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	<title> - THE PRESIDENT'S BUDGET SUBMISSION FOR FISCAL YEAR 2000</title>
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	[House Hearing, 106 Congress]
	[From the U.S. Government Publishing Office]




	THE PRESIDENT'S BUDGET SUBMISSION FOR FISCAL YEAR 2000

	=======================================================================

	HEARING

	before the

	COMMITTEE ON THE BUDGET
	HOUSE OF REPRESENTATIVES

	ONE HUNDRED SIXTH CONGRESS

	FIRST SESSION

	__________

	HEARING HELD IN WASHINGTON, DC, FEBRUARY 3, 1999

	__________

	Serial No. 106-1

	----------

	U.S. GOVERNMENT PRINTING OFFICE
	54-578 cc WASHINGTON : 1999

	Printed for the use of the Committee on the Budget








	COMMITTEE ON THE BUDGET

	JOHN R. KASICH, Ohio, Chairman
	SAXBY CHAMBLISS, Georgia, JOHN M. SPRATT, Jr., South
	Speaker's Designee Carolina,
	CHRISTOPHER SHAYS, Connecticut Ranking Minority Member
	WALLY HERGER, California JIM McDERMOTT, Washington,
	BOB FRANKS, New Jersey Leadership Designee
	NICK SMITH, Michigan LYNN N. RIVERS, Michigan
	JIM NUSSLE, Iowa BENNIE G. THOMPSON, Mississippi
	PETER HOEKSTRA, Michigan DAVID MINGE, Minnesota
	GEORGE P. RADANOVICH, California KEN BENTSEN, Texas
	CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
	GIL GUTKNECHT, Minnesota ROBERT A. WEYGAND, Rhode Island
	VAN HILLEARY, Tennessee EVA M. CLAYTON, North Carolina
	JOHN E. SUNUNU, New Hampshire DAVID E. PRICE, North Carolina
	JOSEPH PITTS, Pennsylvania EDWARD J. MARKEY, Massachusetts
	JOE KNOLLENBERG, Michigan GERALD D. KLECZKA, Wisconsin
	MAC THORNBERRY, Texas BOB CLEMENT, Tennessee
	JIM RYUN, Kansas JAMES P. MORAN, Virginia
	MAC COLLINS, Georgia DARLENE HOOLEY, Oregon
	ZACH WAMP, Tennessee KEN LUCAS, Kentucky
	MARK GREEN, Wisconsin RUSH D. HOLT, New Jersey
	ERNIE FLETCHER, Kentucky JOSEPH M. HOEFFEL III,
	GARY MILLER, California Pennsylvania
	PAUL RYAN, Wisconsin TAMMY BALDWIN, Wisconsin
	PAT TOOMEY, Pennsylvania

	Professional Staff

	Wayne T. Struble, Staff Director
	Thomas S. Kahn, Minority Staff Director and Chief Counsel


	C O N T E N T S

	Page
	Hearing held in Washington, DC, February 3, 1999................. 1
	Prepared statement of:
	Hon. Kenneth E. Bentsen, Jr., a Representative in Congress
	from the State of Texas.................................... 6
	Hon. Bob Clement, a Representative in Congress from the State
	of Tennessee............................................... 7
	Hon. David E. Price, a Representative in Congress from the
	State of North Carolina.................................... 7
	Hon. George Radanovich, a Representative in Congress from the
	State of California........................................ 8
	Jacob J. Lew, Director, Office of Management and Budget.......... 8
	Charts:
	The Budget Is in Surplus After Years of Deficit.......... 9
	Investing the Surplus for Our Future: Cutting the Debt By
	More Than Two-Thirds................................... 11
	Framework for Social Security and Medicare Reform With
	Long-Term Fiscal Discipline............................ 12
	Sources of Unified Budget Surplus........................ 13
	Investing the Surplus for Our Future..................... 14
	Interest as a Percent of Outlays in 2014................. 15
	Prepared statement of........................................ 16
	Additional information supplied for Mr. Price................ 47
	Additional information supplied for Mr. Holt................. 54


	THE PRESIDENT'S BUDGET SUBMISSION FOR FISCAL YEAR 2000

	----------


	WEDNESDAY, FEBRUARY 3, 1999

	House of Representatives,
	Committee on the Budget,
	Washington, DC.
	The committee met, pursuant to notice, at 10:02 a.m., in
	room 210, Cannon House Office Building, Hon. John Kasich
	(chairman of the committee) presiding.
	Present: Representatives Kasich, Chambliss, Shays, Herger,
	Franks, Smith, Nussle, Hoekstra, Bass, Gutknecht, Hilleary,
	Sununu, Pitts, Knollenberg, Thornberry, Ryun, Collins, Wamp,
	Green, Fletcher, Ryan, Toomey, Spratt, Rivers, Thompson, Minge,
	Bentsen, Davis, Weygand, Clayton, Price, Markey, Kleczka,
	Clement, Moran, Hooley, Lucas, Holt, Hoeffel, and Baldwin.
	Chairman Kasich [presiding]. The committee is going to come
	to order.
	What we are going to do first is the consideration of Mr.
	Crippen, and, as you know, June O'Neill is leaving the CBO, and
	Senator Domenici and I have met with a number of candidates
	along with Mr. Spratt and Senator Lautenberg, and, essentially,
	Senator Domenici and I have come up with a recommendation who
	is Dan Crippen.
	Probably the single best thing about Dan Crippen is that he
	has his Ph.D. from one of the finest universities in the world,
	Ohio State University, and he has his M.A. from Ohio State
	also, so he got it right there and his B.S. from the University
	of South Dakota. He also is a principal in the Duberstien
	Group. He was Assistant to the President for Domestic Affairs
	from 1988 to 1989 and Deputy Assistant to the President from
	1987 to 1988.
	We think he will be a good CBO Director. He is not the
	director that Mr. Spratt or Mr. Lautenberg would have wanted,
	but this ultimately gets down to a decision that does get made
	by the majority even though this man has to operate not as a
	servant to the majority, and I think it is pretty clear that
	Dr. O'Neill--she didn't. [Laughter.]
	So, anyway, we would just like to make a motion and get
	this approved. Mr. Spratt.
	Mr. Spratt. Mr. Lautenberg and I have met with Dr. Crippen
	twice. Dr. Crippen has assured us that he will maintain the
	independence and professionalism of the CBO and its
	professional staff.
	We met with Dr. Crippen not because we doubted his
	competence but because he is in a sense cut from a different
	pattern than his predecessors in his position. His background
	and experience are more distinctly partisan than anybody who
	has ever held this position before.
	Dr. Crippen has assured us that he will work with Democrats
	and Republicans alike on a nonpartisan basis, and, based on
	these assurances, I intend to support his selection.
	Mr. Chairman, I would just like to say that it has been 25
	years almost since Congress created the Congressional Budget
	Office. We created them to be neutral, nonpartisan, to give an
	independent, impartial estimate forecast. We haven't always
	agreed with their work, but I think we have respected their
	independence. They have earned the trust that they enjoy with
	most of us in Congress. And even if they haven't always been
	right, they have been basically honest and rigorous and
	professional in their work, and their virtues have served us
	well. The CBO has refused over the years to help us forecast
	the deficit away, and the discipline that they have held has
	helped us wipe out the budget deficit, and I simply hope and
	trust that Dr. Crippen will fight to maintain those independent
	goals.
	Chairman Kasich. I would like to recognize Mr. Chambliss,
	the gentleman from Georgia, for purposes of offering the
	necessary unanimous consent request.
	Mr. Chambliss. Mr. Chairman, I ask unanimous consent that
	pursuant to section 201(a)(2) of the Congressional Budget Act
	of 1974, the Committee on the Budget recommends to the Speaker
	and the President pro tempore that Dr. Dan Crippen be appointed
	as the Director of the Congressional Budget Office.
	Chairman Kasich. Without objection, so ordered.
	I want to, first of all, thank Mr. Spratt, his staff, and
	the Democrats for the way in which we have been able to proceed
	through the rules package, and, frankly, we put something in
	the rule that I think will serve the Democrats--or I shouldn't
	say the Democrats--whoever would be in the minority for a
	period of time, and I think it will serve them well. It will
	make sure that there is adequate protection for the minority.
	In terms of Mr. Crippen, you can have a big fight over these
	kind of things, but they don't really serve us well. We are
	going to have enough to--hopefully, we won't have to fight, but
	we may have enough to fight about without having to look for
	one, and it is always nice to be able to have some bipartisan
	agreements as we proceed through some of these which I think
	are kind of formalities.
	But let me welcome Jack Lew. I like that Jack's a guy who
	as Director of OMB he has made a heck of an accomplishment. I
	don't whether your mom--is your mom and dad still alive, Jack?
	Mr. Lew. My mother.
	Chairman Kasich. Your mom is? I mean, I don't know if she
	realizes that really through shear persistence and obviously
	talent Jack has been able to--it started with Leon isn't that
	right?
	Mr. Lew. It started with Speaker O'Neill.
	Chairman Kasich. Up here--well, OK, but then you got with
	Leon, isn't that right, and you became really his top
	assistant, and then when Mr. Panetta became the head of OMB,
	Jack went over and was involved in a lot of the negotiations,
	and the interesting story here is if you hang around long
	enough; if you have got talent and persistence, you can end up
	getting the top job. So, I think it is very exciting, and I am
	excited for you, and I hope your mom and your whole family--you
	know, a lot of times, they don't what the heck we are doing in
	this stuff, but I hope that sometime they will come to be able
	to truly realize what you have been able to accomplish being
	the Budget Director to the President of the United States. That
	is not bad, Jack; that is pretty darn good work.
	So, I want to welcome you here this morning, and point out
	that 5 years ago few of us would have conceded to the
	opportunity to talk about surpluses, because when we were back
	in those days of trying to negotiate the budget agreement over
	there in the Capitol offices, we were struggling for literally
	every penny that we could get. You know, the famous phrase
	there ``Brother, can you spare a dime?'' because we didn't know
	how we could make this all add up to balance in 2002, and, low
	and behold, within a very short period of time, here we are
	with surpluses which is really wonderful news, because I think
	it gives us an opportunity to really leverage this good news
	into more good news. Last week, the CBO of course projected
	that we could have almost a $2.6 trillion surplus over the next
	10 years. I suspect that maybe those numbers may even be low.
	I mean a $2.6 trillion surplus, that is just amazing, and,
	frankly, I think it comes about for three reasons: one is I
	think that the benefits of the business community becoming a
	lot more efficient has allowed them to have higher levels of
	productivity without inflation, with minimal amounts of
	inflation, and, at the same time, I think it also reflects the
	fact that a trade-oriented export policy is very beneficial to
	a country, and, at the same time, it was just like yesterday
	when Dr. Greenspan was here and said that if you can put
	together a credible plan to balance the budget, the interest
	rates can come down two points, and if there is anything we
	have learned it is that interest rates are the driving engine
	of what happens with the economy; the lower they are, the
	better we do; the higher they are the worse we do. And as a
	result of the hard work that everybody did in 1995 and in 1996
	and in 1997, we feel up here and working with the
	administration we were able to put together a plan that dropped
	those interest rates down and has given us the kind of economic
	growth that we would never have anticipated had any of us, Mr.
	Spratt or Jack or myself, been asked, ``Is it possible that in
	1999 we will be projecting a $2.6 trillion surplus?'' We would
	have said, ``There is something wrong with you.''
	CBO also tells us that lower projected Medicare spending
	will extend the life of the trust fund by possibly 3 years
	until 2010. We know we have a commission that is beginning to
	take a look at what we can do to extend it even further, but
	all this good news is the result in my judgment primarily of
	what we were able to do in 1997, and that meant at that point
	we had to work together.
	Now, I think we face three or four new challenges: first,
	the coming retirement of the baby boomers who will put enormous
	strains on Social Security. We all know that the Social
	Security system is a matter of demography. We have a lot of
	baby boomers paying for our mothers and fathers; they are
	secure. The question is will the baby boomers and their
	children, us--will we be secure along with our children as the
	coming retirement approaches and the demographics start to work
	against us?
	We all know we need to improve the quality of education in
	this country; that a trained workforce and smart kids are not
	only important to the economy but also, of course, those are
	the tools that give our kids a chance to grow up like Ed Markey
	did and become a Member of the United States Congress.
	And we know we need to do these things while we have a
	growing economy that provides jobs and opportunities for
	everybody, and I think we all know that the number one issue
	before us is what can we do to make sure that the economy
	continues to grow, because if the economy continues to remain
	strong, the news continues to be good, and we can take the good
	news and leverage it for even more good news.
	The President is looking at all these issues. Speaker
	Hastert has indicated that these issues are issues that
	Congress will be focusing on. We are looking forward in areas
	where we can get some things accomplished in a bipartisan
	fashion. Jack, I am interested in your USA accounts. As you
	know, I called for something along this line last year, and, in
	fact, I had suggested that we take the surplus and we begin to
	divide it up among all the people who paid payroll taxes, and I
	have with me today a passbook, and the passbook will be
	distributed to all the Members of the House to show them how
	much money they would have in a personal savings account that
	they would be able to direct like Federal employees and how
	that money could grow and what it can mean in terms of the
	concept of personal savings accounts. I happen to believe with
	Social Security people ought to have 2 percent of payroll in an
	account, and they ought to direct it, and I don't think we need
	any political appointees to tell us where that money ought to
	go. I think we can do it on our own, but until the day comes
	when we can get to the 2 percent or 3 percent of payroll, the
	notion that people ought to have these personal retirement
	accounts is one that I think is very positive. It would get
	Americans to understand the value of having personal retirement
	account and what that can do to enhance their retirement
	security. That is an area, Jack, maybe where we can reach some
	agreement in this year. I don't know, maybe we can do the whole
	deal, and we can get complete agreement, but, if not, it seems
	to me as though the retirement accounts are a good first step.
	But I am disappointed, naturally, in some of the things
	that I found in the budget. Based on the count that we have
	made, this 5 year budget has about a $108 billion in new taxes
	and fees and over--this is pretty amazing--over $200 billion in
	new domestic spending; almost 40 new mandatory programs and
	almost 80 new discretionary programs. I don't know that Bob
	Clement would like all those new Federal programs. He would
	probably like to get a little bit more money back to Opryland,
	I don't know, but that is an awful lot of new spending, and the
	taxpayers will pay over the next 10 years about $22 trillion in
	taxes to the Federal Government. I think people are paying too
	much in taxes, and over here I believe that we will push and
	would like to see a very significant tax cut. I don't like the
	idea that we want to have governmental appointees investing our
	payroll taxes in the market. We believe that people ought to
	have the power to do that.
	We also don't like the idea that we want to have control in
	Washington in terms of what we want to do with education,
	because we think that people will do better, our schools will
	do better, out children will do better if we can control
	education through our communities and our neighborhoods and our
	local school houses.
	However, we are approaching the end of the century. We have
	certain obligations and responsibilities as we approach the new
	century, and all of our actions should be based on some
	fundamental principles. We need to have a commitment to each
	other based on our shared values. This will allow us to restore
	our society and our American family, and we must maintain a
	commitment to individual freedom. I believe we have to trust in
	and believe in the creative genius of individual citizens. I
	think if we do these two things, if we reach out to one
	another, we can have a great next millennium. And, so I am
	excited that you are here, Jack. Maybe there are some things we
	can do. Hopefully, as we go through the debate this year, even
	if we don't agree we can still be the friends that we have been
	over the years, and I now with great pleasure yield the podium
	to Mr. Spratt.
	Mr. Spratt. Thank you, Mr. Chairman. I want to join you in
	welcoming Jack Lew back to our committee. As you noted, he is
	no stranger to this committee or to the House. He spent a good
	piece of his career working for the Speaker of the House. He
	went to OMB with Panetta; he stayed over as the Deputy Director
	with Frank Raines, and now he has taken the reins from Frank
	Raines--if I can mix a metaphor--without any break in stride.
	He has done a commendable job of carrying on, and today he
	comes to the Hill with a budget bound in black and white, the
	symbol of a new era. For the third year in a row, this budget
	is in surplus which is phenomenal. Mr. Chairman, that is a long
	way from 1992 when the deficit was $290 billion. In fact, if
	you look at the economic report President Bush sent over here
	in 1993, you will see that he projected a deficit this year
	over $300 billion if we had continued course. We didn't, so now
	we enjoy the fruits of our efforts. Because of the votes that
	we cast in 1990, 1993, and 1997, we have virtually wiped out
	the deficit in the unified budget, and we have come, as the
	President has expressed, to an historic juncture. The budget he
	is sending us rises to this occasion; it takes a high road into
	the next century. It commits the surpluses that we foresee
	coming to America's future. Sixty-two percent would go to make
	Social Security solvent for another 30 years; 15 percent would
	go to make Medicare solvent until 2020; 12 percent for an
	account, an idea that you yourself have proposed, Mr. Chairman,
	a Universal Savings Account so that every American can have a
	chance to save and invest and have a better retirement and so
	that we can increase the net national savings and boost the
	economy in the next century; and 11 percent, a modest 11
	percent, would go to defense and nondefense priorities, because
	this budget, in addition to being a disciplined budget, also
	has some heart and soul. It has got some programs in here for
	education and community policing that we think work and that we
	think the American people want.
	Before I conclude and turn the podium over to our witness,
	let me raise a word of caution. The surpluses that we foresee
	in the future stem from economists' predictions. If we have
	learned anything over the last 15 years, we have learned that
	economists sometimes make mistakes. Furthermore, the surplus
	they project this year, next year, and the following year, is a
	surplus in the unified budget. If we back out the surplus in
	the Social Security trust fund, there is, according to OMB, an
	on-budget deficit in 1999, in 00, and a mere surplus of $200
	million in 2001. Not until 2002, 3 years from now, will both
	OMB and CBO see significant surpluses appearing. So, I think we
	should bear that in mind as we take up the budget and talk of
	bold tax cuts or big spending commitments, either one. The
	watch words should be caution and restraint. Let us not blow
	what we have accomplished. Thank you, Mr. Chairman, and thank
	you, Mr. Lew. We look forward to your testimony.
	Chairman Kasich. I ask unanimous consent that all members
	who have opening statements, that those statements be permitted
	to be placed in the record. Without objection, so approved.
	[The statement of Kenneth E. Bentsen, Jr., follows:]
	Prepared Statement of the Honorable Kenneth E. Bentsen, Jr., a
	Representative in Congress From the State of Texas
	Mr. Chairman, I would like to take a minute to praise President
	Clinton for submitting another balanced budget--the third one in a
	row--and dedicating most of the projected budget surplus to
	strengthening Social Security and Medicare by paying down the national
	debt. Reducing the $3.7 trillion national debt should be our number one
	priority. We should pay down that debt while continuing the fiscal
	discipline Congress showed up until last year. As members of the Budget
	Committee, we should carefully review proposals for spending increases
	and tax cuts to ensure that they are fully paid for under Congressional
	budget rules.
	Because of the strong economy and tough deficit reduction plans
	enacted in 1990, 1993, and 1997, the Federal budget will be in balance
	for 2 years in a row for the first time since 1957. The President has
	rightly proposed that we take advantage of this historic opportunity to
	buy down the huge national debt and strengthen Social Security and
	Medicare for the retirement of the Baby Boom generation.
	As we know all too well, the Federal debt held by the public
	quadrupled between 1981 and 1993; interest payments on the debt doubled
	as a share of the Federal budget from seven to 15 percent.
	Paying down the debt grows the economic pie and creates more wealth
	for all Americans. As this morning's Washington Post pointed out, there
	is a ``shadow cost'' to not paying down the debt. A tax cut or a
	spending increase, without offsetting spending cuts or tax increases,
	would add more debt, create future obligations, and create no assets
	new assets for the Trust Funds. A crushing Federal debt hinders gains
	in productivity, creates higher tax rates, and increases the cost of
	borrowing money. Unmanageable debt dampens economic growth.
	In fact, a tax cut or large spending increase that resulted in more
	debt would most likely result in rising interest rates. There would be
	less money to invest, the debt's value would decline, and there would
	be a greater squeeze placed on the Federal budget to come up with funds
	to pay for Social Security and Medicare. This would also depress the
	value of the dollar, reducing its purchasing power and increasing
	inflation.
	Finally, paying down debt will stop the government from eating up
	private savings. With less government bonds available for purchase,
	interest rates should decline and resources would shift to investments
	that are critical to improving productivity and raising our standard of
	living.
	Public and private entities use debt to expand capital, but
	excessive debt squeezes out productive uses of resources. Paying down
	the debt is a less sexy but more efficient way of shoring up Social
	Security and Medicare. This alone will not solve the long term solvency
	issues of Social Security or Medicare, but it will certainly help.
	The Administration's budget for the U.S. Army Corps of Engineers'
	Civil Works program calls for over $1 billion in new fees to be
	collected from our maritime industry through the a new proposal called
	the Harbor Services Fund (HSF).
	1. Does the Administration anticipate shippers who typically
	utilize waterborne transport to move their products shifting to long-
	haul railroads in hopes ofoffsetting the increased transportation costs
	associated with the HSF?
	2. The Port of Houston, which is located in my Congressional
	district, has a very large bulk commodities handling facility. Will the
	HSF have any negative impacts on our bulk cargo trade and in particular
	grain or coal?
	3. What benefits does the Administration envision by abdicating its
	financial responsibility for dredging by including the entire Federal
	share of new construction projects under the HSF?
	4. What studies has the Administration conducted regarding the
	possibility that international shippers may now try to divert their
	cargo through either Mexico or Canada to avoid the HSF?
	5. Administrator Lew, Can you please describe for me the Clinton
	Administration's proposal to provide limited reimbursements for
	Medicare cancer clinical trials. As a the sponsor of legislation, H.R.
	61, to ensure Medicare reimbursement for all types of clinical trials,
	I am very interested in learning more about your proposal.
	6. Administrator Lew, As the representative for the Texas Medical
	Center, the largest medical center in the United States, I am very
	concerned about the Medicare reductions in the Fiscal Year 2000 budget.
	In a time when we are already asking our nation's hospitals to absorb
	more than $115 billion in Medicare reductions that were including the
	Balanced Budget Act of 1997, do you believe that these additional
	reductions are prudent and necessary?

	[The statement of Bob Clement follows:]
	Prepared Statement of the Honorable Bob Clement, a Representative in
	Congress From the State of Tennessee
	Mr. Chairman, we have an historic opportunity. Instead of facing
	the $357 billion deficit that CBO projected in 1992, we are faced with
	our first surplus in three decades. The question we must now decide is
	what to do with it. Who should benefit from this suplus? Where do we
	put our priorities? Should we dedicate part of this surplus to a tax
	cut? If so, how much? Or should we conserve our resources to make sure
	that we can meet our future responsibilities to the American people?
	I have asked my constituents where they think our priorities should
	be. Over and over again, they tell me that we in Congress should be
	working on paying down the national debt and on shoring up Social
	Security for the 21st century. This budget that the President has
	presented us allows us to do both. We can extend the life of the Social
	Security Trust Fund by 25 years and simultaneously lower the debt-to-
	GDP ratio from its current level of 44% to 7.1% by 2014, its lowest
	level since 1917. Some have suggested an across-the-board tax cut. I am
	not opposed to tax cuts. In fact, I have supported tax cuts and tax
	credits in the past. However, take a moment to remember what happened
	in the early 80's when we cut taxes but failed to cut spending. Our
	deficit ballooned to all-time highs. Is this the course we want to
	take? I think not.
	I believe that the President's budget represents a strong framework
	for paying down the national debt and extending the life of the Social
	Security and Medicare Trust Funds. This budget is not a cure-all and it
	is not without its problems. There are still many tough decisions to be
	made in the future, but these reforms are an important first step.
	Finally, I would like to commend the President for the courage and
	leadership he has shown in putting these proposals before us. We live
	in a nation that was built on ideas, and while we may not enact all of
	his proposals, the President has taken significant steps toward
	ensuring this country's continued prosperity.

