million in budget authority, a 12
percent increase above 1990, for EPA's operating budget. The increase would
bring staffing growth since the beginning of the Administration to 1,630-an
11 percent increase. (page 126)
b. Implementing Clean Air Changes: An increase of over $80 million in budget
authority is requested to enable the agency to implement the ambitious new
9
proposals for revising the Clean Air Act proposed by the President last year.
(page 126)
c. Enforcing Environmental Laws: The budget calls for a 36 percent increase in
EPA's enforcement budget. This will enable EPA to redouble its efforts to
ensure that responsible parties pay for cleaning up the pollution they create.
(page 126)
d. Protecting Critical Habitats: The budget provides $95 million in budget
authority, an increase of 32 percent, for EPA's critical habitat programs,
which seek to address pollution problems in the Nation's wetlands, estuaries,
and near coastal waters. (page 127)
e. Revitalizing the Council on Environmental Quality: The budget for CEQ will
nearly double. (page 127)
f. Promoting Environmental Education: In 1991, the President will present a
cash award of $5,000 to the 100 teachers-two in each State-who design and
implement the most innovative and effective programs to teach students
about the environment. (page 128)
g. Maintaining Environmental Infrastructure: The budget proposes a $91
million in budget authority expansion of the maintenance and rehabilitation
efforts by the Department of the Interior that preserve the basic infrastruc-
ture of America's national parks, wildlife refuges, and other public lands. This
is a 19 percent increase above 1990. (page 128)
3. Cleaning Up Hazardous Wastes: (page 129)
a. Accelerating the Pace of Superfund Cleanups: The President has requested an
increase of over $200 million, which will be targeted toward cleanups. (page
129)
b. Cleaning up Federal Facilities: The budget proposes an increase of nearly
$800 million in budget authority, or 21 percent above 1990 levels, for Federal
facility cleanup efforts. (page 129)
4. Laying the Groundwork for a Cleaner, Safer Future: (page 129)
a. Global Climate Change Research: The budget contains over $1 billion in
budget authority, an increase of 57 percent over the 1990 levels, for the U.S.
Global Change Research Program, an interagency research effort designed to
improve scientific understanding and predictive capability on global change
issues. (page 129)
b. Encouraging the Development of Solar and Renewable Energy Sources: The
budget requests about $360 million in budget authority for these activities, a
substantial increase over the $208 million requested in 1990. The budget will
also request $182 million for energy conservation R&D, almost double the
1990 request. (page 131)
10
G. IMPROVING THE NATION'S TRANSPORTATION INFRASTRUCTURE (page
133)
AVIATION
The President is proposing a total of $8.6 billion in budget authority, a 16 percent
increase, for aviation programs in 1991. This is the first year of a 5-year aviation
reauthorization program to provide the necessary funding to modernize and expand the
aviation infrastructure. (page 134)
1. Keeping the Skies Safe and Secure: The Administration is requesting $4.1 billion,
a $264 million or 7 percent increase over 1990, for Federal Aviation Administra-
tion (FAA) operations. The budget also includes a $20 million or 12 percent
increase over 1990, for aviation research and development. (page 135)
2. Modernizing Airspace System Equipment: The budget proposes $2.5 billion in
budget authority, an increase of $779 million, or 45 percent. (page 135)
3. Expanding Airport Capacity: (page 136)
a. Increasing Federal funding for capacity projects: The President's budget
provides $1.5 billion in new 1991 spending for Federal airport grants, a $75
million increase over 1990. (page 137)
b. Removing Federal restrictions: The Administration proposes to remove
existing statutory restrictions that prevent airports from raising certain
revenue-namely by allowing airports to levy passenger facility charges
(PFCs). Some estimates show PFCs could generate about $1 billion per year
for U.S. airports. (page 137)
4. Financing the Aviation System: The Administration proposes to increase aviation
user fees to finance these significant increases in aviation spending. The
passenger ticket fee would be raised from 8 to 10 percent and other aviation fees
would be raised similarly. (page 137)
HIGHWAYS
For 1991, the budget provides Federal-aid highway funding to cover the Federal share
of the cost to maintain the physical condition of bridges and highways of national
importance and to continue completion of the Interstate System. The Federal-aid
highway program is authorized through 1991. During this year, the Federal Govern-
ment will work with its partners-States, local governments and the private sector-to
address the projected needs for highways. The Administration will present its proposals
in the context of the highway reauthorization for 1992 and beyond. (page 138)
H. BRINGING HOPE TO DISTRESSED COMMUNITIES (page 141)
1. Expanding Tenant Management and Homeownership Opportunities: (page 141)
a. HOPE Grants: To help low-income families become homeowners with a stake
in their communities, the Administration proposes a new HOPE Grant
Program. These grants will provide funds for resident management and
homeownership in public housing, government-held vacant and foreclosed
properties, and financially "distressed" properties. HOPE Grants will provide
$2.15 billion over 3 years with States, localities, or non-profit organizations
11
required to provide $1 for every $2 in Federal HOPE Grant funds. A total of
$250 million will be set aside to provide replacement housing for public
housing developments that convert to low-income homeownership. (page 144)
b. Urban Homesteading: The budget almost quadruples funding for this
program for a total of $50 million in 1991. (page 145)
C. Prepayment Strategy: The HOPE initiative proposes a three-pronged
approach to protect tenants who would be adversely affected by much higher
and unaffordable rents in housing projects where owners will become eligible
to prepay their mortgages. (page 145)
d. IRAs for Homebuyers: To expand homeownership for young families and
first-time homebuyers, the Administration proposes the use of Individual
Retirement Accounts (IRAs) for buying a home. (page 146)
2. Reducing or Eliminating Barriers to Low-Cost Housing: (page 146)
a. Housing Opportunity Zones: The budget proposes a Federal-local partnership
to remove barriers to, and create incentives for, more affordable housing for
low and moderate income families in distressed areas through designation of
50 housing opportunity zones, chosen through a competitive process. (page
146)
b. Low-income Tax Credit: The budget proposes to extend the low-income
housing tax credit through December 1991 to encourage the new construction
or rehabilitation of affordable rental housing in areas with rental housing
shortages. (page 146)
3. Helping Poor Families and Elderly Become Self-Sufficient: (page 147)
a. Operation Bootstrap: Starting in 1991, all housing vouchers provided to
welfare families and others with very low incomes must be combined with a
local program to help them escape from dependency. (page 147)
b. Frail Elderly Housing Services Voucher: The 1991 budget proposes a
Service-Supported Housing Voucher Demonstration for the frail elderly-
those persons of at least 62 years of age who need assistance with three or
more simple activities of daily living-funded at $44 million. $34 million of
housing vouchers will be linked with $10 million for in-home services. (page
147)
4. Helping the Homeless: (page 147)
a. The budget includes $819 million for the McKinney Act programs, more than
the $727 million needed to "fully fund" the Act. (page 147)
b. Special Homeless Initiatives: (page 147)
AFDC Families in Welfare Hotels: The budget proposes a total of $143 million
for the McKinney Act Transitional Housing Demonstration program. This
program is designed to develop innovative approaches to providing houses
and supportive services to homeless individuals and families who can make
the transition to independent living within 2 years.
12
A new "Shelter Plus" Program to help the homeless mentally ill or recovering
substance abuser. HUD would provide $247 million in housing assistance for
over 8,900 homeless mentally ill or recovering substance abusers.
5. Creating Jobs and Economic Growth in Distressed Areas: (page 148)
a. Enterprise Zones: Three tax incentives are included in the President's budget
to encourage job creation and entrepreneurship in distressed areas: (page
148)
A 5 percent refundable tax credit for the first $10,500 of wages, up to $525
per worker, to qualified employees for wages earned in an enterprise zone
business.
Expensing of investor purchases of newly issued corporate stock of businesses
located in enterprise zones. This is an up-front deduction for up to $50,000
per year of new equity investment, with a $250,000 lifetime limit.
A zero capital gains rate for gains on investment in tangible property used
in an enterprise zone business and located within an enterprise zone at least
two years.
I. PRESERVING NATIONAL SECURITY AND ADVANCING AMERICA'S INTER-
ESTS ABROAD (page 151)
NATIONAL DEFENSE
The budget request for national defense is significantly less ($14.3 billion in budget
authority and $5.5 billion in outlays) than the amounts included in the President's
February 1989 budget for 1991. Budget savings in the 1991-93 period (relative to the
previously-published levels) are $63.6 billion in budget authority and $29.7 billion in
outlays. The actual savings relative to the full cost of the previously approved defense
program are considerably higher-almost $170 billion over 5 years. (page 151)
1. Department of Defense-military: The budget requests $295.1 billion in budget
authority and $292.1 billion in outlays for the military functions of the DOD:
(page 153)
a. Operations: Active duty end-strength will decline by the end of 1991 to a level
of 2,038,800-91,429 below the actual FY 1989 level-with savings of $1.7
billion. At the same time, to continue to assure force quality, readiness and
training, the budget provides for a 3.5 percent pay raise, improved benefits,
enlistment and re-enlistment bonuses, special pay for critical skills, and
continuation of current training levels. (page 154)
Strategic forces: Deployed forces will continue to include the Triad of land,
air, and sea based systems, as well as air defense interceptors.
General purpose forces: Land forces at the end of 1991 will include 19 active
and 11 reserve Army and Marine divisions, two active divisions less than at
the end of 1990. Naval forces will include 14 aircraft carrier battle groups
and 15 tactical airwings (the same as in 1990), but two of the four U.S.
battleships will be deactivated and the number of nuclear attack submarines
will decrease by 5 in 1991. Air forces will include 24 active and 12 reserve
Air Force fighter wing equivalents, 2 squadrons of B-52's dedicated to the
13
delivery of conventional weapons, and 25 strategic airlift squadrons. One Air
Force fighter wing equivalent and one conventional B-52 squadron will be
deactivated in 1990.
Special operations forces: Through 1991, Army special forces battalions will
increase from 13 to 15, and Air Force special operations units will gain 7
additional aircraft.
b. Investment:
Strategic systems: To modernize all three components of the strategic Triad,
procurement for 1991 includes the eighteenth Trident submarine and 52
Trident II missiles, 12 Peacekeeper missiles for operational testing and special
railroad trains to provide mobility for Peacekeeper missiles. The budget
requests funds for continued development of the small intercontinental bal-
listic missile. It also requests an increase for the Strategic Defense Initiative
to a level of $4.5 billion. This is $0.9 billion more than in 1990, but $1.0
billion less than previously planned.
Conventional systems: To maintain well-equipped forces, the budget provides
for procurement in 1991 of 225 M-1 Abrams tanks, 600 Bradley Fighting
Vehicles, 72 Blackhawk utility helicopters, 14 new ships, 186 Air Force fighters,
and six C-17 transport aircraft. Development will continue on the Army's
experimental light helicopter (LHX) and improved ground force systems, the
Advanced Air-to-Air Missile System, P-7 anti-submarine warfare aircraft,
and next generation tactical aircraft. Fifteen systems will be terminated with
associated savings of $3 billion. These are in addition to the five systems
terminated in the FY 1990 budget.
Research and Technology: The budget requests $38.0 billion in budget author-
ity and $37.0 billion in outlays for research, development, testing and eval-
uation-$1.2 billion and $0.4 billion, respectively, more than 1990 levels. The
request includes $3.4 billion to develop technology options for future U.S.
weapon systems and to guard against technological surprise by our adver-
saries.
C. Base Closures: The budget requests $916 million for continued implementa-
tion of the Base Closure and Realignment Act approved by Congress in 1989.
$500 million was provided in the 1990 budget for this purpose. Additional
domestic base closures will be studied this year and units will be withdrawn
from some overseas bases. (page 156)
d. Drug Interdiction: The budget requests $1.2 billion for an aggressive Defense
counternarcotics program, $0.3 billion more than 1990. (page 156)
2. Atomic Energy Activities: The budget proposes budget authority of $11 billion
and outlays of $10.4 billion, compared to $9.7 billion and $8.9 billion,
respectively, for 1990. (page 156)
The budget includes $2.8 billion in budget authority for waste cleanup at various
Department of Energy facilities. This represents an increase of $601 million, or
27 percent above 1990. The budget also includes an increase of $178 million in
budget authority for Federal facility cleanup activities in other agencies.
