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Press Conference of James T. Lynn, Alan Greenspan, L. William Seidman, and James M. Cannon, 450 Executive Office Building
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Digitized from Box 20 of the White House Press Releases at the Gerald R. Ford Presidential Library
EMBARGOED FOR RELEASE
UNTIL 9:01 P.M. EST
JANUARY 19, 1976
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
JAMES T. LYNN,
DIRECTOR OF THE
OFFICE OF MANAGEMENT AND BUDGET,
ALAN GREENSPAN,
CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS,
L. WILLIAM SEIDMAN,
ASSISTANT TO THE PRESIDENT
FOR ECONOMIC AFFAIRS,
AND
JAMES M. CANNON,
ASSISTANT TO THE PRESIDENT
FOR DOMESTIC AFFAIRS
450 EXECUTIVE OFFICE BUILDING
6:30 P.M. EST
MR. NESSEN: I don't know if you have all had a chance
to finish reading the State of the Union, but we wanted to start
on time because I know you have a lot of work to do tonight.
First of all, let me say -- in trying to clean up a
question I had at the briefing about how much time the
President spent on the State of the Union -- we researched
it as much as we could, and it would be fair to say his work
on the State of the Union has fallen into two stages. The last
week or ten days he has been involved in writing the actual
speech. It would be fair to say he spent at least 50 hours
in the last week or ten days writing the speech, but the
preparation of it in the sense of coming to grips with the
issues has gone back a number of months.
In fact, I think you have to say the first meeting
which contributed to his view of the issues to be addressed in
the State of the Union was February 3, 1975, when he visited
Atlanta for the first of the White House Conferences. If you
count the information he got from people speaking at White House
Conferences, the other meetings he has had around the country
with various citizens and citizens groups, the meetings he has
had with Jim Cannon's Domestic Council and so forth, that really
stretches over the months beginning February 3.
We are not able to give you a total number of hours,
but you could say he has literally had dozens of meetings on
the issues of the State of the Union and in the last week or
ten days at least 50 hours writing the State of the Union.
MORE
- 2 -
With that the briefers are going to begin this
briefing, and this briefing is embargoed for 9:01, the same as
the Message itself -- Jim Lynn, the Director of the OMB;
Bill Seidman, the Executive Director of the Economic Policy
Board, Jim Cannon, Director of the Domestic Council; and
Alan Greenspan, the Chairman of the Council of Economic
Advisers.
I think we might start with just a couple of minutes
from Jim Cannon on the three or four major points the President
feels are most important in tonight's speech.
MR. CANNON: Thanks, Ron.
First, let me say that I don't think that there is any
President that I remember, of these times, anyway, that came in
with tougher problems than this one, and from my point of view,
from my perspective, anyway, this is President Ford's first true
State of the Union in which he is totally in control. Last year,
of course, when he became President, many of the decisions were
already well underway, but this time he did address this from
almost the days after he had addressed the Congress last year,
addressed it from then on to -- in fact, he instructed us from
the first days we came over to get to work on his program for
1976 in the State of the Union for that year.
So he came with a number of problems, which we all know --
and the economic group will state better than I -- but he also
came with a great range of social problems which were rapidly
getting worse, and it was these, principally, the Domestic
Council had to address.
In this speech it seems to me that he makes four
major points about his philosophy, the first one of which, which
is in the speech, is his philosophy of Government. Very simply
that Government exists to create and preserve conditions in
which people can translate their ideals into practical reality.
I think that is a concise statement that flows and is followed
throughout the speech.
Another that came forth in the many discussions we
had were many ways he kept coming back to a word -- realistic,
realism. This comes through in another quote, which I think is
a good quote which is in the speech; that is, "In all that we do,
we must be more honest with the American people, promising them
no more than we can deliver and delivering all that we promise."
A third one that is here, I think -- and this was
another one he articulated in our meetings with him -- was
stability, and in the speech he proposes that we strike a new
balance in the relationship between the individual and the
Government, between the Washington Government and State and
local Government, between spending on domestic, between spending
on defense. This new balance is a phrase that has come up many
times in our discussions with him.
MORE
- 3 -
The fourth -- and I think one of the most important
of all -- is hope. It comes through at the beginning of his
speech and at the end of the speech, that life will be better
for my children because it was better for me. He articulates
this, as I say, and I think this is the essence of the
philosophy of the speech that I see.
MR. NESSEN: You can address your questions to any
of the four panelists.
Q
I have a question for Mr. Seidman or
Mr. Greenspan. The President talks of a $28 billion tax
reduction; that is to say, $10 billion on top of the annualized
$18 billion, but the fact sheet, adding up individual and
corporate tax cuts, only comes to $22.2 billion.
MR. GREENSPAN: The particular numbers you are looking
at are for 1976, which, as the fact sheet says, is a combination
of the first half of 1976, which represents an extension of the
1975 cuts in the second half, which represents the President's
$28 billion tax cut. It is not exactly an averaging of the
two, but if you look at the method by which the calculations
were made, what it is attempting to represent is approximately
an amalgamation of the first half and the second half of the
year. The full tax cut effect becomes effective as of January 1,
1977, so far as liabilities are concerned, but the withholding
rates fall on July 1, 1976 to those which would prevail through-
out 1977.