	[The statement of David E. Price follows:]
	Prepared Statement of the Honorable David E. Price, a Representative in
	Congress From the State of North Carolina
	Proposed Analog Spectrum Fee
	I am concerned about a proposal in the President's budget to impose
	an ``analog spectrum lease fee'' of $200 million on television
	broadcasters. Television broadcasters already pay a number of Federal
	regulatory fees. In addition, there has always been an understanding
	among broadcasters that a ``contract'' exists between them and the
	Federal Government under which they provide statutorily required public
	service in exchange for use of the broadcast spectrum. What is the
	justification for this new fee, which according to the February 2, 1999
	edition of USA Today could cost an average station $164,000 per year?
	Is part of the justification for the fee to encourage stations to
	transition more quickly from analog to digital? Many of the smaller
	stations around the country already face a substantial financial
	challenge in meeting the deadline to convert to a digital signal. As
	the bigger stations convert more quickly to digital, will the smaller
	stations' share of the overall fee rise proportionately?

	[The statement of George Radanovich follows:]
	Prepared Statement of the Honorable George Radanovich, a Representative
	in Congress From the State of California
	Mr. Chairman, thank you for scheduling this hearing today to allow
	us to review the President's FY 2000 budget. I am particularly
	concerned with issues relating to the Interior and natural resources. I
	would like for the administration to respond to the questions below. I
	appreciate the opportunity to submit this testimony.
	Lands Legacy Initiative
	Under this proposal, you envision converting this funding to
	mandatory next year. Why do you want to do this? Will it not have the
	effect of reducing congressional oversight?
	Will not this proposal result in significantly increased
	maintenance costs and therefore add to your backlog?
	National Park Service testified last year that its backlog alone
	was an estimated $6.1 billion in 1997, up from $1.9 billion in 1987. In
	light of this, what will be the impact of such significant land
	acquisition on eliminating or greatly reducing current backlog at
	agencies like the Park Service?
	PILT
	The Federal ownership of land is a huge drain on local resources,
	without comparable revenues as would occur with private ownership of
	land. One of the solutions is the PILT program. Why did you not
	increase Payments in Lieu of Taxes to the levels authorized under law
	in your budget?
	Cal-Fed Project
	Mr. Lew, how many agencies at Interior and across the government
	are involved in working on the California Bay Delta project? What is
	the total spending requested by the Administration this year what is
	last year's enacted level?
	What are the expected future costs of water storage in the
	watershed?

	Mr. Collins. Mr. Chairman.
	Chairman Kasich. The gentleman from Georgia.
	Mr. Collins. Mr. Chairman, I agree with Mr. Spratt that we
	have come along way since 1992, but I would like to amend that
	we have come along since January 1, 1995 too, sir.
	Chairman Kasich. Well, we are off to a good start here.
	[Laughter.]
	OK, I now recognize the gentleman--where are you from,
	Jack?
	Mr. Lew. From New York.
	Chairman Kasich. The gentleman from New York is now
	recognized. Do you think the Knicks, anybody on that team is
	going to pass this year?
	Mr. Lew. I make predictions about the economy. I leave
	predictions about sports to others.
	Chairman Kasich. All right, Jack, you have got the mike.

	STATEMENT OF JACOB J. LEW, DIRECTOR, OFFICE OF MANAGEMENT AND
	BUDGET

	Mr. Lew. Thank you, Mr. Chairman, Congressman Spratt. I
	appreciate the very gracious and generous introduction. Coming
	back to this committee is in a way coming home. I spent many
	years in this room. I look around at the pictures on the walls,
	and I can't imagine how many years have gone by, and I don't
	want to add them up.
	If I might before going into my opening statement, make a
	comment on the first order of business, your vote on Dan
	Crippen as the head of the Congressional Budget Office. I have
	known Dan for the better part of 20 years. He was a very good
	and able adversary when I was in the Speaker's office and he
	was in the majority leader's office in the Senate. I look
	forward to working with him and congratulate him on his
	nomination today.
	I also understand that today his deputy was named--and
	actually his deputy, Barry Anderson, most recently the most
	senior civil servant at OMB. He is first rate, and we miss him.
	We wish him and Dan well at CBO.
	If I may, Mr. Chairman, I would like to submit for the
	record my formal statement and briefly summarize it in a few
	minutes. I would like to start, if I could, by taking a look at
	where we have come from and where we are going. This really is
	an historic opportunity, and I am proud to be here today to
	present the President's 2000 budget.
	It is a document that is more than 1 year's budget. It
	really is a document that will shape the debate for the next
	decade as we go into the 21st century. The historic
	accomplishment of having a surplus of $117 billion in fiscal
	year 2000 and projecting $4.8 trillion in surpluses over the
	next 15 years is really remarkable.
	When you remember where we started out in 1993 when
	President Clinton took office, we were looking at a sea of red
	ink. We were looking at deficits that would grow to $600
	billion, $700 billion, $800 billion in a single year. There was
	a lot of fear in the country, and it was legitimate fear. The
	question was how could we run a deficit of $600 billion in a
	single year and meet all of our obligations and pay our bills?
	It took tough action in 1993 and, yes, in 1997 when we worked
	on a bipartisan basis to finish the job. The outlook for the
	next 15 years is very strong because of the tough decisions
	that we made.
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	It is important to remember this history as we embark on
	the decisions that we have to make now. If we repeat the errors
	that we have sometimes made in the past, we won't have this
	kind of projection in the future. But if we continue the
	prudent decisions that we have made over the last several
	years, we really could lay a foundation for long-term economic
	growth.
	Over this period it is important to note that the tax
	burden on American families has actually come down and not gone
	up. The success of balancing the budget has been by reducing
	the size of government. A typical family of four, a family that
	earns $55,000 a year, is now paying a lower share of its income
	in taxes than anytime in 23 years. A family of four with half
	the median income, roughly $27,000 a year, is paying the lowest
	share of income since 1965. Many, in fact most, are getting
	money back because of the earned income tax credit. Even a
	family of four with twice the median income, $110,000, is
	paying less than the combined income in payroll taxes than
	anytime since 1977.
	And government has gotten smaller. Every year that
	President Clinton has been in office, every budget he has
	submitted, the government has taken less of the economy than in
	the preceding year, less of the economy than in either of the
	two preceding administrations, and that is no exception this
	year. The size of the government will fall from 19.7 to 19.4
	percent of the economy.
	The key element of reducing government has been to reinvent
	government, and under the leadership of the Vice President, we
	have seen dramatic strides in having a smaller government that
	does more with less. The size of the Federal civilian workforce
	has declined by 365,000. As a percentage of the total
	workforce, the government is now the smallest it has been since
	1931, and many of our agencies are doing a much better job
	serving their customers better than at any other point.
	Before 1993, when we were looking at that red ink, the
	deficit was going to consume a larger and larger share of the
	economy. It was going to make it very difficult to have
	resources available for the Federal Government to do very many
	other things. What we have got now is the exact opposite with
	surpluses before us--and if I can change to the next chart, I
	think this tells the story of why.
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	This picture shows how the debt as a percentage of the
	economy will fall if the President's plan is adopted. When the
	President took office, the debt had climbed to 50 percent of
	the economy. Under the President's plan over the next 15 years,
	the debt held by the public will fall to 7 percent of the
	economy. This will bring the publicly held debt to the lowest
	percentage of the economy, 7 percent; the lowest it has been
	since 1917 before the United States entered World War I. The
	President proposes to do this with a framework for Social
	Security reform and long-term fiscal discipline.
	I want to begin by underscoring that the President's
	commitment last year and his commitment this year is
	fundamentally that we must save Social Security first. A
	statement of good intentions is not enough. We need to take
	action. The framework the President has put forward lays out a
	plan so that after we save Social Security, the next steps are
	clear.
	<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

	And if you look at the green on this chart, the green shows
	both what the next step is and why that is a good step to take.
	After we have set aside 62 percent of the surplus for Social
	Security, the President has proposed that the next 15 percent
	of the surplus should go to Medicare. The reason it is green on
	that chart is that just as putting money into Social Security
	will reduce the debt, so will putting money into Medicare. And
	equally important, it will put the money aside to keep the
	promises that we have already made. The benefits are already
	due. It will put the money there to keep the promise to pay the
	benefits that are due in the next generation.
	After we fix Social Security and Medicare, the President
	proposes a tax cut, and, as Chairman Kasich noted, it is the
	Universal Savings Account which I hope we can reach a
	bipartisan consensus on. Our view is that tax relief is
	appropriate, and it should be designed to encourage savings. It
	should be designed toward building retirement savings so that
	individuals can supplement Social Security and pensions with
	their own personal savings. After we have put 12 percent into
	the tax cut plan, the Universal Savings Account, the President
	has proposed that we put 11 percent of the surplus into
	discretionary spending to meet our national defense and urgent
	domestic priorities. I think there is a lot of bipartisan
	consensus on many of those priorities. I think we agree on a
	bipartisan basis that there is a need for more resources for
	national defense. I think we agree on a bipartisan basis that
	there is a need for more resources for education. If we are
	going to put more resources into defense and if we are going to
	put more resources into education, we are going to need to set
	aside some of the surplus to meet those commitments.
	If we look at the next chart, I think it will help explain
	how the plan works.
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	A lot of questions have been raised about the accounting of
	the President's plan, and a lot of the complexity really
	relates to how we fund Social Security today and how we
	determine the unified budget surplus today. Right now, the
	unified surplus comes from two sources: every dollar that goes
	into the Federal Government in excess of expenditure for
	general revenue goes into the surplus. But just the same,
	payroll tax dollars in excess of benefits go into Treasury
	bonds, and they go into the Treasury as part of the surplus.
	The real question is not where the unified surplus comes from.
	The real question is what do we do with it?
	Now, the President has proposed--and the next chart will
	make this clear--that we have three very real choices as to
	what to do with the unified surplus.
	<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

	We could give the surplus back as either a tax cut or
	additional spending, but that will have three effects, and I
	don't think they are good: it will create new obligations for
	the Federal Government whether it is tax cuts or spending; it
	will add to the public debt; and it won't do a thing to extend
	the life of the Social Security or the Medicare trust fund.
	There has been a lot of debate in the last several weeks
	about debt reduction, and we applaud everyone who endorses debt
	reduction. We are for debt reduction. But it is important to
	note several things about debt reduction: it is good because
	there are no new obligations; it is good because it reduces the
	public debt. But on its own, it doesn't do anything to extend
	the life of the trust fund. And, perhaps, something that we
	need to consider equally importantly, debt reduction has never
	been a very popular political strategy. It has never been
	something that has rarely prevailed when compared to tax cuts
	or spending increases.
	We have come up with a third option that we think is
	superior both in terms of its substantive detail and in terms
	of the likelihood of making the tough decisions and sticking to
	them. The President has proposed that we save Social Security
	and Medicare; we undertake no new obligations until we can pay
	for our old obligations; we reduce the public debt and get the
	benefits of a virtuous cycle instead of the vicious cycle that
	we have had for the last decade. We increase the trust fund
	assets, and put the money in the trust fund so that we can pay
	the benefits that people are now earning and that are due to
	them. We think that that is the best plan for using the
	surplus.
	There has been a lot of discussion about the many
	initiatives in the budget, and we are very proud of them. We
	are proud of the initiatives that we have pursued over the last
	6 years, and we think that they have made life better for the
	American people from Head Start to child care to education to
	the COPS Program. We have seen real effects in the investments
	we have made. We have a lower crime rate; we have a better set
	of health participants; we have better schools. We think that
	going forward we need to continue to make these investments,
	and, yes, we do need to make an additional investment in
	national defense. We need to make sure that going into the next
	century we continue to have the best fighting force in the
	world as we do today.
	Overall, the President's fiscal year 2000 budget provides
	for important priority initiatives by achieving savings in
	programs. Everything in the 2000 budget is fully paid for. The
	President has not allocated a penny of the surplus for
	discretionary spending until 2001 to give us time to take
	action on Social Security reform and to take action on a broad
	plan to allocate the surplus. It complies fully with the
	current law spending caps, and it complies fully with the
	current law pay-go rules.
	We have an historic opportunity for long-term prosperity if
	we rise to the occasion. By bringing down the deficit,
	balancing the budget, running the kinds of surpluses we are now
	projecting for the future, we have put our fiscal house in
	order. And if I might show you one more chart, I think it will
	show you--the benefits will be summarized very simply.
	<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