14
Governmentwide, the increase above 1990 for Federal facility cleanup is 21
percent. (page 257)
3. Defense-Related Activities: These activities include civil defense and emergency
preparedness activities of the Federal Emergency Management Agency, the
efforts of the Selective Service System, and the Maritime Administration's Ready
Reserve Force. The budget requests $760 million in budget authority and $705
million in outlays for these purposes, as compared with $609 million and $648
million, respectively, in 1990. (page 157)
INTERNATIONAL AFFAIRS
The budget requests budget authority of $20 billion and outlays of $18.2 billion for
international affairs activities, $1.4 billion and $3.6 billion more, respectively, than in
1990. The high growth in outlays reflect in part the cessation in 1991 of certain large
receipts. (page 158)
1. Foreign Aid: The budget requests $14.9 billion in budget authority and $14.2
billion in outlays for foreign aid, $1 billion and $3 billion, respectively, more than
in 1990. Much of the increase in outlays in 1991 is due to the prepayment in
1990 of past loans for military goods and services. The budget reflects an
emphasis on Eastern Europe, counter-narcotics, and the U.S. role in the
multilateral development banks (MDBs). (page 159)
a. Security Assistance: The budget requests $8.8 billion in both budget authority
and outlays for international security assistance, $0.4 billion and $2.5 billion,
respectively, more than in 1990. The largest component of security assistance
requested-$5.1 billion, or 61 percent-provides military and economic
support to Israel and Egypt. Furthering their efforts to achieve a lasting
peace in the Middle East remains a high priority of U.S. foreign policy. (page
160)
Narcotics control: The budget requests $528 million in budget authority and
$270 million in outlays for international narcotics control. The requested
funding will finance the second year of the plan to reduce the flow of cocaine
from the Andean countries of Colombia, Peru, and Bolivia. The major incre-
ment in this program will be $175 million of new aid for the economies of
those countries that evidence a determination to attack seriously the narcotics
problem.
b. Development and Humanitarian Assistance: The budget proposes $6.1 billion
in budget authority and $5.4 billion in outlays for development and
humanitarian assistance, $0.6 billion and $0.5 billion, respectively, more than
in 1990. This funding is to encourage market-oriented economies through
budgetary support, capital projects and technical assistance; to provide relief
from major disasters; and to provide humanitarian assistance such as refugee
care. The request includes $1.9 billion in budget authority for bilateral
economic assistance programs administered by AID and $1.7 billion in budget
authority for U.S. contributions to multilateral development banks such as
the World Bank. (page 161)
Special assistance for Eastern Europe and the Philippines: The major empha-
sis of the increases in foreign aid in 1991 is support of democracy abroad.
The budget requests $300 million for a special assistance initiative for those
15
countries in Eastern Europe that are moving toward democracy and attempt-
ing to develop free-market economies. The budget also requests $200 million
for special assistance to the Philippines.
Refugees: The budget requests $451 million in budget authority and $435
million in outlays for refugee programs, $82 million and $49 million, respec-
tively, more than in 1990.
Multilateral development assistance: The budget requests $3.2 billion in con-
tributions over the next 3 years to the International Development Association
(IDA), an agency of the World Bank. This proposed funding, when matched
by funding from other countries, will permit IDA to provide an average of
$5.5 billion in annual long-term lending to the poorer developing countries.
2. Diplomacy: The budget requests budget authority of $5.3 billion and outlays of
$4.5 billion, $1 billion and $0.4 billion, respectively, more than in 1990. (page
161)
a. The conduct of foreign affairs: Funds sought for the basic salaries and
expenses of the State Department are $1.9 billion in budget authority and
$1.8 billion in outlays. (page 162)
Payments to international institutions: The budget requests $1.4 billion in
budget authority and $0.9 billion in outlays for international organizations
that are important to U.S. interests, an increase of $712 million and $187
million, respectively, over 1990 levels. The request includes $794 million for
regularly scheduled payments and $620 million to eliminate arrearages in
U.S. mandatory contributions to the United Nations and related agencies.
Reconstruction of the Moscow Embassy: The budget requests $270 million in
budget authority and $10 million in outlays to construct, under extraordinary
technical standards, a more secure building for diplomatic representation
and negotiations.
b. Public Diplomacy: Among the various programs in this area, the budget
requests $154 million for exchange programs and $125 million for USIA's
Voice of America to continue its major modernization of radio broadcasting
capacity. (page 162)
3. International Financial Programs: For 1991, the Export-Import Bank will
provide $500 million in loans and $10.6 billion in guarantees and insurance to
support U.S. export sales. (page 163)
J. PRESERVING AMERICA'S HERITAGE (page 165)
The budget proposes $757 million in direct funding of activities that preserve,
pass on and contribute to the American heritage, 9 percent more than enacted in
1990.
1. National Endowment for the Arts: The budget requests $175 million in budget
authority for the National Endowment for the Arts, $4 million more than
enacted in 1990. (page 166)
16
2. National Endowment for the Humanities: $165 million in budget authority for
the National Endowment for the Humanities, $8 million more than enacted in
1990. (page 166)
3. Institute for Museum Services: $24 million in budget authority for the Institute
of Museum Services, $1 million more than enacted in 1990. (page 166)
4. Smithsonian Institution: $308 million in budget authority for the Smithsonian
Institution, roughly $41 million more than enacted in 1990. The budget includes
$19.4 million toward establishment of a new National Museum for the American
Indian. (page 167)
5. National Gallery of Art: $49 million in budget authority for the National Gallery
of Art, $7 million more than enacted in 1990. (page 167)
6. Historic Preservation Fund Program: $34 million in budget authority for
theHistoric Preservation Fund Program of the National Park Service, $1.4
million more than enacted in 1990. (page 167)
II. ADVANCING STATES AS LABORATORIES (page 169)
The President's budget highlights and expands the effort of the Federal government to
foster and finance innovation in the States. In the areas of education and low-income
programs in particular, the President's program supports important innovations and
experiments, including steps to reduce Federal controls and regulations in order to give
State Governors and legislators greater latitude to try new methods.
III. REFORMING MANDATORY PROGRAMS (page 181)
Mandatory spending encompasses entitlements and a wide variety of other benefits,
services, and subsidies ranging from social services to electric power distribution
subsidies. The element common to all mandatory spending is that it tends to be
"automatic" in the sense that it is not normally controlled through the annual
congressional appropriations process in the way other spending, termed "discretionary"
is. Mandatory spending is now almost half of total Federal spending and will exceed 50
percent by 1994.
The sheer size of the mandatory program universe dictates careful attention to
spending, which if allowed to grow unexamined can limit the Nation's future in several
ways. Reforms are proposed in a number of mandatory programs, though most
mandatory programs will still have higher outlays in 1991 than 1990.
IV. ACKNOWLEDGING INHERITED CLAIMS (page 213)
A. ACCOUNTING FOR DEBT AND UNFUNDED ANNUITIES
The Government owes $2.2 trillion of principal to the people who have loaned it
the money to pay for past deficits. This year it will pay an estimated $176
billion of net interest. The present deficit is continuing to increase the amount of
debt, although less rapidly than several years ago.
17
Annuity programs have also created large and growing obligations on future
taxpayers. The Government spent $382 billion in 1989 for social security,
medicare, and Federal employee retirement programs, and the budget estimates
it will spend $433 billion in 1991. These programs are projected to become much
larger relative to the economy in future decades than they are now.
A thorough discussion of possible future claims under this heading is at pages
215-228 of the Budget.
B. FEDERAL UNDERWRITING RISKS-CREDIT AND INSURANCE PROGRAMS
The Federal Government is the Nation's largest source of credit and underwriter
of risk. Too little attention was paid in the past to the scope and scale of these
commitments, and often the Government's potential exposure was understated or
ignored. Events of the past few years, including insolvency of the Federal
Savings and Loan Insurance Corporation and many insured thrifts, the bailout of
the Farm Credit System, and mounting losses in mortgage insurance programs,
provide hard evidence of the magnitude of the threat. This budget reexamines
and begins to restructure Federal credit and insurance programs. Please see
pages 229-255 for a more complete discussion of these issues than has been
presented in previous budgets.
C. CLEANING UP FEDERAL FACILITIES
The President is committed to cleaning up environmental contamination from
past practices at federally owned facilities across the country, and to ensuring
that Federal agencies meet or exceed all environmental standards required by
relevant laws and regulations. Agencies have the responsibility to operate within
these laws, and citizens have the right to insist that Federal agencies be good
neighbors.
The budget contains major increases in funding for several agencies that will
result in significant progress toward the goal of bringing Federal facilities into
compliance with environmental laws. (pages 257-262)
V. MANAGING FOR INTEGRITY AND EFFICIENCY (page 263)
A. REFORMING THE BUDGET PROCESS (page 265)
The congressional budget process does not work well. The budget suggests
several reforms to improve the discipline and effectiveness of the Federal
budgeting system:
1. Joint budget resolution (page 265)
2. Improved budget measuring and "scorekeeping" (page 265)
3. Biennial budgeting (page 265)
4. Enhanced rescission authority (page 266)
18
5. Restraining supplemental appropriations (page 266)
6. Closing loopholes in G-R-H (page 267)
7. Reinforcing sequester (page 267)
8. Protecting the social security trust fund (page 267)
9. Amending the Constitution (page 268)
Balanced budget amendment
Line item veto
B. RESTORING A BASIS FOR CONFIDENCE (page 271)
1. Reducing Investment in Low Return Programs (page 271)
Total budget authority for domestic discretionary programs, which are defined as
those controlled through the annual appropriations process, is proposed to
increase from $160.5 billion in 1990 to $167.4 billion in 1991. Outlays are
estimated to increase from $184.2 billion in 1990 to $194.4 billion in 1991. These
changes are the net result of many proposed increases and decreases. Previous
sections have highlighted increases. This section of the budget details the
principal decreases in domestic discretionary programs.
2. Strengthening Management Oversight (page 278)
American citizens have the right to expect that their Government will not
tolerate recurrent scandals, such as in housing programs and procurement for
national defense. They have the right to better assurance that Federal activities
will not pollute the neighborhoods in which they operate or the ecosystem itself.
They have the right to expect that their hard earned tax dollars will go to broad
national purposes and not to those who can muscle legislators or officials for
special breaks. Americans also have the right to first rate service delivery,
systems to provide for Government efficiency and integrity, and a skilled and
well-motivated Federal workforce. Better provision for these rights and expecta-
tions will improve the basis for confidence in democratic institutions.
The budget requests $22.1 billion in budget authority and $19.9 billion in
outlays-$2.9 billion and $2.4 billion, respectively, more than in 1990-to
improve Government management.
Initiatives to strengthen management oversight include:
a. Defense Management Reform: The budget includes 1991 management savings
in the Department of Defense's operations of $2.3 billion. These savings will
result from implementation of the recommendations in the Defense Manage-
ment Report, which the President transmitted to Congress in July 1989.
Personnel reductions of approximately 8,000 civilians and 8,000 military are
expected in 1991 as a result of these reforms. In addition, the Department of
Defense estimates these savings will increase to a total of $39 billion by 1995.
