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The White House
Office of the Press Secretary
For Immediate Release

Press Briefing by Press Secretary Jay Carney, OMB Acting Director Jeffrey Zients, CEA Chairman Alan Krueger, NEC Director Gene Sperling, and Director of Domestic Policy Council Cecilia Muñoz on the Fiscal Year 2014 Budget, 4/10/13

 

South Court Auditorium
Eisenhower Executive Office Building
 
 
12:43 P.M. EDT
 
MR. CARNEY:  Good afternoon, ladies and gentlemen.  Thank you for being here.  As you know, the President announced today from the Rose Garden that he has submitted -- or is submitting his budget to Congress.  And you heard him make the very important point that his number-one priority is what it has always been, which is economic growth and job creation that strengthens the middle class. 

He also made the very important point that you can grow the economy and strengthen the middle class, and reduce our deficits in a responsible way.  You can do both.  That’s what he has been doing.  As you know, he signed into law $2.5 trillion in deficit reduction, two-thirds of that coming from spending cuts.  And the budget he presents today would further reduce the deficit over 10 years by more than $1.8 trillion.

I have with me today four members, top members of the President’s team to discuss the budget with you.  I will begin with Jeff Zients, who is the Acting Director of the Office of Management and Budget.  He will then introduce the other participants, and I will remain to field your questions after they make their presentations.

Thank you.

MR. ZIENTS:  Thanks, Jay.  And good afternoon, everybody.  I’m going to do a quick overview of the major components of deficit reduction and the budget, and then I’m going to turn it to Alan to review the economic assumptions, and Gene and Cecilia to walk us through some of the investments and other policy highlights.

As Jay said, the main message of the President’s budget is that we can make critical investments that strengthen the middle class, create jobs, and grow the economy while continuing to reduce the deficit in a balanced way.  We can do both balanced deficit reduction and jobs investments.

On the left hand side, in terms of balanced deficit reduction, the budget builds off the deficit reduction achieved to date, and it includes the President’s fiscal cliff compromise offer to Speaker Boehner from last December.  Importantly, the budget replaces the indiscriminate cuts of the sequester with balanced deficit reduction.  So it turns the sequester off.

At the same time, the President’s budget proposes important job investments to enhance economic growth through skills and competitiveness and in investments in education and R&D.  All of these investments are fully paid for, so the investments do not add a dime to the deficit.

On deficit reduction, over the past couple of years, Democrats and Republicans have worked together to cut the deficit by more than $2.5 trillion.  Here’s the breakdown of deficit reduction achieved to date:  The Budget Control Act capped discretionary spending, saving over $1 trillion.  Another $370 billion in savings through 2011 appropriations.  The end of last year’s fiscal cliff agreement reduced the deficit by more than $600 billion.  Together, this deficit reduction lowered interest payments, saving an additional $480 billion.  In total, more than $2.5 trillion in deficit reduction has been achieved.

The President is committed to achieving a total of $4 trillion in deficit reduction.  Four trillion is the amount or the benchmark, if you will, that Bowles-Simpson and other independent economists call for in order to put us on a sustainable fiscal path. 

The good news is that we are more than halfway to this $4 trillion target.  The President's budget finishes the job with an additional $1.8 trillion in deficit reduction.  This $1.8 trillion is from the compromise offer the President made to Speaker Boehner during the fiscal cliff negotiations in December.  By including this offer in the budget, the President is showing his willingness to compromise and make tough choices, and his commitment to putting the country on a sustainable fiscal path.

Here are the components of the deficit reduction that take us from the $2.5 trillion achieved to date to over the $4 trillion target.  On the left side, starting with the $2.5 trillion we've already achieved, the first bar -- $400 billion in health savings that strengthen Medicare by squeezing out waste and incentivizing delivery of high-quality and efficient health care. 

Next, $200 billion in savings from other mandatory programs, including reductions to farm subsidies, reforms to federal retirement contributions, and selling of unneeded federal real estate.

Next, $230 billion in savings by indexing annual inflation adjustments to the chained CPI.  This is directly responsive to Speaker Boehner and Leader McConnell's request.  Another $200 billion in discretionary savings beyond the BCA caps. 

Next, $580 billion in revenues from tax reform by closing loopholes and reducing tax benefits for families with more than $250,000 in income.  As a result of these savings, $190 billion from reduced interest payments on the debt.  At the same time, we invest $50 billion in infrastructure to repair our roads, bridges and create jobs.  So an immediate $50-billion investment in infrastructure.

