THE BUDGET MESSAGE OF THE PRESIDENT To the Congress of the United States: The Fiscal Year 1995 budget, which I transmit to you with this message, builds on the strong foundation of deficit reduction, economic growth, and jobs that we established together last year. By encouraging private investment--and undertaking public investment to produce more and higher-paying jobs, and to prepare today's workers and our children to hold these jobs--we are renewing the American dream. The budget continues to reverse the priorities of the past, carrying on in the new direction we embraced last year: o It keeps deficits on a downward path; o It continues our program of investment in long-term economic growth, in fighting crime, and in the skills of our children and our workers; and o It sets the stage for health care reform, which is critical to our economic and fiscal future. When I took office a year ago, the budget and economic outlook for our country was bleak. Twelve years of borrow-and-spend budget policies and trickle-down economics had put deficits on a rapid upward trajectory, left the economy struggling to emerge from recession, and given middle class taxpayers the sense that their government had abandoned them. Perhaps most seriously, the enduring American dream--that each generation passes on a better life to its children--was under siege, threatened by policies and attitudes that stressed today at the expense of tomorrow, speculative profits at the expense of long-term growth, and wasteful spending at the expense of our children's future. A year later, the picture is brighter. The enactment of my budget plan in 1993, embodying the commitment we have made to invest in our future, has contributed to a strengthening economic recovery, a clear downward trend in budget deficits, and the beginnings of a renewed confidence among our people. We have ended drift and broken the gridlock of the past. A Congress and a President are finally working together to confront our country's problems. Serious challenges remain. Not all of our people are participating in the recovery; some regions are lagging behind the rest of the country. Layoffs continue as a result of the restructuring taking place in American business and the end of the Cold War. Rising health care costs remain a major threat to our families and businesses, to the economy, and to our progress on budget deficits. Our welfare system must be transformed to encourage work and responsibility. And our Nation, communities, and families face the ever-increasing threat of crime and violence in our streets, a threat which degrades the quality of life for Americans regardless of their income, regardless of their race, regardless of where they live. We will confront these challenges this year, by acting on health care reform, welfare reform, and the crime bill now under consideration in the Congress, and by continuing to build on our economic plan, with further progress on deficits, and investments in our people as well as in research, technology, and infrastructure. WHAT WE INHERITED When our Administration took office, the budget deficit was high and headed higher--to $302 billion in 1995 and well over $400 billion by the end of the decade. When our Administration took office, the middle class was feeling the effects of the tax changes of the 1980s, which had radically shifted the Federal tax burden from the wealthy to those less well off. From the late 1970s to 1990, tax rates for the wealthiest Americans had declined, while rates for most other Americans had increased. When our Administration took office, the economy was still struggling to break out of recession, with few new jobs and continuing high interest rates. In 1992, mortgage rates averaged well over eight percent. Unemployment at the end of 1992 stood at 7.3 percent, and barely a million jobs had been added to the economy in the previous four years. The outlook for the future was slow productivity growth, stagnant wages, and rising inequality--as sagging consumer confidence demonstrated. A NEW DIRECTION Today, whether it is the deficit, fairness, or the status of the economy, the situation is much improved. The budget I am submitting today projects a deficit of $176 billion, a drop of $126 billion from where it would have been without our plan. If the declines we project in the deficits for 1994 and 1995 take place, it will be the first time deficits have declined three years running since Harry Truman occupied the Oval Office. The disciplines we have put into place are working. We have frozen discretionary spending. Except in emergencies, we cannot spend an additional dime on any program unless we cut it from another part of the budget. We are reducing low-priority spending to fulfill the promise of deficit reduction as well as to fund limited, targeted investments in our future. Some 340 discretionary programs were cut in 1994, and our new budget cuts a similar number of programs. These are not the kind of cuts where you end up spending more money. These are true cuts, where you actually spend less. Total discretionary spending is lower than the previous year--again, in straight dollar terms, with no allowance for inflation. As for entitlement spending, the Omnibus Budget Reconciliation Act of 1993 achieved nearly $100 billion in savings from nearly every major entitlement program. Pay-as-you-go rules prevent new entitlement spending that is not paid for, and I have issued an executive order which imposes the first real discipline on