Q
Is there anywhere in this fact sheet -- which
most of us had not had time to read carefully -- how can we
tell taxpayers, including corporate taxpayers as well as
individual taxpayers, what their final cut would be?
MR. GREENSPAN: I think you will find what you see on
this calendar year 1976 is basically the tax cuts for the year
as a whole, with an explanation of the specific individual
items relevant to the specific tax forms. That is under
Item B, which is calendar year 1976. This is on Page 2,
calendar year 1976. You will observe at the bottom it
discusses for individuals, and then later on for business,
what the implicit combined averaging effects are.
Q
On Page 4, the President states one-tenth of
a healthy economy is a job for every American who wants to
work, which sounds like some kind of a goal that could be
quantified. What is your goal of the number of people
unemployed that is reasonable?
MR. GREENSPAN: We don't have a specific number,
but the essential goal is to obtain a level of employment --
or more exactly that which creates a level of unemployment --
which is as low as is capable of being kept indefinitely.
MORE
- 4 -
By that I mean there are numbers of levels of
unemployment percentages which obviously can be obtained for
very short periods of time, but then create unstable con-
ditions thereafter. Now we don't have a specific number, and
the reason we don't is that the unemployment rate, per se,
is a very large average which constitutes the rates of a vast
variety of different types of groups -- teenagers, men, women,
for example, to give you three types of ratios which tend to
differ quite significantly. As a consequence, there is
no specific number, largely because it depends, to a large part,
on the composition of the labor force.
Obviously, we would like to get it down very
significantly. Our view is it can be gotten under 5 percent,
perhaps significantly under 5 percent, and stay there. We
have not, at this stage, ruled out the possibility that 4
percent still is not an obtainable goal, but I don't think that
specifying a number actually assists one in policy making.
The policy is to get it as low as possible consistent with its
staying there.
Q
Mr. Greenspan, last year the President said
that he was trying to turn from checking inflation, or
fighting inflation, primarily, to creating jobs, and of course
the inflation rate has come down about half since then, yet
the unemployment rate is about where it was almost a year
ago -- it is a little different -- but there is less emphasis
on the job side this time. Can you explain why that is?
MR. GREENSPAN: Basically we don't view the issue of
jobs and inflation as mutually exclusive. I don't want to get
into the President's economic report. The President will
address this issue in some broader detail in his Message of
January 26. All I could say at this particular moment is that
he will reiterate what he has said in the past; namely, that
he views inflation as a major unstabilizing force in the
economy and, therefore, a creator of unemployment, and that
a necessary condition to bring the unemployment rate down in a
permanent manner is to diffuse the inflationary forces. So that
the emphasis on the President's program is broadly to create a
healthy economy from which significantly lower rates of unem-
ployment are feasible.
I don't think that we can appropriately look at the
issue of unemployment as separate from the issue of inflation
since they are so intricately intertwined.
Q
Mr. Greenspan --
MR. GREENSPAN: Am I the only one here who can answer
questions? (Laughter)
Q
I think you can answer this one best.
MORE
- 5 -
The President made a big thing late last year about
trying to get Congress to commit itself to a specific spending
ceiling, and reading his speech tonight I don't see any
mention of that. Has he given up on that idea?
MR. GREENSPAN: Why don't I give this to the Budget
Director, who is in control of all the money, to answer.
MR. LYNN: I think the answer lies in the action that
Congress itself took in the closing day, I think it was, of
the last session where Congress committed itself to a
principle of coupling any tax reductions to reductions in
Federal expenditures. That commitment is on the books, and
I think the President fully anticipates the Congress will
abide by the principle that is enacted.
Q
So, he is not asking them to go beyond that,
and his proposal for another $10 billion in tax cuts will
in no way be tied to any more --
MR. LYNN: Look at it this way. Congress has adopted
a principle that says that tax reductions will be given to the
extent that they are expenditure moderations. The President
is saying under that principle what we should do for the
American people is hold the Federal expenditures for the next
year to $394.2 billion, which will enable his tax cut at an
annual rate of the $28 billion. That is his proposal.
He is saying to the Congress of the United States:
this is feasible, this is proper, please implement it. By
saying that, of course at the same time he is saying to them,
this will be application of the principle that you adopted
yourself in the last day of the last session.
Q
Mr. Lynn, if the Congress determines in the
course of the budget resolutions that the spending level is
actually higher than $395 billion, say around $420 or $425
billion, and then proposes the $10 billion tax cut and will
cut $10 billion from $425 billion to get to $415 billion, would
the President oppose the tax cut because it does not get down
to his $395 billion figure?
MR. LYNN: I really do think what should happen here --
and I think as the American people understand the President's
proposal will happen -- is that Congress will see that it is
right to give the full tax cut that the President is proposing
and applying the principle that they have already adopted
that they will come in at $395 billion or below, just as we
did. I don't think it pays at this point to speculate on
"what if." Congress has committed itself to a principle.
The President has said in the application of that principle,
let us give to the American taxpayers a tax reduction of the
$28 billion. Now, I would like to think that as Congress
progresses through its budget processes, which it wanted to
reserve to itself, it will apply its principle to allow the full
tax cut that the President thinks the American people should
have.