(page 283)
b. Enhanced Collection of Taxes and Tax Debt: To slow the growth in tax debt
(currently $61 billion), the budget includes funding for the first phase of a
3-year tax collection initiative, the overall objective of which is to increase
19
collections by $2.25 billion over the 1991-93 time period. The first phase will
generate $759 million in revenues over this interval from 1,050 additional
collection personnel to be hired in 1991. The Internal Revenue Service also
plans to reallocate existing resources so as to provide additional revenues of
$2.5 billion in 1991. (page 284)
C. Enhanced Collection of Non-Tax Debt: The budget requests an additional $55
million to accelerate non-tax collections, an investment which will improve
management controls and realize a return of $200 million in 1991. Additional
staff positions are planned for account servicing in the Department of
Agriculture's Farmers Home Administration and the Department of Veterans
Affairs. Over 400 positions have been allocated to HUD field offices to
improve portfolio management. (page 284)
d. Selected Improvements in Service Delivery: To improve service delivery, the
budget requests $6.1 billion and over 120,000 staff in 1991 for the IRS, $635
million more than in 1990; $4.2 billion for operating the Social Security
Administration, $330 million more than in 1990; $8.6 billion for the Federal
Aviation Administration (FAA), $1.2 billion more than in 1990; $507 million
for selected Federal economic statistics programs, $52 million more than in
1990. (page 280)
e. Rebuilding the Public Trust: The budget requests an increase of $76 million,
10 percent more than 1990, and 670 additional staff who will assist in
implementing the HUD Reform Act of 1989. The budget also requests an
increase of $32 million for HUD automated data systems, including financial
management systems, 44 percent more than in 1990, and $8 million for the
HUD Inspector General to improve monitoring and review of HUD programs.
(page 280)
f. Strengthening the Savings and Loan Industry: The Administration proposed
comprehensive reform, and Congress enacted the Financial Institutions
Reform, Recovery, and Enforcement Act (FIRREA) of 1989 in August. The
legislation imposes a number of new requirements on the industry and its
regulators to assure the safety and soundness of nearly $1 trillion of insured
deposits; it also establishes a Resolution Trust Corporation (RTC) to handle
the merger, sale or liquidation of 500-600 insolvent S&Ls. (page 280)
g. Cleaning up Hazardous Waste Dumps: The Environmental Protection Agency
will in 1990 increase enforcement and tighten oversight of the Superfund
toxic waste response program. EPA will impose a 120-day deadline on
negotiations with polluters and exercise its authority to order cleanup if
settlement is not reached. Increased enforcement has already resulted in $1
billion in polluter-financed clean-up activities for 1989, nearly double that in
1988. The budget provides for a $210 million increase in 1991 to clean up
additional hazardous waste sites. This investment builds on the actions of the
Administration to provide 480 additional staff at the Department of Justice
and EPA (a nearly 40 percent increase) to strengthen Superfund enforcement
in 1990. (page 281)
h. Improving the Integrity of Student Aid Programs: To reduce guaranteed
student loan defaults and other losses from inadequate program manage-
ment, the Department of Education is pursuing a three-pronged strategy of
20
strengthened regulations, administrative actions, and changes in law. (page
281)
i. Improving Pension Oversight: The budget requests an increase of 133
investigative and legal support staff and an additional $9.3 million in the
Department of Labor to strengthen oversight of private pension plans
through the Pension and Welfare Benefits Administration. The additional
staff will enable the Department to increase reviews and investigations by
more than 50 percent and reporting enforcement investigations by 80 percent.
(page 281)
j. The Inspectors General: Over the 2-year period 1990 to 1991, the budget
specifically adds 67 staff and $6.9 million for the Department of Energy to
deal with procurement fraud, increase audits (including environmental
audits), and increase investigations and analysis. It also includes resources
for additional audit coverage of international program activities at the
Department of Agriculture; increased audit and investigation coverage of the
Pell Grant, education for the handicapped and student loan programs at the
Department of Education; increased auditing and investigative work at the
Department of the Interior; enhanced ADP capabilities at the Department of
the Treasury; additional personnel to provide adequate coverage of the
Superfund and underground storage tank programs at EPA; and additional
audits of contractors at NASA. (page 281)
k. Internal Controls and Audit Follow-up: The budget requests $3 million and
41 staff to establish or augment offices better to coordinate and manage
internal controls and audit follow-up at the Departments of Agriculture
(Farmers Home Administration), Housing and Urban Development, Interior
and Veterans Affairs, and at NASA. Working with the agencies, OMB has
identified more than 100 high-risk areas; and a central tracking system has
been established to monitor corrective actions. Deputy Secretaries and
Deputy Administrators have been told that it is their personal responsibility
to ensure that management integrity is maintained and strengthened and
that their agencies' progress must be reported regularly. OMB is also revising
its instructions to agencies to require budget information sufficient to ensure
necessary resources to correct high risk weaknesses. (page 281)
1. Presidential Priority Systems: The budget requests nearly $2 billion to design,
acquire, and operate program information systems which the Administration
has established as Presidential Priority Systems, $402 million more than in
1990. These systems include the Social Security Administration's Information
Technology System, Patent and Trademark automation, the Department of
the Treasury's tax system modernization, government-wide financial manage-
ment systems, the General Services Administration's FTS 2000 system,
systems under the Department of Transportation's National Airspace Plan,
the Integrated Border Information System, the Department of Commerce's
Advanced Weather System, and the Securities and Exchange Commission's
EDGAR System. (page 282)
m. Management Support Systems: The budget requests $558 million for manage-
ment support systems enhancement, $54 million more than in 1990. These
funds will permit continued improvement of financial systems throughout the
government so as to provide more accurate and timely information to agency
21
managers and central agencies. The funds will also assist linking these
systems electronically in a government-wide network. (page 282)
n. Credit Management Systems: The budget requests $860 million for credit
management an increase of $58 million over 1990. The Office of Management
and Budget and the Department of the Treasury have also upgraded the
effort to implement the comprehensive credit management and debt collection
program known as the "Nine-Point Program." (page 282)
O. Pay Reform: The budget allows agencies to use up to $328 million to begin
Federal pay reform. The Administration will seek legislation to authorize
geographic differentials for all personnel of up to 8 percent in New York, Los
Angeles and San Francisco; 5 percent increases in starting salaries nation-
wide at GS-5 and GS-7 levels for college entry-level occupations; the
extension of current authority to hire at pay levels above the minimum step
to all grades; and bonuses to recruit, retain of relocate critical skill workers.
The budget will also continue pay demonstrations in the Defense Depart-
ment, the Federal Aviation Administration and the National Institute of
Standards and Technology to demonstrate the effects of pay on recruitment
and retention. (page 283)
C. MANAGING BY OBJECTIVES
In Building a Better America, President Bush directed the establishment of a
Presidential Management by Objectives (MBO) system. Its purpose is to track
the implementation of selected major policy initiatives and priorities of the
Administration from the time of their formulation and announcement to their
ultimate outcomes.
The President approved specific objectives for each of the Cabinet departments
and participating agencies, as well as Government-wide cross-cutting objectives,
in July 1989. The departments and agencies have prepared strategies for
achieving these objectives and have identified milestones for measuring their
progress. The budget requests resources for the Presidentially approved objectives
within overall spending constraints. The objectives themselves are listed at pages
289-300 of the Budget.
22
The Federal Government Dollar
Fiscal Year 1991 Estimate
Where It Comes From
Excise Taxes
Borrowing
3%
Other
5%
4%
Corporation Income
11%
Tax
Social
Insurance
Receipts
34%
Individual
Income
Taxes
43%
Other Federal Operations
Grants to
6%
States & Localities
12%
National
Defense
Where It Goes
25%
Direct Benefit
Net
Payments for
Interest
Individuals
14%
43%
Table 1. RECEIPTS, OUTLAYS, DEFICIT/SURPLUS UNDER THE PRESIDENT'S PROPOSED
POLICY
(In billions of dollars)
1989
1990
1991
1992
1993
1994
1995
Receipts
990.7
1,073.5
1,170.2
1,246.4
1,327.6
1,408.6
1,486.3
Outlays
1,142.6
1,197.2
1,233.3
1,271.4
1,321.8
1,398.0
1,476.9
Surplus or Deficit (+/-)
-152.0
-123.8
-63.1
-25.1
+5.7
+10.7
+9.4
Note: Detail may not add to total due to rounding.
23
Table 2. OUTLAYS BY FUNCTION: 1989-95
(In billions of dollars)
Estimate
1989
Function
actual
1990
1991
1992
1993
1994
1995
050 National defense
303.6
296.3
303.3
309.2
311.9
315.7
318.6
(Department of Defense-Military)
(294.9)
(286.8)
(292.1)
(296.9)
(299.0)
(302.3)
(304.8)
(Other)
(8.7)
(9.6)
(11.1)
(12.3)
(12.9)
(13.4)
(13.7)
150 International affairs
9.6
14.6
18.2
19.4
18.8
18.9
19.7
250 General science, space, and technology
12.8
14.1
16.6
19.4
21.4
22.9
24.0
270 Energy
3.7
3.2
3.0
3.1
3.2
3.0
2.6
300 Natural resources and environment
16.2
17.5
18.2
18.9
18.4
18.3
17.8
350 Agriculture
16.9
14.6
14.9
15.6
13.5
11.8
10.4
370 Commerce and housing credit
27.7
22.7
17.2
10.3
9.6
7.7
6.2
(On-budget)
(28.0)
(20.3)
(15.5)
(9.6)
(9.5)
(7.8)
(6.6)
(Off-budget)
(-0.3)
(2.4)
(1.7)
(0.7)
(0.1)
(-0.1)
(-0.4)
400 Transportation
27.6
29.2
29.8
30.2
30.7
31.3
31.3
450 Community and regional development
5.4
8.8
7.8
6.5
6.1
5.9
6.2
500 Education, training, employment, and
social services
36.7
37.7
41.0
42.9
43.5
44.1
44.9
550 Health
48.4
57.8
63.7
69.9
75.9
82.0
88.3
570 Medicare
85.0
96.6
98.6
110.1
121.9
135.0
149.1
600 Income security
136.0
146.6
153.7
159.6
166.3
174.6
181.4
650 Social security
232.5
248.5
264.8
280.9
297.7
314.6
331.4
(On-budget)
(5.1)
(3.9)
(4.7)
(5.6)
(6.0)
(6.4)
(6.9)
(Off-budget)
(227.5)
(244.6)
(260.1)
(275.3)
(291.7)
(308.2)
(324.6)
700 Veterans benefits and services
30.1
28.9
30.3
31.0
33.3
32.6
31.7
750 Administration of justice
9.4
10.5
12.6
13.9
14.2
14.3
14.6
800 General government
9.1
10.6
11.3
11.9
25.8
65.2
113.5
900 Net interest
169.1
175.6
173.0
163.5
157.0
147.8
136.1
(On-budget)
(180.5)
(191.2)
(192.9)
(188.1)
(187.1)
(184.1)
(178.9)
(Off-budget)
(-11.4)
(-15.6)
(-19.9)
(-24.6)
(-30.1)
(-36.3)
(-42.8)
920 Allowances:
Employee health benefits reform
-0.8
-0.9
-1.0
-1.0
-1.1
Reduced Government mail rates
-0.2
-0.2
-0.2
-0.2
-0.2
Total allowances
-1.1
-1.1
-1.2
-1.2
-1.3
950 Undistributed offsetting receipts:
Employer share, employee retirement:
On-budget
-29.4
-28.3
-30.1
-30.8
-32.1
-33.9
-35.0
Off-budget
-4.9
-5.6
-6.0
-6.5
-7.1
-7.7
-8.3
Rents and royalties on the Outer Continen-
tal Shelf
-2.9
-2.6
-3.0
-3.4
-3.1
-3.3
-3.3
Sale of major assets
-1.3
-1.6
-1.6
-1.6
-1.6
Other undistributed offsetting receipts
-3.3
-1.5
-2.3
-0.1
-1.3
Total undistributed offsetting receipts
-37.2
-36.5
-43.6
-43.8
-46.2
-46.6
-49.5
(On-budget)
(-32.4)
(-30.9)
(-37.6)
(-37.4)
(-39.1)
(-38.9)
(-41.2)
(Off-budget)
(-4.9)
(-5.6)
(-6.0)
(-6.5)
(-7.1)
(-7.7)
(-8.3)
Total outlays
1,142.6
1,197.2
1,233.3
1,271.4
1,321.8
1,398.0
1,476.9
(On-budget)
(931.7)
(971.5)
(997.4)
(1,026.5)
(1,067.1)
(1,133.9)
(1,203.8)
(Off-budget)
(210.9)
(225.8)
(236.0)
(244.9)
(254.7)
(264.1)
(273.1)
Note: Detail may not add to total due to rounding.