	When the President took office in 1993, we were looking out
	to 2014--the 15th year of the plan that the President has put
	forward this year--and we were projecting that interest would
	consume 27 cents out of every dollar of the Federal budget. The
	current budget projects for the same year that interest will
	consume 2 cents out of every dollar in the Federal budget. Now,
	the difference is striking. The difference will give us the
	ability to pay our bills. It will give us the ability to pay
	Social Security, to pay Medicare, and, yes, to have some room
	for tax relief as the President has proposed.
	What we must remember is that this didn't happen by
	accident. It happened because we took tough action in 1993 and
	1997. We have fiscal discipline, and we have to maintain the
	fiscal discipline today in order to make sure that this
	projection becomes reality.
	We look forward to working on a bipartisan basis, to going
	forward with a long-term policy of both fiscal discipline and
	investment in our future. We think that this is a once in a
	lifetime opportunity to for us to put down a marker for fiscal
	discipline and for economic prosperity for generations, and we
	look forward to meeting the challenges.
	[The prepared statement of Jacob J. Lew follows:]
	Prepared Statement of Jacob J. Lew, Director, Office of Management and
	Budget
	One year ago, President Clinton set the course of the Nation's
	budget policy with his charge to ``Save Social Security First.'' The
	President recognized that we were entering a new era as we left behind
	the decades of large budget deficits. He was building the foundation
	for budgeting in this new era of surpluses.
	Fiscal progress has produced a strong economy
	The year 1998 was one of the most extraordinary in modern U.S.
	economic history. We enjoyed the first budget surplus in 29 years the
	largest ever in dollar terms, the largest as a percentage of the
	economy in more than 40 years. And this budget surplus was not the
	result of a temporary wartime policy, as was the last surplus in 1969.
	We will have a budget surplus again in the ongoing fiscal year at an
	estimated $79 billion, larger than last year's which will mark the
	first back-to-back surpluses in more than 40 years. The budget I
	present to you today proposes a third consecutive surplus the first
	time that will have happened in half a century. And our 1998 budget
	surplus was the sixth consecutive year of improvement in the U.S.
	fiscal position the first time that has happened in American history.
	The private sector is the key to economic progress, but we have
	clearly seen in the decade immediately past that the Federal Government
	can either hinder or promote economic progress. If the Federal budget
	deficit is high, so that the cost of capital is driven up and the
	financial future is uncertain, the private sector cannot yield the
	progress of which it is otherwise capable. But if, instead, the Federal
	Government declares its intentions of responsible fiscal behavior, and
	lives by those intentions and if the Federal Government supplies the
	public investments that America needs then the economy is free to
	prosper. This is the path that this Administration has taken.
	In 1998, we reaped the fruits of 5 years of fiscal responsibility.
	After the best sustained growth of business investment since the
	1960's, the U.S. economy fueled that decades-absent budget surplus. And
	the economy itself defied the pundits, staying on a pace of solid,
	above-trend expansion, in the face of an international financial
	disruption that broke the stride of most other economies around the
	world. Unemployment and inflation both hit three-decade lows, with the
	lowest unemployment rates for African Americans and Hispanics in the
	history of those statistics; real wages continued to grow after more
	than a decade of stagnation, and a record percentage of adult Americans
	worked in those higher-paying jobs; the percentage of Americans on
	welfare fell to a 30-year low; the 10-year Treasury bond rate reached
	its lowest level in 30 years; and a higher percentage of Americans
	attained home ownership than at any time in our history.
	The President deserves a great deal of credit for the virtuous
	economic cycle that we now enjoy. The announcement of a firm intention
	of fiscal responsibility in 1993 was greeted by a continued reduction
	of interest rates, which helped to trigger the investment boom that has
	proved central to sustained strong, non-inflationary economic growth.
	The two other pillars of the President's policy investing in our people
	and our technology, and opening foreign markets to U.S. exports
	complete this winning economic strategy.
	The 2000 Budget is a defining moment
	This extraordinary budget-and-economic performance with the budget
	setting historical standards and the resilience of the economy setting
	global standards tells us something. It tells us that we have developed
	a winning economic policy and that we must not turn back. We must not
	discard the economic philosophy that got us here, to this confluence of
	economic indicators that all sides now agree is the best in modern
	memory.
	So in one sense, our budget policy now clearly should be built on
	continuity. We have achieved a sustained fiscal improvement, and we
	should continue to sustain that improvement. We have an economy that
	achieved a record sustained peacetime expansion, and we should continue
	to sustain that expansion.
	But in another sense, we have stepped into a new world. Where our
	budget used to be written in red for so many years that people came to
	take it for granted now we are in the black. And this change has
	tempted some to throw away all of the policy principles that got us
	here.
	For two decades now, there has been much discussion about fiscal
	discipline, restraint, and deficit reduction. Since 1993, we have taken
	action; and far beyond the expectations of even the most optimistic, we
	now have budget surpluses as far as the eye can see. But now, as the
	first surpluses appear, it is important that we not revert to the
	practice of cutting taxes and raising spending first, and thinking
	about the fiscal consequences later.
	As the President suggested in his State of the Union address 2
	weeks ago, this is a moment that will do much to determine the
	character of our country at the end of the next century. We can build
	and strengthen the fiscal foundation that first arose in these last few
	years. Or we can sweep it away, before it is firm and strong, and set
	our economy to foundering again. The choice is clear and the President
	is determined to pursue a balanced program of fiscal discipline and
	prudent investment for the future. This budget charts that course into
	an era of surplus.
	Fiscal policy since 1993 was pivotal to our current good fortune
	To see why fiscal responsibility matters, consider where this
	Administration started 6 years ago. In 1992, the budget deficit was
	$290 billion, the largest in the Nation's history. Between 1980 and
	1992, the debt held by the public, the sum of all past unified budget
	deficits, quadrupled; it doubled as a share of our Nation's production,
	or GDP from about 25 percent to about 50 percent.
	These adverse trends showed every sign of accelerating. Both CBO
	and OMB projected that, without changes of budget policy, growing
	deficits would add to the Nation's debt, and growing debt service costs
	would add, in turn, to the Nation's deficits. OMB forecast the 1998
	deficit, in the absence of policy change, at $390 billion, or 5.0
	percent of GDP; by 2003, we expected the deficit to be $639 billion, or
	6.6 percent of GDP. And there was nothing in the forecast to indicate
	that this exponential trend would stop.
	This threat was not turned back by accident. It required tough
	policy choices, which the Administration and the Congress took in 1993
	and 1997. The President's initial economic program cut spending and
	increased revenues in equal amounts. Since that time, deficit reduction
	(and ultimately surplus increase) has more than doubled the estimates
	for the President's plan instead of the projected cumulative $505
	billion, deficits have fallen by $1.2 trillion. That is $1.2 trillion
	less in debt that the American taxpayer must service forever.
	And this deficit reduction has come as much from lower spending as
	from higher revenues. Spending has declined to its smallest share of
	the GDP in a quarter of a century. And thanks to the strong economy,
	receipts have grown beyond expectations, even though the tax burden on
	individual families is lower than it has been for about a quarter
	century:
	The typical family of four with the median family income of $54,900
	will pay a lower share of its income in income and payroll taxes this
	year than at any time in 23 years. Its income tax payment considered
	alone will be the lowest share of income since 1966.
	A family with an income at one-half of the median level, $27,450,
	will pay the lowest share of its income in income and payroll taxes
	since 1965. Its income tax bill will be negative; it will receive money
	back because of the earned income tax credit. That was never the case
	before 1998.
	Even a family at twice the median income level, $109,800, will pay
	less in combined income and payroll taxes as a share of its income than
	in any year since 1977. Taken alone, its income tax as a percentage of
	income will be the lowest since 1973.
	Receipts have risen as a percentage of GDP not because of a heavier
	tax burden on typical individual families, but rather because of the
	extraordinary growth of incomes of comparatively affluent Americans
	(including capital gains and stock options that are not included in
	measured GDP); and because of the rapid growth of corporate profits.
	The historic bipartisan balanced budget agreement of 1997 has
	reinforced expectations of Federal fiscal responsibility. This has had
	a favorable effect on interest rates, and the economy at large.
	In the last 6 years, we have enjoyed an extraordinary economic
	performance because our fiscal policy was responsible and sound. If we
	want to continue to enjoy such strong economic performance, we must
	continue our sound fiscal policy. As the experience of the last 20
	years clearly shows, budget problems are very easy to begin, and very
	hard to end.
	Reducing debt burden is as important to the Nation as it would be
	to a family. The Nation must service its debt. If we gratify ourselves
	today by collecting taxes insufficient to cover our spending, and
	accumulate debt, our children and our grandchildren will have to
	service that debt. If, instead, we reduce our debt, our children and
	our grandchildren will be freed of the obligation to tax themselves
	more heavily in the future just to pay the interest on the debt they
	inherited.
	The President's proposal will fully reverse the buildup of debt of
	the 1980's and then go further. By 2014, the end of the 15-year horizon
	of the President's program, the combined effects of the President's
	commitments to Social Security and Medicare will reduce the Nation's
	debt burden to an estimated 7 percent of GDP. This will be the lowest
	ratio of debt to income that the Nation has enjoyed since before it
	entered World War I. And as most experts would tell us, this will be
	one of the greatest gifts that we could ever give our children, as we
	exercise our fiscal stewardship of these United States.
	The President's policy would devote more than three-fourths of
	future budget surpluses to reducing the Nation's debt through
	contributions to Social Security and Medicare; and would dedicate
	another 12 percent to household savings through Universal Savings
	Accounts. This is important to our economic performance for four basic
	reasons: First, it increases the Nation's savings rate, which is
	critical to productivity gains and economic growth. Second, it reduces
	the debt. Third, it improves the fiscal position of the country, and
	puts it on a stronger footing for whatever uncertainties might arise.
	And finally, it improves the retirement security of all Americans.
	The current challenge is to use the surplus prudently
	In 1993, we faced the challenge of eliminating projected budget
	deficits of $4.3 trillion over 10 years. Today we face the enormous
	opportunity of projected surpluses of more than $4.8 trillion over the
	next 15 years. The challenge is to use this surplus prudently to
	maintain our strong economic and budgetary performance.
	We must save Social Security first. A statement of good intentions
	is not good enough for the millions of Americans, retired and working
	today, who rely on Social Security for their retirement security and
	for protection for their families against disability and premature
	death. From the beginning, this Administration has kept its eyes on the
	future, and taken policies that would benefit the Nation for
	generations to come. It has paid off. Saving Social Security first is
	precisely such a future-oriented policy.
	The President's FY 2000 budget symbolically, as well as
	financially, ``in the black'' continues firmly on that successful path.
	The budget maps a course for the Federal Government after Social
	Security is reformed and makes its own policy recommendations for the
	beginning of the bipartisan Social Security reform process that the
	President inaugurated last year. But the budget also draws a line that
	this Administration will not pass without Social Security reform.
	Thus, the FY 2000 budget is fully paid for within the existing
	budget law. Just as in every previous year, the President has specified
	his own priority initiatives, but has paid for all of them line by
	line, dime by dime with savings from elsewhere in the budget.
	The President's policy calls for a bipartisan Social Security
	reform, this year. The President has already committed 62 percent of
	our projected budget surpluses enough to extend Social Security's
	solvency almost an extra quarter century, to 2055. We hope that this
	will launch a bipartisan process to address long-term Social Security
	solvency. We are gratified that several leaders from the Congress have
	already accepted this principle and hope that both parties, the
	President and the Congress, can follow through on this commitment and
	achieve sufficient additional reforms to extend the solvency of the
	trust fund at least through the traditional 75-year actuarial horizon.
	If we achieve that objective, the budget makes further commitments
	of the surplus to priority National objectives in the future. The
	President proposes to dedicate 15 percent of the surplus to extending
	the solvency of the Medicare trust fund. This is a key element of the
	President's program, because the financial security of Medicare will be
	threatened even sooner than that of Social Security. In 1997, the
	President and the Congress, acting together, made Medicare financially
	sound through 2010. The President's 2000 budget would extend that
	lifetime 10 years further, to 2020. We see the commitment of the
	surplus as a vital step to facilitate an environment in which a
	bipartisan effort including the current Medicare Commission can go even
	farther; with the time horizon so short, even after the contribution of
	15 percent of the surplus, we cannot delay Medicare reform. As the
	President stated, he wants to consider, as a part of this reform
	process, expanding Medicare coverage to include prescription drugs.
	The President also proposes using 12 percent of the surplus to
	finance his new Universal Savings Accounts ``USAs.'' This proposal
	includes seed money for Federal contributions, plus additional funds
	for matching contributions if individual workers contribute their own
	money. The matching contributions will provide a larger percentage
	inducement for low-wage workers. The goal is for all Americans to see
	the rewards of saving building up in these USAs and with this
	introduction to the power of compound interest, to begin to save
	further on their own. The President believes that this program, with
	its Government seed contribution, has the potential to reach even those
	who have failed to respond to the generous subsidies in the current-law
	Individual Retirement Accounts (IRAs).
	The President wants a fiscally responsible tax cut. He believes
	that the USA is the right kind of tax cut targeted toward the future,
	and helping the many American families who have the most difficulty
	saving for their retirement. It strengthens perhaps the most neglected
	of the figurative three legs of the retirement stool personal saving,
	to stand alongside Social Security and employer pension plans--and for
	the many who have no employer plan, this initiative may be crucial.
	Most importantly, it is part of a plan that fixes Social Security
	first.
	Finally, the budget proposes that the remaining 11 percent of the
	surplus be dedicated to other important priorities including education,
	National security, and health care. In last October's negotiations on
	the Omnibus appropriations for fiscal year 1999, Congressional leaders
	argued that our National defense needs had outgrown the existing
	discretionary spending caps and, indeed, defense received the largest
	share of the additional emergency funds made available in that
	legislation. Likewise, the American people have recognized that the
	quality of their children's education will determine how they progress
	in life and also the strength of the future economy. The President's
	budget is a sound, disciplined way to provide the additional resources
	for these priorities that both sides recognize will be needed if our
	country is to survive and prosper in the next century.
	The President's framework for Social Security reform and long-term
	fiscal discipline works
	The President's contribution of the surplus to Social Security will
	use many of the existing financial management tools of the Federal
	Government. It will be in addition to the accumulation in the Social
	Security trust fund that would occur with no change in the current law.
	After the trust fund is credited for all of its own receipts,
	exactly as in current law, the Treasury will be left with the unified
	budget surplus. Each dollar of that unified surplus can be used only
	once for cutting taxes, increasing spending, or buying down the debt.
	The President has brought the debate right to the point: What should we
	do with that surplus? Or to put it another way: If we were to look back
	fifteen years from now, or at the end of the next century what would we
	want to be able to say that we had accomplished with this opportunity?
	The President wants to leave a legacy of building for the future:
	saving Social Security and Medicare; encouraging Americans to save for
	their own futures, build wealth, and prepare for retirement; investing
	in education; ensuring our National security; and making other key
	investments.
	So the President started by committing 62 percent of the surplus to
	save Social Security first. Most of the share committed by the
	President to Social Security will be used to buy down the publicly held
	Federal debt through the periodic debt refundings of the Treasury
	Department, in exactly the same way as debt was retired last year. That
	same amount will be credited to the Social Security Trust Fund, in the
	form of Treasury securities. This same procedure will be followed for
	the President's contribution to the Medicare trust fund.
	This commitment will significantly extend Social Security solvency.
	At the end of 1999, the currently estimated combined balances of the
	OASDI trust funds is about $850 billion. Through 2014, we estimate that
	additional contributions to the trust funds under the current law,
	including interest, will total about $2.7 trillion, leaving a total
	balance of about $3.5 trillion. The President's program would
	contribute an additional $2.8 trillion to the trust funds over the next
	15 years. Taking into account additional interest earnings, that would
	leave a balance in the trust funds of more than $7 trillion instead of
	the approximately $3.5 trillion under the current law. The President's
	program will more than double the balances in the trust funds over the
	next 15 years--without accounting for higher earnings on the portion of
	the surplus invested in corporate equities.
	Because the President's plan will reduce the public debt, the total
	obligations of the Federal Government will not increase. We are already
	committed to paying benefits beyond 2032, when the trust fund is now
	expected to be exhausted. The President's proposal would deposit assets
	in the Social Security trust fund to pay these obligations, and reduce
	by an equal amount the debt borrowed from the public. Interest payments
	will go to the trust fund, to cover future Social Security benefits,
	rather than to banks, individuals and other investors in Government
	bonds.
	A small portion of the President's commitment to Social Security
	(21 percent of the commitment) will take the form of holdings of
	corporate stock. Because the Social Security trust fund will need that
	amount of the cash surplus to purchase the shares, this contribution
	will not reduce the public debt. However, it will improve the Federal
	Government's implicit balance sheet to the same degree, but in a
	different way. While the reduction of debt will reduce the Federal
	Government's liabilities, the corporate shares will increase the
	Federal Government's assets. The salutary effect on the Government's
	balance sheet will be the same, but it will appear on the other side of
	the balance sheet.
	Thus, the President's policy in no way increases the total
	obligations of the Federal Government. In fact, by retiring part of the
	public debt, it strengthens our economy in exactly the same way that
	reducing the budget deficit, and avoiding the accumulation of debt, has
	helped the economy over the last 6 years. The President's program does
	shift the Federal Government's commitments to Social Security, however,
	and in that way improves Social Security's solvency for the next
	century. This will give Social Security a first call on the economic
	benefits associated with long-term reductions in publicly held debt.
	The President believes that budgeting in an era of surpluses
	requires a focus firmly on the future. We must put money aside against
	our current obligations before we incur any new obligations. The
	President's program does that, by retiring debt and accumulating assets
	against the Social Security commitments that we already have.
	We must balance fiscal discipline with prudent investments for the
	future
	In addressing these priorities, the FY 2000 budget builds upon the
	investments in our people and our technology that were set in motion by
	past budgets.
	Last year's budget implemented the Balanced Budget Act of 1997,
	maintained fiscal discipline reserving the surplus until we save Social
	Security first and provided a strategy of targeted investments to help
	sustain economic growth. For example, last year's budget provided
	resources for:
	The first year's investment to reduce class size by hiring 100,000
	new teachers. Smaller classes ensure that students receive more
	individual attention, a solid foundation in the basics, and greater
	discipline in the classroom. In this year's budget, the President
	proposes investments in this area, ultimately to reduce class size in
	the early grades to a national average of 18.
	Investments to protect our economic interests at home by responding
	to international economies in turmoil. The disruption in financial
	markets last year lead to economic dislocation in Asia, Latin America
	and the Soviet Union. This, in turn, hurt American exporters, farmers
	and ranchers, who found that markets overseas were beginning to dry up.
	With President Clinton's leadership, Congress approved nearly $18
	billion for the International Monetary Fund, a stabilizing force in the
	world economy.
	A guaranteed, record-level investment for the next 5 years in the
	Transportation Equity Act for the 21st Century to continue rebuilding
	America's highways and transit systems, which are essential to continue
	the growth of modern commerce. This legislation also funds programs for
	highway safety, transit and other surface transportation, while
	safeguarding air quality, and helping former welfare recipients get to
	their jobs.
	Over the past 6 years, the President also worked with the Congress
	to establish and build upon significant investments in education and
	training, the environment, law enforcement and other priorities to help
	raise the standard of living and quality of life for average Americans
	both now and in the future. For example, the President's commitment to
	fund key domestic investments has:
	Advanced cutting-edge research, putting the National Institutes of
	Health on a path to doubled funding for research including intensified
	work on diabetes, cancer, genetic medicine, and the development of an
	AIDS vaccine.
	Established the children's health care initiative, the largest
	investment in health care for kids since Medicaid was created. Last
	year, 47 states began programs designed to provide meaningful benefits
	to as many as five million uninsured children.
	Increased Head Start's ability to provide greater opportunities for
	disadvantaged children to participate in a program which prepares them
	for grade school. Last year, a boost in Head Start funding put 835,000
	children into the program, making further progress toward the
	President's goal of putting a million children in Head Start by 2002.
	Invested in public schools to help States and communities raise
	academic standards, strengthen accountability, connect classrooms and
	schools to the information superhighway, and promote public school
	choice by opening 900 charter schools.
	Protected and restored some of the Nation's most treasured lands,
	such as Yellowstone National Park, and the Everglades; provided the
	funds to conserve others; and accelerated toxic waste clean-ups.
	Built the COPS program to support community policing. This year
	COPS will reach the goal of putting 100,000 more police on the streets
	of America's communities. COPS has helped reduce violent crime for six
	straight years. The 21st Century Policing Initiative proposed in this
	budget will expand on the number of police and provide other law
	enforcement tools to the community.
	This year's budget builds on the President's efforts to invest in
	the skills of the American people. It continues his policy of helping
	working families with their basic needs raising their children, sending
	them to college, and expanding access to health care. It also invests
	in education and training, the environment, science and technology, law
	enforcement and other priorities, to help raise the standard of living
	and quality of life of Americans.
	Families and Children: For 6 years, the President has sought to
	help working families balance the demands of work and family. In this
	year's budget he proposes a major effort to make child care more
	affordable, accessible and safe by expanding tax credits for middle-
	income families, and for businesses to expand their child care
	resources; by assisting parents who want to attend college meet their
	child care needs; and by increasing funds with which the Child Care and
	Development Block Grant can help more poor and near poor children. The
	budget proposes an Early Learning Fund, which would provide grants to
	communities for activities that improve early childhood education and
	the quality of childcare for those under age five.
	Education: The President has worked to enhance access to, and the
	quality of, education and training. The budget takes the next steps by
	continuing to help States and school districts reduce class size by
	recruiting and preparing thousands more teachers and building thousands
	more new classrooms. The President proposes improving school
	accountability by funding monetary awards to the highest performing
	schools that serve low-income students, providing resources to States
	to help them identify and change the least successful schools, and
	ending social promotion by funding additional education hours through
	programs like the 21st Century Learning Centers. The budget also
	proposes further increases in the maximum Pell Grant to help low-income
	undergraduates complete their college education, and more funding for
	universal reemployment services to help train or find jobs for all
	dislocated workers who need help.
	Environment: This Administration proposes a historic interagency
	Lands Legacy initiative to both preserve the Nation's Great Places, and
	advance preservation of open spaces in every community. This initiative
	will help address sprawl and air and water pollution, through land
	acquisition, preservation efforts, environmental protection and local
	growth management. The Administration also proposes a new financing
	mechanism, Better America Bonds, to further creation of open spaces in
	urban and suburban areas. The Better America Bonds initiative is an
	example of our use of targeted, paid-for tax cuts to achieve the
	Nation's priority goals. In addition, the budget would restore and
	rehabilitate national parks, forests, and public lands and facilities;
	expand efforts to restore and protect the water quality of rivers and
	lakes; continue efforts to double the pace of Superfund clean-ups; and
	better protect endangered species.
	Defense: The President is committed to maintaining world military
	leadership to provide for the safety of American citizens and the
	primacy of American Armed Forces. To ensure America's Armed Forces are
	fully prepared to meet the challenges of the next century, the
	President proposes a long-term, sustained increase in defense spending
	to enhance military readiness, improve recruitment and retention, and
	provide the most modern and effective weapons. In addition, these
	resources will reinforce the ability of the Defense Department to
	counter emerging threats such as terrorism, reduce threats from weapons
	of mass destruction, maintain the nation's nuclear deterrent, and
	provide humanitarian and disaster assistance.
	Health Care: The President has worked hard to expand health care
	coverage and improve the Nation's health. The budget gives new
	insurance options to hundreds of thousands of Americans aged 55 to 65,
	and it advocates bipartisan national legislation that would reduce
	tobacco use among the young. The President's budget proposes
	initiatives to help patients, families and care givers cope with the
	burdens of long-term care; and it helps reduce barriers to employment
	for individuals with disabilities. The budget also enables more
	Medicare recipients to receive promising cancer treatments by
	participating more easily in clinical trials. And it improves the
	fiscal soundness of Medicare and Medicaid through new management
	proposals, including programs to combat waste, fraud and abuse.
	Embassy Security: The bombings of U.S. embassies in Kenya and
	Tanzania highlight the dangers faced daily by Americans who work in
	U.S. facilities abroad. The budget proposes an increase to the State
	Department's operating budget to ensure protection of embassies and
	other facilities, and the valuable employees who work there. The budget
	also includes a request for $3 billion in advance appropriations for a
	multi-year security construction program.
	The 2000 Budget saves the surplus until we fix Social Security first
	The President's FY 2000 budget is fully paid for, in compliance
	with the discretionary caps and the pay-as-you-go budget rules. The
	budget allows for appropriations for important domestic and national
	security priorities by limiting other discretionary spending and
	achieving mandatory savings. Offsets to discretionary spending include
	the President's tobacco policy (which would reimburse the Federal
	Government for tobacco-related discretionary health care costs), FAA
	user fees, health care savings, Superfund receipts, student loan
	savings and the recall of additional Federal fund reserves at lending
	guaranty agencies, and reform of the existing harbor maintenance excise
	tax. With the use of these offsets, in keeping with longstanding budget
	practice, the 2000 budget complies with the discretionary spending
	caps.
	The budget provides targeted tax reductions, financed by the
	elimination of tax loopholes, and inefficient or obsolete tax
	subsidies. Important tax cuts and incentives, in addition to the
	President's USA retirement savings program, include the tax credit for
	long-term care needs, the public school construction and modernization
	bonds, the expansion of the child and dependent care tax credit, the
	new Better America Bonds, extension of the R&E tax credit, the work
	opportunity tax credit, the welfare-to-work tax credit, and the tax
	incentives for reductions of carbon emissions that cause global
	warming. Important mandatory initiatives include child care, the
	Medicare buy-in, disability and cancer clinical trials programs, and
	extension of health-care programs to immigrants. Taking all of these
	policy steps together, the budget complies with the pay-as-you-go
	rules, and the tax cuts and mandatory initiatives are fully paid for.
	We need adequate resources for a strong defense and critical domestic
	priorities
	For future years, the budget includes the discretionary resources
	contemplated as a part of the plan for Social Security reform. While
	these funds will only be available if Social Security reform is
	enacted, the Administration's policy is categorically defined including
	those resources. Social Security reform is one of the President's
	highest priorities for this year and we must work on a bipartisan basis
	to accomplish this important goal. The comprehensive framework for
	allocating the surplus will also provide these critical discretionary
	resources.
	The President believes that his discretionary priorities are
	important to economic growth, and to the Nation's well being and
	quality of life. Some have disagreed, and have argued that Federal
	spending in general is too high. This debate requires some perspective.
	First, and perhaps most fundamentally, consider the record. Over
	the years 1980-98, Federal spending averaged 21.9 percent of GDP. But
	Federal receipts averaged only 18.5 percent of GDP. Thus, the Federal
	budget averaged a deficit of about 3.4 percent of GDP. When this
	Administration set out to cut the budget deficit that we inherited, our
	original plan called for roughly equal spending cuts and revenue
	increases (with spending cuts in fact slightly larger). While the
	results of this plan have been far beyond what we ourselves anticipated
	with the deficit falling by more than twice as much as our original
	estimates they did maintain the balance between spending cuts and
	revenue increases.
	In balancing the budget, this Administration has controlled Federal
	spending well beyond the record of its predecessors. As a percentage of
	GDP, spending in every year for which President Clinton submitted a
	budget has been lower than in any year of the two preceding
	Administrations. In every budget year from 1994 through 1998, Federal
	spending as a percentage of GDP fell. Spending as a percentage of GDP
	in 1998, at 19.7 percent, was the lowest in almost a quarter century.
	Some argue that ``Federal spending is still going up.'' In the
	simplest terms--total dollars with no discounting for inflation, no
	allowance for the growth of the economy, and no allowance for the
	growth of the population government serves--that is true. But even in
	this format, the analysis tells a great deal about the record of
	Federal spending under this Administration.
	From 1993 through 1998, 31 percent of the simple dollar increase in
	Federal outlays came because more elderly people retired on Social
	Security benefits, and prior retirees received cost-of-living
	increases; 26 percent arose because of additional beneficiaries and
	higher costs under Medicare; 18 percent arose because, even with a
	rapidly declining budget deficit and by 1998, a budget surplus there
	was more debt to service, and so net interest costs went up; and 10
	percent came from increased costs under Medicaid, more than two-thirds
	of which went for the expenses of the indigent elderly, blind,
	disabled, and mentally retarded, many of those in long-term care.
	Thus, there has been almost no spending growth in programs other
	than Social Security, Medicare, Medicaid, and net interest. Spending of
	the entire remainder of the Federal Government over 1993 to 1998 shrank
	by 5.4 percent in inflation-adjusted dollars, and fell from 11.5
	percent to 8.8 percent of the Nation's GDP.
	This shrinking of core government operations cannot go on forever
	if government is to accomplish the missions assigned to it. We all take
	for granted the obligation to maintain critical core functions like the
	FAA, the FBI, and the administration of Medicare. As we consider how to
	budget in this era of surpluses, we must consider carefully the
	resources available for these 1often-anonymous functions that the
	Nation has a right to expect its government to perform well.
	A key element in the Administration's ability to expand strategic
	investments, while balancing the budget, is the reinvention of
	government doing more with less. Efforts led by Vice President Gore's
	National Partnership for Reinvention have streamlined government,
	reduced its workforce, and focused on performance to improve operations
	and delivery of service. And these efforts, by reducing the cost of
	government operations, have improved the bottom line and contributed to
	our strong economy.
	Since 1993, the Administration, working with Congress, has
	evaluated and eliminated hundreds of unnecessary programs and projects.
	The Administration has cut the size of the Federal civilian work force
	by more than 365,000 people, creating the smallest work force in 35
	years and, as a share of total civilian employment, the smallest since
	1931.
	The Administration, however, is working to create not just a
	smaller Government, but a better one a Government that best provides
	services and benefits to its ultimate customers, the American people.
	It has not just cut the Federal work force, it has streamlined layers
	of bureaucracy. It has not just reorganized headquarters and field
	offices, it has ensured that those closest to the customers can best
	serve them.
	For 2000, this Administration once again is turning its efforts to
	the next stage of ``reinventing'' the Federal Government. It plans to
	dramatically overhaul 32 Federal agencies to improve performance in key
	services, such as expediting student loan processing and speeding aid
	to disaster victims. It also plans to tackle critical challenges, such
	as ensuring that Government computers can process the year 2000 date
	change, and making more Government services available electronically.
	Under the 1993 Government Performance and Results Act, Cabinet
	departments and agencies have prepared individual performance plans
	that they will send to Congress with the performance goals they plan to
	meet in 2000. These plans provided the basis for the second Government-
	wide Performance Plan which is contained in this year's Budget. For the
	first time in 2000, agencies will submit to the President and Congress
	annual reports for 1999 that compare actual and target performance
	levels and explain any difference between them.
	We have an historic opportunity for long-term prosperity if we rise to
	the moment
	There is much to be proud of in America today. By balancing the
	budget, we have not just put our fiscal house in order; we have left
	behind an era in which the budget deficit, as the President said
	recently, ``came to symbolize what was amiss with the way we were
	dealing with changes in the world.'' Today we have risen to the
	challenge of change by preparing our people through education and
	training to compete in the global economy, by funding the research that
	will lead to the technological tools of the next generation, by helping
	working parents balance the twin demands of work and family, and by
	providing investment to our distressed communities to bridge the
	opportunity gap.
	If the deficit once loomed over us as a symbol of what was wrong,
	our balanced budget is proof that we can set things right. Not only do
	we have well-deserved confidence, we have hard-earned resources with
	which to enter the next century.
	As the President said, what we do now after having balanced the
	budget will shape the character of the next century. We can build upon
	our newfound firm economic foundation; or we can squander it.
	The President has brought the debate right to the point: What
	should we do with the surplus? Or to put it another way: If we were to
	look back fifteen years from now, or at the end of the next century
	what would we want to be able to say that we had accomplished with this
	opportunity?
	The President wants to leave a legacy of building for the future:
	saving Social Security and Medicare; encouraging Americans to save for
	their own futures, build wealth, and prepare for retirement; investing
	in education; ensuring our National security; and making other key
	investments.
	There is no more pressing issue facing us as a nation than the need
	to guarantee that Social Security will be there for generations to
	come. And there is no better time to act than now while the system is
	still strong. This is truly an exceptional moment in America the
	economy is prosperous, the budget is in balance, and the President's
	commitment to national dialogue has created conditions for constructive
	action. We must seize this moment.