MORE
- 6 -
Q
But the point is Congress did not commit
itself to $395 billion spending.
MR. LYNN: No, they did not. They committed
themselves to a principle that if they are going to have
the tax cuts, there will be the expenditure cuts. That
is all they have committed to at the moment.
Q
Let's say if they decide spending is
considerably higher, $20 billion or so higher, than $395
and they say okay, we will give a $10 billion tax cut
that we will have to cut from $425 to $395, will the
President oppose such a tax cut because it is higher than
his spending ceiling?
MR. LYNN: I have said many times before, and I
will repeat it now, I have found in the past when I play
"what if" I find myself talking about situations that don't
happen, and I think I should stand on what I said. They
have adopted the principle, and it is of key importance
that they adopt it because we really do believe that the
tax cuts should be accompanied by expenditure moderation.
The President will, in his budget that he
presents to the American people two days from now, show,
I believe, that a $395 ceiling can be achieved -- in fact,
$394.2 -- and preserve the important priorities of the
Nation. I have no reason to believe Congress won't be
able to do the same thing, and I hope they will.
Q The point is, there is no room for flexi-
bility on the side of Congress. They have to agree. If
they disagree, will the President flatly refuse to consider
their disagreements?
MR. LYNN: I would say to you, let's see what
they do do.
Q The President says that we can achieve a
balanced budget by 1979. What are the anticipated
deficits for fiscal 1977 and 1978?
MR. LYNN: I am afraid you will have to wait for
the budget briefing, which will be given an embargoed
basis, tomorrow. I told my friend back here it may be
difficult for me to draw a line between the State of the
Union and the budget, but I think that is a clear line.
I will say to you, though, that the President's
program, in our judgment, does result in achievement of the
goal that he mentions in the State of the Union of the
balanced budget by fiscal year 1979.
MORE
- 7 -
Q
Can somebody tell us it may be in the
fact sheet someplace, but some of us have not had a chance
to read it -- how this proposed new catastrophic health
insurance plan or program would work? Could you give us
some details of cost to the citizens and to the Government
and so forth?
MR. LYNN: I think that is appropriate to brief
on, isn't it, at this point?
The catastrophic, as the President's message
says, what it is is a proposal that those covered by
Medicare will never have to anticipate more than $500
in expense for hospital or nursing care in any year or
more than $250 for covered care, for doctor's services
in any year.
Now, there are two other parts of the proposal.
One part of the proposal is that we will go to a co-payment
basis on shorter illnesses. Let me explain, Under the
present law, the patient on a hospital visit pays fully
the first day's hospital bill. From the second to the
sixtieth day, the patient pays nothing. Medicare picks
up the whole thing.
After 60 days, it is all the patient's burden,
no matter how big it is, completely.
Q There is a co-payment?
MR. O'NEILL (Deputy Director, Office of Manage-
ment and Budget): It is 50 percent.
MR. LYNN: Fifty percent they have topay after
60 days. :I stand corrected.
What we are proposing is that starting with the
second day there be a change. The patient would pay 10
percent of the hospital bill from the second day on out,
but of course subject to that ceiling of $500. On
doctor's bills, the co-feature would be 20 percent of the
doctor's bills, but with a ceiling; again, a maximum of
$250 a year.
At the same time, the President is also proposing
that we will only pay in Medicare for increases in "per
visit" for various kinds of services, increases of 7
percent from year to year as to hospital care, and 4
percent as to doctor's care.
Q
And the cost of this, the annual cost to
the Government?
MORE
- 8 -
MR. LYNN: The reforms in total result in a net
savings. The maximums
the catastrophic protection results
in additional outlays by the Federal Government ; $568
million. On the other hand, the proposals with respect to
the sharing of payments, the cost-sharing, plus the 7
percent increase year-to-year limitations, and the 4
percent year-to-year limitations result in a net savings
of $2.2 billion.
So, there is a net savings by way of outlays.
MR. NESSEN: You might want to point out the
President feels that the catastrophic insurance provision
is one of the most important innovations in the State of
the Union speech.
MR. LYNN: Indeed, he does. I think he says it
very well in the State of the Union, that this is a
haunting fear of the elderly themselves. It certainly is
a fear of their families, and what it is is an effort to
say to our elderly and our disabled that no matter what
kind of illness you have, no matter how long it takes or how
long you are confined, that you can count on your fees
for nursing home services or hospital services not exceeding
the $500, and not exceeding $250 for doctor bills.
Q
What is the net savings, $2.2 or $2.2 minus
$568?
MR. LYNN: No, the total is the difference.
$2.2 for both the plusses and minuses. $2.2 net savings.
MORE
- 9 -
Q
How much more will Medicare patients pay
under total? Do you have that number yet? Under the cost-
sharing they are going to pay more.
MR. LYNN: I gave a figure for that. You are
asking for a total dollar figure as to what they will pay as
a group, all of them?
Q
Yes. It is going to cost more money.
MR. LYNN: You mean the aggregate amounts it would
cost under that cost-sharing formula?