unanticipated increases in these programs. For the future, health care reform will address the fastest growing entitlement programs--Medicare and Medicaid--which make up the bulk of spending growth in future budgets, and the Bipartisan Commission on Entitlement Reform, which I have established by executive order, will examine the possibility of additional entitlement savings. While we have imposed tough disciplines, there is one more needed tool. The modified line-item veto, which would provide Presidents with enhanced rescission authority, has already been adopted by the House as H.R. 1578. If enacted, it will enable Presidents to single out questionable items in appropriations bills and require that they be subject to an up-or-down majority vote in the Congress. I think that makes sense, and it preserves the ability of a majority in Congress to make appropriations decisions. In addition to budget discipline, we made dramatic changes that restored fairness to the tax code. We made the distribution of the income tax burden far more equitable by raising income tax rates on only the richest 1.2 percent of our people--couples with income over $180,000--and by substantially increasing the Earned Income Tax Credit for 15 million low-income working families. Thus, nearly 99 percent of taxpayers will find out this year that their income tax rates have not been increased. Results Finally, the most significant result of our commitment to changing how Washington does business is growing economic confidence. Investment is up--in businesses, in residences, and in consumer durables; real investment in equipment grew seven times as fast in 1993 as over the preceding four years. Mortgage rates are at their lowest level in decades. Nearly two million more Americans are working than were working a year ago, twice as great an increase in one year as was achieved in the previous four years combined; and the rate of unemployment at the end of 1993 was down to 6.4 percent, a drop of nearly a full percentage point. The fundamentals are solid and strong, and we are building for the future with a steady and sustainable expansion. THE ECONOMIC PLAN How did all this happen? Our economic plan had three fundamental components: Deficit Reduction First, the introduction and eventual enactment of our $500 billion deficit-reduction plan--the largest in history--brought the deficit down from 4.9 percent of GDP, where it was in 1992, to a projected 2.5 percent of GDP in 1995 and 2.3 percent of GDP in 1999. This substantially eased pressure on interest rates by reducing the Federal Government's demand for credit and by convincing the markets of our resolve in reducing deficits. Those lower interest rates encouraged businesses to invest, and convinced families to buy new homes and automobiles, along with other durable goods. Investment Second, we proposed, and Congress largely provided, a set of fully paid-for measures to encourage private investment (beyond the inducement provided by deficit reduction) and commit public investment to our country's future. The first component was making nine out of ten businesses eligible for tax incentives to invest in future growth--including a major expansion of the expensing allowance for small businesses and a new capital gains incentive for long-term investments in new businesses. The second component was public investment in the future: in infrastructure, technology, skills, and security. These investments are directed toward preparing today's workers and our children for the new, higher-paying jobs of the modern economy; repairing and expanding our transportation and environmental infrastructure; fighting crime; expanding our Nation's technological base; and increasing our health and scientific research. Among other things, we greatly expanded the very successful Head Start program and WIC nutrition program for pregnant women, infants, and young children; provided a major increase to fulfill the mandate of the Intermodal Surface Transportation Efficiency Act (ISTEA) authorization; provided initial funding for the National Service Act and new funding for educational reforms and other education and training initiatives; began the process of fulfilling my goal of putting another 100,000 police officers on the streets of our cities and towns; and provided additional resources for urban and rural development. Trade Finally, our long-term economic strategy depends on the expansion of our international trade markets. In 1993, we did more than at any time in the past two generations to open world markets for American products. The ratification of the North American Free Trade Agreement (NAFTA) establishes the largest market in the world. By lowering tariffs on our exports to Mexico, the agreement is going to increase jobs in this country--and, if previous experience is a guide, they will mostly be high-paying jobs. We also completed work on the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), a worldwide agreement to reduce tariffs and other trade barriers that will also create high-paying jobs and spur economic growth in this country. In addition, we established the U.S.