	Chairman Kasich. Mr. Lew, let me--thank you for your
	testimony--let me just get in just two quick areas because
	there are members that have questions, and I don't want to--I
	had a chance to make a long opening statement. Alan Greenspan,
	when he was asked about the board that you want to create
	investing in the markets--first of all, the notion that we can
	use the capital markets to be able to solve a large portion of
	the problem for the baby boomers, I believe is right on target.
	The question is, of course, who gets to control it? Do we have
	a board of smart people or do we just let--you know, we call
	smart people--I know I could never get appointed to a board
	like that--or do we let individuals be able to manage their own
	retirement? I tend to think, Jack, that as much as I like you
	that you worry about your retirement a lot more than I worry
	about your retirement, number one, and so I think you ought to
	have the maximum control to invest your payroll taxes rather
	than I getting on a board and investing your money for your
	retirement, because I think you care about it more than I do.
	It is kind of like what Federal employees get to do. We don't
	have any smart persons board that invests the Federal
	employees' money; we invest it ourselves, and I think everyday
	Americans are just as smart as Federal employees when it comes
	to planning for their own retirement. But Greenspan said in the
	notion of having a political board investing in the market, he
	said, ``Even with Herculean efforts, right, I doubt it would be
	feasible to insulate over the long run the trust funds from
	political pressures, direct and indirect to allocate capital to
	less than its most productive use.'' In other words, this board
	would be subjected to political pressures, and so somebody
	would be making--some board would be making a political
	decision about our retirement when we don't get the return we
	ought to get because they are considering political pressures
	of political concerns. Wayne Angel, Bear-Stearns, warned that
	the proposal ``enlarges the role of government dictating to the
	private economy to a degree that many of us would find
	unacceptable.''
	Jack, what is wrong with the notion that individuals, you
	and me, should have control over our payroll taxes to be able
	to direct those payroll taxes into investment opportunities
	that provides for our retirement? Why do we need to give this
	opportunity to some board who get appointed by a President?
	What is the thinking there?
	Mr. Lew. Mr. Chairman, I hope we agree more than we
	disagree, and we begin with the notion that Social Security is
	the foundation for retirement and that individuals should be
	guaranteed benefits as they are today. They shouldn't be
	subject to the risks that if market were to somehow fall the
	day they retire that they would be penalized for the rest of
	their retirement, but there should be that foundation where we
	have a shared societal----
	Chairman Kasich. Everybody agrees on that.
	Mr. Lew [continuing]. Everyone agrees on that. We think
	that investing the Social Security fund to a very modest extent
	in equities is a good idea. We think it gives the Social
	Security fund the upside potential that all private pension
	plans and State and local government pension plans have today.
	What we have suggested--and we took very seriously the
	considerations that Chairman Greenspan discussed with you--is
	that it be a truly independent board that is insulated from
	political pressure.
	We suggested that it should not be picking and choosing. We
	do not want any branch of government picking and choosing what
	equities to invest in. We want to have a broad market basket of
	investments with a little bit of everything, where there is an
	independent board, private managers, the same people who manage
	money market funds, putting these assets into literally the
	entire stock market. That means that we will not be picking and
	choosing; we won't be making the kinds of markets decisions
	that we agree the government should not make.
	The risk that Chairman Greenspan has pointed out is one
	that I think we do have to take seriously. The plan we have put
	forward we believe meets the criteria that he set out. The
	question is would we stick to our guns 5 years, 10 years, 15
	years from now to resist the temptation to change the plan? I
	have confidence that the same way we have left the Federal
	Reserve Board as independent as it is because that is the right
	thing to do, we would leave this independent board independent
	for its entire life. That would be the right thing to do, and
	that is what we are proposing.
	As far as individual choice goes, the Universal Savings
	Accounts give individuals the ability to make decisions on
	their own retirement. We wouldn't be telling individuals how to
	invest that money. They would have choices. We need to work
	through the administrative detail, because there is a little
	bit of a tradeoff. Total free choice has very high
	administrative costs. In our Federal retirement plan, we have
	modified choice. We have limited options that dramatically
	reduce the administrative costs. What we hope to work through
	as we work on the Universal Savings Account is a way to give
	individuals choice with the lowest possible administrative
	costs.
	Chairman Kasich. Right, well, why wouldn't individuals be
	able to have the same limited choice, nevertheless choice, to
	direct their own money? Why should Federal employees have that
	right, but yet I don't have that right if I am not in the
	Federal Government?
	Mr. Lew. What we are proposing for the Universal Savings
	Accounts----
	Chairman Kasich. I am talking about--no, I am talking about
	for the payroll taxes.
	Mr. Lew [continuing]. Well, the problem with the payroll
	tax being handled that way is that markets go up and markets go
	down. They don't always do it at times that are convenient for
	an individual person's retirement. If it is a small part of the
	total Social Security trust fund, we can handle those kinds of
	fluctuations in a way that an individual could not handle it.
	Our concern is if you take out an annuity on a day when the
	stock market went down 10 percent, you are losing 10 percent of
	the value of your savings for the rest of your retirement. That
	is something where if you waited a month, if you waited a week,
	certainly, if you waited long enough it would rebound. And if
	we share those risks, then we are protecting individuals from
	having the bedrock of their retirement, their Social Security
	benefit, fluctuate.
	Chairman Kasich. But an investment made by a board is
	subjected to the same changes in the economy as if I am
	controlling it. In other words, a Federal employee has that
	option. They get to an invest in a series of risk managed
	accounts, and what you are saying is--and the other thing is,
	of course, we are not talking about people putting their money
	in an annuity tomorrow and taking it out the next day. We all
	know that the power of investing in the American economy is
	that over a significant period of time, over decades, the
	economy is going to return you about 6, 7, or 8 percent as
	compared to a government bond. So, we are not talking about in
	and out.
	But let me just ask you this, Jack, to get to the bottom
	line: Is there any way that this administration over the next 2
	years would permit the individual to be able to direct their--
	you know, the 2 percent of payroll--the way that they see fit
	in a government-approved account without this board? Is there
	any way that we could reach agreement on that or do you think
	that that is impossible?
	Mr. Lew. Well, we have made very clear that keeping the
	current payroll tax to fund the current benefit system is key.
	We think that it would be risky to do anything other than that,
	but we have opened the discussion on giving the individuals the
	choice on how to invest for their own retirement with the
	Universal Savings Accounts.
	Chairman Kasich. Right, but, in other words, the notion
	that we take 2 percent of payroll and allow the everyday
	American to be able to direct it in some board-approved
	accounts like Federal employees do, we cannot reach agreement
	on that in this Congress, is that correct? This is a very
	important point.
	Mr. Lew. It is an important point, and what I want to be
	very clear about is that we are very committed to the current
	structure of a guaranteed benefit.
	Chairman Kasich. OK, the answer is no.
	Mr. Lew. And the guaranteed benefit sounds to me perhaps to
	be incompatible with what you are suggesting. I would like to
	look at a specific proposal before giving you a clear answer.
	Chairman Kasich. Well, you know specifically what we are
	talking about, the Feldstein proposal. I mean, any one of them,
	Domenici; any of them, I mean, where you get 2 percent of
	payroll, and you get to direct it. You would not want the
	individuals to be able to do that, is that correct?
	Mr. Lew. A lot of these proposals have had many lives, and
	the reason I am reluctant to give you a blanket answer is that
	I don't know exactly which one you are referring to. To the
	extent that some of these proposals spend the surplus to give
	these options and don't take the money out of the current
	payroll tax, it may be more like our Universal Savings Account
	and it may be a tax cut.
	Chairman Kasich. No, we are talking about taking it out of
	the current payroll.
	Mr. Lew. And I think you understand our view on that.
	Chairman Kasich. That is what I was afraid of, the answer
	would be no, so that all these people walking around saying,
	``I think we can get the administration to go along with an
	agreement that individuals ought to be directing some of their
	payroll taxes'' isn't going to happen, and I think we need to
	know that, because that then tells us how we are going to look
	at Social Security and how we are going to look at other parts
	of the surplus.
	Mr. Spratt. Mr. Chairman, they are proposing exactly what
	you yourself were proposing last year.
	Chairman Kasich. What you have to understand, Mr. Spratt,
	is that is a weigh station. What I suggested is if can't go to
	2 percent of payroll because there is paranoia about the fact
	that everyday Americans can't figure out how to invest their
	own payroll taxes, then what I would like to do instead of that
	is to give some of this surplus to individuals to put it in an
	account above and beyond Social Security so they can realize
	what gains they can make through market-oriented investments.
	But that isn't my solution. My solution is that 2 percent to 3
	percent of payroll was that we can direct in government-
	approved accounts that can give us a growth of 7 or 8 percent
	that can get us out of this problem. So, I am just looking for
	an interim step, something that we can all agree upon that can
	use the magic of the American economy to be able to get us into
	a better position.
	One last question, Mr. Lew, I know that the President in
	his speech in Buffalo--the Washington Post, one of my favorite
	newspapers--and we have got one of their great reporters here
	today--has quoted the President as saying of the surplus ``we
	can give all back to you and hope you spend it right. The
	conclusion being that we can't take a chance on that;
	therefore, we have got to have all these targeted tax programs,
	because if we give it to you, you might not spend it the way we
	want you to spend it.'' Doesn't it make sense to give people
	broad-based tax cuts and allow them to direct it toward what
	their needs are rather than to have all the targeted tax cuts
	so that we force people to go through a maze in order to get
	their money once they come out the other side?
	Mr. Lew. Mr. Chairman, we think there is a very clear
	choice. We think that we have gotten a fair amount of
	bipartisan agreement that putting 62 percent of the surplus
	aside for Social Security is a good idea. We may have
	differences to what it means to put 62 percent of the surplus
	aside, but I think we have a general agreement that that is the
	first step.
	When you go beyond that, we think the next step is
	Medicare. We have current commitments to Medicare and over the
	next 10 years we will put $350 billion aside of the surplus to
	keep the commitments we already have. On the question of
	putting that money into a tax cut, I think one has to ask about
	the alternative. If there is an alternative plan that would
	extend the Medicare trust fund to 2020 that could reach
	bipartisan consensus, we would like to see it. We think that it
	is very difficult to cut benefits, it is very difficult to
	reduce payments to providers, and it is very difficult to come
	up with an alternative plan for Medicare that is attractive and
	meets with quick bipartisan approval.
	So, the choice is not just a choice between a tax cut and
	nothing, it is a choice between a tax cut and putting the money
	aside to meet our commitments to Medicare. We think that is the
	right choice. It is a debate that we understand we are going to
	be having, and it will be a heated debate. We look forward to
	the debate because we think that is the right kind of debate to
	have when we have a surplus. Our view is that we have to be
	able to pay the bills for the commitments that we have today
	before we undertake new commitments----
	Chairman Kasich. Yes, I am not talking about Medicare; I am
	talking about your targeted tax cuts as opposed to the notion
	that they ought to be broad-based and let people make their own
	choices.
	Mr. Lew [continuing]. As far as the choice between the
	Universal Savings Accounts and an across-the-board tax cut, I
	think that that is a debate that we should have. We think that
	the right way to get tax relief is to encourage savings, to
	help people build the important leg on the retirement stool--
	personal savings. They now get Social Security. Some get a
	pension. They should also have savings. The alternative could
	be an across-the-board tax cut. We think that the distribution
	of a Universal Savings Account would help working people put
	money aside for their own retirement. We think that the
	benefits of an across-the-board tax cut would tend to go to
	higher income, wealthier people. This is the kind of debate
	that we could have reasonable disagreements on. We think those
	are choices that we should make. Our view is that Universal
	Savings Accounts are the right way to give tax relief, and we
	would welcome within the framework where 12 percent is
	allocated to a tax cut having that debate.
	Chairman Kasich. Thank you, Director. Mr. Spratt.
	Mr. Spratt. Jack, let me just read from the record what
	Alan Greenspan said: ``The President's approach to Social
	Security reform is a major step in the right direction, because
	it would ensure that the large surpluses projected over the
	next 15 years would be a positive contribution to national
	savings.'' I think it would be useful if you picked up where
	you left off in your testimony and took us step by step through
	how you propose to take the trust fund for Social Security from
	around $800 billion today to eventually over $6 trillion.
	Mr. Lew. I would be happy to, Mr. Spratt.
	Chairman Kasich. Even though the natural accumulation is
	probably half that amount. How do you do that and at the same
	time that you build up the assets in the trust fund how you
	would buy down the national debt from $3.7 trillion held by the
	public to $1.3 trillion?
	Mr. Lew. Mr. Spratt, I think that we have to begin by
	reminding ourselves what happens in the trust fund if we do
	nothing. If we do nothing over the next 15 years, the trust
	funds will accumulate $2.7 trillion in additional assets. Those
	assets sit in the trust fund in the form of Treasury bonds
	which have the full faith and credit backing of the Federal
	Government just like a series-E bond or a bond bought by a
	corporation or a bank does. What we are proposing is to put
	more assets into the trust fund and have the increase go from
	$2.7 trillion to $5.5 trillion, doubling the additional assets
	in the trust fund over the next 15 years. And, as you pointed
	out, there is already almost a trillion dollars of assets in
	the fund. It would bring the total to over $7 trillion.
	The question really is, what happens when those bonds come
	due? How do we pay the bills? When we came in in 1993, looking
	at the year 2012, when the Social Security Trust Fund was going
	to start to redeem the bonds to pay benefits, everyone was
	worried. They were worried because we were looking at a deficit
	in 2012, not at a surplus. The question was: if you can't pay
	your bills in 2012, how are you going to pay back the bonds?
	Well, we're not looking at a deficit in 2012 anymore; we're
	looking at a surplus. And because we have a surplus, if we lock
	in the surplus, we will be able to pay those bills in 2012
	through 2055. And the point I made earlier about interest--
	perhaps a useful way to think about it is that a dollar of
	interest paid on a Treasury Bond that's held by a bank, or a
	private investor, is a dollar that goes from the Treasury
	outside. A dollar of interest paid to the Social Security Trust
	Fund is passed along in a benefit. So the dollar of interest
	has a very different end if you're paying off debt held by the
	public than if you're paying off debt held by the Social
	Security Trust Fund in the form of assets. We're saying that
	those dollars should be preserved so that we can pay our Social
	Security benefits without having to make drastic reductions in
	benefits, without needing a big tax increase.
	We think it's prudent. We think it's only common sense.
	Unfortunately, government accounting is complicated, so it does
	take a little while to explain and to understand. But we think
	it is the most prudent way to carry forward the fiscal policy
	that's brought us the remarkable results that we're now
	enjoying.
	Mr. Spratt. What happens today with payroll taxes received
	by the Treasury is that the Treasury ends up holding the cash
	and the Social Security Trustees end up holding a special
	government bond?
	Mr. Lew. That's correct.
	Mr. Spratt. What you're proposing is to take the cash that
	the Treasury holds and buy outstanding debt with it, and, in
	effect, transfer that debt in addition to the Treasury special
	bonds so that you will augment the Trust Fund twice?
	Mr. Lew. That's correct. And instead of having that money
	go out in the form of either spending or a tax cut, let it
	build up.
	Mr. Spratt. Then, we build up to nearly $7 trillion; that
	includes the earnings on the money invested in the market and
	the earnings booked to the Treasury Bonds, and around 2020 we
	need to start drawing down that debt. At that point in time,
	instead of having several trillion dollars in outstanding debt
	held by the public, the Treasury will owe maybe $1.3 trillion,
	according to your projections. Debt service will have fallen
	from 13 percent of our budget to 3 percent of our budget, and
	the Federal Government will be in far better fiscal condition
	to redeem these bonds so that the Social Security Trustees can
	meet the obligations of the beneficiary. Is that the scheme?
	Mr. Lew. That is exactly right. And the choice we make
	today in terms of writing down the public debt is the key. If
	we let the public debt go back up, then our interest payments
	will go back, and we will lose the benefits that we've now
	projected for the future. We need to lock in what we are
	calling a virtuous cycle; it gives us the compounding effect of
	reducing debt to replace the vicious cycle that was eating us
	alive from 1981 to 1993.
	Mr. Spratt. Now, these USA Accounts are not strictly
	related to Social Security. They are supplementary to Social
	Security. The would be paid for, at least in part, by voluntary
	contributions and by government inducements that particularly
	moderate income citizens would enjoy. You have not yet defined
	all of the details, but don't you anticipate allowing each
	individual holder of one of these accounts at least the choices
	that Federal employees now have--either put it in a bond fund
	or a government bond fund or a corporate bond fund or a stock
	market index fund?
	Mr. Lew. Yes, Mr. Spratt. First of all, it's independent
	from Social Security, and that's a point we really want to
	underscore. We don't think it should be mingled with Social
	Security.
	We're working on the details and we're very concerned that
	as we define the details, we have as many good consequences as
	possible. We want to encourage current pension plans to
	continue to provide pensions. We want to encourage individuals
	who are currently saving to add to their savings, not just
	replace their savings. And we want to give them options, but we
	want to make sure we balance unlimited options with the cost of
	unlimited options.
	One concern we have is that administrative costs can grow
	if there's unlimited option. The current Federal system gives
	us, all of us who are putting our retirement savings into it, a
	limited range of options, where we can put our retirement
	savings into a bond fund, into an equity fund, or into a
	government bond fund. We probably will want more options than
	that.
	One of the things we hope to work out as we go through this
	legislative process is thinking through the consequences and
	how to draw the line in the right place. I don't think it's
	magic. I don't thing three options is magic. Unlimited options
	equally is not magic. Somewhere in the middle is the right
	balance, and I think we need to work together to try to define
	it so that individuals get the benefit of having the maximum
	return on their dollar go to their retirement and not go toward
	administrative expenses.
	Mr. Spratt. Thank you very much. One last question for
	clarification on another subject. Some of the press coverage of
	the budget yesterday and some of the criticism made of it by
	our colleagues across the aisle has indicated that there are
	significant tax increases in this particular budget, which
	seems odd at a time when we are looking forward to significant
	surpluses down the road.
	As I look through the budget, I see a redistribution of tax
	benefits, from largely corporate taxpayers, who are enjoying
	what you call unwarranted tax benefits, over to individuals
	such as mothers and fathers who have children, with a dependent
	care day care credit; and mothers and fathers who have parents
	who are elderly and homebound--there will be a credit for them
	too--a thousand dollar credit for their long-term care
	requirements. It's a redistribution there of about $33 billion.
	The New York Times yesterday included the recoupment from
	the tobacco recovery--a recoupment of what the States will be
	getting--$19 billion as a tax increase, but that's not a tax
	increase. You've got the reinstatement of a Superfund tax,
	which is just the renewal of the tax. You do have a $5 billion
	item for recasting the way we charge for using the airlines and
	the airways and the airports. But other than that--and, of
	course, your tobacco tax, which may or may not be a starter.
	I've got my doubt that it will go anywhere, but in any event,
	other than the tobacco tax is there any significant tax
	increase in this particular budget?
	Mr. Lew. Mr. Spratt, I think you've got it exactly right.
	We have proposed a variety of revenue raising provisions to pay
	for a variety of tax cuts. We think that closing loopholes for
	sham transactions is something that we can agree is good
	policy. There are always people who benefit from those
	loopholes who oppose it, but that's the kind of normal battle
	we have to try to make the tax code work right.
	What we've proposed in the form of tax cuts, we think are
	very important benefits--whether it's for long-term care or for
	building schools in our inner cities, or for providing for
	environmental bonds to be issued. These are all important
	investments that we think warrant the difficult choices in
	terms of closing loopholes.
	Now with regard to the tobacco tax--we do have a tobacco
	policy in our budget. I know that it is a policy that not all
	of us agree on, but we feel very strongly that, first and
	foremost, it's good public health policy.
	Last year, the President put forward a tobacco policy that
	was designed to increase the price of smoking to reduce teen
	smoking. Every day, 3,000 kids start smoking. Half of them
	develop tobacco-related illness. Our goal is to raise the price
	so that we will reduce in half the number of kids who start
	smoking every day.
	And we are not imposing a burden in a vacuum here. Today,
	tobacco-related illness is imposing a burden on the Federal
	Government. We spend $8 billion a year in discretionary
	programs--the veterans' health program, the Department of
	Defense health programs, our own Federal employee health
	program, and a bunch of other smaller programs--to treat
	tobacco-related illness.
	We would get $8 billion in excise taxes from the tobacco
	proposal, and it would just pay us back. The tobacco companies
	would pay us back for what we're spending as a Federal
	Government on discretionary spending for tobacco-related
	illness. We think it's only fair that that burden should be
	borne through the tobacco tax and not by the general taxpayer;
	that it shouldn't go to corporate profits, and it shouldn't go
	toward the benefit of the companies that are selling
	cigarettes.
	The policy is controversial. We understand that, and we
	readily acknowledge in the budget that this makes it easier for
	us to fund other health priorities and other important
	programs. But what we're doing is we're getting back the money
	that we're now spending on tobacco-related illness, which we
	think is only fair.
	Mr. Spratt. Thank you very much.
	Mr. Chambliss. Mr. Lew, I thank you for being here this
	morning. As a new member of this committee, I look forward to
	working with you as we go through this process and hopefully
	reach an accord on this budget. I think it's interesting though
	that you say that there are no new taxes other than a tobacco
	tax when, in fact, as I look at your numbers, you are looking
	at increased fees for Coast Guard navigational services, $701
	million; fees on international travelers, $1.6 billion;
	Medicare processing fee, $495 million, which doctors will pay
	when they process a Medicare claim, which means our Medicare
	patients will pay; FAA user fees, $7.1 billion; Federal
	Railroad Administration, $440 million; FDIC, $458 million; FCC
	fee, $1 billion, and on and on and on. That's about $11 billion
	over 5 years. If that's not a new tax, I don't know what it is.
	I want to talk to you about a couple of different areas. On
	the first one, you know agriculture has always been the
	backbone of the economy of this country, and ag folks all
	across this country are in trouble right now. Nineteen ninety-
	eight was truly a disastrous year.
	We need to make some solid, long-term changes in
	agriculture policy. The best way that we can do that, and
	certainly I think the President agrees with us based upon what
	he said in his State of Union Address, is to come up with a
	good, solid crop insurance program. In order to do that, we've
	got to basically throw out what we've got in place right now
	and start over with a new program.
	The President said in his State of the Union that he wanted
	real crop insurance reform this year. Unfortunately, when I
	looked at this budget, I see absolutely zero dollars in the
	President's budget to be applied to crop insurance reform.
	Would you address that question, and tell me exactly how you
	plan to reform crop insurance and not pay for it?
	Mr. Lew. Congressman, the budget, as the State of the Union
	does, acknowledges the very important need to revisit our crop
	insurance program and to reform crop insurance this year.
	As you noted in your question, changing the current system
	is part of what one will have to do to create a new crop
	insurance system. Our experience in looking at this is that it
	is necessary to engage in a bipartisan discussion. We propose
	to engage in that discussion over the year, to make some of
	those tough choices, which are tradeoffs within the agriculture
	community and between different priorities of the agriculture
	community. The budget is a tight one. The fees that you
	described are the kinds of fees that we've been proposing for
	several years now in order to enable us to make the important
	investments that we need to make in areas like agriculture. The
	fees we've proposed in agriculture haven't all been accepted,
	which does make it difficult to provide the resources for new
	programs. I think we need to work together. We need to look at
	what our options are, and we need to make some touch choices.
	It's clear, the President made very clear in the State of the
	Union, and we made very clear last year in our response to the
	agricultural crisis last year, that there was a need for
	action. But these are tough choices, and they are choices that
	I think really are better made in a process where we're working
	together than when we're just putting competing plans out.
	Mr. Chambliss. Well, I still don't understand why you're
	not willing to fund crop insurance reform, but, be that as it
	may, it's interesting that one of the user fees that you're
	talking about is a fee that's going to be put on livestock
	processors. Now, when Mr. Nussle's hog farmers take their
	livestock to market, what's going to happen is that his farmers
	are the ones who are going to wind up paying that livestock
	processing fee. So, instead of helping agriculture in that
	respect, you are going to be reducing income to farmers across
	this country by the increase in the livestock processing fee.
	The second area that I want to cover with you is in the
	area of national defense. I think we all agree that we've not
	been spending enough money in this area, and even the President
	in the State of the Union said that he wanted to spend
	additional monies in defense. He has come up with a figure of
	$12 billion, which, frankly, is a lot of smoke and mirrors--
	about $8 billion of that I think you would agree is just a
	redirection of current funds and a change in projection for
	inflation. So, we're really talking around $4 billion.
	Of that $4 billion, if we're talking about a pay increase
	of 4.4 percent, we're looking at roughly two and a half billion
	dollars. If you pay for Iraq and Bosnia out of that, you're
	talking about another $3 billion, so you're already over that
	$4 billion in new money that the President is willing to put
	into defense.
	Now, when the service chiefs testified before the Armed
	Services Committee they said that in order to bring every
	service branch up to par, not put us where they'd like to be,
	but to bring us up to par, it would take seventeen and a half
	billion dollars this year, not including the two and half
	billion for the pay increase. Why in the world, if the
	President wants to make a real commitment to defense, doesn't
	he listen to his service chiefs, who say we need $20 billion
	just to bring our services up to par?
	Mr. Lew. Congressman, the President has listened to our
	service chiefs. We've been meeting regularly over the last
	year. From the moment that they identified a growing readiness
	problem, we took it very seriously. The President took it very
	seriously. He met with the service chiefs back in September and
	listened to what was really a very different kind of message
	than he had gotten before. It was a message that said things
	were changing. They were changing quickly. And it really
	required a response.
	We worked very hard from September until we put this budget
	out first to add resources in the appropriations bill last fall
	to get a head start, and then to put together a plan that would
	take care of the highest priorities and all of the immediate
	needs that they identified.
	Yesterday, Secretary Cohen testified at the Armed Services
	Committee at length on this issue, and I won't try to repeat
	all the details he went through. But I think it's fair to say
	that in his testimony and General Shelton's testimony, they
	agreed that what we've put forward in this budget is the
	program that we need to make sure that we take care of the
	immediate problems in terms of retention of personnel and in
	terms of readiness.
	With regard to the arithmetic on the increase, I would beg
	to differ with your analysis of it. The inflation savings are
	very real savings. In a normal year, when the Defense
	Department sees inflation coming down, the funds that they are
	going to use go down because they are not spending a total
	number of dollars. They are buying a certain mix of goods and
	services. And if the cost of buying a helicopter goes down,
	then that money would not stay in the Defense Department budget
	in an ordinary year. By leaving that money in the Defense
	Department budget, we are permitting them to buy more--to buy
	more helicopters, to give a bigger pay raise. It's very real
	money.
	In the out years, there is an element of projection here,
	and, as Secretary Cohen testified yesterday, we think the
	projection is a fair one, a reasonable one, and it reflects a
	commitment to policy. But we will follow it on a year-by-year
	basis. We're committing here to a program, a policy level, and
	if the inflation estimate for the future changes, we will have
	to reconsider the total resources required.
	As far as the composition of our increase goes, a quarter
	of the increase in 2000 goes to personnel. That's to pay raises
	and to retirement benefits for the most part. The rest of the
	75 percent really goes into readiness in the first year--spare
	parts, things like that. The procurement budget builds up as we
	go through the 5-year period. It's a very aggressive program.
	It's the largest defense increase in decades. We welcome the
	debate about the composition of it. We have gone through a
	process with the Pentagon and with the chiefs that has been a
	very, very important in terms of making sure that we give the
	best armed forces in the world the resources they need to
	remain the best armed forces in the world going into the next
	century.
	Chairman Kasich. In the order in which people come in is
	how we recognize them, and the gentleman from Nashville is
	recognized.
	Mr. Clement. Thank you, Mr. Chairman.
	Jack, good to have you here today, and I want to say to you
	on behalf of the American people, I think everyone appreciates
	very much the Clinton administration being bold and courageous
	in putting a lot of new ideas and new initiatives on the table.
	I just hope--and I really say this in all fairness to all the
	Republicans and the Democrats--I think we should give it every
	consideration--those ideas and new initiatives. And let us not
	have it dead on arrival simply because President Clinton
	proposed these new ideas, because people are concerned about
	the future of Social Security, the future of Medicare; about
	new incentives on savings, a stronger national defense,
	reducing the debt, education--all these are critically
	important.
	Now I had the opportunity last week to speak with Chairman
	Greenspan, and I asked him about the tax cuts. And I know there
	are many that want tax cuts, substantial tax cuts. And I've
	sure voted for them in the past, and I am sure I'll vote for
	them in the future.
	But I asked him about the tax cuts, about the timing of it,
	about right now. He responded to me, ``Congressman, I am a
	Republican. Republicans like tax cuts. But our forecasts
	haven't been real good in the past. As a matter of fact, we
	should be still running hundred billion plus deficits rather
	than surpluses. I think we should pile those surpluses up for
	the future.'' You respond?
	Mr. Lew. Congressman, when Chairman Greenspan testified, we
	actually were very heartened by his comments, because we viewed
	them as being really an endorsement of the basic approach that
	we've taken, which is, buy down the debt first. The best thing
	that we could do would be to buy down the debt and to be able
	to pay the bills for Social Security and Medicare that we're
	already going to owe for benefits that people have already
	earned.
	Now, I think when he was asked the question as between tax
	cuts and spending increases, he gave the kind of answer that
	you described. But he was very clear: the best thing to do
	would be to buy down the debt.
	By putting the money into Social Security and Medicare, we
	think that that's the best way to lock the surplus up, to lock
	it in for a good future, for an economic future and budget
	future, that we all will be proud in 15 years to look back and
	say we contributed to.
	Mr. Clement. Jack, last year we had some major wins for
	TVA, and our Chairman of the TVA Caucus, Zack Wamp, and Van
	Hilleary, who's on this budget committee, too--but the fact is
	we've been zeroed out, and a lot of us don't understand why
	because if you're on the Ohio river system, the Mississippi
	river system, Colorado river system, Missouri river system, you
	get taxpayer dollars for flood control and navigation. And,
	yet, here we're in the Tennessee Valley Area, and we're not
	going to get a penny. We rate payers are going to have to pay
	that.
	Now I know there's a misconception that other parts of the
	country are subsidizing our power rates, but nothing could be
	further from the truth. Why should we be zeroed out in the
	Tennessee Valley Area?
	Mr. Lew. Congressman, last year when we addressed the
	question of the Tennessee Valley Authority in the Omnibus
	Budget bill, there was a long-term policy decision made which
	we think gave lasting benefits to the Tennessee Valley
	Authority, which made it unnecessary to have a direct
	appropriation. There was a conversion of debt that the TVA owes
	to the Federal Government that permits the Tennessee Valley
	Authority to pay less interest because it rolled over loans
	that were at a higher interest rate to be repaid at a lower
	interest rate. If you look at the benefit over the period of
	time, it year by year replaces the appropriation. And, in a
	sense, it gave TVA benefit at least for the next 10 years, so
	that it wouldn't be subject to the year to year appropriations
	process. It was not actually meant to be zeroing out the TVA;