Q
For the Medicare payment.
MR. LYNN: 1.8.
Q
How do you get to the $2.2 billion?
MR. LYNN: Because you offset figures. There is
additional cost to the Government of the catastrophic
protection. There is savings to the Government by virtue
of the 7 percent and 4 percent limitations and by virtue of
the cost-sharing arrangement we just mentioned.
Q
I have a question on another aspect of the
health program which is the $10 billion block grant of Medicaid
and the 16 or so other health programs. What is the net cut?
What is the net cut, if there is a net cut, that that
$10 billion represents? What would it be if you had not
put on a ceiling of $10 billion?
MR. LYNN: $200 million. Let's put it in context. If you
look at the 1977 funding levels under the program that the
President is proposing to make this block grant, and compare
it with 1976 levels, it is up from 1976. On the other hand,
it is restrained from where the figure would be if we were to
continue business as usual.
In other words, just taking these runaway increases
that we have had in the cost of medical service and fund
them in Medicaid. That figure is -- we are saving $200 million.
We are $800 million over the 1976 figures, but $200 million
under where it would have been if we had just continued to go
with the programs as they were. I think the fact sheet also
points out there is no State that would lose funds compared
to the 1976 levels under this program.
MR. CANNON: The Governors we talked to about
this indicate that it will be better for them in providing
medical care to recipients to have the $10 billion this way,
better for them this way, than it would be if they had the higher
figure with the restraints on it.
MORE
- 10 -
Q
Is that with the matching grants dropped out?
MR. LYNN: Yes, the matching grants are dropped
out of all of the consolidation proposals.
Q Wouldn't the total go down more than the
$200 million, if the States are not going to match these
grants?
MR. LYNN; They don't have to match them, no.
Q
Then won't that come out of the total?
MR. LYNN: That is provided in health service for
lower income people? I would say I certainly don't think so.
Let's take a look at the other side of the coin as to what is
happening right now throughout the country. A number of the
States have either done or are considering reductions in their
Medicaid programs as a matter of general budgetary restraint
in their own States. If the program continues the way it is
now, those States will have a net loss of Federal funds because
depending on what their matching share is -- let's take a
State that is 50-50 -- for every dollar they cut out of their
State budget, they are losing a dollar of Federal assistance.
Under the President's proposal, they will not
lose anything from what they had at 1976. On the other side,
it does seem to me with the procedures that have been provided
as to community participation in what the plans will be, what
priority this should have and so on, I don't think we are going
to see much slacking with respect to these programs.
Q
I was not finished. I assume that the $200 million
slowdown in growth and the $800 million growth over 1976 are
for the whole block, that is Medicaid plus --
MR. LYNN: That's right.
Q
Now, I would like to get the same figures just
for Medicaid. In other words, we took 1976 funding levels for
the other programs and then on Medicaid we allowed this
additional $800 million for the Medicaid component and that
resulted in a total block grant program of the $10 billion.
Q
So the $200 million and $800 million refer
solely to Medicaid?
MR. LYNN: Yes, sir.
Q
And what does that mean, just no change in the
levels of the other 16 programs?
MORE
- 11 -
MR. LYNN: That's right, except we don't anticipate
there will be other programs. This will be flexibility
given to the State in order to handle the matter. There are
also provisions incidentally limiting in the first years what
the State may do to the particular kinds of facilities and
providers that have already been providing the service under
these many categorical programs. If my recollection is right,
the present program design would say that the State may not,
in the first year, provide less than 80 percent of the last
year's funding level to any of the activities that had been
funded under the categorical programs.
Q
So if the States want to spend any money on
any of these other 16 programs, that is to say for any of
these other 16 functions, they are going to have to cut their
Medicaid, right?
MR. LYNN: If they want to spend more money with
respect to them?
Q
Any money apparently.
MR. LYNN: No. Then you misunderstand what I am
saying. There is in this block grant program an amount for
each of the categoricals other than Medicaid equal to what was
in the budget for 1976 for each one of those categoricals so
that is there and they get that.
Q
I guess the easiest thing to help me out of my
confusion would be if you would tell me what the Federal
spending for Medicaid will be in fiscal 1976.
MR. LYNN: We'll check it and get back to you.
Q
If matching funds have always been considered a
virtue in the past, what was the logic in eliminating them not
only in the health programs but in other programs?
MORE
- 12 -
MR. LYNN: I had some experience with getting
rid of the match on a program for a year and nine months,
I guess it was, ten months, while I was at HUD. You recall
the Community Development Act of 1974 abolished the match-
ing grant. I can say to you from my HUD perspective one
of the reasons we abolished it, among others, was there was
was absolutely no way of tracking the match.
By that I mean particularly where we allowed the
match to be given in kind, particularly since people can
move funds around within the State budgets or the local
budgets, it is becoming really a difficult thing to see
whether or not you do have maintenance of efforts within
the State.
In other words, they may come up with the money
to match this, but they may do it by taking it out of some
other program where you also have, let's say, a national
objective that you want to meet.
The other thing is, I think, this recognizes a
feeling by the Administration that the necessity of
helping the poor with this kind of a problem is there,
whether or not the State has the funding available to
match, and that there are poor people in States that have
few resources and there are poor people in States that
have large resources.