-Japan Framework for a New Economic Partnership so that we can work to increase Japanese imports of U.S. goods and services and promote international competitiveness. And to relieve unnecessary burdens on U.S. businesses, we eliminated unneeded export controls on certain technology to encourage exports of U.S. high-technology products. THE YEAR AHEAD In 1994, we will build on the strong foundation we laid in 1993. Fiscal Discipline We continue to implement the $500 billion in deficit reduction from last year's reconciliation bill. To achieve the required hard freeze in discretionary spending and make needed investments, we propose new cuts in some 300 specific non-defense programs. That includes the termination of more than 100 programs. Many of these savings will be controversial, but we have little choice if we are going to meet our budget goals. On the other side of the ledger, this budget contains no new tax increases. New Investment The investments in this budget continue to target jobs, education, research, technology, infrastructure, health, and crime. Investing in people. First and foremost, the goal of our economic strategy is to provide more and better paying jobs for our people--both today and in the future--and to educate and train them so that they are prepared to do those jobs. The budget contains a major workforce security initiative to promote job training and reemployment. In the past, government has provided workers who lost their jobs with temporary unemployment benefits to tide them over, and little else. But in this new era, when the fundamental restructuring of our economy is causing permanent layoffs and the virtual shutdown of entire industries, we need to create a reemployment system. This budget begins the process of establishing that system, which ultimately will give dislocated workers easier access to retraining, job-search, and other services designed not only to help them through a difficult period but also to prepare them to thrive in productive, new jobs. We also continue to invest in our most precious resource--our children--with proven, effective programs, as well as with new initiatives to confront the problems of a changing society. We propose to expand funding for the school-to-work program, which will provide apprenticeship training for high school students who do not plan to attend college. And our budget expands the national service program, which gives our young people an opportunity to serve their communities and earn money towards college. We provide strong support for the Goals 2000 program, which I hope Congress will enact early this year, to help local school systems reform themselves to educate our children for the 21st century. We must set high standards for all of our children, while providing them with the opportunity they deserve to learn. We also provide major increases for WIC and for Head Start, which we will seek to improve as well. And we significantly expand and better target the Title I program, which focuses on needy children to make sure they can take full advantage of our educational system. Investing in know-how. America has always sought to be the world's leader in science and technology. In some arenas in recent years, we have lost that status. But in the remainder of this decade and in the 21st century, we must be sure that the United States is on the cutting edge of research and technological advances. To that end, the 1995 budget proposes critical investments in the National Institute of Standards and Technology's Advanced Technology Program; NASA's research, space, and technology programs; the National Science Foundation; the information superhighway, on which the Vice President has worked so hard; and energy research and development. In addition, I am determined to continue assisting the industries and communities which have supported our Nation's defense as we continue the defense downsizing that began in the mid-1980's and accelerated in the early 1990's with the end of the Cold War. I am proposing significant investments in the Technology Reinvestment Project, which will work with the private sector to encourage the development and application of dual-use technologies. And the budget also includes additional resources for the Office of Economic Adjustment, which provides planning grants to communities as they convert their local economies to profitable peacetime endeavors. Investing in physical capital. The Nation's capital infrastructure and the economies of too many urban and rural communities have suffered too long from neglect. Last year, we began to address these shortfalls, and in 1995, we propose to continue these initiatives. We propose, first, to continue full funding of core highway programs within the ISTEA transportation authorization act, as well as a substantial increase in Mass Transit Capital Grants. To help provide this level of funding, the budget proposes rescission of many highway demonstration projects, which frequently are an inefficient allocation of taxpayers' dollars. In addition, we propose to continue the restoration of our environmental infrastructure with investments in the technologies of the future under the Clean Water Act and other environmental programs. Last year, we enacted legislation to establish urban and rural Empowerment Zones. This year, we will designate those zones, as well as enterprise communities, to attract investment to neglected communities and provide the kinds of services needed to support economic development. In this budget, HUD outlays for housing assistance, services to the homeless, and development aid to distressed communities will increase substantially, with aid to the homeless nearly doubling from the previous year. Both housing aid to families and aid to the homeless will be restructured to support transitions to economic independence. I also propose to continue