	it was more of a conversion of the form in which the assistance
	to the TVA is delivered.
	Mr. Clement. My last question pertains to Medicare, and I
	know your proposal is transferring 15 percent of the unified
	surplus into the Medicare Trust Fund. In order to further
	extend the life of the Trust Fund, the budget includes
	additional cuts in Medicare payments amounting to $9.5 billion
	over 5 years. I don't know about the rest of the country, but
	in Tennessee, 38 of our 127 hospitals lost money in 1997. It
	appears that 45 hospitals will lose money in 1998. And the
	Balanced Budget Agreement of 1997 hasn't even been fully
	implemented yet. What is the reasoning behind these cuts? Are
	they really necessary?
	Mr. Lew. Congressman, the Medicare savings fall into two
	categories. A number of them are proposals that we've made in
	the past to deal with some problems that we tend to generally
	call fraud and abuse. They are to clamp down on overpayments
	and things like that. I don't think that's the portion of our
	savings that you are referring to. I think what you are
	referring to are the reductions in the provider payments, which
	are about half to two-thirds of our saving.
	Nationwide, hospital profit margins have been very high,
	even after the Balanced Budget Agreement. We understand that
	there are pockets in the country--some rural areas and others--
	where that hasn't been the case. We need to look at what the
	impact of our proposals would be and to make sure that as we
	work through the policy, we don't have unintended consequences.
	It really was an attempt to put savings in the program so that
	we don't have Federal reimbursement resulting in higher profit
	margins than before the BBA, but at the same time, to put
	resources back into healthcare programs, to increase benefits
	so that people can buy into Medicare between age 62 and 65, to
	make sure that HCFA has the kind of reform and stable funding
	stream so that we can run a good Medicare program into the next
	century.
	We look forward to a debate on these issues. And I would
	underscore that it is separate from this proposal on the 15
	percent of the surplus. Regardless of what we do on the
	proposals for immediate change in Medicare, we think it's
	necessary to put the 15 percent of the surplus in because if
	this is an indication of how difficult it will be to make the
	program savings necessary to put $500 billion back into
	Medicare, it means we better save the surplus, and we better
	use the surplus to try and shore up the Trust Fund, because
	we're talking about the concerns raised with $9 billion of
	savings. Imagine what the concerns would be if we have $500
	billion of savings.
	Mr. Clement. Thank you, Mr. Chairman. Thank you, Jack.
	Mr. Lew. You're welcome.
	Chairman Kasich. Mr. Hoekstra.
	Mr. Hoekstra. Thank you, Mr. Chairman. Good morning. There
	are a couple of areas I'd like to ask some questions in. In the
	State of the Union speech, the President talked about the $15
	billion that the Federal Government invests in our public
	schools, and he also talked about the need to support what
	works and to stop supporting what's wasted.
	In your budget proposal, have you outlined specific areas
	where you believe we have been wasting Federal education
	dollars and how we would reallocate those funds?
	Mr. Lew. Congressman, the budget sets forth a general
	statement of policy. We will be sending forward an Elementary
	and Secondary Education Act legislative package that will be
	more detailed.
	What we have tried to do is put together a package that
	would encourage schools to end the process of social promotion.
	We put a lot of money into after school and summer programs. We
	need to create an alternative to the current cycle where
	there's no choice but to either leave the kid back or to have a
	social promotion, because they don't have an option that helps
	them catch up and stay in grade.
	We've tried to put incentives in for schools to encourage
	the kinds of performance and excellence that I think we all
	agree should be universal in the schools. Sometimes our Federal
	programs help move things in the right direction. Sometimes
	they don't. We've put a package forward, and, as you know, the
	ESEA proposals will come forward in much more detail very
	shortly.
	Mr. Hoekstra. And that will include an analysis of the
	programs and the types of approaches that have not worked in
	the past so that we can better learn from those programs and
	influence what we should be doing in the future?
	Mr. Lew. Well, I think I've noted one of the major concerns
	we have. We think social promotion has been a very big problem.
	We think that the job of the schools is to make sure that we
	promote kids and that they are able to perform at grade; and
	when they graduate, they are able to go into the workforce and
	take jobs. I don't think we disagree on the goal. We may
	disagree on the mechanisms and that's what we hope to work
	through in the process of ESEA reauthorization.
	Mr. Hoekstra. Well, that's what I am trying to get at. I am
	wondering if you've taken a look at the entire Federal role.
	One of the things that we are concerned about is the multitude
	of programs and the number of different agencies that are
	dealing with the area of education. I am wondering whether the
	administration has taken a look at whether creating a number of
	new programs with additional strings is the most effective way
	to improve education. At other times, the administration has
	talked about more flexibility for local schools and more
	discretion as to what they can do with Federal dollars. I am
	just wondering as to the administration--which way are you
	going to go--more programs with more strings or fewer programs
	with more dollars and more flexibility back at the local level?
	Mr. Lew. Congressman, this year is a little different than
	other years because of the reauthorization of the major
	education programs. And I think we will be proceeding both with
	the funding of the initiatives that we have worked very hard
	on, from charter schools to after school programs; and working
	on the basic programs, to make sure that the basic programs are
	reformed or changed in a way to make the education dollars that
	we've put out more effective.
	I think the question of either/or isn't the way we look at
	it. We have a number of goals. We have specific goals that we
	accomplish through these individual programs, and we have
	broader goals in terms of the very large dollars that we've put
	out through the basic education programs, which the school
	districts themselves mostly control. And we're going into that
	debate with the goal of preserving the independence of the
	local schools. This is a partnership. This is not a case where
	the Federal Government comes in and tells States, cities, and
	local school districts exactly how to run their schools.
	But it is fair, when so many billions of dollars of Federal
	money are going into the schools, for us to ask some tough
	questions, and for us to challenge the schools to do better in
	certain areas.
	We hope to do this in a cooperative way. We don't view this
	as the Federal Government coming in and taking over. It's a
	question of getting the balance right.
	Mr. Hoekstra. I think that is exactly right: getting the
	balance right. And our experience would say that there are many
	at the local level who believe we might be getting out of
	balance.
	On a different front, have you included a projection of the
	level of the gross Federal debt over the budget window in your
	budget proposal. I mean, is the debt, the gross debt going to
	increase or decrease?
	Mr. Lew. We do have projections of both debt held by the
	public and the gross debt. This gets into an area that is
	complicated, and I apologize for using language that's more
	technical than I like to. But the debt subject to limit is a
	larger number than the debt held by the public, because all of
	the dollars that are in the Social Security Trust Fund in the
	form of Treasury bonds are subject to limit. The existing
	accounting rules are confusing because we save money and we
	call it debt subject to limit.
	The important measure for the purpose of the economy is the
	debt held by the public. The question of whether or not the
	Federal Government is crowding out private investment really
	has to do with what's happening to the debt held by the public.
	We will be reducing the debt held by the public from 40 percent
	to 7 percent of GDP over the next 15 years, which means we're
	freeing up dollars for private investment and to lower interest
	rates. And we think that is a very good thing for the economy.
	Mr. Hoekstra. I am interested in the gross debt. I mean a
	debt owed to Social Security is not necessarily a lot different
	than a debt owed to the public. You and I may disagree on that,
	so the gross debt does go up?
	Mr. Lew. It does, but Congressman, the reason it is
	different is that the benefits that Social Security owes--
	that's the real debt. We have that debt today. It's not debt
	subject to limit. But it's a moral debt. It's a promise that
	we've made, and I believe it's a promise we will keep.
	When we put assets in the Trust Fund and the debt subject
	to limit goes up, the only reason it's going up is that we're
	putting money behind the promise to pay the benefits that
	people are already entitled to.
	Mr. Hoekstra. But it's still debt?
	Mr. Lew. Yes, technically, those Treasury bonds are debt.
	Mr. Hoekstra. This budget still has gross debt increasing
	during the time frame of your budget proposal, is that correct?
	Mr. Lew. It's correct, but it's increasing for a good
	reason, because we're holding on to those assets.
	Mr. Hoekstra. Good.
	Mr. Smith. Will the gentleman yield?
	Mr. Hoekstra. Thank you. I'll yield for a minute, yes.
	Mr. Smith. Just noting that I noticed CBO in their estimate
	didn't have an increase in total debt.
	Chairman Kasich. A compassionate man like I am. The
	gentlelady from Oregon is recognized for 5 minutes.
	Ms. Hooley. Thank you, Mr. Chair.
	Chairman Kasich. For 5 minutes and 15 seconds.
	Ms. Hooley. Thank you, Mr. Lew, for your presentation.
	I want to go back to Medicare. We've talked a lot about
	Social Security. I mean, I've read a lot in the paper about it
	seems there's some agreement that we're going to put 62 percent
	into Social Security. Medicare is a much more immediate
	problem, and where we're going to run out of money much quick
	in Medicare. And I, too, am concerned about some of the cuts
	that are proposed in there. I mean, again, I was talking to
	some of our hospital people yesterday and some of the small
	hospitals because of the reduction they are already facing in a
	6-month period ended up being in serious trouble. So I am
	concerned about that.
	But I am also concerned about what do we do if we don't put
	this 15 percent into Medicare. What's our next step if that
	doesn't happen? Do we increase payroll taxes? Do we decrease
	benefits? What are some of the alternatives without that 15
	percent?
	Mr. Lew. Congresswoman, that is the important question,
	because what we're proposing today is a budget that has many
	choices in it. When we say put the surplus aside for Medicare,
	we're looking at the alternatives. The alternatives are very
	large increases in payroll taxes or very large reductions in
	benefits.
	Ms. Hooley. Tell me what you mean by large increases? What
	are we looking at?
	Mr. Lew. Just the Medicare portion of the payroll tax,
	which is currently 2.9 percent. It would have to be 3.4 percent
	starting in fiscal year 2000. That means raising payroll taxes
	by .5 percent just to provide the kind of additional resources
	that we're talking about here. That's an 18 percent increase.
	We would be doing a bad thing to the economy if we put that
	kind of a tax increase in place right now. No one has proposed
	it, but if we don't set the money aside from the surplus, we
	have to be honest with ourselves about the choices. The choices
	are those kinds of payroll tax increases or benefit cuts or
	reductions to providers.
	And, as I said to Congressman Clement, we understand that
	$9 billion of savings forces us to make tough decisions. It
	forces us to ask questions about whether your healthcare
	providers are being treated fairly or not, and we certainly do
	want to treat them fairly. To come up with $500 billion would
	require choices that are just enormously difficult. We saved
	$130 billion in the Balanced Budget Agreement. This is much
	bigger than that. And we think before we make any new
	commitments, whether it's to a tax cut or to large spending
	increases, we have to pay the bills that we owe. And that's why
	we put this plan forward.
	Ms. Hooley. Thank you.
	Chairman Kasich. But let me ask you a question. You can
	make no programmatic changes in Medicare, none, if you don't
	raise the payroll taxes. You don't reduce benefits. What you do
	is put a bunch of bonds in and say you've extended the live of
	Medicare, isn't that correct?
	Mr. Lew. Well, we have put more assets in the Trust Fund.
	There's only three ways to extend the life of the Trust Fund.
	You can raise taxes, you can cut benefits, or you put more
	money. And we are putting more money in. We think that's the
	right thing to do.
	Chairman Kasich. You can put more money, but you put more
	bonds in, which draws against the public. I mean you didn't put
	any money in there. You put the bonds in there. We have to
	honor Social Security. But we didn't put any money in there.
	That's a bookkeeping entry.
	Mr. Lew. What we're saying is that those bonds have first
	call on Federal revenues, and that's the right thing to do.
	It's the right thing.
	Chairman Kasich. Right. But you've made absolutely no
	programmatic changes in Medicare at all that would control any
	of the spending. You just say we're going to have more bonds in
	here, and so that can be drawn down on our kids. I mean----
	Mr. Lew. Mr. Chairman, we agree that there's a need for
	serious programmatic reform. What the President said in the
	State of the Union and what he will be saying today again is we
	need to start by putting 15 percent of the surplus aside. We
	then need to go through the process that the Breaux Commission
	is going through. We will need to go through together to make
	the kinds of tough choices. And as we make those tough choices,
	we need to find savings. We also need to look at some real
	problems in terms of the benefit package. We need to have that
	kind of a discussion. But this will only make it easier. Any
	alternative has the burden of coming forward and answering the
	question, how would you extend it for 10 years if you don't
	save 15 percent of the surplus.
	Chairman Kasich [continuing]. Right. But my only point is
	you presume that there is an infinite drawing down on our
	paychecks. And you have done nothing to make one single change
	in the Medicare program. You're just saying I am going to put
	bonds in here that our kids are going to pay, and we're going
	to pay. And we got all these bonds in there on Social Security
	that we're going to pay and we're going to draw down on. I
	don't know if the Democrats understand this, but there is no
	guarantee we're going to have enough money to pay all these
	things down.
	Mr. Lew. Mr. Chairman.
	Chairman Kasich. But to say we're going to put more IOUs in
	an account, and that extends the life of the program. I mean
	that's what we're talking about. We're not talking about one
	single choice that changes one crossed T or dotted I in the
	program. We're just saying there's more obligations to
	Medicare. And I agree with you, Jack, we're going to have to
	get the point where this commission's going to have to come
	through. But to say that we got more bonds in this fund, that
	should make us more all feel better is--I don't think that's
	leveling with folks.
	Mr. Lew. Mr. Chairman, the real choice is what we do with
	the projected surpluses. If we, for example, have a large tax
	cut, that large tax cut will reduce revenue in the future.
	We're saying that rather than reduce----
	Chairman Kasich. Of course, now that's a matter of opinion.
	Mr. Lew [continuing]. Well, that's what most economic
	analysis shows: when you give a tax cut, you have less revenue.
	Chairman Kasich. Well, that's not what is shown on capital
	gains. It's actually generated a heck of a lot more revenue. In
	fact, that's one of the reasons why we've had the big spurt in
	Treasury collections.
	Mr. Lew. The choice that we're suggesting is that rather
	than have the revenue first be given back to a tax cut, we
	should put the money aside so that the first call on the
	surplus is to pay these bills.
	Chairman Kasich. Right. Right.
	Mr. Lew. And that is a choice. We understand there's a
	choice. It's the kind of debate we should be having.
	Chairman Kasich. It's a first call, but it's not the money.
	Show me the money. I'll recognize the gentleman from New
	Hampshire, Mr. Sununu.
	Mr. Sununu. Thank you very much, Mr. Chairman. Thank you
	for being here, Mr. Lew. I appreciate your taking the time. I
	know it's not easy. You follow in distinguished footsteps. Mr.
	Raines, I think always was very willing to enjoy the give and
	take and be forthcoming with information, and I think you've
	done the same.
	You were very candid about the user fees and the tax
	increases that are part of this budget proposal. And you talked
	a little bit about some of its targeted tax relief, the very
	narrow targeted tax relief. The summary that I've seen--the
	total is for those taxes that are increased--it's about $82
	billion in tax increases; about $26 billion in user fees over 5
	years. I think the tobacco tax increase is one of the bigger of
	the tax increases. What is the 5-year total of the tobacco tax
	increase?
	Mr. Lew. The 5-year total on the tobacco increase is about
	$33 billion.
	Mr. Sununu. OK. So, $33 billion in tobacco----
	Mr. Lew. Excuse me, $34.5 billion.
	Mr. Sununu [continuing]. Thirty-five billion in tobacco tax
	increases is obviously a big chunk of the total tax increase.
	And the ranking member of this committee doesn't think that tax
	increase is going to go anywhere. Now, I am sure the
	administration feels very good about its ability to change
	minds, but I submit that when the ranking member of the Budget
	Committee doesn't think that the biggest part of your tax
	increase proposal is going to go anywhere, then you might have
	problem moving this budget package forward. What's your
	reaction to that?
	Mr. Lew. My reaction to that is really to go back to what
	the purpose of the tobacco policy is. We feel very, very
	strongly that the tobacco policy is the right policy for the
	country. If we want to reduce smoking, if we want to improve
	public health, we know that the most effective way to do it is
	to raise the price. We also know that the tobacco companies
	have been raising prices on their own and increasing their
	profits, and that that's wrong. We shouldn't be raising the
	price for the benefit of the producers of cigarettes. We
	understand it's a debate that is going to be tough, but we're
	anxious to get into that debate. We think it is the right
	debate to have. And we think the American people will be well
	served if we prevail.
	Mr. Sununu. You think you're going to win. You think you're
	going to be able to increase tobacco taxes this year.
	Mr. Lew. We're going to try hard.
	Mr. Sununu. You also included some money from the tobacco
	settlement with the States. I take it, you've run that idea
	past the States' governors?
	Mr. Lew. Well, we were very careful with regard to the
	States to try and lay out a framework for working together with
	the Congress and with the States. There's nothing in the fiscal
	year 2000 budget that presumes an agreement on our proposal for
	using the Federal portion of the States' settlement. What we've
	said is we want to work with the States and with the Congress
	to identify a list of common Federal and State priorities so
	that we will identify Federal costs that the States would pick
	up as part of the settlement. Now, obviously, that would reduce
	the burden on the Federal Government, and it would free up
	resources for other purposes. We think that that's only fair.
	Medicaid is a Federal Program. Half of the Medicaid dollars are
	Federal dollars. The tobacco settlement gave all those dollars
	back to the States. We understand it's going to be tough, but
	we think it's the right thing to do.
	Mr. Sununu. Once again, I think you're going to have a very
	tough time getting the support of the Nation's governors who I
	think have taken the lead on this issue; but, moreover,
	probably feel very strongly about keeping those funds to spend
	or to invest locally. And certainly, we've seen that a lot of
	local governments, States, municipalities tend to be more
	efficient than the Federal Government in whatever kinds of
	investments they make.
	Mr. Lew. I should point out, though----
	Mr. Sununu. I don't have much time. It's just a comment.
	That's not a question. And I would like to talk about the user
	fees, because you've got a few, quite a few.
	And Mr. Chambliss began to read through the list, but I
	think it bears repeating because it is a lengthy list. There
	was a suggestion earlier that the tax increases in this budget
	represent a redistribution of wealth. And I think that's
	accurate. I suppose the assumption is it's a redistribution of
	wealth from the good taxpayers to the bad taxpayers; or, from
	the bad taxpayers to the good taxpayers. And that suggests I
	guess that some people, Americans, wouldn't be affected by the
	tax and fee increases. And I'd like to read through those user
	fee increases that are in your budget proposal: food safety
	inspection fees; animal-plant health inspection fees; grain
	inspection fees; Forest Service fees; navigational fees;
	fisheries management fees; patent and trademark fees; trade
	promotion fees; healthcare financing fees; Food and Drug
	Administration increased user fees; physician fees; managed
	care fees; provider certification fees; claim submission fees--
	all of these are user fees of the Medicare program--bankruptcy
	filing fees; alien certification fees; Coast Guard fees;
	hazardous material transportation safety fee--we're all for
	safety; customs air and passenger fees; customs access fees;
	commercial accident investigation fees; rail safety inspection
	fees; pesticide registration fee; analog spectrum fee; Social
	Security claimant fee; Federal Aviation fee. This is an
	interesting one. We changed the harbor fee to a harbor tax; or,
	rather a harbor tax to a harbor fee. I am not sure what the
	impact there is. We have bank exam fees, and finally Medicare
	premiums.
	Have we left anyone out? It seems there can't possibly be
	anyone in America that's not impacted in one way or another
	from an increase in a user fee on an activity that they might
	rely on weekly, monthly, or everyday of their life.
	Mr. Lew [continuing]. Let me, if I can, distinguish between
	three different categories. There are certain loophole closers
	which--I don't want to use ther terms ``good'' and ``bad''--are
	closing down loopholes that shouldn't be there. I don't think
	that we would have a disagreement if we identified a sham----
	Mr. Sununu. These aren't loopholes.
	Mr. Lew [continuing]. No, no, I understand.
	Mr. Sununu. These are all user fees to be clear.
	Mr. Lew. I am just trying to identify the different
	categories. I don't think any of us would want a tax incentive
	for a sham transaction. We do have the tobacco tax----
	Mr. Sununu. I didn't mention the tobacco tax, either. These
	are all user fees.
	Mr. Lew [continuing]. I am trying to separate----
	Mr. Sununu [continuing]. These are not taxes.
	Mr. Lew. I am trying to separate the categories.
	Mr. Sununu. They are not loopholes.
	Mr. Lew. The user fees--which I think you have sort of
	merged with these other proposals in terms of the total numbers
	you've used--are really different in kind. And we believe that
	when the Federal Government provides a service, whether it's at
	a port of entry or at a food inspection station, that the
	industry that gets the benefit of the service should pay for
	it.
	You use the example of the harbor fee. I realize that no
	one who represents a port city will be grateful that there's a
	harbor service fee proposal. But the Supreme Court struck down
	the former harbor fee that Congress passed because it was
	technically flawed. What we've put forward is a proposal that
	is technically not flawed, which reflects the policy that was
	already there. They are not all new fees. That's one of the
	larger ones. Many of the ones you used as an example are very,
	very small. That one is quite large. User fees are not popular
	by the users. Users would like to get services for free.
	Industries would like to get corporate subsidies. Chairman
	Kasich has taken the lead in identifying the need to close
	corporate loopholes and to do all that we can to make the
	government not provide unwarranted benefits.
	The user fees mostly fall into that category. And, when you
	take them one by one, I think we probably could agree on more
	of the policy than we could the politics.
	Mr. Sununu. Well, I appreciate your answer very much. I've
	tried to be clear, and the user fees there represent $26
	billion. And you are right to distinguish that from the tax
	increases that are separate and above that $26 billion. Thank
	you very much. Thank you for your patience, Mr. Chairman.
	Chairman Kasich. You're very welcome. The gentleman from
	Pennsylvania is recognized for 5 minutes. Mr. Hoeffel, yes.
	That would be you.
	Mr. Hoeffel. Thank you, Mr. Chairman.
	Chairman Kasich. Where are you from in Pennsylvania?
	Mr. Hoeffel. I am from the suburbs of Philadelphia, which
	is what I want to ask my question about. Many of us from the
	suburbs are interested in the livability proposal that the
	administration has come forward with. Some say that the
	proposed spending would be helping social planners save or get
	involved with buying up open space. And the critics of the
	program seem to think that it's not an effective way of
	managing resources, controlling growth, or actually improving
	economic opportunities. Could you address some remarks to how
	the funding mechanism, which seems to be a Federal tax credit
	for investors in local and State bond issues that would
	generate the funding, would be used for open space and growth
	management programs. Could you address how that's going to
	actually improve the quality of life in the suburbs and improve
	the economic growth in the suburbs?
	Mr. Lew. Congressman, we have a number of initiatives in
	the area of lands, what we call the Lands Legacy and the
	Livability Agenda. The green bonds that you are referring to
	are one component which would provide additional access to
	capital at a lower rate for environmentally sensitive
	investments, both in preserving open spaces and in improving
	the use of existing spaces that are not open spaces. We think
	that if you look at the combination of the initiatives in terms
	of preserving large public spaces, the Lands Legacy,
	encouraging the process of local planning to preserve open
	spaces, and providing access to capital so that the
	preservation of open spaces and the cleaning up of spaces that
	are currently used really answers a need that many Americans
	feel strongly about as we enter the new century.
	Around the country, there is a growing concern that we're
	living in pretty good times right now. We have an obligation to
	take a view that's a little bit longer, and ask what are we
	going to do to leave behind cleaner waters, more open spaces,
	cleaner air. And we've tried to put together a program that's
	not big government; that doesn't say we're going to come in and
	tell local communities what to do. We're not going to come in
	and tell industry what to do. But we're going to give
	mechanisms, broad mechanisms, so that the grassroots movement,
	which is very strong--this is us responding to the American
	people, not the American people responding to us--has the tools
	to do more of what they are doing already.
	And we're hopeful that this is an agenda that will have
	bipartisan support. It does seem to me to respond not just to
	the interest of suburban Americans, but urban and rural
	Americans as well.
	Mr. Hoeffel. You seem to be addressing the problems of
	sprawl, of unregulated growth that sort of leapfrogs out from
	the urban centers and replicates new infrastructure and new
	schools and new highways. And we keep building and building
	further and further out without reinvesting in the already
	populated areas, and, in the process, we use up a lot of open
	space and farmland and spend a lot of time in traffic gridlock.
	This has never before been viewed as a Federal problem, and
	I applaud the administration for recognizing the role that the
	Federal Government can play in promoting some funding
	mechanisms but also elevating the problem to a national level.
	Mr. Lew. You've actually pointed out one element that I
	left out, which is using our transportation programs to
	encourage the kind of planning that really is important. We
	have to be able to get to and from the places we need to do
	business and live without encroaching on our remaining open
	spaces.
	Mr. Hoeffel. On another subject, just quickly. You
	mentioned Chairman Kasich's proposal for corporate welfare
	reform in the last Congress. And I recognize the administration
	has identified unwarranted tax benefits in this budget
	proposal. I used a number of the Chairman's proposals in my
	campaign. I thought they were right on target. Have you
	reviewed what he called for, and is there some common ground
	there?
	Mr. Lew. Well, we've had more ability of reaching agreement
	on the concept than on the details. [Laughter.]
	There are some items on that list that I think we do agree
	on. There are other items where I think we consider it
	important investments in technology, where he would put it on
	the list as a corporate subsidy. There are important questions
	to ask. If you look at our user fees, if you look at the
	loophole closers, I think there's a shared objective of trying
	to make sure that we don't squander government resources with
	subsidies for private interests that don't need them. The devil
	is in the detail.
	Mr. Hoeffel. Right. OK. Thank you very much. Thank you, Mr.
	Chairman.
	Chairman Kasich. Just for the information of the committee,
	we do intend to have a hearing on corporate welfare before we
	do anything with the budget. It will be coming up, and it
	should be interesting. I don't know who all will be there, but
	I know that Mr. Nader will be there, so it should be
	interesting. And I'll bet we will have a few press people in
	attendance for that one. Jack, you can come, too, if you want.
	Mr. Lew. I'd be delighted.
	Chairman Kasich. OK. Anyway, my--I think one of my heroes,
	Jim Ryun, is recognized for 5 minutes.
	Mr. Ryun. Thank you, Mr. Chairman. I want to go back to a
	subject that was discussed a little bit earlier, but I'd like
	to get into it in a little more detail with regard to national
	security. I appreciate the President's interest in increasing
	pay as well as the benefits. And yet, I want to read a quote
	from the House Armed Services Committee regarding the military
	personnel and their concerns. Two top reasons that they are
	leaving: number one, I am tired of working extended shifts due
	to lack of help; and I am tired of being away from my family.
	Now, while we recognize that there's a need for pay increases--
	just this morning General Reimer recognized that he needs as
	much as $5 billion, but he's going to do well to have $2.4
	billion. And part of the reason he needs that money is that a
	lot of these people have left; a lot of his NCOs have left, and
	it's weakened our military forces. In part, I want to send a
	message to the President to urge him to consider increasing the
	amount of money that is being set aside now for military,
	especially recruitment, because we are at a point where
	retention is very, very difficult.
	But part of my question is going to go back to base
	closures. Robert Bell said earlier this year that he felt that
	there could be billions of dollars saved as a result of base
	closures, and yet the DOD has indicated that it would actually
	be a net cost of roughly $2.4 billion. Does this administration
	really think that they can save money through base closures
	that would contribute to the budget in some way?
	Mr. Lew. We very much believe that base closures do
	contribute to long-term savings. The problem in terms of
	bringing the budget and the policy together are that in the
	short term base closures cost you money. In the long term, they
	save you money.
	If we start with the premise that when the military
	identifies resources they don't need--bases that are not
	serving a useful purpose--we all worry about the dislocation,
	and whether we will need those resources in the future. We need
	to go through a careful process to balance these
	considerations. But once the decision has been made--once a
	BRAC-like process has concluded that a facility is no longer
	needed--if we spend the money to do it right in a short term,
	10 years from now, the savings will be very substantial.
	Defense is not a 1-year kind of budget. The defense budget is
	done over 6-year periods of time. They take very seriously the
	year to year and multi-year impact of the decisions. There are
	only about three or four places in the government where multi-
	year planning is so important. I think because of that, looking
	at BRAC not as a contributor to savings this year or next year
	but perhaps as a cost and as a contributor to savings for the
	next decade for the first decade of the next century is really
	the right way to do it. By 2008 or 2010 the savings are very
	real.
	Mr. Ryun. I am not totally convinced of that because if we
	are already in a spot, in a real problem with the number of
	people that we're sending out, we're deploying so often our
	troops are weary--if we're going to reduce the number of bases,
	and I am still not convinced it's going to be savings. I would
	just like to simply express my concern over that and ask the
	President to reconsider that. Mr. Chairman.
	Chairman Kasich. Well, I want to thank you, Mr. Ryun. I
	wanted to let you know, I want to congratulate you on being the
	second American to break the 4-minute mile. I was actually the
	first one. I did it in a school-yard behind my house. Mine
	wasn't ``finalated.'' I just didn't tell anybody, Jim.
	[Laughter.]
	OK. Oh, Mr. Price from North Carolina is now recognized for
	5 minutes.
	Mr. Price. Thank you, Mr. Chairman. Mr. Lew, let me add my
	welcome and ask you to elaborate on a couple of aspects of your
	testimony.
	In some ways, this first question picks up on the line of
	questioning Mr. Hoekstra was pursuing. It has to do with the
	debt reduction, which I think most people agree is one of the
	strongest features of your proposal--the great strides that
	you're proposing to make in paying down the publicly held debt,
	from $3.7 trillion to $1.2 trillion, or from 42 percent of GDP
	to 7 percent by 2015, under current assumptions.
	Why have you chosen the mechanism that you have of
	transferring 77 percent of the surplus over the next 15 years
	to these trust funds--to the Social Security and Medicare Trust
	Funds--in order to accomplish this purpose? Why do you choose
	that? I understand that part of the reason is the political
	appeal, of course, of addressing the long-term trust fund
	shortfalls, but I think we do need some elaboration on exactly
	how this is going to work, because you are essentially moving
	that debt into the trust funds. As you said, the debt subject
	to limit is going to remain, but I also understand you to say,
	and now your--the last chart you showed a moment ago about the
	implications, those two kinds of debt have very different
	implications for annual interest outlays and thus for our
	capacity in the future to meet those obligations to those trust
	funds when those bonds come due. So could you elaborate on
	that, because I do think there's some confusion on the point of
	exactly what this debt reduction entails.
	Mr. Lew. Congressman, I would be happy to elaborate.
	Usually I start with the substance, and then I go to the
	politics. But I think in this case, it may make sense to start
	with the politics.
	It's very important that we actually accomplish the debt
	reduction. The notion of reducing the public debt is a
	difficult concept, but a very important one. And in the past,
	when the choice has been presented to pay down the debt held by
	the public or spend money on a tax cut or on other popular
	programs, it has been very hard, very, very hard, to sell debt
	reduction as a policy against a tax cut or a spending increase.
	So the politics is very much connected to the substance. To get
	to the debt reduction, I think we need more than just a passive
	debt reduction. We need to have a reason to do it.
	The substance is very important as well. Debt reduction
	doesn't really do anything to extend the life of the trust
	fund. Yes, it means that we can pay the trust funds what they
	are currently due, and that's very important because it really
	is the first part of our plan--to make good the promises we've
	already made, the Treasury bonds that are in the trust fund now
	will be paid more easily just by simple debt reduction. But we
	want to increase the assets in the trust fund. We want to say
	that come 2020, there should be more Treasury bonds in the
	trust fund, and there should be more dollars being committed to
	Social Security rather than losing those dollars to a tax cut
	or spending increases. That is a substantive difference of
	great importance. That's why our plan goes from 2032 to 2055 in
	terms of trust fund solvency. The Social Security actuaries
	have looked at it. They've written a letter, which I would be
	happy to submit for the record; that it has that effect; that
	our plan would extend solvency to 2055. And that would not be
	true of simple debt reduction. Debt reduction is not bad, but
	we think that what we propose is better.
	[The letter referred to follows:]