I think Secretary Mathews believes there has
been a good deal of responsibility shown, growing respon-
sibility over the course of the last ten years, at the
local level, recognizing their responsibility, and that
the mere elimination of match as a technical requirement is
not going to be accompanied by the States reducing their
efforts in this connection.
MR. CANNON: Peter, the fact is a larger share of
these medical funds will go to States with a larger share
of poor. Many of those States now don't have the money
to match, and this is a part of the President's plan to
provide more funds for those States with larger shares of
poor.
Q
Why can't a State, though, just cut its
Medicaid spending in half because it no longer has to
provide its share?
MR. CANNON: Because for all practical purposes.
political realities won't let them.
Q
The figure for the cost of the catastrophic
insurance, could I get the figure first?
MORE
- 13 - -
MR. CANNON: I don't have figures. Jim will
have to give you figures.
MR. LYNN: In answer to this gentleman's
question, the figure for Medicaid alone for 1976 was $8.2
billion. I think we have given you the other figures you
need. What was the question you had, Jim.
Q
The cost of the catastrophic illness
insurance, is that $578?
MR. LYNN: $568.
Q
On page 18 you express some concern about
the rapid increase in the cost of Social Security benefits.
I read it hastily, but I don't see any mention here about
the much greater increase in cost of the Federal pension
benefits. There is practically a runaway cost there.
Federal pensions, I believe, are taxed according to the
cost of living automatically where Social Security requires
an act of Congress.
MR. LYNN: Here I get in a little trouble.
Perhaps what I should say in this regard is "tune in
tomorrow." We have, of course, a number of restraints
that are reflected in the 1977 budget, as well as
initiatives and reforms, and I think without signaling one
way or another I better just say we are having an embargoed
briefing tomorrow morning at 9:30. I will be happy to
have you repeat that question there.
Q
Can you give me some ballpark figure on what
the increase in the defense budget will be?
MR. LYNN: I don't think I should go into that.
Q Percentage?
MR. LYNN: I think we should do that when we can
have a full briefing, which will be tomorrow.
Q These 500 Federal agents do nothing but
help local authorities stop criminals from selling and
using handguns. Is that going to be their sole respon-
sibility?
MR. CANNON: Correct.
Q What kind of Federal agents will these be?
MR. CANNON: Treasury.
MORE
- 14 -
Q
Why can't local Governments do this by
themselves?
MR. LYNN: One thing is we have Federal laws,
if my recollection is right, in this area. Jim, do you
want to elaborate on that?
MR. CANNON: It doesn't require much elaboration.
The President does say, I believe in the State of the Union
address, that he accepts that the interstate trafficking in
hard drugs is a Federal responsibility. That is why he
addresses that.
Q
Will you explain to us why this address is
so totally twrapped up in the budget? It is almost all
budget, and yet you are not giving us the budget until
tomorrow.
MR. LYNN: I would dare say, reading it, that it
is solely budget. It has budgetary aspects, but it is a
document that goes far beyond the budget. I think that it
says a lot of things quite beyond the budget. As I say,
in the particular areas that the President has addressed,
we are trying to be helpful to you on the specific numbers.
Do you have other ones you need?
Q
Yes, you have one here where you are address-
ing 59 programs. It includes the 16 you talk about in
health and a whole bunch of others. Will you elaborate
on what 59 programs in child care and everything else you
include in here? That is on page 9.
MR. CANNON: I think we can get those for you,
Carol.
MR. LYNN: Which programs do you want?
Education?
Q
Yes, how about education? What are you
going to do with Title I? Is that any part of this?
MR. LYNN: Yes.
Q
Would you repeat the question, please?
MR. CANNON: The question is, what are the
specific programs that are being consolidated, starting
with education.
MR. LYNN: They fall under four main headings:
Elementary and secondary education; education for the
handicapped; occupational, vocational, and adult education;
and library resources. As I say, thereare a heck of a
lot of programs here. If you want me to list them all, I
will, but we can provide you afterwards with a list.
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Q
You say you are going to combine all of
those into one?
MR. LYNN: Yes, into a block grant.
Q
Is that similar to the proposal that was
made a year or two ago when the Elementary-Secondary
Education Act was up for renewal?
MR. CANNON: One dissimilar thing is those were
cuts. These are not cuts.
Q
On the social service, child nutrition and
social service=
Q
May I just follow on that a minute, Carol?
The ESEA is mandated for poor children, is it not? How
can you lump it in with these other things?
MR. O'NEILL: 75 percent of the funds would be
mandated, half through to the local school districts for
focus on low-income children, just as they are under the
disadvantaged Title I authority.
MR. LYNN: Each of these programs does have a
focus of that kind to it. You just don't send it out by
the basic label that is on it. There are objectives of
the legislation, and therefore the legislaton defines a
charter of activities and within that charter provides, in
most cases at least, as to who is the group that you spend
the money or most of the money on, and the State has to
live within those particular rules that are set forth
in the grant.
For example, in the child nutrition block
grant, it says it must be spent on providing meals to the
poor children. As we say, that is a program that does
reach 700,000 children that are not reached now, but in
each one of these programs there are focuses of that kind.