In total, this achieves $1.8 trillion in additional deficit reduction over the next 10 years, bringing total deficit reduction to $4.3 trillion with more than $2 in spending cuts for every $1 in revenue.  To be very clear, this offer includes difficult cuts the President would not propose on their own, including CPI, which the President is only willing to do with protections for the vulnerable and as part of this balanced plan.

However, by including this compromise offer in the budget, the President is showing his willingness to make tough choices and his commitment to reducing the deficit and putting the country on a sustainable fiscal path. 

Here are the annual deficits from 2012 to 2023, as a result of this deficit reduction.  As you can see, in 2012, the deficit was 7 percent as a percent of the economy.  The budget phases in deficit reduction to support the ongoing recovery.  And by 2016, the deficit is below 3 percent.  By 2023, it's below 2 percent at 1.7 percent.  So 2023, deficit -- 1.7 percent.  As a result of this deficit reduction, debt as a percent of our economy is also on a declining path.  So with declining deficits and declining debt, the President's budget achieves an important milestone of fiscal responsibility and sustainability.

The budget reaches this important fiscal milestone while investing in the drivers of economic growth.  In doing so, it demonstrates that we do not have to choose between deficit reduction and economic growth.  It shows that we can do both.  And indeed, we must do both.  The country won't prosper if we have unsustainable deficits.  But it also won't prosper if our infrastructure is crumbling and our workers lack the skills to compete.

Through paid-for initiatives like pre-K for all, job training, and accelerated infrastructure investment, this budget will enhance our nation's competitiveness.  And through balanced deficit reduction, this budget will enhance confidence and lay the foundation for more durable economic growth.  It’s the right strategy for our economy, for creating jobs, and for building prosperity.

With that, let me hand it off to Alan.

MR. KRUEGER:  Thanks, Jeff.  Let me say a little bit about the process that underlies the forecast in the budget, as well as some of the key components of the forecast.  The forecast is made jointly by the Council of Economic Advisors, the Office of Management and Budget, and the Treasury Department in what is known as the Troika process. 

The purpose of making this forecast is to enable the agencies to calculate spending and revenues.  We concluded the forecast in the middle of May, so it’s about five months out of date.  Sorry, in the middle -- I apologize, we completed the forecast in the middle of November, so it’s about five months out of date today.

We make the forecast under the presumption that the President’s budget and policies will be put in place.  That means that we assumed that the sequester would not take effect.  The budget replaces the sequester with a much smarter set of spending reductions, which would be much better for the economy.

So bearing that in mind, the forecast is a little bit out of date.  On the other hand, I think if you compare our forecast to private sector forecasters or the Congressional Budget Office, their more current forecasts, we are still in the ballpark. 

Over 2013, we’re projecting GDP growth to be 2.6 percent.  Now, again, that’s assuming the sequester doesn’t take effect.  The Congressional Budget Office has calculated that the sequester will reduce GDP growth by six-tenths of a percentage point.  Our own internal estimates are very similar.  So that suggests that GDP growth will be around 2 percent this year if the harmful sequester remains in place.  That implies that overall economic growth in 2013 will look a lot like economic growth in 2012.  In 2012, as you know, we added 2.2 million jobs, but the disappointing thing is that the economy is poised to grow more strongly.  That's why we’re projecting stronger GDP growth absent the sequester.

The reason why we think the economy is poised to grow more strongly -- there are a number of reasons -- but most importantly, the housing sector finally appears to have turned a corner.  Households are a lot further along in the deleveraging process.  Corporate balance sheets are still quite strong.  All of those conditions suggest that the economy is in a position to do a lot better going forward, but unfortunately the sequester is a step backwards.

Over the full 11 years that we’ve forecasted -- so that's 2013 through 2023 -- the average GDP growth rate is 2.8 percent.  That's above what we think the long-run potential growth rate for the economy -- that's because there are slack resources as a result of the economic crisis.  The long-run potential growth rate for the economy we put at 2.3 percent to 2.4 percent.  Our projection is actually quite close to the Congressional Budget Office and private forecasters.  The 2.8 percent figure that I mentioned for our forecast on average over those 11 years compares to 2.7 percent for the Congressional Budget Office, so very similar.

Let me next turn to the unemployment rate.  The unemployment rate averaged 7.8 percent in the last quarter of 2012.  It has since come down to 7.6 percent last month in March.  We project the unemployment rate to fall to 7.5 percent by the end of this year, to average 7.5 percent in the last quarter of 2013, and then to come down half a percentage point over each of the next three years.  So it would be 7 percent in 2014, at the end of 2014; 6.5 percent at the end of 2015; 6 percent in the last quarter of 2016.