	Office of the Deputy Chief Actuary,
	Social Security Administration,
	Woodlawn, MD, January 26, 1999.
	Harry C. Ballantyne,
	Chief Actuary

	Long-Range OASDI Financial Effects of the President's Proposal for
	Strengthening Social Security--Information

	The President's proposal, presented in the State of the
	Union address on January 19, would require that transfers be
	made from the General Fund of the Treasury of the United States
	to the Old-Age, Survivors, and Disability Insurance (OASDI)
	trust funds for each year 2000 through 2014. The amount of
	transfer for each year would be specified in law as a
	percentage of the OASDI effective taxable payroll. In each year
	2000 through 2014, 21 percent of the transfer would be used to
	purchase stock and 79 percent would be used to purchase special
	interest-bearing obligations of the Treasury. All dividends
	would be reinvested in stock until the market value of all
	stock held by the OASDI trust funds reached 14.6 percent of
	total OASDI trust fund assets. Thereafter, the percentage of
	total trust fund assets that is held in stocks would be
	maintained at 14.6 percent.
	The proposal would extend the estimated year in which the
	combined OASDI trust funds would become exhausted by 23 years,
	from 2032 to 2055. It would reduce the size of the estimated
	long-range OASDI actuarial deficit by over one half, from 2.19
	to 0.76 percent of taxable payroll. (Due to interaction among
	provisions, a complete elimination of the actuarial deficit
	will require additional OASDI changes that would reduce the
	present law deficit by up to 1.0 percent of taxable payroll.)
	These estimates are based on the intermediate assumptions of
	the 1998 Trustees Report and other assumptions described below.
	If transfers were invested only in government bonds, the
	estimated year of trust fund exhaustion would be extended by 17
	years, from 2032 to 2049. The estimated long-range OASDI
	actuarial deficit would be reduced from 2.19 to 1.20 percent of
	taxable payroll. This result also provides an indication of the
	sensitivity of the estimates to variation in the expected yield
	on stock. If, for example, the actual yield on stock over the
	next 50 years is no greater than the expected yield on
	government bonds, the estimated year of trust fund exhaustion
	would be extended from 2032 to 2049, rather than to 2055 with
	expected stock yield.
	Stock investments would be managed by several brokerage
	firms, selected by competitive bid. Stock investments would be
	required to reflect the composition of all publicly-traded
	stock in the United States (for example, the composition of the
	Wilshire 5000 index).
	Transfers from the General Fund of the Treasury would be
	made each year 2000 through 2014. The estimated amount of
	transfer for each year is shown below, based on the
	intermediate assumptions of the 1998 Trustees Report.

	Estimated Amounts To Be Transferred to the OASDI Trust Funds
	Billions of Current Dollars

	----------------------------------------------------------------------------------------------------------------
	2000................................ $81.4 2005................... 117.4 2010.................. 256.4
	2001................................ 67.2 2006................... 148.6 2011.................. 280.0
	2002................................ 88.3 2007................... 174.8 2012.................. 300.0
	2003................................ 87.2 2008................... 203.2 2013.................. 316.0
	2004................................ 105.6 2009................... 232.5 2014.................. 324.4

	Amounts transferred would indirectly reflect values for
	years 2000 through 2014 that are about 62 percent of the
	expected unified budget surplus estimated by the Office of
	Management and Budget for the President's Fiscal Year 2000
	Budget. Actual transfers for each year would be specified as
	the product of (a) the values computed under these budget
	projections, expressed as a percentage of OASDI effective
	taxable payroll, and (b) the then-current estimated taxable
	payroll at the beginning of each year of transfer. Revisions in
	amounts transferred each year would be made as estimates of
	taxable payroll for the year are finalized.

	OASDI Trust Fund Assets in Stock

	The 1994-96 Advisory Council on Social Security requested
	estimates assuming that the total annual real yield on stock
	investments would ultimately average about 7 percent,
	approximately the average (geometric mean) yield on stocks so
	far this century. (Total yield includes dividends as well as
	capital growth.) Estimates for this proposal are based on a
	more conservative assumption for the average ultimate total
	annual real yield of stock at 6.75 percent. The nearly four-
	percentage-point difference between this assumed ultimate real
	stock yield and the Trustees' 2.8-percent assumed ultimate real
	yield on government bonds held by the trust funds is assumed to
	be maintained throughout the 75-year projection period.
	The table below provides the estimated percentage of OASDI
	trust fund assets that would be held in stock at the end of
	each year 2000-14. The stock holdings are estimated to reach
	the level of 14.6 percent of total trust fund assets at the end
	of 2014, after which point this percentage would be maintained
	under the proposal.

	Percent of OASDI Trust Fund Assets in Stock, End of year


	----------------------------------------------------------------------------------------------------------------
	2000................................ 1.7% 2005................... 6.6% 2010.................. 11.2%
	2001................................ 2.8% 2006................... 7.6% 2011.................. 12.1%
	2002................................ 3.9% 2007................... 8.5% 2012.................. 12.9%
	2003................................ 4.8% 2008................... 9.4% 2013.................. 13.7%
	2004................................ 5.7% 2009................... 10.3% 2014.................. 14.6%

	If the average yield on stocks is greater or less than
	assumed over the period 2000-14, the year in which the
	specified level of 14.6 percent of assets in stock is reached
	would be sooner or later than the end of 2014.
	The portion of the total value of publicly-traded stock in
	the United States that is held by the OASDI trust funds will
	depend not only on the yield achieved in the market, but also
	on the rate of growth in the total market value of all stock.
	The total value of stock represented in the Wilshire 5000 index
	(a fair representation of all publicly-traded stock in the
	United States) was $9.3 trillion at the beginning of 1998.
	Assuming that the total market value of publicly-traded stock
	will rise generally by the rate of growth in GDP after 1998,
	the trust funds would hold less than 4 percent of the total
	market value, on average, over the next 40 years.

	Average Percentage of Total Stock Market Value Held by OASDI


	------------------------------------------------------------------------
	2001-14........................................................ 1.9%
	2001-20........................................................ 2.9%
	2001-30........................................................ 3.7%
	2001-40........................................................ 3.7%
	2001-50........................................................ 3.4%


	Stephen C. Goss,
	Deputy Chief Actuary.