24
Table 3. BUDGET AUTHORITY BY FUNCTION: 1989-95
(In billions of dollars)
Estimate
1989
Function
actual
1990
1991
1992
1993
1994
1995
050 National defense
299.6
301.6
306.9
312.5
317.5
321.6
325.7
(Department of Defense-Military)
(290.8)
(291.4)
(295.1)
(300.0)
(304.4)
(308.0)
(311.8)
(Other)
(8.7)
(10.3)
(11.7)
(12.6)
(13.1)
(13.6)
(13.9)
150 International affairs
17.3
18.6
20.0
19.6
20.1
20.5
21.6
250 General science, space, and technology
12.9
14.6
17.9
20.8
22.7
24.1
25.0
270 Energy
4.1
5.6
3.3
4.1
4.6
4.4
4.2
300 Natural resources and environment
17.0
17.0
17.6
18.0
17.5
17.2
16.4
350 Agriculture
21.3
18.0
20.1
21.1
18.9
14.9
15.1
370 Commerce and housing credit
61.9
19.6
14.3
13.9
13.8
15.5
14.4
(On-budget)
(60.3)
(15.5)
(11.3)
(11.7)
(12.1)
(13.9)
(13.0)
(Off-budget)
(1.6)
(4.1)
(3.0)
(2.2)
(1.7)
(1.5)
(1.4)
400 Transportation
29.3
31.2
30.3
31.3
31.7
31.7
32.4
450 Community and regional development
7.9
9.0
7.0
6.2
6.2
6.1
6.1
500 Education, training, employment, and
social services
38.8
39.6
42.0
42.9
43.7
44.4
45.0
550 Health
51.7
60.3
64.8
70.9
76.8
83.0
89.6
570 Medicare
107.3
116.9
125.2
136.4
150.8
164.9
178.8
600 Income security
173.4
183.2
198.9
204.4
211.9
221.1
227.7
650 Social security
285.0
310.5
345.1
374.0
405.1
438.8
468.7
(On-budget)
(5.1)
(3.9)
(4.7)
(5.6)
(6.0)
(6.4)
(6.9)
(Off-budget)
(279.9)
(306.6)
(340.4)
(368.4)
(399.1)
(432.4)
(461.8)
700 Veterans benefits and services
30.0
30.0
31.0
31.5
32.1
32.8
33.6
750 Administration of justice
10.0
12.2
12.6
13.2
14.2
14.4
14.9
800 General government
10.6
10.5
11.4
11.6
25.7
65.3
113.7
900 Net interest
169.1
175.6
173.0
163.5
157.0
147.8
136.1
(On-budget)
(180.5)
(191.2)
(192.9)
(188.1)
(187.1)
(184.1)
(178.9)
(Off-budget)
(-11.4)
(-15.6)
(-19.9)
(-24.6)
(-30.1)
(-36.3)
(-42.8)
920 Allowances:
Employee health benefits reform
-0.8
-0.9
-1.0
-1.0
-1.1
Reduced Government mail rates
-0.2
-0.2
-0.2
-0.2
-0.2
Total, 920 Allowances
-1.1
-1.1
-1.2
-1.2
-1.3
950 Undistributed offsetting receipts:
Employer share, employee retirement:
On-budget
-29.4
-28.3
-30.1
-30.8
-32.1
-33.9
-35.0
Off-budget
-4.9
-5.6
-6.0
-6.5
-7.1
-7.7
-8.3
Rents and royalties on the Outer Continen-
tal Shelf
-2.9
-2.6
-3.0
-3.4
-3.1
-3.3
-3.3
Sale of major assets
-1.3
-1.6
-1.6
-1.6
-1.6
Other undistributed offsetting receipts
-3.3
-1.5
-2.3
-0.1
-1.3
Total, 950 Undistributed Offsetting
Receipts
-37.2
-36.5
-43.6
-43.8
-46.2
-46.6
-49.5
(On-budget)
(-32.4)
(-30.9)
(-37.6)
(-37.4)
(-39.1)
(-38.9)
(-41.2)
(Off-budget)
(-4.9)
(-5.6)
(-6.0)
(-6.5)
(-7.1)
(-7.7)
(-8.3)
Total Budget Authority
1,309.9
1,337.6
1,396.5
1,451.1
1,522.7
1,620.9
1,718.1
(On-budget)
(1,044.6)
(1,048.1)
(1,079.0)
(1,111.6)
(1,159.1)
(1,231.0)
(1,306.0)
(Off-budget)
(265.3)
(289.5)
(317.5)
(339.6)
(363.7)
(389.9)
(412.1)
Note: Detail may not add to total due to rounding.
25
Table 4. BUDGET AUTHORITY BY AGENCY: 1989-1995
(In billions of dollars)
Estimate
1989
Department or other unit
actual
1990
1991
1992
1993
1994
1995
Legislative Branch
2.3
2.2
2.7
2.7
2.7
2.9
2.9
The Judiciary
1.5
1.7
2.1
2.3
2.3
2.4
2.5
Executive Office of the President
0.1
0.3
0.4
0.4
0.4
0.4
0.4
Funds Appropriated to the President
11.0
12.4
12.4
12.7
13.1
13.3
13.9
Agriculture
55.7
55.1
55.3
56.2
55.3
53.4
55.9
Commerce
2.8
3.6
2.5
2.4
2.5
2.4
2.2
Defense-Military
290.8
291.4
295.1
300.0
304.4
308.0
311.8
Defense-Civil
37.2
36.7
38.4
40.1
42.3
44.6
46.7
Education
23.0
24.1
24.6
24.2
24.4
24.5
24.7
Energy
11.7
14.3
14.8
16.9
17.6
17.8
18.0
Health and Human Services-except social
security
196.6
212.3
232.4
249.3
270.7
293.5
314.3
Health and Human Services-social security
279.9
306.6
340.4
368.4
399.1
432.4
461.8
Housing and Urban Development
14.3
18.4
23.7
22.2
22.2
21.9
22.1
Interior
5.5
6.2
5.6
5.7
5.7
5.8
5.7
Justice
6.7
8.6
8.9
9.3
9.8
9.8
10.1
Labor
29.9
32.5
32.1
32.3
33.0
33.5
33.9
State
4.1
4.2
5.5
4.7
4.8
4.9
5.1
Transportation
28.5
30.2
29.3
30.3
30.7
30.7
31.3
Treasury
232.1
248.5
256.1
258.9
275.9
316.5
363.2
Veterans Affairs
29.9
29.9
30.9
31.4
32.0
32.7
33.5
Environmental Protection Agency
5.1
5.4
5.4
5.2
5.0
4.4
3.9
General Services Administration
0.2
0.1
*
0.1
0.1
0.1
0.1
National Aeronautics and Space Administra-
tion
11.0
12.3
15.2
17.6
19.3
20.3
21.0
Office of Personnel Management
51.2
55.6
58.2
61.3
64.5
68.0
70.8
Small Business Administration
0.4
0.9
0.4
0.5
0.5
0.5
0.6
Other Independent Agencies
67.5
21.3
17.8
19.6
19.6
21.5
20.0
Allowances
-1.1
-1.1
-1.2
-1.2
-1.3
Undistributed offsetting receipts
-89.2
-97.3
-112.6
-122.5
-133.7
-144.0
-156.8
(On-budget)
(-72.9)
(-76.1)
(-86.8)
(-91.4)
(-96.5)
(-100.0)
(-105.6)
(Off-budget)
(-16.3)
(-21.2)
(-25.9)
(-31.1)
(-37.2)
(-44.0)
(-51.1)
Total budget authority
1,309.9
1,337.6
1,396.5
1,451.1
1,522.7
1,620.9
1,718.1
Note: Detail may not add to total due to rounding.
. $50 million or less.
26
Table 5. OUTLAYS BY AGENCY: 1989-1995
(In billions of dollars)
Estimate
1989
Department or other unit
actual
1990
1991
1992
1993
1994
1995
Legislative Branch
2.1
2.3
2.7
2.8
2.7
2.8
2.8
The Judiciary
1.5
1.7
2.0
2.2
2.3
2.4
2.4
Executive Office of the President
0.1
0.2
0.3
0.4
0.4
0.4
0.4
Funds Appropriated to the President
4.3
9.2
12.2
13.2
12.5
12.5
13.3
Agriculture
48.3
48.2
48.7
50.3
48.7
47.8
47.4
Commerce
2.6
3.9
2.8
2.7
2.7
2.6
2.3
Defense-Military
294.9
286.8
292.1
296.9
299.0
302.3
304.8
Defense-Civil
23.5
24.8
25.5
26.6
27.7
28.8
29.9
Education
21.6
22.3
23.7
24.1
24.1
24.3
24.5
Energy
11.4
12.3
13.4
15.7
16.5
17.2
17.7
Health and Human Services-except social
security
172.3
191.2
204.1
222.6
241.2
262.9
283.9
Health and Human Services-social security
227.5
244.6
260.1
275.3
291.7
308.2
324.6
Housing and Urban Development
19.7
22.8
23.0
23.9
24.3
25.0
26.1
Interior
5.2
5.8
5.7
5.7
5.8
5.8
5.7
Justice
6.2
6.9
9.0
10.1
9.9
9.7
9.9
Labor
22.7
24.9
26.3
27.0
27.8
28.7
29.8
State
3.7
3.8
4.1
4.3
4.4
4.5
4.6
Transportation
26.6
28.3
28.8
29.1
29.7
30.2
30.2
Treasury
230.6
247.2
254.9
257.7
274.5
315.1
361.9
Veterans Affairs
30.0
28.7
30.1
30.8
33.1
32.5
31.6
Environmental Protection Agency
4.9
5.5
5.8
5.7
5.6
5.4
5.2
General Services Administration
-0.5
0.3
*
0.3
0.3
0.2
0.1
National Aeronautics and Space Administra-
tion
11.0
12.0
14.1
16.4
18.1
19.4
20.1
Office of Personnel Management
29.1
33.2
33.6
34.8
37.4
39.8
42.3
Small Business Administration
0.1
1.1
0.3
0.1
0.2
0.3
0.4
Other Independent Agencies
32.5
26.6
23.5
16.4
16.0
14.4
13.3
Allowances
-1.1
-1.1
-1.2
-1.2
-1.3
Undistributed offsetting receipts
-89.2
-97.3
-112.6
-122.5
-133.7
-144.0
-156.8
(On-budget)
(-72.9)
(-76.1)
(-86.8)
(-91.4)
(-96.5)
(-100.0)
(-105.6)
(Off-budget)
(-16.3)
(-21.2)
(-25.9)
(-31.1)
(-37.2)
(-44.0)
(-51.1)
Total outlays
1,142.6
1,197.2
1,233.3
1,271.4
1,321.8
1,398.0
1,476.9
Note: Details may not add to total due to rounding.
* $50 million or less.
27
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
01. Outline
Budget material for Discussion 1/29/90 (1 pp.)
1/29/90
P/5
Collection:
Record Group:
Bush Presidential Records
Open on Expiration of PRA
Office:
Chief of Staff, White House Office of
(Document Follows)
Series:
Sununu, John, Files
By op (NLGB) on 10/28/05
Subseries:
Issues Files
WHORM Cat.:
File Location:
Budget [1990] (2 of 2) [2]
Date Closed:
12/16/2004
OA/ID Number:
29137-006
FOIA/SYS Case #:
1998-0004-F[1]
Appeal Case #:
Re-review Case #:
2005-0426-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
FOR DISCUSSION -- 1/29/90
(1) Positives: There are many to emphasize. (See fact sheet.)
(2) Areas in which we'll be attacked:
(a) Economics -- Response: the recent record.
(b) "Peace Dividend" -- Response:
(i) the merits;
(ii) base closings, etc.;
(iii) private lobbying to build blocking power and a
floor for DOD;
(iv) growth dividend.
(c) RTC and "gimmicks" -- Response: the merits.