The community development block grant, for example,
has focus language in it. Now, each act varies one to
the other as to how that focus is worked out to allow some
flexibility on the part of the State, but on the other hand
be sure that the needs that were intended to be addressed
by the categoricals are also met.
Q
I did not understand this one thing on the
consolidation of the 27 programs, the educational programs,
and it says the budget authority request for block grants
will be $2.2 billion. Did you say this was the same as
fiscal 1976 or more or what?
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MR. LYNN: It gets a little complicated in the
explanation. Paul, why don't you try it at least. There
is new budget authority, though, that is being requested.
Q
Question?
MR. LYNN: The question was just how does the
funding level for the new education block grant program
relate to what there has been in the past.
MR. O'NEILL: The $3.3 billion level is $300
million above the amount that we have requested for fiscal
year 1976, and I say requested for this reason. You will
remember that the Congress sent the President an education
bill that was significantly above what he asked for, and
he vetoed it, and they returned it to him.
Under the new Congressional Budget Reform Act
procedures, there is a requirement that if he does not
wish to spend particular amounts of money, that he ask
for recissions or deferrals. We now have pending before
the Congress recission requests of $300 milli n, and if
the Congress goes along with us, this $3.3 billion request
for fiscal year 1977 will therefore be $300 million above
the final level for 1976.
If the Congress chooses not to go along with those
recission proposals, the 1977 level will in effect be the
same as the 1976 level.
MR. LYNN: So, it is not lower than the 1976
level, even if Congress should choose to reject the moder-
ation that we have asked for in sending back our requests
after their appropriation action.
Q
What is the comparison figure if the same
programs were projected in FY 1977?
MR. LYNN: The same programs we have.
Q
The 3.3 If the same programs are projected
in 1977.
MR. LYNN: That depends on 1977 appropriation
action because we are talking about categoricals here
mainly, aren't we? In other words, you are asking if the
new program were not enacted and they continued to do
business as usual, and if you took the action they have
taken for appropriations for 1976, what would they do with
regard to it in 1977. I think on that you would have to ask
the Congress what they would do.
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MR. O'NEILL: In the education level, you can't
give a straight answer because, as Jim says, it depends
on what the Congress does.
MR. LYNN: In other words, it is not an entitle-
ment kind of program. It depends on decision-making in
their appropriation process.
Q
I don't want to belabor this, but if this
is going to poor kids anyway, a nd there is already, as I
understand it, a bit of latitude for localities and States
to spend this ESEA money, what is the difference if it is
ending up with the same kids?
MR. LYNN: There is a great difference. When
you take a look at these programs one by one and look at
the duplication and look at the overlap and look at the
administrative expense of running that many separate programs,
when you look at the lack of flexibility that it gives
people at home with respect to how to best utilize that
money back home, when you look at the inequities that come
from a project grant being given this town when there are
four or five other towns that at least arguably have every
bit as many problems to address, I think it becomes very
clear that this is a substantial improvement.
Q
Referring to the bottom of page 10 on the
speech, how much does the President want to spend in
Angola? Is that a smile?
MR. LYNN: Yes, I don't think it is appropriate
for me to respond to that question.
Q
You had a point about the cut-off here, the
Senate cut-off.
MR. LYNN: Yes, but I think the point stands
on its own.
Q
On page 10, the President refers to "the
American people having heard too much about how terrible
are our mistakes, how evil our deeds, how misguided our
purposes." From whom have they heard this? Is it a rap at
the Congress or the press or whom?
MR. CANNON: I don't think it is a rap at anybody,
Peter. I think he is expressing his feeling about what he
feels has been in a great deal of the public comment and
criticism, but I don't think it is addressed at anyone in
particular.
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I think it is the obverse of what he feels. He
feels the country should be confident and hopeful for the
future, and that we have perhaps invested too much time
in pessimistic talk about ourselves.
Q
Isn't the $10 billion consolidation
and passing it on -- on the medical, on the health programs --
consolidating and giving them to the States and localities,
isn't that adopting part of Reagan's proposal?
MR. CANNON: There is a vast difference, and the
real difference is, it is as though each of them had a
bag. If you open Reagan's bag, it is empty. If you open
Ford's bag, it is full of answers.
Q
That was not exactly full of answers. Be
specific.
MR. CANNON: It is a 180 degree difference.
Reagan, if I understand his program, says, "You take the
problem and you raise the taxes." Ford is saying, "The
Federal Government is spending so much money on this. We .
believe you are competent to handle this problem. Here is
what we have given you. Here is no less than we have given
any State. Here for poor States is more. We are confident
that you can take this Federal money and handle the problem."
I think that is the difference between an empty
bag and a full bag.
Q
You say it helps the poor States. Does it
tend to penalize the high income, urbanized States?
MR. CANNON: No, because there is a hold harm-
less in there. At least for fiscal 1977 no State will
receive less.
MR. LYNN: Let me add to that. Again, bear in
mind there are a number of the large States that under
the existing programs are cutting back as a matter of
their own budgetary restraint problems, and as they cut
back now on their Medicaid program, in view of the matching
requirement, they are actually going to lose dollars,
Federal dollars, in 1977 under the matching program unless
the law is changed.