If we were to update the forecast today, that's one component that we might change slightly.  The unemployment rate has come down a bit faster than we expected when we made the forecast.  When we made the forecast, the unemployment rate was 7.9 percent.

Last year, we saw the unemployment rate come down considerably faster than what our forecast had been.  And I wouldn’t be surprised if we are off in the same direction this year; in other words, if our forecast is conservative.

On the other hand, I should note that our forecast exactly matches the average of private sector forecasters in the blue chip that was released this morning.

Inflation is projected to be 2.1 percent over this year, and then to average 2.2 percent over the entire 11-year period that we forecasted.  And again, that’s also very close to the Congressional Budget Office and to private forecasters.

Let me conclude by saying there are, of course, risks to any forecast.  On the downside, the sequester, I believe, is a risk to our forecast.  As I mentioned, we did not assume that the sequester would be in place.  No one wants the sequester to be in place.  I think it’s widely recognized as bad policy.  And that’s expected to shave around six-tenths of a percent off of GDP growth this year.  The European debt crisis remains a threat to the economy.  Geopolitical tensions from around the world also remain a threat. 

I like to be balanced, so on the upside, there is potential for our forecast to surprise on the upside as well.  And there, I would say -- I hate to call them risks -- the opportunities -- on the upside, are strong corporate balance sheets.  If we lift some of the uncertainty that’s been weighing on the economy because of budgetary issues and the manufactured crises that have been causing uncertainty, that could help.  There remains pent-up demand for durable goods, in particular for cars.  And as I mentioned earlier, the housing market has been stabilizing nationwide.  We’re seeing home prices grow nationwide, although some parts of the country are lagging behind. 

So I think all of those are reasons why the economy is stronger this year and why there’s potential for the forecast to be a bit conservative this year.

Let me turn it over next to Gene.

MR. SPERLING:  At my height, there’s not that much benefit to standing up, so I’ll stay seated.  (Laughter.)  I just want to go in a little further as to why the President’s budget plan today hits the right balance, not just in terms of revenues and entitlement savings, but the right balance in terms of an economic strategy that strengthens jobs and the recovery in the short term, while strengthening our long-term job creation and competitiveness.

To do that, a budget needs to hit a fiscal sweet spot, which is that it needs to at one time -- an economic plan at one time needs to create confidence that you are dealing with your long-term fiscal challenges, as Jeff described.  That gives confidence to people deciding where to make long-term investment and job creation decisions that the United States is a place that is managing its long-term fiscal challenges. 

You also need to make sure that you are taking measures that are strengthening the recovery and job growth, particularly when you are still coming back from the worst financial crisis since the Great Depression. 

And third, you need to make sure you are making room for the things that will fundamentally make us competitive and will encourage more location of high-wage jobs in the United States in the future.  And the key thing is that these work best together.  A strong plan to jumpstart job growth will not be as effective if people doubt whether you’re dealing with your long-term fiscal future.  A strong fiscal deficit plan that has contraction and austerity at a time when your recovery is still seeking to get its full momentum can be counterproductive not just for jobs and growth, but counterproductive for even your fiscal forecast.  And a strategy that forgets that we are competing against tough competitors around the world for where jobs and long-term investment decisions are going to be made, and what those components are that make us a magnet for job creation -- if you forget that, you also fail.

So hitting the fiscal sweet spot means having an economic strategy, as the President has, that deals with all of these together.  Jeff has described very well how our plan adds another $1.8 trillion in deficit reduction; brings us under 2 percent of deficit as percent of GDP; extends the solvency of Medicare by four years.  But let me just do the other two components quickly and then turn it over to my companion, Cecilia.

One, this plan is good for jobs right now because, first of all, it would take away the contractionary, anti-jobs nature of the sequester, which independent experts estimate will cost this economy from 500,000 to 750,000 jobs.  But it also makes sure that as we are doing this long-term deficit reduction plan, that there is, as the President said, measures to jumpstart job growth right now. 

And so this budget does include key aspects from the American Jobs Act that do not have any long-term impacts on our deficit, but can make sure, as part of this comprehensive plan, that we’re giving momentum to the recovery now.  So in addition to taking away the contraction and the job-costing nature of the sequester, this still has -- and I’ll just put it in three buckets -- a strong infrastructure component that is accelerated.  Even in the offer that the President gave Speaker Boehner, there is $50 billion accelerated of infrastructure, most of it in the President’s “Fix It First” initiative.  In addition, the infrastructure bank measures like TIFIA that are designed to leverage private sector capital. 