(d) Lack of "boldness" (i.e., no new taxes)
(3) Legislative Strategy:
(a) The possibility of no budget resolution;
(b) The possibility of legislating without the budget
committees;
*
(c)
The importance of preserving sequester.
(4) Social Security
(5) Other
1/29/90
COUNCIL OF ECONOMIC ADVISERS
Administration Forecast Accuracy For 1989¹
Forecast²
Actual
Real GNP
2.9
2.9
Unemployment Rate
5.2
5.2
10-Year Treasury Notes
8.5
8.5
3-Month Treasury Bills
8.0
8.1
Consumer Price Index
5.0
4.8
GNP Deflator
4.5
4.1
1 Administration forecast prepared for the July 1989 Mid-session
Review.
2 Data for real GNP and prices are percent change year-over-year.
Data for interest and total unemployment rates are annual
averages.
COUNCIL OF ECONOMIC ADVISERS
Administration Near-Term Outlook
January 29, 1990
(Calendar Years)
Actual
1989
1990
1991
(Percent Change, 4th Quarter to
4th Quarter)
Real GNP
2.4
2.6
3.3
Ex-Drought*
1.9
GNP Implicit Price Deflator
3.8
4.2
4.1
Consumer Price Index (CPI-W)
4.5
4.1
4.0
(Annual Average)
Unemployment Rate (Total)
5.2
5.4
5.3
3-Month Treasury Bill Rate
8.1
6.7
5.4
10-Year Treasury Note Rate
8.5
7.7
6.8
* Excludes the one-time rebound in real GNP in 1989 from the
effects of the previous year's drought. The recovery of farm
output to more normal levels raised growth in 1989 by
approximately 1/2 percentage point.
COUNCIL OF ECONOMIC ADVISERS
1/29/90
Comparison of Administration, cBo, and Blue Chip Forecasts*
1990
1991
(Percent Change, 4th Quarter
to 4th Quarter)
Real GNP
Administration
2.6
3.3
CBO
1.8
2.5
Blue Chip
1.8
2.4
GNP Implicit Price Deflator
Administration
4.2
4.1
CBO
4.1
4.0
Blue Chip
4.0
4.0
Consumer Price Index (CPI-U)
Administration
4.1
4.0
CBO
4.1
4.4
Blue Chip
4.2
4.2
(Annual Averages)
Civilian Unemployment Rate
Administration
5.5
5.3
CBO
5.6
5.5
Blue Chip
5.6
5.6
3-Month Treasury Bill Rate
Administration
6.7
5.4
CBO
6.9
7.2
Blue Chip
7.1
7.2
10-Year Treasury Note Rate
Administration
7.7
6.8
CBO
7.8
7.7
Blue Chip
N.A.
N.A.
* Published January 1990.
COUNCIL OF ECONOMIC ADVISERS
Administration Economic Projections
January 29, 1990
(Calendar Years)
Actual
1989
1990
1991
1992
1993
1994
1995
(Percent Change, 4th Quarter to 4th Quarter)
Real GNP
2.4
2.6
3.3
3.2
3.1
3.0
3.0
Ex-Drought*
1.9
GNP Implicit
Price
Deflator
3.8
4.2
4.1
3.8
3.5
3.2
2.9
Consumer Price
Index
(CPI-W)
4.5
4.1
4.0
3.8
3.5
3.2
2.9
(Annual Average)
Unemployment
Rate (Total)
5.2
5.4
5.3
5.2
5.1
5.0
5.0
3-Month Treasury
Bill Rate
8.1
6.7
5.4
5.3
5.0
4.7
4.4
10-Year Treasury
Note Rate
8.5
7.7
6.8
6.3
6.0
5.7
5.4
* Excludes the one-time rebound in real GNP in 1989 from the
effects of the previous year's drought. The recovery of farm
output to more normal levels raised growth in 1989 by
approximately 1/2 percentage point.
COMPARISON OF FORECAST ACCURACY: ADMINISTRATION, BLUE CHIP CONSENSUS, AND CBO
Sum of absolute errors for real GNP growth (Yr/Yr), the change in the GNP deflator (Yr/Yr), the
change in the CPI (Yr/Yr), the unemployment rate, the 3-month T-bill interest rate, and a
long-term interest rate
Sum of absolute errors
2
1.5
1
0.5
0
1984-88 Average
1989
Congressional
Blue Chip
Administration
Budget Office
Consensus
Note: Long-term interest rate for Blue Chip is the corporate AAA bond; for the Administration, it is the 10-year bond rate; for CBO,
it is the corporate AAA in 1984-85, and the 10-year bond rate in 1986-89.
0.4. 25. 90 04:20 PM *ABHC WASH DC
P01
ASSOCIATION of BANK HOLDING COMPANIES
THOMAS LUDLOW ASHLEY
PRESIDENT
780 FIFTEENTH STREET. N.W.. WASHINGTON, D.C. 20006
(202) 866-1158
April 25, 1990
To:
President George H. W. Bush
From: Lud Ashley
1. As you may already know, most of the people most responsible
for budget policy in the Congress, i.e., Pete Domenici, Leon Panetta, Bill
Frenzel, are speaking publicly of their anticipation that a budget summit
is all but a certainty, perhaps beginning as early as several weeks hence.
My feeling, of course, is that there are some political risks involved but
they are far outweighed by potential benefits, both economic and political.
I do think the negotiations have to be properly structured and well managed.
The interesting thing is that Congressional Democrats are beginning to see
the necessity for wholly new initiatives on the budget, including process.
Your 'read my lips' strategy may make the history books yet.
2. I hear you had a briefing from Bill Seidman on the thrift bailout
and related matters. For whatever it's worth, I think he's doing a good
job at a very tough post. My word to the wise would be that this potentially
is a very sensitive area for both political branches of the Federal
establishment because the public really doesn't yet have a clue as to how
they got nailed for however much of the $300-500 billion cost will fall
on them. But they'd love to have a piece of the politicians whose dereliction
or complicity was involved.
What makes the current situation dicey is that for all practical
purposes FIRREA consigned much of the thrift industry to history, although
it will take several years for this to become apparent. It did this by
establishing tough capital requirements, stringent loan limits and very
high insurance premiums, while limiting thrift lending largely to mortgage-
related activities. FIRREA locks thrifts into this competitive straitjacket
by requiring a five-year waiting period before they can convert to a commercial
bank and by imposing high exit and entrance fees for shifting from the thrift
insurance fund (with its high premium schedule) to the bank fund (which
is much lower). The effect (and I think the intent) of structuring FIRREA
in this way was twofold: one, the high premiums and exit/entrance fees
would help finance the cost of the cleanup; and, two, in a country of
30,000 or so financial institutions, it would thin out a hitherto specialty
sector whose usefulness in a changing financial services environment has
long since been in question.
40.
ASSOCIATION of BANK HOLDING COMPANIES
April 25, 1990
2.
I think Breeden and your Administration were basically right
on both counts and I hope you hang tough. The thrifts will generate a lot
of political heat in their efforts to ease their competitive situation but
any success they achieve will simply produce a new set of problems which
no one needs.
One thing to remember is that next year is the year that major
legislation must be enacted to restructure the financial services industry
in the U. S. so that it can compete with the mind-boggling changes that
will become operational in the European Community in 1992. This will be
a major item -- if not the major item - on your domestic legislative agenda
next year and if I were to offer a suggestion, it would be that there be
very little tampering with FIRREA until after next year's legislation is
adopted. The risk of reopening FIRREA is substantial while potential
benefits to you, if any, are negligible.
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
February 26, 1990
MEMORANDUM FOR GOV. JOHN H. SUNUNU
FROM:
MICHAEL J. BOSKIN mB
SUBJECT:
Analysis of Ways and Means Progressivity Study
Attached is a critical analysis by CEA and OMB of a recent
study by the Ways and Means Committee and the Congressional
Budget Office. This study, which concluded that there has been
a significant decrease in the progressivity of the U.S. tax
system, has received much attention in recent weeks, as you will
recall from our testimony together. CEA and OMB will be giving
copies of this analysis to some Senators and Congressmen
tomorrow. The CEA/OMB analysis concludes that the Ways and
Means/CBO study is flawed in its methods and conclusions.
Attachment
CC: Roger Porter
PROGRESSIVITY:
AN ANALYSIS OF THE WAYS AND MEANS/
CONGRESSIONAL BUDGET OFFICE STUDY
Prepared by the staffs of the Council of Economic Advisers
and the Office of Management and Budget
February 1990
SUMMARY
The staff of the House Ways and Means Committee recently prepared a
background paper, based on tables compiled by the Congressional Budget
Office (CBO), arguing that the U.S. tax system has become significantly more
regressive. A striking result of their study, however, is that high-income families
are bearing an increasing share of the tax burden. Also, the study has
numerous serious conceptual problems and methodological flaws.
An important method for analyzing fairness is to examine how much
of the overall tax burden is carried by each income class, rather than
tax rates. Even using the Ways and Means tables, despite their
flaws, the share of taxes paid by the highest income quintile of
the population is projected to rise between 1980 and 1990 for
every tax studied--social insurance taxes, individual income
taxes, corporation income taxes, and excise taxes.
-
The share paid by the highest income quintile of total Federal
taxes is projected to rise from 55.7 percent to 58.1 percent, and
of social insurance taxes from 38.9 percent to 41.4 percent.
-
For other taxpayers the share of taxes is projected to fall for
nearly every other quintile and tax studied. The sole exception is
the share of excise taxes paid by the lowest income quintile,
which is projected to rise 0.3 percentage points, or roughly $5.
The Ways and Means staff study is incomplete by its nature:
The study focuses only on taxes, ignoring Government transfer
payments. This incomplete view overlooks the highly progressive
nature of the Government's tax and transfer system as a whole. The
bottom 40 percent of households receive far more in income transfers
than they pay in taxes. The tax and transfer system increases the
share of income going to the lowest quintile by 3.7 percentage points,
and decreases the share of the highest quintile by 6.6 percentage
points.
Increases in Social Security taxes are the primary source of the
alleged decrease in progressivity. Yet, even if one were to accept
the questionable Ways and Means assumption that workers pay the
employer part of the payroll tax, the Social Security program is highly
progressive. When taxes are netted against Social Security benefits,
Social Security is highly progressive, whether measured for any year,
across generations, or for any single generation of beneficiaries.
ii
The United States relies far less on payroll and sales taxes than do
other large industrial nations. If the United States were to collect
taxes in the same manner as most of these other countries, the
distribution of income would probably become less equal.
The methodological flaws in the Ways and Means study include:
The Ways and Means staff chose a poor base year--1980--for its
comparison. Largely as a result of inflation-induced bracket creep,
1980 had unusually high effective income tax rates, particularly on
middle and high income individuals. The tax rate reductions of the
1980s were partly a response to these unlegislated increases in tax
rates.
The 1990 figures are estimates based on a projection. To arrive at
this projection, CBO had to estimate the effects of the dramatic Tax
Reform Act of 1986, since no data yet exist reflecting its full
implementation. A more accurate comparison would not extend
beyond the most recent year for which data are available (currently
1987).
The study computes percent changes in effective tax rates that are
already expressed in percentage terms, a method that is well known
to be flawed because it places undue significance on small changes.
The Ways and Means study acknowledges this bias only when the
movement is toward increased progressivity.
- For example, the effective excise tax rate for the top 5 percent of
the population is projected to have decreased 11.7 percent from
1980 to 1990, even though the rate is reported as 0.4 percent in
both years. The estimated effective tax rate must have changed
by only hundredths of a percentage point.
- In the same table, the effective individual income tax rate for the
lowest quintile is projected to fall from -0.4 to -1.5 percent. Using
the same questionable methodology this is a decrease of 275
percent, yet the Ways and Means staff does not report it.
1
INTRODUCTION
Using tables prepared by the Congressional Budget Office (CBO), the
staff of the House Ways and Means Committee has prepared a background
paper arguing that the U.S. tax system became significantly more regressive
during the 1980s. According to this study, the essential source of the reduced
progressivity was increases in payroll taxes for social insurance.