Under this proposal, no State would receive less
than they received in 1976.
Q
On that issue, Jim, if I could follow it
up, if they are not receiving any less money -- I don't
know if I understood you -- you said of the 16 programs
in the health area that are consolidated, they will be
getting, except for Medicaid, as much money in 1977 as
they got in 1976?
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MR. LYNN: Right.
Q
If inflation continues to go up, as is
being projected, doesn't that mean a cut in real services?
MR. CANNON: No. Many of these Governors have
told us they would gladly accept a 10 percent cut if
we would take off some of the restrictions which cost them
more than that to administer the programs.
Q
You are asking for public hearings, in
effect, a public process here in compliance on this
program of financial assistance. What is your timetable
for getting it into effect at State level if the public
has to participate and it has to be approved by the
Federal Government?
MR. LYNN: Don't forget we are talking about a
fiscal year here that begins eight months from now.
MR. O'NEILL: I think you are misreading. What
the paper says I think is that there will be a requirement
in the use of this money by the State, that they have
a sunshine process; that is to say, the public be
involved in the preparation of that plan.
We are not now calling for hearings on this
idea. We are asking the Congress to take it up in their
appropriate committees.
MR. LYNN: Again, by way of an analogy there,
the Community Development Act of 1974 has a process
whereby before the city or the State -- in that case, the
cities -- make up their minds and make a decision, it
must be put through a process that satisfies the need to
know of the people and their opportunity to make suggestions,
criticisms and their own proposals, and what we are
providing here is the same kind of process.
Q
Are you saying the savings in administrative
costs for consolidation would more than offset the rise in
inflation first?
MR. LYNN: This is what we are told by most
Governors.
Q
Have you done the calculations yourself?
MR. LYNN: I have not done the calculations. I
don't believe we have.
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MR. CANNON: The Governors have told us -- bipartisan.
They have been completely supportive of the block grant
idea, and they have said to us and the White House public
forums that we have had throughout the year, starting from
last February -- indeed, going all the way back to at
least the 1968 platform, that I can remember -- that there
has been a firm stand for block grants as the best way to
handle these problems.
That is what this is, and that is the real
difference between this and the Reagan program.
Q
But you have not calculated that?
MR. LYNN: Of what that particular cost savings
would be? No, we have not, but I can say that in a
meeting I have had that the idea was that the recipients
said look, sure, we have had expenses for health care that
have been going up.
If we have the flexibility on these funds, if we
have the Federal funds for these programs, it is right
that we accept that responsibility.
MR. NESSEN: We have been going almost an hour.
Bill Seidman feels somewhat rejected since nobody has
asked him a question. He has a couple of thoughts you
might want to hear on the tax cut provisions of this,
and then let's knock it off because we will be right
up around an hour.
I want to say one thing before we break up,
though. I have to mention one thing that is in the
speech copy.
MR. SEIDMAN: There are three new tax proposals in
the speech not treated in any detail, but they are treated
in the fact sheet, and let me just take a couple of minutes
to review the three proposals.
One is a proposal to begin to broaden the owner-
ship of American enterprise by allowing all citizens to
have special tax deductions if they invest in American
companies. This is a proposal for any taxpayer, and he
will get a tax deduction for an amount of $1,000 or $1,500,
which he may put into a fund for investment in American
enterprises and he will get a tax deduction for it.
While it is in the fund, it will.
The dividend will not be taxed, and if the stocks are
sold and others are invested in, there will be no tax, and then at
the end of a fixed period -- seven years, perhaps -- if he wants
to take the funds out, there will be a tax at that time only.
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Q
Isn't that the same as IRA?
MR. SEIDMAN: No, this is very much different
than IRA. IRA is a retirement program. This is an
investment program which you could invest in today to have
the funds to put your children through college. It is a
program that applies to all Americans, whether they have
any other kind of plan, so it applies across the board.
It is for stock and equities only. We look
for it to increase the amount of capital for American
industry, a problem which has much been discussed, and
to broaden the ownership of American equities.
Q
How much of an increase do you expect?
MR. SEIDMAN: We estimate, although it is very
hard, two million new stockholders in the first year of
operation.
Q
What is the income lid ceiling?
MR. SEIDMAN: The income lid, which again is not
fixed -- we have proposed to work out all these various
numbers with the Congress. We have proposed for our
computations starting at 20,000 and topping out at 40.
That means that anybody up to 20 gets the full deduction
and beyond that it starts to phase down.
Q
Is there a limit on the amount of
investment?
MR. SEIDMAN: The amount, again, we have not
specifically decided because we want to work with the
Congress on it, but it has been suggested between $1,000
and $1,500 per taxpayer per year.
Q
Isn't American enterprise also a multi-
national?
MR. SEIDMAN: Yes, the fact that the corporation -- I
would think that would be it, although those kinds of
details we will be working on with the Congress.
Q
What will the revenue loss be?
MR. SEIDMAN: It is about $500 million in the
first year.
Q
Is it taxed as ordinary income at the end of
seven years?