	Mr. Price. Now, you are paying interest on the debt held by
	the trust funds as well as on the debt held by the public.
	Mr. Lew. That's correct.
	Mr. Price. But as I understand it, the interest payments
	have vastly different implications for year-to-year outlays.
	Can you explain that?
	Mr. Lew. In the Federal budget, we usually look at net
	interest. That is, the interest paid to the public. And if you
	look at the path of a dollar, I think it is crystal clear what
	the difference is. If a bank owns a Treasury bond and cashes it
	in, then the Federal Government will pay the bank interest on
	the Treasury bond. If the Social Security Trust Fund owns the
	Treasury bond, then the Federal Government will pay the Social
	Security Trust Fund the interest on the bond.
	Now, I think the difference between a dollar of interest
	for the private holder of a bond and a dollar interest for the
	Social Security Trust Fund is the difference between night and
	day. The Social Security Trust Fund will take that dollar and
	pay a benefit that is currently owed. We're not increasing
	benefits. All we're saying is make sure the dollars are there
	to pay the benefits that we've already promised. I think if we
	have a choice to look back 15, 20 years from now and ask
	ourselves, are we paying more debt to private holders of
	government bonds, or are we paying more debt to pay Social
	Security benefits? We will feel a lot better if the dollars are
	there to pay the Social Security benefits and we don't have to
	make the cuts in benefits, and we don't have to increase taxes.
	That's a choice. It's a choice which I think is made crystal
	clear when you look at the alternative of what you do with the
	unified surplus. A tax cut or large spending increases lead you
	one way. Paying down the debt and putting the money into the
	trust funds lead you a very different way.
	Mr. Price. Thank you. My time is about to expire. Let me
	ask you one further, quick question about the tax cuts that are
	contained in your proposal. I understand that there are a
	number of tax cuts. I think we all think, one way or another,
	when we're in surplus we should take advantage of that to
	return money to the American people. There is significant
	disagreement about exactly how we do that. But you're talking
	about childcare tax credits for stay-at-home parents. You're
	talking about incentives for employers to provide childcare on
	site. You're also talking about school construction. A lot of
	people don't understand it. That is a tax provision--the school
	construction. The long-term care tax credit. And then finally
	these USA accounts.
	Since we are about out of time, perhaps the two you could
	focus on would be the school construction and the USA accounts,
	because I don't think it's generally understood that those are,
	in fact, tax incentives. How would they work?
	Mr. Lew. Well, they are very different. The tax provision
	for the school construction program would make the investment
	in bonds that would finance school construction treated
	preferentially for tax purposes so that the interest wouldn't
	be subject to tax. It would make it easier to raise capital and
	would leverage the Federal investment, so that every dollar
	that we put into the tax expenditure for a school construction
	bond would bring many more dollars into school construction.
	It's a very efficient way to bring a lot of dollars into school
	construction that we probably couldn't do in a direct Federal
	appropriation.
	It's fully paid for. We have offsets of $33 billion in our
	budget, of loopholes closers and other unwarranted benefits.
	That would be a paid-for proposal that we could go forward on
	today before we deal with Social Security.
	The USA account is part of our framework for Social
	Security and the surplus. And we very much believe the USA
	accounts are the right way to give tax relief, but first we
	have to fix Social Security. So, first we have to put 62
	percent aside for Social Security. Second, we want to put 15
	percent aside for Medicare. And we think it does come first:
	keeping our obligation to Medicare comes first, even before the
	USA account.
	Then, after we've done that, after we've taken 77 percent
	of the surplus and dedicated it to paying the bills for Social
	Security and Medicare, we think there should be a tax cut. And
	the USA accounts would be an incentive for individuals to save
	for their own retirement. Moderate- and low-income individuals
	would get a Federal tax credit, which would start them off in
	savings. Any dollar above that amount would be matched. Middle-
	income taxpayers, higher-income taxpayers would get less of a
	credit and more of a match. It would be very progressive. It
	would be a way to bring everyone into retirement saving so that
	it's not just something that the few have, but it becomes a
	basic, standard part of planning for the future.
	It has several very important effects. It would increase
	national savings, whereas many tax cuts would not. It would
	help individuals get into the habit of saving and hopefully
	save more than the amount that we help them save through the
	USA accounts. And most importantly, it would give the kind of
	tax relief that I think there is a broad consensus that we need
	to think about in a very targeted way that would benefit the
	economy and benefit working Americans, as opposed to
	squandering it or spreading it in a way that might be less
	fair.
	Mr. Price. Thank you, Mr. Chairman.
	Mr. Chambliss [presiding]. We want to give as many members
	as possible an opportunity to ask questions. So, if you will,
	let's abide by the 5-minute rule. And, Mr. Lew, when you see
	the red light come on if you would please speed up your answer.
	The gentleman from New Hampshire, Mr. Bass.
	Mr. Bass. Thank you. I am sort of in the never-never land
	between microphones. Thank you very much, Mr. Lew, for
	appearing here today. And I want to make a general comment that
	I think I personally believe that the President has moved
	forward, especially in the area of Social Security, to begin a
	bipartisan dialogue toward dealing with the issues of both
	solvency as well as structural reform of the system that does
	give Americans the--a little more say over their retirement
	plans. And we do have some major disagreements. But I think
	it's a major start--or a significant start.
	I share Mr. Sununu's concern about the issue of user fees,
	not only the idea that the user fees on aviation will have a
	significant impact, in my opinion, on aviation safety, but also
	on another area: on the concept that taking it--trying to loop
	what is, in effect, a settlement for tobacco--damages that
	occurred between States Attorneys General and the tobacco
	companies and the Federal Government somehow would try to grab
	a portion of that for its own damages, I think is wrong.
	I guess my question--I've been a long-time advocate of
	special education. And reading in the budget here, you have a
	significant decrease in special ed. Now, I understand that you
	advance fund in the fiscal year 2001. I was just wondering if
	you could explain to me why you cut special ed funding from
	$5.1 billion to $3.1 billion, and then advance fund it back in
	fiscal year 2001, $1.9 billion, calling that the academic year.
	Is it not true that ultimately what you're really doing is
	taking money in the year 2001, in the very beginning and
	putting back into the year 2000 in order to make it look like
	you're staying within the budget caps, and, in effect, what
	you've really done is cut special education by $2 billion.
	Mr. Lew. Congressman, what we've done in special education
	mirrors what the appropriators did last year with Title I. Last
	year, I believe it was a total of $6 billion of advanced
	appropriations, and we've said in the area of special
	education, in order to make room for the kinds of increases
	that we think are necessary in 2000, we should do the same
	thing. It doesn't do what I think you suggested in the question
	which is cut special education. Just as we're providing the
	full dollar of program benefits in the Title I program, we
	would be providing the full dollar of program benefits in the
	special education program. It's an accounting issue as to what
	year you attribute it to, and by attributing it to the portion
	of the fiscal year that matches up with the school year, it
	does give us the ability to spread it over 2 years, and then
	continue that going forward.
	Mr. Bass. But the academic year begins in September, not
	October. I am going to quibble with you on a month there. And
	what you're really going to have to do--I understand that this
	is an accounting gimmick. But why don't you just put the money
	in the proper fiscal year, which begins on September 1 and
	admit the fact that what you're really trying to do is to
	redirect priorities to your other spending programs at the
	expense of special education and use a--I--sometime the
	chickens are going to come--I hate using cliches--they are
	going to come back to roost here. And then the next fiscal
	year, you're going to have another advance. You're going to do
	the whole budget with advanced--I am not going to support or
	give credit to advance appropriations. I don't agree with it in
	Title I, either. But the reality of it is why not just put the
	money in special ed and not cut it by $3 billion, $2 billion?
	Mr. Lew. As I said, Congressman, we're not cutting it. What
	we're doing is we're financing it in a different way. So it's
	not a cut.
	As far as the advanced appropriation question goes, it's a
	fair question to ask. And there have to be limits on how much
	of it we do, and I agree with you that it can't be done
	infinitely.
	Last year, the House Appropriations Committee faced
	spending limits that were very difficult in the area of Labor-
	HHS. The House never passed a Labor-HHS appropriation bill.
	What the House committee did, I believe, was eliminate
	programs. I believe it eliminated the Low-Income Home Energy
	Assistance Program. It eliminated the Summer Jobs Program. And
	that was something that we had a pretty heated political debate
	about.
	The Senate took a different tack. The Senate did put these
	advanced appropriations in, and it was a way to accommodate a
	broader set of priorities within the budget rules. It's not a
	perfect solution to tight caps. But it is a solution that works
	under the budget rules as long as we do it in a careful way.
	I would argue, as with many of the choices we're discussing
	in terms of the surplus, it's compared to what. And we think
	that the advanced appropriation has no programmatic effect. I
	wouldn't reduce a penny of benefits in the year that they are
	needed. And that is the important programmatic issue.
	As far as budgeting goes, I agree that we have to be very
	careful. And we are being very careful.
	Mr. Bass. I appreciate. We will not only say that I believe
	that special education--that an increase in funding for special
	education should be a priority before we start discussing the
	new spending bills, the new spending proposals which, not only
	in new programs but in existing programs, equal well over--all
	right, I'll make it up--$1.5 to $2 billion in the next fiscal
	year. And I yield back, Mr. Chairman.
	Mr. Chambliss. Thank you. The gentleman from New Jersey,
	Mr. Holt.
	Mr. Holt. Thank you, Mr. Chairman. And it's good to see you
	here this morning. Thank you.
	Mr. Lew. Thank you.
	Mr. Holt. What particularly pleases me about the budget
	you're proposing is the emphasis on the long term. And you, I
	would say, have resisted the temptation for immediate
	gratification in order to invest in things that will be with us
	for a longer period of time, or so that they can be with us for
	a longer period of time--Social Security, environmental
	protection, and so forth.
	I'd like to look for a moment, though, at what we need in
	order to maintain our long-term productivity growth, and that
	would be education and research and development. And I am
	particularly pleased to see that you're talking about employer
	provided educational assistance as well as workplace literacy
	and that sort of thing.
	I wanted to get a sense of how many people will be affected
	by these programs? What long-term effect this will have on the
	quality of our workforce?
	Mr. Lew. It's difficult for me to give an exact number of
	the people affected, but the goal behind our literacy
	initiative is twofold: first, there is a big problem that we
	have a lot of people who have graduated high school and come
	into the workforce without the basic skills that they need. And
	that's not fair to them. It's not fair to society. We need to
	address that. We need to address it in terms of adult
	education. We need to make sure our schools produce results so
	that we don't have that problem in the future.
	We also have an awful lot of immigrants who are here as
	legal immigrants, who deserve the same chance that many of our
	parents and grandparents got to learn English and to get into
	the workforce and make the contributions that we've always
	relied on immigrants to make in this country. And we've been
	very, very fortunate. Generation after generation has. Our
	adult literacy initiative really deals with both of those
	challenges. I'd be happy to get back to you with the exact
	numbers.
	[The numbers referred to follow:]

	According to the Department of Education, 5.712 million
	adults would be served under the adult literacy program if it
	were funded at the fiscal year 2000 budget request level. This
	is an increase of 1.249 million over the fiscal year 1999
	appropriation.