The study has many shortcomings that lead one to doubt the basic
conclusion. There are methodological flaws in the construction of the tables,
and even more in the interpretation of the tables by the Committee staff. The
study is too narrowly focused. It concentrates on changes in effective tax rates
despite the fact that their own tables show that the share of taxes paid by
higher income taxpayers rose in the 1980s while the share paid by lower
income taxpayers fell. Most importantly, it fails to integrate Federal transfer
payments with Federal taxes. A complete analysis of how the Government
affects income distribution must consider the entire set of tax and transfer
programs. Any such analysis reveals that the full set of Federal Government
taxes and transfers is highly progressive and has remained so even as
increased incomes for retired Americans have moved Social Security recipients
higher on the income scale.
2
METHODOLOGICAL PROBLEMS
WITH THE WAYS AND MEANS STUDY
Base Year Choice
The first problem is that the base year chosen for comparison by the
Ways and Means staff, 1980, is a poor choice. Largely as a result of inflation-
induced bracket creep, 1980 had unusually high effective income tax rates,
particularly on middle and high income individuals. During the late 1970s, high
inflation overwhelmed the practice of legislating periodic inflation corrections to
the tax code. The result was increased tax rates for most taxpayers. From
1977 to 1981, the average marginal tax rate faced by individuals rose from 28.1
percent to 32.5 percent (using shares of adjusted gross income as weights).
Reflecting this bracket creep, average income taxes also rose. In fiscal year
1980, individual income taxes were 9.1 percent of GNP compared with 8.2
percent on average for fiscal years 1971 through 1979.
These increases in tax rates did not represent deliberate policy changes.
Indeed, these factors were a major impetus for the tax reforms of the 1980s.
Income tax rates were lowered in 1981 and inflation-indexed beginning in 1985
precisely to offset this bracket creep. In the 1986 Tax Reform Act, the
standard deduction and personal exemption were increased and 4.3 million low
income taxpayers were removed from the tax rolls.
3
Mixing Fact with Projection
A second problem with the study is the mix of actual data with
projections concerning the future path of effective tax rates. The 1990 figures
cited in the Ways and Means tables are based on a forecast. Like most
economic forecasts, these are subject to uncertainty. This forecast, however, is
especially problematic. To produce the forecast, CBO estimated the effects of
the dramatic Tax Reform Act of 1986. There are, as yet, no data that reflect
full implementation of tax reform, so the forecast reflects a judgment of how the
reform will work out.
Correctly measuring the impact of the 1986 reform is particularly
important for judging the progressivity of the tax system. The reform made the
tax system more progressive by removing 4.3 million taxpayers from the tax
rolls, expanding the alternative minimum tax, and increasing the corporate tax
burden. The latter falls more heavily on upper income groups. The Ways and
Means tables show a shift towards more progressivity between 1985 and 1990,
but given the uncertainties, the shift could be larger or smaller than anticipated
in the tables.
It would be far preferable simply to restrict the analysis to actual data. If
it is desired to show how tax burdens have changed over a 10-year interval, it
would be better to compare 1977 with 1987--the most recent year with
complete data-than 1980 with projected 1990.
4
Importance of Endpoints
The tables in the Ways and Means study show how sensitive
comparisons are to the choice of endpoints. Table 1 demonstrates that
between 1977 and 1980, as also between 1985 and 1990, taxes became more
progressive.
Table 1
Percentage Point Changes in Effective Tax Rates
for All Families between Selected Years
Actual
Projected
Projected
Quintile
1977-1980
1980-1990
1985-1990
Lowest
-1.1
1.3
-0.9
Second
0.1
1.0
0.6
Third
0.4
0.3
1.0
Fourth
1.1
-0.5
0.8
Highest
0.2
-1.5
1.8
Source: Ways and Means (1990)
Identifying the Rich
Another difficulty is that the highest income quintile is hardly "super rich"--
it begins at a family income of just $50,400. A finer breakdown of the upper
5
income category would be needed to identify the taxes paid by those who
might be thought of as truly wealthy.
1988 Family
Quintile
Income
1st
0
to
$10,370
2nd
$10,370
to
$20,530
3rd
$20,530
to
$32,580
4th
$32,580
to
$50,400
5th
above
$50,400
Source: CBO (1987)
Incidence Assumptions
In order to measure income and taxes paid, CBO must make
assumptions about the "incidence" of each tax and, in effect, allocate the taxes
paid to families' incomes. The most important incidence assumption in the
study is that all payroll taxes are paid by workers. This assumption is the root
source of much of the alleged change in progressivity. It is controversial. The
Social Security payroll tax is divided evenly between employees and employers,
with each paying one-half of the tax. CBO assumes that the employer half is
borne by employees in the form of lower wages. The employer component
could instead be borne by the businesses paying the tax--or capital more
generally--or passed on to consumers via higher prices. CBO itself estimates
that for any reasonable change in the incidence assumption, the effective tax
rate for higher income families would be raised. If the Social Security payroll
6
tax were more progressive than shown in the tables, then the increase in
payroll taxes since 1977 would have contributed a much smaller reduction in
the progressivity of the tax system.
A second incidence issue concerns the corporation income tax. The
Ways and Means study allocates corporate income taxes equally to labor
earnings and capital income. Although much-debated, there is no firm
consensus on the incidence of the corporate income tax. Many people believe
that the tax is almost exclusively borne by shareholders of corporations, or by
owners of capital more generally. The use of this more standard assumption
would lead to increased progressivity of the tax system.
Percents of Percents
Another set of methodological issues concerns the presentation of the
results in the Ways and Means study. Computing percent changes in effective
tax rates (that are already expressed in percentage terms) places undue
significance on small changes. For example, the effective excise tax rate for
the top 5 percent of the population is shown to have decreased 11.7 percent
from 1980 to 1990, even though it was reported as 0.4 percent in both years.
The reported 11.7 percent decrease is highly misleading. In fact, the effective
tax rate must have changed by only hundredths of a percentage point.
In addition, these questionable methods are used selectively. In the
same table, the effective individual income tax rate for the lowest quintile falls
7
from -0.4 to -1.5. Using the same questionable methodology, this is a
decrease of 275 percent. Instead of reporting this number, the Ways and
Means staff states, "since the denominator for this calculation is very close to
zero, this figure is meaningless." They fail to note that the denominator for the
calculated decline in the effective excise tax rate is just as close to zero.
A more conventional approach would simply compare percentage point
changes in effective tax rates (as in Table 1 of this report).
A Flawed Income Measure
Flaws in the measure of income used by CBO likely lead to an
understatement of the progressivity of the tax system each year (the effect on
the estimated change in progressivity between two years is uncertain). First,
the CBO measure does not include non-cash income, thus excluding such
important government transfers as Medicare, Medicaid, Food Stamps, and
public housing and employer-provided nonwage compensation such as health
and life insurance. Non-cash government transfers are heavily progressive.
Neglecting them leads to an understatement of low incomes, an overstatement
of effective tax rates for lower incomes, and biases the results against
progressivity.
In addition, the CBO measure of cash income excludes losses due to
partnerships and rentals--ostensibly to eliminate tax-induced paper losses, but
some real economic losses are excluded as well--leading to overstated higher
8
incomes where these losses are concentrated. Further, the cash income
measure includes an imputed value for realized capital gains that suffers from
two problems. First, although realized capital gains are part of the tax base,
they bear little relation to the change in the value of assets, but rather reflect a
change in the composition of assets. A better way to measure income for this
purpose would be to allocate both corporate income taxes (as CBO does) and
retained corporate profits to households directly. Further, CBO imputes
realizations as a fixed share of national income, apparently to mitigate tax-
induced bunching of realizations. For the years in the tables, however,
realizations varied greatly as a share of national income without any changes in
the tax treatment of capital gains from the previous year. In these ways, the
CBO cash income likely overstates high incomes, understating the effective tax
rate, and again biases down the measured progressivity.
ALTERNATIVE WAYS OF VIEWING PROGRESSIVITY
Effective tax rates are difficult to measure correctly and are not the only
way or the best way to evaluate the fairness of the tax system. Indeed, one of
the main goals of the 1981 tax changes was to lower inefficiently high marginal
tax rates that were costing the Government revenue by encouraging high
income taxpayers to shelter their incomes to avoid taxes.
9
Share of Taxes Paid
Another way to look at fairness is to examine how much of the overall
tax burden is carried by the different income classes. By this measure, the
tax system has become more progressive. Other tables in the Ways and
Means study show that the share of taxes paid by the highest income quintile
of the population is projected to rise between 1980 and 1990 for every tax
studied: individual income taxes, corporation income taxes, social insurance
taxes, and excise taxes. The share of total federal taxes paid by the highest
income quintile rose by 2.4 percentage points, while their share of social
insurance taxes rose by 2.5 percentage points (see Tables 2 and 3).
For other taxpayers, the share of taxes is projected to fall for nearly
every other quintile and tax studied. The sole exception is the share of excise
taxes paid by the lowest income quintile, which is projected to rise by a slight
0.3 percentage points, an increase of roughly $5 in 1990.
International Comparisons
The attention devoted to payroll taxes in the U.S. tax structure may leave
the impression that payroll taxes are unusually high in the United States. In
fact, the United States relies far less on payroll and sales taxes to finance
Government programs than do other large industrialized nations except Japan
(see Table 4). If the United States were to collect taxes in the same manner
10
Table 2
Share of Taxes Paid by All Families
(in percent)
Actual
Projected
1980
1990
Lowest 20 Percent
1.6
1.6
Second 20 Percent
7.0
6.6
Third 20 Percent
13.4
12.6
Fourth 20 Percent
22.2
21.0
Highest 20 Percent
55.7
58.1
Total
100.0
100.0
Table 3
Share of Social Insurance Taxes Paid by All Families
(in percent)
Actual
Projected
1980
1990
Lowest 20 Percent
3.4
3.3
Second 20 Percent
11.5
10.8
Third 20 Percent
18.8
17.9
Fourth 20 Percent
27.2
26.5
Highest 20 Percent
38.9
41.4
Total
100.0
100.0
Source: Ways and Means (1990)
as most of these other countries, the distribution of income would probably
become less equal.
11
Table 4
Share of Total Tax Revenue Raised
(in percent)
Personal, Corporate, Social Security Contributions,
and Property Taxes
Sales, and Payroll Taxes
Japan
58.2
41.5
U.S.
54.5
45.5
U.K.
50.9
49.5
Italy
39.4
60.7
W. Germany
37.2
62.7
France
22.6
74.2
Source: H. Aaron, Wall Street Journal, February 14, 1990.
LOOKING AT THE WHOLE PICTURE: TAXES AND TRANSFERS
The Ways and Means study not only has significant flaws in design and
execution, it is by nature incomplete. Its myopic focus on the tax system
ignores the highly progressive nature of the Government's tax and transfer
system taken as a whole.
Progressivity of Social Security
When the overall structure of payroll taxes and benefits is examined,
Social Security is found to be one of the most progressive of Government
programs. Chart 1 shows the highly progressive nature of Social Security when
payroll taxes are netted against Social Security benefits. (The chart shows
taxes and benefits by income group, not taxes and benefits for individual
CHART 1
Share of Social Security Benefits Received and Taxes Paid by Income Quintile
1987
Percent of Total Benefits/Taxes
50
41.6
40
31.1
30
30
24
12
20
19
17.6
15
12
10
8.1
1.7
0
1
2
3
4
5
Income Quintile
Percent of Benefits
Percent of Taxes
Source: Social Security Administration
Notes:
(1) Quintiles are based on Census money income and are not directly comparable to CBO quintiles
(2) Benefits and taxes are shown for quintiles and do not necessarily represent payments and receipts for each family.
13
families.) At any point in time, lower income groups receive much more back
in benefits than they pay out, while the reverse is true at the upper end of the
spectrum.
For individuals, as opposed to income groups, Social Security is also
progressive because low-income individuals receive proportionally more Social
Security benefits relative to their contributions than do high-income beneficiaries.
Also, historically Social Security has provided benefits that have permitted older
generations to share in the growth of real incomes occurring after their
retirement, producing a progressive impact across generations.