our rural development initiative, with grants and loans that represent a 35-percent increase over the previous year. This assistance will provide for improved rural infrastructure and services, such as water treatment facilities and rural health clinics, increase rural employment, further diversify rural economies, and provide rural housing opportunities by expanding assistance to allow low- and moderate-income residents to become homeowners. Investing in quality of life. This budget continues our efforts to enhance environmental protection and preserve our natural resources. We propose both to strengthen the stewardship of these resources and improve environmental regulatory and management programs. We increase state revolving funds for clean water and drinking water, and we propose the establishment of four ecosystem management pilot projects. In addition, we are proposing significant improvements and reforms in the Superfund program, as well as important international environmental initiatives. Health Care Reform Enactment of health care reform, with its focus on controlling health care costs, is the key to making even greater progress on deficits. Indeed, if the Congress adopts the Health Security Act in 1994, we believe that deficits will fall to 2.1 percent of GDP in fiscal year 1999, the lowest since 1979. Of course, deficit reduction is only one reason for health care reform. Providing health security to every American, with a package of comprehensive benefits through private health insurance that can never be taken away, is critical not only to long-term budget restraint but also to long-term economic growth, to the productivity of our workers and businesses, and to the health and peace of mind of all Americans. With some 58 million Americans lacking insurance at some time during the year; with the estimated 81 million Americans with preexisting conditions paying more, unable to get insurance, or not changing jobs for fear of losing their insurance; with the small businesses that cover their workers--and a majority do--burdened by the skyrocketing cost of insurance, which is 35 percent higher for them than it is for big business and government; and with 76 percent of Americans carrying policies that contain lifetime limits, which can leave them without coverage when they need it most--this country is facing a health care crisis. And we must confront it now. In addition to our health care reform effort, the 1995 budget contains key investments in health care and research. We propose the largest increase ever requested in research funds for the National Institutes of Health. This national treasure not only keeps our Nation in the forefront of health research but has demonstrably saved millions of lives and improved the quality of millions more. The additional investment we propose will help NIH with its research in many areas, from AIDS to heart problems, from mental health to breast cancer. Welfare Reform A major initiative for my Administration has been and will continue to be overhauling our welfare system. We must reward work, we must give people the wherewithal to work, and we must demand responsibility. Welfare reform has already begun. The first step was the expansion of the Earned Income Tax Credit last year. That expansion rewards work by ensuring that families with a full-time worker will not live in poverty. The second stage of welfare reform is health care reform. Our current health care system often encourages those on welfare to stay there in order to receive health insurance through Medicaid. When we require that every worker be insured, that disincentive to work will disappear. The next element of welfare reform is personal responsibility. Our welfare reform plan will include initiatives to prevent teen pregnancy, ensure that parents fulfill their child support obligations, and try to keep people from going on welfare in the first place. We must remember this: governments do not raise children, parents do. The ultimate goal of our reforms is to have our people rely on work, not on welfare. Our plan will build on the Family Support Act by providing education, training, and job search and placement for those who need it; it will require people who can work to do so within two years, either in the private sector or community service; it will restore the basic social contract of providing opportunity and demanding responsibility in return. Crime Enactment of the crime bill now being considered in the Congress is also essential, and it should happen quickly. We simply cannot tolerate what is happening in the streets of our cities and towns today. Crime and violence, the proliferation of handguns and assault weapons, the fear that millions of Americans feel when they emerge from their homes at night--and even in the daytime--must be confronted head-on. We need to toughen enforcement, and we need to provide our local governments with the resources they need to take on the epidemic of violent crime. The crime bill will provide substantial resources, enough to fulfill my commitment to put 100,000 additional police on our streets. This budget funds major pieces of the crime bill, and I urge the Congress not only to approve the authorizing legislation but to provide the financial resources to back it up. Defense and International Affairs Profound shifts are taking place in America's foreign relations and defense requirements. When we came into office, we faced dramatically changed international conditions and problems, but