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MR. SEIDMAN: That is another area that we have
not concluded our discussions with the Congress, and we
will be talking about them. We believe that at least the
capital gains in the funds should be taxed at capital
gain, and perhaps we ought to give middle America a
chance to get some capital gains and tax all of it at a
capital gains rate.
That is the first one. The second one is
accelerated depreciation for new plant and equipment in
high unemployment areas. This is a special one-year
provision. It starts as of today and will go for one year.
If a business or asshopping center or any other commercial
enterprise starts an enterprise within a year and completes
it within three years, they will have the right to use the
depreciation rate on the building twice as fast as normal,
and they will have a right to use a five-year life for
equipment.
The average life of the equipment is about 12
years, so this would be a five-year life. In addition,
they will get the investment credit for any other rights
which they have under the statute. This is limited to
areas that had an average unemployment rate of 7 percent
during 1975 and a list of those areas, as estimated now,
is in the supplemental fact wsheet, which you have, so you
can look and see.
Q
The 20,000 to 40,000 -- I ask this question
because I have forgotten how lids work -- the 20,000 to
40,000, is that gross or net?
MR. SEIDMAN: That is on earned income, and it
merely means that if the amount decided upon is the full
amount, it is $1,500 let's say. Then, if it were between
20 and 40, when you got to 30 you would only be able to put
in $750. In other words, the amount that you could put
in would phase down as you got to higher income brackets.
Q
Gross income or taxable income?
MR. SEEDMAN: This is going to be earned income,
which is the concept in the statute now.
Q
It is a shelter, is that right? You are
sheltering $1,000 or $1,500?
MR. SEIDMAN: You are giving them the right to
have a tax deduction for investing in America, that is
right.
Q
You are sheltering that $1,000 or $1,500
from taxes?
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MR. SEIDMAN: Well, I don't know how you phase
it. I would just simply say you are --
Q
When you were still a private accountant,
Bill, did you call it a shelter?
MR. SEIDMAN: I never dealt with anything this
small. (Laughter)
Q
Bill, since there is a good deal of unused
capacity in the country and the general belief is that it
is a lack of consumer spending, which seems to be recovering
at a rather slow rate, how does this second tax proposal do
anything to stimulate the economy?
MR. SEIDMAN: There are a great many manufacturers
who have new plants on the drawing boards, who have ideas
of where they want to put those plants, and if they see
that by starting them, let's say, a year earlier than they
might have originally planned they can get this additional
incentive, they may well start them a year early.
The whole hope here is to try to move and accel-
erate the construction from what might take place a year
or two later.
Q
Even though they have unused capacity, they
might start construction now with anticipation of greater
demand a year or two down the line?
MR. GREENSPAN: Irving, first of all, I think we
ought to question the premise of your question; namely, that
it is a deficiency of consumer buying which is a problem.
I think it is precisely the opposite. Consumer markets have
been moving ahead very rapidly in the last numbers of
weeks -- in the last month or so -- and there has been,
as you know, very considerable unused capacity in the
construction industry and in the capital goods industry.
This proposal is positioned to give incentives
to accelerate construction on new plant and equipment, or,
I should say, new plants and equipment in the new plants,
and that this particular type of thing really does not
necessarily relate to whether or not manufacturers or
other businesses have unused "capacity.
They are always building at any rate of operations
and all this will do, if one takes a look at what this
does to cash flow rates of return and the like, is to very
markedly improve the incentives to move on these types of
projects in areas where the unemployment rate is abnormally
high.
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Q
Are you saying there is not low utilization
rates on other industries?
MR. GREENSPAN: I am basically saying that the
whole capital goods markets have lagged, as they ordinarily
would expect to do, during this particular period and it
is that, not the consumer markets, which have got the major
potential expansion in front of us.
MR. SEIDMAN: Most people are predicting there is
going to be a shortage in a great many of those areas some-
time in the not-too-distant future, and what we are trying
to do is move the construction ahead of when it might
normally take place.
Let me just say on the last thing that the
President has proposed an estate tax change in order to
help small businesses and small farms continue to be
retained in a family. This is similar to the thing -- the
suggestion that he made in his recent speech to the Farm
Bureau, which basically provides that, instead of paying
the tax in nine months, as is now required, you get five
years before you have to pay anything, and then you pay the
rest over a 20-year period with a 4 percent interest rate.
It is limited to those farms or businesses with
a value of $300,000, and then above that, it phases out
so that you get no benefit if they are in excess of $600,000.
Q
You said business is also the same?
MR. GREENSPAN: Farms and businesses in that
they qualify as family --
Q
What is the limit on shareholders, Bill?
How do you define the small business for the purpose of
the act?
MR. SEIDMAN: It is defined in the same way that
it is now in the statute, which is 50 percent of the gross
estate or 35 percent of the net estate. It is the same
provision that is already in Section 6116.
MR. NESSEN: There is one mistake in the speech,
and let me correct that and then we can go. It is on
page 9. $22.5 billion has been already given in revenue
sharing instead of $19 billion.
Q
We were told $23 billion.
MR. NESSEN: $22.5 is the correct number. The
fact sheet shows also $22.5.
THE PRESS: Thank you.
END (AT 7:35 P.M. EST)