	Mr. Holt. But just to get a sense, I would appreciate
	further information on how much of our workforce this could be
	expected to help.
	And on the question of research and development, what do
	you see the effect of your budget having on our overall
	research and development effort.
	Mr. Lew. Yes, we've had a very aggressive funding
	commitment to research and development for a number of years,
	and we've reached the point where, in some areas, we have
	gotten ahead of the schedule that we set out. We're now ahead
	of the schedule to double NIH.
	We've tried in this year's budget to have a balanced
	approach, to make sure that basic science gets the funding
	increases in areas like NSF, and the Department of Energy,
	where some of the core theoretical science is done. There are
	slightly larger increases in those areas than in NIH, not
	because we don't support NIH, but because it was time to have a
	little bit of catch up on that kind of basic science. NIH
	benefits greatly from the basic science research done at NSF.
	And I think the percentage increase is about 7 percent in NSF,
	and we've kept NIH equal with inflation. That is ahead of
	schedule to getting to the doubling of NIH that we proposed
	over the last few years. We think it's a very important
	commitment and it is an investment in the future.
	It's very difficult in the area of science to predict very
	accurately what you're going to get for each dollar you put in.
	We've worked very hard with the departments and the agencies
	that do science research to focus their dollars well, but to
	leave them the room through the process of peer review panels
	that they use to choose the best recipients for research
	dollars, not to micromanage and think that we know what
	breakthroughs they are going to find. We haven't been
	disappointed. The pace of scientific discovery only increases,
	and we're proud that our investments have been part of that.
	Mr. Bass. Thank you, Mr. Lew. I yield back the balance of
	my time. Thank you, Mr. Chairman.
	Mr. Chambliss. Thank you. The gentleman from California,
	Mr. Herger.
	Mr. Herger. Thank you very much, Mr. Chairman. And thank
	you, Mr. Lew, for being with us.
	I'd like to take just a little bit different tack. One is
	to compliment the administration on at least what in general
	we're hearing that would at least on the surface give the
	impression that we're not spending wildly; that we are being
	responsible; that, to use the terminology of the previous
	inquirer, that we're not seeking immediate gratification.
	But my concern is when we look at the fine print of
	President Clinton's budget. And I am reminded of an editorial
	that was in one of our city newspapers here just a couple of
	days ago, which shares my concern. It had tax and spend, tax
	and spend, tax and spend. Now that's very, very different than
	the spin than we seem to be hearing. We're talking about these
	large surpluses that we have. But yet, under these large
	surpluses, looking at your document that you've put, put out by
	the Executive Office of the President on Management and Budget.
	And we look at even with these projected surpluses, we look at
	what happens to the national debt. And I notice that you try to
	differentiate between government and public debt as though
	somehow there's something different there, but most of us out
	in--at least where I come from--a debt is a debt is a debt--and
	it's something that someone someday will have to pay for--
	probably our children or grandchildren. But just looking at
	your numbers on page 389 of his document, where it shows what
	our debt will be. For 1998, $5.4 trillion, to 1999, $5.5
	trillion; 2000, $5.7 trillion. I could continue reading for
	each of the next 5 years, not only with our projected surplus;
	not only does this debt not come down, it goes up. And it's
	increasing each and every year by your own document, despite
	what you may be saying, to the tune of $1.3 trillion increased
	debt over the next 5 years.
	Now, I am concerned about that. When I go to my town hall
	meetings, the people I represent in northern California are
	concerned about this. And I notice that you have attempted in
	the last couple days--over in the Senate and here as well--to
	somehow make a different--to differentiate between the debt we
	owe out to the public and what the government owes; that
	somehow that differs.
	And I'd like to have you explain to me how it's different?
	Is it not true that this debt is something that future
	taxpayers, i.e., our children and our grandchildren, at some
	point down the line will have to pay for? And isn't it very
	disingenuous to be talking about how we're really taking care
	of things when, in essence, we are increasing the debt on the
	heads of our children each and every year over the next 5 years
	by a total of $1.3 trillion?
	Mr. Lew. Congressman, I have been trying to distinguish
	between debt held by the public and the debt subject to limit,
	because I think it's a distinction that really does make a big
	difference. A dollar of interest paid on debt held by the
	public is a dollar that is going to an investor in a bond, and
	that's fine. It's a good thing to pay investors----
	Mr. Herger. A taxpayer out--they are receiving some money
	for that?
	Mr. Lew [continuing]. Yes, a bank, a corporation, an
	individual. I don't mean it as a pejorative. It's going to
	someone who's invested in a Treasury bond and we're paying it.
	But the dollar is gone as far as the Federal Government is
	concerned.
	Mr. Herger. Into the hands of a real, live person.
	Mr. Lew. A dollar paid to the Social Security Trust fund is
	going to pay a dollar of benefits that's already owed. When we
	calculate the debt, we don't add into that calculation all of
	the Social Security benefits that are going to have to be paid
	that aren't already funded.
	We're not increasing the moral debt of the country by a
	dollar when we put a dollar in to the trust fund and say that
	we're going to pay that dollar of benefits that we already owe.
	And because of government accounting, the debt subject to limit
	does go up when we put those assets aside. But our moral
	commitment is there.
	The fact that we put a bond in the trust fund is the second
	step. The first step is we've made a promise, generation to
	generation, and unless we plan to break that promise, we're
	going to need the dollars in the future to keep it. What we've
	said is you can't keep that promise if you also spend the money
	today, on either a tax cut or a spending increase. And yes, it
	does commit future dollars. It says the first call goes to
	Social Security. The second call goes to Medicare. Those are
	promises we've already made. Before you make any new
	commitments, let's keep the promises we've already made.
	Mr. Herger. OK, in other words what you're saying--let's
	follow your reasoning through. Right now, I think about two-
	thirds of our Federal budget is going to some type of
	entitlement. People are entitled to this. It's already by law
	spoken for. So, in essence, what you're saying is that we're
	just going to increase that percentage so that our children
	some day, who are the only ones who are going to pay for this--
	I mean, this isn't funny money. It doesn't somehow come out of
	thin air. Someone is going to pay for it, and the real
	difference is, as I hear you explaining this in real world
	terms, is that the difference is that rather than give somebody
	this interest today, some real world individuals out here, what
	we're going to do is indebting our children and grandchildren;
	and yes, it would first call, but still we are an indebting--a
	debt is a debt is a debt--we're indebting somebody to pay this
	taxpayer somewhere down the line. Isn't that--well, let me just
	make a statement. In my mind, that is immoral what you are
	doing. That is basically lying to the American public at a time
	when we have surpluses and leading them to believe that
	everything is OK. We're taking care of your problem. When, in
	reality, just exactly the opposite is true.
	Mr. Lew. If I could just respond briefly, Congressman. We
	think exactly the opposite. We've already made a promise. We've
	made a promise, and all of our projections in terms of the
	share of the Federal Government that goes to Social Security
	and Medicare assume that we're going to keep the promise. We're
	just putting the money behind the promise and saying let's not
	make new promises until we put the money aside----
	Mr. Herger. As long--you're--a debt you're putting behind
	it. You not putting money. You're putting something that will
	be paid by some future taxpayers, is that correct?
	Mr. Lew [continuing]. Well, if we don't spend----
	Mr. Herger [continuing]. Isn't that what it is. Isn't that
	what a bond is?
	Mr. Lew. If we don't spend the money on a tax cut or a
	spending program today, those dollars will be there in the
	future.
	Mr. Herger. A piece of paper written up in West Virginia
	will be there. OK, thank you. I think the point's made.
	Mr. Chambliss. I want to recognize my friend from
	Massachusetts for his questioning. And let me just say that
	we've still got a number of members here. We've got three
	votes. So it's probably going to take us 25 minutes for these
	votes. If you all want to come back and ask questions of Mr.
	Lew, if you're available, we'd like to have that option if
	members want to come back. Or, we can submit written questions.
	What's the preference of the committee?
	OK, we got some that would like to come back. Can you stick
	around?
	Mr. Lew. I would be delighted to stay if members would like
	to come back.
	Mr. Chambliss. OK. Great. I recognize the gentleman from
	Massachusetts, Mr. Markey.
	Mr. Markey. Thank you, Mr. Chairman, very much.
	Mr. Lew, as we look at your pie chart over here, 62 percent
	of the pie chart is dedicated to Social Security?
	Mr. Lew. That's correct.
	Mr. Markey. Now the way that I understand it is that the
	Republican 10 percent across the board tax cut would consume an
	additional 38 percent, is that correct?
	Mr. Lew. That's my understanding.
	Mr. Markey. Now, the way I've heard it on television in the
	last couple of days, Mr. Archer and Mr. Domenici have both said
	that the 62 percent now up for Social Security makes some sense
	to them. I think that I've heard that. If that's the case, that
	means that the Republican 10 percent across the board tax cut
	consumes all of the money that would be expended for Medicare,
	all of the money for the universal savings accounts, all of the
	money for defense, all of the money for education, all of the
	money that's left on that pie chart. So the 10 percent tax cut,
	obviously, is something that threatens every other program,
	except to the extent to which I guess I would say that I am not
	worried that the money will be found by the majority for the
	defense budget. I think they are finding that one. But that
	puts even more pressure on Medicare, even more pressure on
	education, even more pressure on the universal savings account.
	And here's the problem that I have. In 1997, as part of the
	last budget deal, there was a $115 billion cut in Medicare,
	which almost exactly matched the huge tax cut--huge, however,
	only in 1997 terms, not huge when compared to a 10 percent or a
	9 percent or an 8 percent across the board tax cut in
	perpetuity.
	So here's my problem: there was a $17 billion cut out of
	Medicare for home health services in 1997. We have 4,000,000
	people with Alzheimer's in America. We have millions more with
	Parkinson's and other neurological diseases, cancer, diabetes.
	They are at home. And husbands are caring for wives, and wives
	are caring for husbands. Then we cut that program by $17
	billion. All they got was a daily visit from a visiting nurse
	to give them a break. This just gave them a couple of hours
	where they could take a nap.
	Now, these people are the biggest heroes in our society.
	Twenty-four hours a day with their wife or their husband in a
	condition that is almost impossible for anyone in our age group
	to even consider. But they do it. And they are the real heroes.
	But heroes need help. And the way this debate is now
	structured, following on what happened in 1997, is that we're
	guaranteeing that that generation of people who built this
	country are going to be left with a smaller and smaller and
	smaller share of the help which they need to be heroes. And I
	think that if this tax cut debate continues as it has, that
	we're going to wind up with a tremendous confrontation in this
	country--between the legitimate needs of this older generation
	that can only be served if the revenues are there. And they are
	there. And by the way, I think when we did that tax cut in
	1997, if that has produced this surplus, we cut home health
	care in order to do the tax cut. Now, we've got the surplus,
	let's give back the money to the program.
	Now, Mr. Lew, can you help me with this. I know you've made
	an effort to increase somewhat the program for home health care
	in your legislation, but it still is far short of the money
	that was cut out in 1997, or of this growing need which has
	been identified in our society.
	Mr. Lew. Congressman, the choice that you've put forward is
	a very real one. If 38 percent of the surplus is dedicated to a
	tax cut, I believe that that will mean cuts in Medicare in the
	future, and I believe that those are going to be very, very
	difficult and painful decisions. We have to deal with Medicare.
	We have to go beyond this 15 percent and make the kinds of
	long-term reforms that require tough choices. The President, in
	the State of the Union, said that that would give us the
	opportunity to make some tough changes and also perhaps expand
	some benefits like the prescription drug benefit so that the
	program meets more of the needs of people. But if we don't
	start by putting 15 percent of the surplus aside, we are
	setting the bar very high. And we are probably going to have
	difficulty reaching bipartisan consensus. And we're going to be
	faced in a very short period of time with very difficult
	choices. We think the most prudent thing to do is to take the
	good fortune we have, that we've gotten because we made tough
	decisions on Medicare, we made tough decisions to reduce the
	deficit. We now have a surplus. We should put some of it back.
	That 15 percent would really be putting money where we should
	put it, to keep the promise we've made to pay benefits.
	Mr. Markey. Thank you, Mr. Lew. Thank you, Mr. Chairman.
	Mr. Chambliss. We will stand in recess until 12:45 p.m.
	Mr. Lew. Thank you.
	[Whereupon, at 11:57 a.m., the committee recessed, to
	reconvene at 12:45 p.m., the same day.]
	Mr. Chambliss [presiding]. All right, why don't we resume,
	and we will take members as they come back in the order that
	they are on the list, and if we have to skip somebody, we will
	try to get back to them. But the gentleman from Pennsylvania,
	Mr. Toomey, is recognized for 5 minutes.
	Mr. Toomey. Thank you, Mr. Chairman, and thank you, Mr.
	Lew.
	Just a couple of questions for clarification purposes. The
	courts have clearly stated, I believe, that workers have no
	ownership per se, no property rights to the payroll taxes that
	they pay into the Social Security system, and that implies and
	really means that all future benefits are, therefore, entirely
	subject to the whims of politicians. Is it true, is it fair to
	say that the President's proposal does nothing to substantively
	change that feature?
	Mr. Lew. I think that it is true that individuals don't
	have a right to their contributions. But I think that it is not
	correct to say that they don't have a right to the benefits. It
	would require a change of law to take the benefits away from
	them.
	Mr. Toomey. Exactly, which could happen by a majority vote
	of Congress----
	Mr. Lew [continuing]. Yes, it could.
	Mr. Toomey [continuing]. And passage by the President at
	any time.
	Mr. Lew. It has not been an easy thing to do in the past,
	but, yes, theoretically it could happen.
	Mr. Toomey. Right.
	In your opening comments, I believe, if I understood you
	correctly, you suggested that one of the important features
	that the President feels must be retained in Social Security is
	that the benefits are guaranteed, there be a guaranteed
	defined-benefit program. But, in light of the previous
	question, isn't it really impossible under the current
	structure to guarantee them because the political process could
	always reverse that guarantee?
	Mr. Lew. Well, I would say that the history since 1935 has
	been expanding, not contracting, benefits. In 1983, there was a
	bipartisan effort to deal with the Social Security financing
	problem. Tough decisions were made. It was very, very difficult
	to get agreement on any benefit reductions. And I would suggest
	that benefit reductions will be very hard to make for good
	reason. People work their lives and plan on receiving the
	benefits, and they do have a right to them.
	Mr. Toomey. Right, but we also are in a situation now as
	the system has matured and there are no longer ever-increasing
	numbers of workers paying for an increasing number of retirees,
	it is going to be much harder to make those payments. So, I
	would suggest that the ability to honor those payments under
	the current system is increasingly in jeopardy.
	Mr. Lew. And we agree that we need to work together to get
	75-year actuarial solvency, which would require some of those
	tough decisions. We think that this is a good first step.
	Mr. Toomey. OK.
	Second question is, in a system in which workers were free
	to direct and actually own, actually have property rights to a
	portion of their payroll tax, invested as they see fit, perhaps
	with restrictions and guidelines, if such a system included an
	explicit government-minimum guarantee in it, would that not
	fulfill that objective, and would the President, therefore, be
	willing to consider such a system?
	Mr. Lew. We have said for the last year that we would look
	at alternatives, specific alternatives, as they are proposed. I
	am a little reluctant to respond to a hypothetical. The
	principles that the President laid out through the past year of
	discussion about Social Security reform have been very clear
	about guaranteeing the benefits, about making sure that there
	is progressivity in the system, making sure that we don't
	somehow do something that undermines the benefits available for
	someone when they become disabled, for a survivor.
	In order to answer a question about a specific plan, one
	really has to look at it in its entirety. We think that
	preserving the core benefit as we have it today is the safest
	way. But we will look at alternatives. We have said in recent
	weeks, and I have said this morning, that our view is that the
	entire payroll tax should remain dedicated to the traditional
	Social Security benefit.
	Mr. Toomey. OK. Let me try to ask it a different way.
	Would it be fair for me to conclude, then, that if the
	design of the system met certain conditions that you feel are
	important, then there would be a possibility that the President
	would agree to a system in which workers would own and control
	a portion of that payroll tax?
	Mr. Lew. I think that I have indicated very clearly what
	our view is. You are asking me to draw hard lines about it, not
	even having a discussion. We have tried very hard, on an issue
	where it is difficult to keep lines of communication open, to
	keep lines of communications open. So, I am trying not to draw
	the kinds of arbitrary hard lines. But at the same time, I am
	trying to be very clear about what our view is and what our
	position is. And we are not wavering from that. I am not
	wavering from that today.
	If there is a specific plan that you would like us to look
	at, I would be delighted to look at it. I would be delighted to
	have our Social Security team look at it. And I think that the
	five principles that the President outlined over the past year
	speak for themselves, and that is what will guide our view of
	any proposal. Our view is that the Social Security payroll tax
	should remain dedicated to the traditional benefits.
	Mr. Toomey. OK. Thank you Mr. Lew.
	I will yield the balance of my time, Mr. Chairman.
	Mr. Chambliss. Thank you.
	Mr. Minge.
	Mr. Minge. Thank you, Mr. Chairman.
	Mr. Lew, as I understand it, in fiscal year 1999, to talk
	about a surplus requires that we focus everything on the
	unified budget, and if we were to simply look at the Federal
	budget without Social Security--as I believe the budget
	legislation requires us to do on the congressional side--we
	would have a deficit of $38 billion. Does that square roughly
	with the numbers that you have been working with?
	Mr. Lew. Yes, it does.
	Mr. Minge. And, as I understand it, that would mean that if
	we were to have a tax cut this year, we would be borrowing
	money, essentially, from the Social Security Trust Fund in
	order to fund that tax deduction, and similarly, if we were to
	expand programs this year, we would be expanding them by
	borrowing that money from the Social Security Trust Fund.
	Mr. Lew. Technically, we are leaving the assets to the
	Social Security Trust Fund, but the entire surplus this year is
	attributable to the contribution of Social Security through the
	off-budget calculation to the surplus.
	Mr. Minge. Now, I would like to take this one step further
	and look at the 15-year proposal which you have outlined, which
	I think is admirable because it really challenges Congress and
	the country to plan in the long term.
	If we were to simply insist that as long as we must rely on
	the Social Security Trust Fund to balance the budget that we
	would devote all of the surplus, so to speak, which is really
	all of the Social Security Trust Fund money, to the Trust Fund
	and not have any program expansion or tax reduction that was
	not otherwise offset within the budget, wouldn't we be doing
	better by the Social Security Program by such an insistence, at
	least during the next couple of years until we have a surplus
	in the nonunified budget?
	Mr. Lew. Well, I think that we would have to look at the
	Social Security Trust Fund, and the question of the unified
	budget a little bit more broadly, looking at a longer term. The
	Social Security Trust Fund will build up assets from now until
	2012. Until 2012, Social Security revenues will be equal to or
	greater than the benefits paid. After 2012, the Social Security
	Trust Fund will start getting drawn down, and under current law
	it will expire in 2032, and we have proposed to extend it until
	2055.
	The question of the unified budget, as much as what do we
	do today, is what condition will we be in in 2012 through 2055?
	And at that point we will need a non-Social Security surplus of
	substantial magnitude to pay back these bills to Social
	Security.
	So, the discussion of ``on budget-off budget'' becomes a
	very different one once those lines cross and Social Security
	starts needing to have its bonds paid back as opposed to paying
	them in. And we----
	Mr. Minge. But for the next couple of years the lines
	haven't crossed----
	Mr. Lew [continuing]. Correct.
	Mr. Minge [continuing]. And we are dealing with truly a
	deficit in the nonunified budget, and what we are trying to do,
	as I understand the President's proposal, is to look at this
	15-year period of time and saying, ``If we can maintain the
	course for 15 years and devote 62 percent of the unified
	surplus to Social Security, we are going to be ahead.'' Do you
	have any estimate as to how much we would be ahead by doing
	that as compared to simply insisting that all of the Social
	Security Trust Fund cash flow surplus be reserved for Social
	Security purposes?
	Mr. Lew. Well, roughly speaking, if you looked over the
	next 15 years, the 62 percent that we are putting in over 15
	years is roughly equal to the off-budget Social Security
	surplus. If you look at the Medicare component, that is all
	additional debt reduction. That is all additional savings for
	the future. And it is a rough proxy. It is really when you get
	beyond the 62 percent that the question starts to come in.
	On a year-to-year basis, our proposal would not be exactly
	as what you have described, but over 15 years, it would be a
	little bit more.
	Mr. Minge. It would be a little more, but it would be
	roughly the same. It is when you look at Medicare that you are
	really making a dramatic improvement in savings.
	Mr. Lew. That is right.
	Mr. Minge. Now, to take this one step further, it troubles
	me that here, at least for the next 2 years, we would be only
	using 62 percent of that Social Security Trust Fund surplus
	that is being generated each of these 2 years for the Social
	Security Program and we would be counting on future Congresses
	and future administrations that show the self-restraint and the
	discipline to stay the course on that 62 percent thereafter,
	when, of course, it will be a future Congress and a future
	administration.
	Is there anything that you see that we can do during this
	year and next year that would truly commit future Congresses
	and the future administrations to this course, or is it
	somewhat like what we faced back in 1994 or 1993 when we
	adopted a 5-year budget plan, but when the next year rolled
	around and the next Congress rolled around, that budget plan
	was just gathering dust? That was history. And people again
	wanted to plan and look to the future.
	Mr. Lew. I think that there is a very big difference
	between a budget plan and a promise to make certain
	contributions to the Social Security Trust Fund. I would hazard
	the political guess that, if we put into law scheduled
	contributions into the Social Security Trust Fund, that we will
	keep those promises and that it will be very difficult for
	future Congresses to change that. It is not impossible. Our
	constitutional system does give future Congresses the right to
	change the law, but I think that it is highly probative how
	difficult it has been to cut Social Security, and I think
	correctly so. I think that it is very unlikely that we would
	see a substantial backing off of commitments that we make this
	year to put money into the Trust Fund.
	Mr. Minge. Thank you.
	Mr. Chambliss. My good friend and colleague from Georgia,
	Mr. Collins, is recognized for 5 minutes.
	Mr. Collins. Thank you, Mr. Chairman.
	Mr. Lew, I want to go back to a comment by Mr. Minge, when
	he referred to tax relief as having an effect on Social
	Security.
	Under current budget law, tax relief would not affect
	Social Security unless the benefit structure of Social Security
	was changed. Is that not true?
	Mr. Lew. I am not sure that I understand the question.
	Mr. Collins. You do nothing to Social Security, and you
	give tax relief, it has no effect on Social Security.
	Mr. Lew. Well, it wouldn't reduce the benefit that we owe.
	Mr. Collins. It would not even affect it.
	Mr. Lew. But, it would reduce our ability to pay the
	benefit.
	Mr. Collins. The question, though, it would not affect--tax
	relief would not affect Social Security unless you change the
	benefit structure to match the tax relief also?
	Mr. Lew. But we have no way now to show how----
	Mr. Collins. Yes or no to that?
	Mr. Lew [continuing]. I don't think that it is a simple
	yes-or-no question.
	Mr. Collins. Sir?
	Mr. Lew. I don't think that it is a simple yes-or-no
	answer, Congressman.
	Mr. Collins. Yes, it is.
	Mr. Lew. Then the answer is, yes, it would affect Social
	Security.
	Mr. Collins. It would not affect Social Security at all.
	Mr. Lew. Yes, it would.
	Mr. Collins. I only have limited time. You seem to want to
	skate around the answer there. Let's don't do that on some of
	the others.
	Lots has been said about Mr. Greenspan and some of his
	comments. When he testified before the Ways and Means Committee
	the other day, he had several recommendations. One, he said,
	run the surpluses. I am very reluctant to use the word
	``surplus''; I like to use the words ``positive cash flow''
	because it is all over in the Trust Funds today, the positive
	cash flow. And I understand, too, by running those positive
	cash flows into the Trust Funds and having public debt offset
	by government bonds will help in the area of interest rates.
	Second thing, though, he said, is if you do look at tax
	reduction, look at marginal rates, and also look at capital
	gains tax relief. We know that some of the changes that have
	taken place in the last 4 years have been through the
	cooperation of the Congress and the administration in a year of
	taxation, and one of those was capital gains tax relief.
	But what he did caution about was no new spending, no
	increase in spending. Now, he did not say no new programs, and
	no one else will say no new programs. But if you are going to
	look at new programs, you look at them within the structure of
	your existing budget where you make your move around your
	budget caps.
	Another thing that he cautioned us about, and it is in an
	area of Social Security, and that is in the pay-as-you-go
	system--in other words, current workers are paying current
	beneficiaries' checks--but what I see that the President has
	offered is not an end to the pay-as-you-go system but an
	extension of it from some 30 to possibly 50 or 75 years. Is
	that not true?
	Mr. Lew. Well, it is a change in the sense that it is
	committing resources in a different form. Pay-as-you-go refers
	to the payroll tax, and this is a bit different.
	Mr. Collins. But it doesn't change the pay-as-you-go system
	from that of social income insurance to that as vested interest
	retirement.
	Mr. Lew. That's correct.
	Mr. Collins. And a debt is a debt. And as you have said,
	each year the national debt increases. Now I understand your
	difference between the public sector portion of it versus the
	government portion of it, but it does increase. And at some
	point in the future--I don't see the chart there now--you
	estimated that the interest portion of the budget would be 2 to
	3 percent?
	Mr. Lew. That was 2014, that projection.
	Mr. Collins. Now, using that 2 percent or 3 percent--and I
	believe that you answered this when Mr. Price was questioning
	you--that does not include the interest accrued of interest
	owed that particular year to the Trust Fund. Is that not true?
	Mr. Lew. That was net interest, correct.
	Mr. Collins. That's right. So, that is true; it does not
	include it. If you use the word ``debt interest,'' that means
	that you have excluded that portion.
	Mr. Lew. That's correct.
	Mr. Collins. OK.
	Once we get to the point of having to redeem those
	government-held securities, how do you plan to do that? You
	said that you have to have discipline in the budget and have
	resources beyond the unified budget.
	Mr. Lew. Our current forecast shows surpluses--I forget if
	it is through 2045 or 2046; it is way, way out into the next
	century. If we are running surpluses in the non-Social Security
	budget, we will be able to pay those bills back, and that is
	exactly the point in terms of fiscal discipline. If we are not
	running those kinds of surpluses in the non-Social Security
	budget--we already have the debt. The Social Security benefit
	is a promise. If I were to promise you that I was going to give
	you $100, that is a promise. If I then write up a note, that
	doesn't make it more or less of a promise. That records it.
	When you record it, it shows up as increasing the debt subject
	to limit. But the promise is every bit as much there today
	without that note.
	Mr. Collins. But it you are increasing the debt year after
	year based on new spending, that is not very good fiscal
	discipline, is it not?
	Mr. Lew. I actually think that it is very good fiscal
	discipline, and most of the comments that Alan Greenspan----
	Mr. Collins. An increased spending and increased debt year
	after year?
	Mr. Lew [continuing]. Alan Greenspan, when he testified
	before the Congress, made a number of points. He said that the
	President's approach to Social Security reform is a major step
	in the right direction and that it would ensure that the
	current rise in government's positive contribution to the
	national savings is sustained. The reason that he said that is
	that we reduce the debt held by the public.
	Mr. Collins. That's right.
	Mr. Lew. And that is the reason that we have the virtuous
	cycle which reduces the net interest cost. I would argue that
	there is a very big difference between a dollar of interest
	that is being used to pay a current commitment for Social
	Security benefits and a dollar of interest used to pay a
	privately held bond. A dollar is not a dollar in this case. One
	dollar is keeping a promise to Social Security; the other is
	not.
	Mr. Collins. In the area of accounting you use the same
	dollar twice the way you are using it. And that----
	Mr. Lew. No, we actually haven't used the same dollar
	twice.
	Mr. Collins [continuing]. Yes, you are. And also--I am
	going to close with this because my time is up--I think that
	the greatest threat to this Nation is the national debt. At one
	point in time--at some point in time in the future it will
	bankrupt this country if we don't get this thing under control
	and keep it under control.
	Thank you, Mr. Chairman.
	Mr. Chambliss. The gentleman from Minnesota, Mr. Gutknecht.
	Mr. Gutknecht. Thank you, Mr. Chairman, and I appreciate
	this opportunity to visit with you, Mr. Lew, and I appreciate a
	lot of the things that you have said today. In fact, I
	probably, at least on this side, am going to be more
	congratulatory perhaps than some of my colleagues, because it
	seems to me that there are three questions that this committee
	and ultimately the Congress has to answer. The first question
	is, how much do we want to spend? The second question is, how
	much surplus will that create? And the third, and perhaps the
	biggest, question that we are going to have to resolve is, what
	is the highest, best use of that surplus?
	Now we can argue--and I have found, and I will let my
	colleague pass here--I have found in my townhall meetings, and
	when I meet with my constituents, one of the most difficult
	questions to really respond to and to define is this whole
	Social Security system because it seems to me that it is a
	hybrid between a defined-benefit plan with a Trust Fund and a
	pay-as-you-go system. And that is how we sort of wind up
	speaking out of both sides of our mouths about the unified
	budget, and it does get very difficult. And I don't have a
	perfect answer for it either.
	But let me come back to the central question: how much do
	we want to spend? And that is where I really want to give the
	administration a tremendous amount of credit because, as I read
	through the budget, as my staff looked at it and as I looked at
	the numbers, and so forth, the first thing that really did
	strike me is that you are talking about a total spending
	increase for the next fiscal year of only $39 billion. Now am I
	correct in that?
	Mr. Lew. I don't remember the exact number, but it is very
	close, if that is not right.
	Mr. Gutknecht. And if I remember correctly, and I have been
	one who has felt very strongly that it is important for this
	Congress, for a whole variety of reasons, to keep faith with
	the spending caps which have been set in the past, and with at
	least the spirit of the balanced budget agreement that the
	President signed a couple of years ago, and many of us went
	down to the Rose Garden to join in the signing. And as I read
	your budget request, you are actually talking about exceeding
	those spending caps by only $17 billion.
	Now, I think that within that framework there is at least
	an opportunity for us to agree--the Senate, the House,
	Republicans, Democrats, Independents, and people in the
	administration--to agree to some kind of a spending cap that is
	somewhere at least within the spirit. And starting with your
	budget document, I must say that the average family, to the
	best of my knowledge, the average family budget today in
	America will probably increase about 2.5 percent. So, to your
	credit, for the first time in my memory, we are talking about
	increasing the Federal budget at a slower rate than the family
	budget, and you deserve a tremendous amount of credit for that.
	That is the good news. The bad news, it seems to me, is
	that we look through the document and begin to sift through
	it--Mr. Chambliss has raised the issue of the agriculture
	budget and crop insurance. Others have talked about veterans'
	benefits. Mr. Bass talked about special education. I am
	extremely concerned about what ultimately this means for
	Medicare reimbursements, particularly in rural America. The NIH
	budget, it seems to me that there is a good deal of shifting,
	or however we want to describe it. And then there is the big
	issue of the defense budget. Where it strikes me that in some
	respects the administration is saying, OK, we're going to hold
	the limit at a lid at 2.3 percent, but in a way we're going to
	do a little jostling so we can fund our new programs.
	Let me just ask you this question: Does the President's
	budget reflect the requirements that the administration and the
	Defense Department and others are going to need in terms of our
	commitment to Bosnia, to Iraq, and perhaps even to Kosovo? Are
	those reflected at all? Are those within the budget? In other
	words, the real question is this: Do you anticipate coming back
	to this Congress sometime before we adjourn or go home this
	fall with some kind of an emergency supplemental to fund those
	requirements?
	Mr. Lew. Congressman, the answer is in some cases
	different, so let me go through the items.
	In the case of Bosnia, we did include funding in our
	budget, in the body of our budget----
	Mr. Gutknecht. So, you will not be coming back to Congress
	for more money for Bosnia?
	Mr. Lew [continuing]. That is certainly my expectation. I
	would just caution that we are talking about situations that
	are inherently fluid. But this budget is for the full year,
	correct.
	Mr. Gutknecht. Assuming that nothing changes, you will not
	be back for more money?
	Mr. Lew. Right.
	Mr. Gutknecht. OK.
	Mr. Lew. With regard to Iraq, we are working with the
	Defense Department on whether or not there is a need for a
	supplemental, and we haven't reached that determination yet.
	The one supplemental that we do know that we are going to be
	presenting is for Central America, and we hope to do that very
	shortly. With regard to Kosovo, I can't answer that question
	until policy decisions are made.
	The budget includes an allowance of $3.25 billion in
	anticipation of, at a minimum, the Central America supplemental
	and the possibility that there may be others. We put in a
	number that was consistent with last year's budget. It was not
	consistent with last year's final action. And I think that we
	share the concern that many here share that it got a little too
	large last year. We think that the emergency authority remains
	an important one. If things happen between budgets, as a
	country, we have to be able to respond, but a real emergency is
	different than other circumstances that may test the
	definition.
	We hope to work with the Congress to make sure that the
	emergency authority remains available, but we don't currently
	have any immediate expectations except for the Central America
	supplemental.
	Mr. Gutknecht. Well, the fear of this Member is that there
	is the temptation already to say, well, you know, Congress is
	probably going to plus-up the crop insurance program. Congress
	is probably going to do something with veterans' benefits. We
	certainly need to do something to change the special education
	formula and live up to our commitments there. Medicare, you
	know, I don't know what is going to happen with Medicare. NIH,
	Defense, all of that--the danger I see happening is that we
	start off with this number 2.3 percent, but by the time it is
	over, the deal at the end of the day could be significantly
	larger than that.
	Mr. Lew. Congressman----
	Mr. Gutknecht. And it seems to me that it is the
	responsibility of this committee to set the overall spending
	limits and to do what we can to make certain that we enforce
	them, and that is where we need your help.
	Mr. Lew [continuing]. Well, we certainly hope that we reach
	agreement on a broad basis, so that we move beyond the
	discussion of 2000 to the multi-year context.
	In the case of 2000, we have a number of offsets in there,
	and if they are not adopted, we understand that it is going to
	be a difficult process working through the year.
	Last year, when we got to the end, the President's class
	size initiative, which was a very important priority, was
	included in the final Omnibus with an offset. It was an offset
	that we worked through with the two Budget Committees to make
	sure that it scored. And we hope that we can work together both
	on a multiyear basis to have a resolution to the question of
	the surplus, because we do believe that there is a need for
	more discretionary resources going into the out years, but
	after we do Social Security first. Hopefully we will get to the
	point where we do Social Security and this gets a little bit
	easier.
	But I agree with you, there is a need for discipline. There
	is a need for caps. There is a need for pay-as-you-go rules. We
	know where we go when we don't have any rules. We know that it
	is a lot easier to spend money and to give tax cuts and then
	afterwards see the result. We need to use the opportunity of
	the surplus to make some very wise decisions now and then have
	discipline going forward.
	Mr. Gutknecht. Thank you, Mr. Chairman. My time has
	expired.
	Mr. Chambliss. That was a very good question, Mr.
	Gutknecht, and being a little bit more definitive, Mr. Lew.
	And now with respect to Bosnia, the administration has
	Bosnia funded in the fiscal year 2000 budget, fully funded
	there. You have only got 6 months budgeted in the fiscal year
	2001, so I am assuming that you are planning that we are out of
	there in 2001; otherwise we have got no money in there for
	Bosnia; we've got no money in there for Kosovo. So, we need to
	be--everybody needs to thoroughly understand that as we move
	into this.
	Mr. Wamp.
	Mr. Wamp. Thank you, Mr. Chairman, and thank you, Mr. Lew,
	for the relationship that you have with our chairman, and just
	carrying forward in a positive way. I want to say that I think
	Congressman Clement is onto something that this budget, from
	our side of the aisle, should represent a good starting point.
	I think that it raises the right questions, and I think that it
	does include some good ideas, and I would think that my friend
	from Minnesota is correct there.
	A couple of points that I would like to make because I have
	learned--this is my fifth year--that you have to clear things
	up. You talked about the NIH funding being ahead of schedule,
	and let's be candid, the Republican Congress has really carried
	a lot of that weight over the last 4 years to increase NIH
	funding. As a member of the Appropriations Committee, I just
	want to point that out.
	Also, earlier, when Chairman Kasich questioned you on the 2
	percent payroll tax, I have also found that out there are
	across the country regular people who think that that means
	somehow that money would be turned back over to the
	beneficiary. But it needs to be pointed out every time that we
	talk about it, so they will understand, that the government
	will still control that money. The beneficiary will just direct
	that money. And I hope that somehow we can come to an agreement
	much like Chairman Kasich said, like the Thrift Savings Account
	for Federal employees, where you can direct where it is
	invested, but the government keeps the money. The government
	controls the money. That money doesn't go back to the
	beneficiary. It stays in a fund, but it can continue to grow.
	There is another thing that I am a little dismayed about. I
	am one of the Republicans that for the last 4 years has said
	let's be more broad-based in our approach to tax relief, so
	that they can't say that we're trying to help the wealthier
	Americans. I am a little frustrated that, after carrying that
	mantra for the last 4 years and for us to propose more broad-
	based tax relief and then you still say that it benefits more
	wealthy Americans. The only way that you can really take that
	position is that you think everybody with a job, or everybody
	that is working, or everybody that is doing OK out there
	represents wealthier Americans. At some point we need to come
	together on broad-based tax relief. And I concur that the more
	broad it can be, the more it can affect every working American,
	the better off it is.
	But my one question is this: On education funding, will
	there--and this kind of presses you, like Chairman Kasich
	pressed you about ever agreeing to a 2-percent payroll tax that
	is self-directed by beneficiaries--is there any way that the
	President can agree to block grant the education dollars?
	Because, during the Great Society the intent was to eliminate
	poverty. It didn't work. We created Federal program after
	Federal program after Federal program, and ultimately the
	Governors have cried long enough and loud enough for us to
	start block granting those same dollars, and that is working.
	And I just wonder if we've got to go back throughout this
	entire exercise over a generation of creating programs--in
	terms of trying to improve education, that motive and intent is
	all the same. We all agree that we need to improve education.
	But do we have to go through this same cycle again, or can't we
	just go ahead and block grant the money right back to State and
	local governments and let them spend it in a more efficient
	way. And is there any way that you will agree with us on that
	approach over the next few months?
	Mr. Lew. I think that over the last several years we have
	made very clear how strongly we, the administration, the
	President oppose block granting all of the education funds. We
	have worked with the Congress to provide greater flexibility in
	many areas.
	When it comes right down to it, the argument comes down to
	what do you want the Federal education policy to be? Do we want
	to be promoting the kinds of standards that the President has
	spoken to? Do we want to be promoting policies that are aimed
	at specific objectives like reducing the social promotions?
	This is an important part of our policy.
	The question to block grant or not to block grant sounds
	like it is an accounting issue, but it is not. It is really a
	policy issue, and the President has very strong convictions in
	a lot of these areas. So, I think that you can expect that our
	opposition will be consistent with our past position.
	Mr. Wamp. Let me just say one thing: If you go to a PTA
	meeting, you get on talk radio, you go out there where parents
	are involved today, they will say, please, no more mandates;
	please, don't create any more education programs that tie our
	hands--we've got people doing paperwork instead of delivering
	education because of the Federal programs we have created in
	education.
	I would just submit to you, please try to work with us on
	this, so we can have fewer programs but more money flowing back
	to the schools to let them spend it as they see fit without all
	these mandates that seem to flow every time we come up with a
	new education bureaucracy in Washington.
	Mr. Lew. Hopefully, we will be able to work through the
	Elementary and Secondary Education Act amendments to achieve
	some of our common goals and to reduce the paperwork. Our goal
	is not to be paying for administrators and paperwork. Our goal
	is to improve the quality of education. And on that, I think
	that we can agree.
	Mr. Wamp. I think, Director Lew, the glass is half full and
	not half empty. So we have got a good starting point.
	Thank you, Mr. Chairman.
	Mr. Chambliss. Jack, let me thank you again for being here,
	and I particularly thank you for having patience with us and
	hanging around to give everybody an opportunity to ask
	questions.
	I hope that everybody that wanted to ask questions has come
	back to do so. But let me just say that if there are any
	members who have additional questions, we would like to submit
	them to you in writing, and I assume you will answer them
	within about 30 days or so.
	Mr. Lew. It would be my pleasure.
	Mr. Chambliss. And we, obviously, have a lot of things that
	we agree on. There are a lot of things that we have a
	disagreement about with respect to particular issues and
	philosophically, but we look forward to working with you and my
	friend John will be in touch and dialoguing, and, hopefully, we
	will come up with something that is beneficial to the American
	people here in short order.
	Mr. Lew. Thank you.
	Mr. Chambliss. Thank you very much.
	[Whereupon, at 2:50 p.m., the committee was adjourned.]

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