we inherited foreign and defense policies and institutions still geared, in many ways, to the conditions and needs of the Cold War. This budget reflects the major changes we are carrying out in the content, direction, and institutions which ensure that our interests are defended abroad. We are committed to remaining engaged in a world inextricably linked by trade and global communications. The nature of that engagement is changing, however. We remain committed to maintaining the best trained, best equipped and best prepared fighting force in the world. Thanks to our 1993 Bottom-Up Review of defense, this force is being reshaped to meet the new challenges of the post-Cold War era. We can maintain our national security with the forces approved in the Bottom-Up Review, but we must hold the line against further defense cuts, in order to protect fully the readiness and quality of our forces. We have put our economic competitiveness at the heart of our foreign policy, as we must in a global economy. We are following the success of NAFTA and GATT with further market-opening negotiations and intensified focus on the promotion of U.S. exports. We are paying particular attention to the Asian and Pacific markets, which have the most dynamic growth of any region in the world. We are dedicated to the enlargement of the community of free market democracies, both as a way of ensuring greater security and as a way of expanding economic opportunity. Our programs for the New Independent States of Europe and Central Asia are the centerpiece of this effort. We are responding aggressively to the new international security challenges that face us: regional conflicts, the proliferation of weapons of mass destruction, the movement of refugees, and the international flow of illegal narcotics. And we are addressing threats to the global environment and rapid population growth with a program to promote sustainable development. Finally, we are fundamentally reforming and restructuring our international cooperation programs, giving an entirely new post-Cold War structure to our efforts by rewriting the basic legislation that has guided such programs for more than thirty years. National Performance Review The Vice President's National Performance Review (NPR) has paved the way for major reforms of how our government works, which are essential to making government more efficient and responsive. Last year, we began implementing its recommendations. With this budget, that effort shifts into high gear. First, this budget implements the reduction by 100,000 of Federal positions required by my Executive Order of last year. Indeed, because of discretionary spending constraints, our proposals actually exceed that total by 18,000. In addition, planning has begun on the further downsizing that will be required to implement the remaining portion of the 252,000-position personnel reduction recommended by the NPR. With this downsizing, we will bring the number of Federal employees to the lowest level in thirty years. To reach these goals, we need to be able to offer incentive packages to those whose positions will be eliminated. This is one of our highest legislative priorities, and it requires attention now. These "buy-out" packages will minimize the need for more costly reductions in force, are less disruptive since they are voluntary, and save the government money in the long run. The time also has come for swift passage of procurement reform, another of our highest priorities. Streamlining procurement is essential to meeting our personnel downsizing targets. And overhaul of the current, wasteful system can give us significant savings, as well as improved performance by government suppliers. Further, this budget contains many of the specific programmatic savings proposed by the NPR. These savings have been used in large part to help us meet the discretionary spending freeze. With my executive order last year, we also began the process of reforming one of the basic functions of government--the regulatory process. Regulations are often necessary to improve the health, safety, environment, and well-being of the American people. Our goal is a more open, more fair, and more honest process that produces smart regulation: rules that impose the least burden and provide the most cost-effective solutions possible. Finally, all of our departments and agencies have begun to reform their basic operations, including their financial and other administrative practices. The goal of the NPR is to make government work better and cost less--and to make it more convenient and responsive to those it serves. That is not something that can be completed in one year, in four, or even eight. But we have a responsibility to begin, and that we have done. Conclusion These are the priorities I seek to pursue in the coming year. Last year, we succeeded in breaking the gridlock that had gripped Washington for far too long. In contrast to past budgets, which lacked credibility, we made sure to use cautious estimates, and we shot straight with the American people. The results are evident. We said we would bring the deficit down, and we did. We said we would revitalize the economy, and we did. We said that we would help the private sector to create jobs, and we did. We said that we would reduce the size of the bureaucracy, and we did. Last year, my Administration and the Congress worked side by side to move our country forward. Let us extend that record of achievement in 1994. William J. Clinton February 7, 1994