Growth of Government Transfers
The role of Government transfers extends far beyond Social Security.
Substantial growth in the size of Government transfer payments continued
during the 1980s, raising living standards of low-income families. As shown in
Chart 2, the real value of Federal transfer payments--both total and means-
tested--rose 28 percent between 1980 and 1989.
Overall Progressivity of Taxes and Transfers
The Federal tax and transfer system is highly progressive. The total
effect of taxes and transfers in 1987 was to reduce overall income inequality
substantially, as measured by the most commonly used index of income
CHART 2
Real Federal Transfer Payments
Billions of 1989 dollars
500
Total
400
300
14
200
Means-tested
100
0
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
Fiscal Years
Source: Office of Management and Budget.
15
concentration. For the lowest quintile, taxes and transfers increased their share
of total cash and noncash income by 3.7 percentage points, from 1.0 percent to
4.7 percent (Table 5). For the top quintile, taxes and transfers reduced their
income share by 6.6 percentage points. While income and payroll taxes reduce
income inequality, Government transfers have produced the bulk of the
reduction in income inequality, again measured using the most common index
of income inequality.
While it would be useful to compare 1987 with earlier years to gauge
how the tax and transfer system has affected the income distribution over time,
data are not published in a comparable form for all noncash transfers in years
prior to 1986. Even if it were possible to extend the comparisons, year-to-year
variations in the measured progressivity of the tax and transfer system should
be viewed with caution. These changes are not necessarily the result of
changes in policy, but also reflect the influences of recessions, changing family
structures, inflation, and other factors. In general, in recent years, changes in
the distributional effect of the Federal Government tax and transfer system have
been negligible compared with the large, progressive nature of the basic system
itself.
16
Table 5
Income Distribution Before and After Taxes and Transfers
1987
(1)
(2)
(3)
(4)
Income
Income
After-Tax
Income
Excluding
After
Income plus
Net
Quintile"
Transfersᵇ
Taxes
Transfers
Impact
percentage
percent
points
1
1.0
1.2
4.7
3.7
2
7.6
8.5
10.6
3.0
3
15.2
15.8
16.1
0.9
is
24.3
24.8
23.2
-1.1
5
52.0
48.5
45.4
-6.6
Quintiles of households, defined using income definition
in each column.
"Money income plus capital gains and health insurance,
less government transfers.
C. Income as in b, less Federal and state income taxes and
employee social security payroll taxes.
a Income as in C, plus cash and non-cash government
transfers.
e Net impact of taxes and transfers on the share of after-
tax income; column (3) minus column (1).
Source: Bureau of the Census (1989)
17
REFERENCES
H. Aaron, Wall Street Journal, February 14, 1990.
Committee on Ways and Means, U.S. House of Representatives, Background
Materials on Federal Budget and Tax Policy for Fiscal Year 1991 and
Beyond, February 1990.
Congressional Budget Office, The Changing Distribution of Federal Taxes: 1975-
1990, October 1987.
Congressional Budget Office, The Changing Distribution of Federal Taxes: A
Closer Look at 1980, July 1988.
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
May 23, 1990
MEMORANDUM FOR GOV. JOHN H. SUNUNU
THE HONORABLE NICHOLAS BRADY
THE HONORABLE RICHARD DARMAN
FROM:
MICHAEL J. BOSKIN mgs
RE:
Real GNP Growth
John raised the question yesterday whether there were "runs"
of years when real growth averaged less than 3 percent. The
following information may be useful:
1) The average real growth rate from 1949 to 40 years
1989 was 3.4 percent.
2)
In that period, real growth was 3 percent or
higher 23 times; 4 percent or higher 18
times; 5 percent or higher 12 times;
3) The decade averages are as follows: 1950's
3.9 percent; 1960's, 4.1 percent; 1970's,
2.8 percent; 1980's, 2.6 percent. The 1970's had very
low productivity growth, but very rapid labor force
growth (babyboomers plus greater female participation) ;
The 1980's had slower labor force growth and were
contaminated by the very deep 1982 recession.
4) Taking long periods, say 5 or 10 years, those
that include either the 1975 recession or the
1982 recession (the two worst since WW II,
each of which followed a disinflation from
double-digit levels) will usually fall a
little short of 3 percent.
5)
In summary, 3 percent is quite reasonable
even with slow labor force growth so long as
we can achieve long-run historical (post WW
II average) productivity growth and avoid a
deep recession.
From Sensenbern
Ham Fish
1
Ranhing a.
Talking against (R) position
NC
Calio to Fash?
"LINE 12" $50 BILLION DEFICIT PACKAGE COMPARED TO
"LINE 12" $50 BILLION DEFICIT PACKAGE COMPARED TO
CBO REVISED BASELINE
OMB REVISED BASELINE
($ billions)
($ billions)
5 yr.
5 yr.
1991
1992
1993
1994
1995
Total
1991
1992
1993
1994
1995
Total
CBO February
OMB 5/20/90
Baseline w/o
Baseline w/o
RTC 1/
130
137
145
131
117
---
RTC 1/
138
130
92
61
32
---
Exclude Social
Exclude Social
Security
74
85
98
112
128
497
Security
77
87
103
120
133
497
Add OMB's RTC
Add OMB's RTC
Guesstimate
59
51
3
-9
-10
94
Guesstimate
59
51
3
-9
-10
94
CBO Baseline with RTC
OMB Baseline with RTC
and w/o Social
and w/o Social
Security
263
273
246
234
235
---
Security
274
268
198
172
155
---
"Line 12" $50 Billion Package
"Line 12" $50 Billion Package
Policy savings
-48
-59
-69
-82
-100
-358
Interest
-2
-6
-11
-18
-25
-62
Policy savings
-48
-59
-69
-82
-100
-358
Interest
-2
-6
-11
-18
-25
-62
Total savings
-50
-65
-80
-100
-125
-420
Total savings
-50
-65
-80
-100
-125
-420
PLAN DEFICIT
213
208
166
134
110
---
PLAN DEFICIT
224
203
118
72
30
---
1/
Excludes RTC including all interest related costs.
6/4/90
FY '91 SEQUESTER ESTIMATE:
A PRELIMINARY VIEW OF POSSIBLE REVISIONS
$ billions
(1) January baseline deficit estimate excluding RTC (Admin.)
93
(2) Adjust economic assumptions for:
(a) 1st two quarters of FY '90 only
10
-- Interest
(1)
-- Receipts
(3)
-- Inflation (COLAs)
(5)
(b) Smooth return to revised Administration forecast
22
-- Interest
(12)
-- Receipts
(10)
NOTE: Although the economy continues to grow, it is not growing as strongly
as it should. In spite of continued growth, the deficit problem is aggravated
by higher interest rates, higher inflation, and lower than estimated receipts. As a
result, the savings necessary to meet the GRH target for FY '91 are about
$60 billion -- after adjusting for FY '90 economic changes alone.
(3) Subtotals:
(a) Baseline deficit adjusted for revised economics (1st 2 Q of FY'90)
125
(b) Associated sequester (with target of $64B)
61
-- Defense BA cut (from baseline)
15%
-- Nondefense BA cut (from baseline)
22%
NOTE: In addition to economic estimates, technical estimates are changing.
Among the likely adverse reestimates are the following:
$ billions
(4) Adjust for selected technical reestimates of:
-- Receipts (primarily: downward revision of BEA wages/salaries)
20
--- Bank Insurance Fund (extrapolation of adverse '90 experience)
4
-- SSI/DI (Zebley court decision)
2
-- Food Stamps (increased participation)
1
-- Medicaid (higher state spending)
1
-- Medicare (actuary's model change)
1
-- Old FSLIC resolutions (higher pricing of old deals)
1
-- Veterans Compensation/Loan Guarantees (increased participation and
loan defaults)
1
--- Unemployment benefits (increased participation)
1
-- Farm price supports (lower subsidies due to higher farm prices)
-2
-- Debt service
4
(5) Subtotals:
(a) Baseline deficit adjusted for economic changes and
selected technical changes
159
(b) Associated sequester
95
-- Defense BA cut (from baseline)
24%
-- Nondefense BA cut (from baseline)
37%
$ billions
(6) Adjust for additional S&L costs
41 - 68
NOTE: This additional element is highly uncertain. It involves complex estimating
problems with regard to both additional S&L losses and RTC working capital
requirements. Under current law, additional RTC expenditures (net) would
increase the required sequester amount.
(7) Total including S&L adjustments:
(a) Revised baseline deficit
200 - 227
(b) Associated sequester
136 - 163
-- Defense BA cut (from baseline)
35% - 41%
--- Nondefense BA cut (from baseline)
53% - 64%
Note: Revised estimates are not due officially until July 15th. Further revisions
should be expected as more data comes in and is analyzed.
Sequester
CHANGING PICTURES OF SEQUESTER
(in billions
Sequester
of dollars)
(required sequester and percentage cut in budgetary resources)
Percentage
$163
$160B
64%
60%
Non-
Defense
$136
53%
$120B
40%
$95
41%
37%
Non-
$80B
35%
Defense
Defense
Defense
Non-
Defense
Non-
$59
Defense
24%
22%
20%
$40B
Defense
$37.5
Defense
13.3%
9.5%
15%
$16.2
5.3%
4.3%
$5.7
1.4%
1.5%
0
0
8/89
11/89
1/90
potential
estimate
negotiated
estimate
estimates
for FY '90
agreement
for FY '91
for FY '91
for FY '90
Note: FY '91 estimates assume food stamp reauthorization ($16 billion) and assume military personnel are treated as
sequestrable. RTC working capital estimates are excluded from the 1/90 estimate for FY '91. The potential estimates
for FY '91 present different options for additional S & L bailout costs and assume adjustments for lower receipts,
higher inflation, and higher interest rates in the first two quarters of FY '90 -- followed by an orderly return to the
Administration forecast.
Senator Gramm
POSSIBLE $50 BILLION DEFICIT REDUCTION PACKAGE
(outlays, in billions)
Deficit
Levels
Savings from
Compared
CBO Baseline
to 1990
1) DEFENSE: Senator Nunn's Defense level
-$9.4
+$0.8
2) NON-DEFENSE DISCRETIONARY : Freeze 1991 outlays at
aggregate FY 1990 level, and negotiate on mix
among programs
-$12.2
+$0.0
3) ENTITLEMENT: Adopt President's aggregate entitle-
ment savings level, and negotiate actual savings
(includes offsetting receipts)
-$12.5
+$31.7
4) USER FEES: Adopt President's aggregate user fees
level, and negotiate type of user fees
-$3.2
---
5) REVENUES: Adopt President's revenue levels, and
negotiate type of receipts
-$13.9
+$84.0
SUBTOTAL
-$51.2
6) INTEREST SAVINGS
-$2.0
+$3.2
TOTAL
-$53.2
POSSIBLE COMPROMISE RELATIVE TO $50 BILLION SEQUESTER
SEQUESTER
COMPROMISE
COMPROMISE
1990 vs
PERCENT REDUCTION
REDUCTION
REDUCTION
vs. SEQUESTER
SEQUESTER
FROM SEQUESTER RELATIVE
TO 1990 LEVELS
DEFENSE
-$25
-$9.4
+$15.6
-$14.8
-5.0%
NON-DEFENSE
DISCRETIONARY
-$19
-$12.2
+$6.8
-$5.4
-2.6%
ENTITLEMENTS
-$5
-$12.5
-$6.5
+$38.7
(+7.1%)
USER FEES
---
+$3.2
+$3.2
---
---
REVENUES
---
+$13.9
+$13.9
---
---
!
NET INTEREST
-$2
-$2.0
+$0.0
---
---
TOTAL FEDERAL OUTLAYS
+1.7%
$50 BILLION SEQUESTER VERSUS CURRENT FY 1990 SPENDING LEVELS
SEQUESTER
1990 VERSUS
PERCENT REDUCTION
REDUCTION
SEQUESTER
FROM SEQUESTER RELATIVE
TO 1990 LEVEL
DEFENSE
-$25
-$14.8
-5.0%
NON-DEFENSE
-$19
-$5.4
-2.6%
DISCRETIONARY
ENTITLEMENTS
-$5
+$38.7
(+7.1%)
USER FEES
---
---
---
NET INTEREST
-$2
---
---
REVENUES
---
---
---
NET INTEREST
-$2
---
---
TOTAL FED. OUTLAYS
-$52
+$20.6
+1.7%
6/4
SAVINGS FROM MODIFICATIONS TO COST-OF-LIVING-ADJUSTMENTS
(assumes CBO economics, in billions of dollars)
06/01/90
annual savings
5-year
1991
1992
1993
1994
1995
savings
COLA Delays:
3-month:
Social Security 1/
2.3
2.6
2.6
2.6
2.6
12.7
Other Non-Means-Tested.
0.7
0.8
0.8
0.8
0.9
4.1
Subtotal
3.1
3.4
3.4
3.4
3.5
16.8
Means-Tested
0.6
0.4
0.5
0.5
0.5
2.4
Total
3.7
3.8
3.8
3.9
4.0
19.2
6-month:
Social Security 1/
4.7
5.2
5.1
5.2
5.2
25.4
Other Non-Means-Tested
1.4
1.6
1.6
1.7
1.7
8.1
Subtotal
6.1
6.8
6.8
6.9
6.9
33.5
Means-Tested
1.1
0.8
0.9
0.9
1.0
4.7
Total
7.2
7.6
7.7
7.8
7.9
38.2
9-month:
Social Security 1/
7.1
7.8
7.7
7.8
7.8
38.2
Other Non-Means-Tested
2.1
2.4
2.5
2.5
2.6
12.1
Subtotal
9.2
10.2
10.2
10.3
10.4
50.4
Means-Tested
1.6
1.1
1.3
1.3
1.4
6.7
Total
10.8
11.3
11.5
11.7
11.8
57.1
6-month, 1991 and repeated in 1992:
Social Security 1/
4.7
7.9
10.6
10.7
10.8
44.7
Other Non-Means-Tested.
1.5
2.3
3.3
3.4
3.5
14.1
Subtotal
6.2
10.2
14.0
14.1
14.3
58.8
Means-Tested
1.1
1.2
1.8
1.9
2.0
8.0
Total
7.3
11.4
15.7
16.0
16.2
66.7
12-month, 1991 and repeated in 1992:
Social Security 1/
7.1
10.2
18.7
21.6
21.7
79.3
Other Non-Means-Tested.
2.1
3.2
5.7
6.8
7.0
24.7
Subtotal
9.2
13.4
24.4
28.4
28.7
104.0
Means-Tested
2.0
1.5
2.9
3.7
3.8
14.0
Total
11.1
14.9
27.3
32.1
32.5
118.0
SAVINGS FROM MODIFICATIONS TO COST-OF-LIVING-ADJUSTMENTS
(assumes CBO economics, in billions of dollars)
06/01/90
annual savings
5-year
1991
1992
1993
1994
1995
savings
COLA Freeze 1991 Only:
Social Security 1/
7.1
9.7
9.8
9.9
10.0
46.5
Other Non-Means-Tested
2.1
3.0
3.1
3.2
3.3
14.8
Subtotal
9.2
12.7
13.0
13.1
13.3
61.2
Means-Tested
2.1
2.5
2.6
2.8
2.8
12.8
Total
11.2
15.2
15.6
15.9
16.1
74.0
COLA Cuts:
CPI Minus 1%, 1991 Only:
Social Security 1/
1.7
2.4
2.4
2.4
2.4
11.3
Other Non-Means-Tested
0.5
0.7
0.8
0.8
0.8
3.6
Subtotal
2.2
3.1
3.2
3.2
3.2
14.9
Means-Tested
0.3
0.4
0.4
0.5
0.5
2.0
Total
2.5
3.5
3.5
3.6
3.6
16.8
CPI Minus 1%, 1991 and 1992:
Social Security 1/
1.7
4.2
4.9
4.9
4.9
20.6
Other Non-Means-Tested
0.5
1.3
1.6
1.6
1.6
6.5
Subtotal
2.2
5.5
6.4
6.5
6.5
27.2
Means-Tested
0.3
0.7
0.8
0.9
0.9
3.7
Total
2.5
6.2
7.3
7.4
7.4
30.8
CPI Minus 1%, 1991-1995:
Social Security 1/
1.7
4.2
6.8
9.6
12.5
34.9
Other Non-Means-Tested.
0.5
1.3
2.1
3.0
3.9
10.8
Subtotal
2.2
5.5
9.0
12.6
16.4
45.7
Means-Tested
0.3
0.7
1.1
1.7
2.2
6.0
Total
2.5
6.2
10.1
14.3
18.6
51.8
CPI Minus 2%, 1991 Only:
Social Security 1/
3.5
4.7
4.8
4.8
4.8
22.5
Other Non-Means-Tested
1.0
1.5
1.5
1.6
1.6
7.2
Subtotal
4.5
6.2
6.3
6.4
6.4
29.7
Means-Tested
0.6
0.8
0.8
0.9
0.9
4.0
Total
5.1
7.0
7.1
7.3
7.3
33.8
SAVINGS FROM MODIFICATIONS TO COST-OF-LIVING-ADJUSTMENTS
(assumes CBO economics, in billions of dollars)
06/01/90
annual savings
5-year
1991
1992
1993
1994
1995
savings
CPI Minus 2%, 1991 and 1992:
Social Security 1/
3.5
8.3
9.7
9.8
9.8
41.1
Other Non-Means-Tested
1.0
2.6
3.1
3.1
3.2
13.0
Subtotal
4.5
10.9
12.8
12.9
13.0
54.1
Means-Tested
0.6
1.4
1.5
1.8
1.8
7.1
Total
5.1
12.3
14.3
14.7
14.8
61.2
CPI Minus 2%, 1991-1995:
Social Security 1/
3.5
8.3
13.5
19.0
24.6
68.9
Other Non-Means-Tested
1.0
2.6
4.2
5.9
7.7
21.4
Subtotal
4.5
10.9
17.7
24.9
32.3
90.3
Means-Tested
0.6
1.4
2.3
3.4
4.3
11.9
Total
5.1
12.3
20.0
28.2
36.6
102.2
COLA Guarantee at 2%:
Social Security 1/
3.6
9.3
15.3
21.6
28.2
78.0
Other Non-Means-Tested
1.1
2.8
4.7
6.7
8.8
24.2
Subtotal
4.7
12.1
20.0
28.3
37.0
102.2
Means-Tested
1.4
2.2
3.3
4.5
5.6
17.1
Total
6.1
14.4
23.3
32.8
42.6
119.3
ADDENDA:
COLA Percentages (effective Jan. 1):
January Budget
3.9%
4.1%
3.8%
3.6%
3.3%
CBO January
4.1%
4.4%
4.3%
4.3%
4.3%
Rules of Thumb (first year effects):
Social
Security
Other
Total
Impact of 1% COLA:
1.7
0.8
2.5
Impact of 6-Month Delay of 1%
Higher COLA
-1.2
-0.6
-1.8
1. Net of interaction effects with other programs.
FAB:BB
SAVINGS FROM MODIFICATIONS TO INCOME TAX INDEXATION
(assumes CBO economics, in billions of dollars)
06/01/90
annual savings
5-year
1991
1992
1993
1994
1995
savings
Index to One-Half CPI:
1991 and 1992
2.8
9.1
12.9
13.7
14.6
53.1
1991-1995
2.8
9.1
16.4
24.8
34.3
87.4
Freeze Indexation:
1991 and 1992
5.7
18.3
26.0
27.8
29.6
107.3
1991-1995
5.7
18.3
33.4
51.0
71.4
179.6
3inu-k
LI W be-sununu(sh)
05-10 1005
SUNUNU ON THE TAX QUESTION: THE TABLE IS CLEAN'
Scripps Howard News Service
Release date: 5-10-90
By ANN McFEATTERS
Scripps Howard News Service
WASHINGTON - True or false: George Bush has buttoned his lips and
is willing to consider new taxes as a way out of the budget mess.
Answer from his top aide, White House chief of staff John Sununu:
Bush has agreed to "no pre-conditions"" on the budget talks with
Congress but anybody who wants to persuade him higher taxes are needed
has a lot of work to do.
The implication to Democrats Thursday was that if new or higher
taxes emerge from the budget negotiations, Bush will try to blame
Democrats and wash his hands of the uproar. Bush's main slogan in the
1988 election campaign was: " Read my lips. No new taxes.
Thursday, the fifth day since Bush entered the 1990 budget fray
with his Sunday "summit" with congressional leaders, Democrats on
Capitol Hill were personally raging at Bush on the telephone. They were
steamed because Sununu gave a not-for-attribution interview to reporters
on Air Force One Wednesday that if Democrats want to put tax hikes on
the negotiating table Bush would listen but would not be likely to be
persuaded.
This flies in the face of what the White House was saying all week
that the White House has an open mind on all aspects of the budget
debate and agreed to "no pre-conditions" at the budget talks between
the White House and 21 legislators. The talks start Tuesday.
A reporter who heard the remarks identified Sununu as the
embarrassing source of the disavowal of a serious White House look at
new taxes.
In an interview Thursday with seven news services, including
Scripps Howard, Sununu said, "The statement (on the airplane) was
designed to make sure that people did not interpret 'no preconditions'
as retaining an obligation for a final structure of the package
(including tax hikes) and an effort to emphasize that no pre-conditions
is no pre-conditions.
He said, ''I do think that as soon as the president and the
leadership said 'no pre-conditions," there was an immediate reaction
outside that 'no pre-conditions" had the condition that there had to be
taxes in the package.
He insisted, The table is clean. People tried to assume there
were certain things (such as a tax increase) that were stuck in the
middle of the table. "
Sununu did not directly answer whether Bush was upset with him. He
said only that House Speaker Tom Foley, D-Wash., raised the issue of the
airplane comments on the phone to Bush and Bush demanded to see a. news
account of the comments.
Sununu said that when Bush saw the story, he said the White House
was to stress that the president intends that no pre-conditions means
nothing has to be included and nothing has to be excluded.
1 Adoo DIOUS
lununu
said
sure
there
are
some
tax
House finds more palatable than others. The White House has a package of
$16 billion tax increases, often billed as user fees, in its budget.
He said the fact that the House last week approved the Democratic
leadership budget by a vote of 218 to 208 too narrow a margin to
assure anything but defeat - means that the budget process is not
working and that a summit is the only answer.
The president has said all along he wants to move ahead on the
failure in the Congress under the normal process to get a budget,
Sununu said.
Sununu would not speculate which taxes might be in a final package.
We are not going to negotiate with ourselves in the press.
But an income tax hike, he said, would be " towards the bottom' of
his list.
Sununu said there are a lot of economists in and out of the
administration who believe strongly that raising taxes will not help the
economy grow and could make the deficit worse. The likelihood is that
they will continue to argue that to the president, he said.
"I cannot believe there is new data that would suggest to them
their interpretation of the impact on the economy of certain taxes is
going to change.
Sununu said that while he will be at the table with the
negotiators, will take to the table the president's policies. And
anyone who thinks the president is not going to know and be involved day
to day with what's going on does not understand this president. "
He said he has no idea how long the negotiations will take before
there is a budget agreement but would hope it would be before the
November elections.
Things here seem to take longer than you expect, he said with a
grin.
Sununu said the "flurry". over the past week is one of the
hazards of getting the process started and I suspect there will be
slightly different kinds of flurries as we go through the process. But
my feeling is that everybody involved thinks it is important enough that
this alternative mechanism of getting a budget may be the only hope of
getting a budget.
To be workable, Sununu said, an agreement has to be acceptable to
the president and to a majority of the Democrats and Republicans in the
House and Senate.
Although past summits have not been greeted as successful, Sununu
held out hope this one will be because it has more members. That could
mean more detailed knowledge of the issues, he said.
(Ann McFeatters covers the White House for Scripps Howard News
Service. )
SHNS.
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