Secondly, there are measures that are designed to help those communities and individuals who have been most hard hit -- things like a one-time $15 billion for Project Rebuild to help deal with the worst blight from the housing crisis in our country today.  Or a project that Cecilia and I have worked together, called Pathways to Work, which gives people funds to help the private sector encourage those who have been the longest unemployed or the most disadvantaged to get back in the private sector -- in private sector jobs.

Third, components that are about training, getting people back to work.  There is a one-time tax credit for small businesses for increasing their wages and jobs this year, to accelerate hiring.  There is the Veterans Job Corps proposal.  There’s measures to encourage the rehiring of teachers and first responders.  These make most sense as part of a long-term package where this is jumpstarting jobs in a context where a 10-year plan that is bringing down the deficit. 

And then, secondly, this plan does include, even within the deficit reduction, even within the tight budgets, things that the President believes are critical for our competitiveness.  And that is, for example, a focus on manufacturing.  It includes our Manufacturing Innovation Institute, which we’ve already piloted.  It includes expanding and making permanent the R&D tax credit.  It includes helping small businesses by having a $500,000 expensing provision made permanent for small businesses.  It includes a long-term commitment to infrastructure and to a strong reauthorization of our highway bill. 

It includes a commitment on skills.  Again, our Careers Community College proposal, but also a proposal that would consolidate our two major programs for displaced workers and put them together in one plan with greater accountability, with a focus on results, and a focus on helping everybody, regardless of how they’ve lost the job.  And the proposal here would mean that 1.2 million instead of 500,000 people would get intensive reemployment assistance at this critical time in our economy. 

So we realize that as we are jumpstarting jobs, as we are putting in long-term deficit reduction, we are also looking at what is going to make us most competitive.  These are the measures, together with things like corporate tax reform, that could lower rates, reduce loopholes and expenditures, and still take on abuses in tax havens across this country that can also be good for jobs.  So this is another key part. 

Some of the critical things -- energy, pre-school, others, I will leave and turn over now to Cecilia Muñoz, our domestic policy advisor.

MS. MUÑOZ:  Thanks very much, Gene.  And by staying at the table, he was really mostly saving me from the indignity of being a pair of eyebrows above that podium.  So thank you for that, too.

So this budget builds on the progress that we’ve made over the last four years in expanding opportunity for every community and every American willing to work hard to lift themselves up.  You’ve heard us all describe -- and most importantly the President himself -- that we need to equip every American with the skills that they need to do the job and to get on a clear path to the middle class. 

That education has to start in the earliest years so that our kids start school ready to learn.  So there is clear evidence that the return on investment for high-quality pre-school is very high.  But we also know that a lot of middle-class parents can't afford private pre-schools.  So this budget includes a proposal to ensure that every 4-year-old in this country has access to high-quality pre-school, which not only gives our kids the best possible start in life but it delivers a host of other benefits to our society, including saving hardworking families a lot of money -- thousands each year in child care costs.

The budget envisions this as a federal-state partnership, much like the way the K-12 educational system works.  It creates incentives for states to also promote access to high-quality, full-day kindergarten, as well as to expand opportunities for high-quality child care for children younger than age four.  It's an investment of $75 billion over 10 years, which we propose to finance by raising the federal tax on cigarettes by about 94 cents a pack.  Studies make very, very clear that higher cigarette prices deter kids from taking up smoking and yield all kinds of health benefits throughout their lives.

So this is a major investment in the future of our economy and the future of our children.  And I would say that anybody who has been around a 4-year-old can likely attest that they are a powerful force for the future and they're more than worth the investment.

The pre-K proposal is part of a suite of early childhood proposals in this budget.  I'm just going to briefly touch on two others.  There is a $1.6 billion investment to grow the supply of high-quality early learning opportunities for kids from birth to age three, as well as a $15 billion investment in successful, evidence-based, voluntary home visiting programs to help the most vulnerable first-time parents and their families.  And that's another example of a program where the evidence just demonstrates extraordinary benefits over time to those kids and to those families, and to the rest of us overall. 

I want to touch also on the Promise Zones proposal.  This is consistent with the President's vision of making sure that we are protecting and growing the middle class, and also providing, as he calls them, ladders of opportunity for people who are still struggling to reach the middle class.  So the budget provides details on the President's Promise Zones proposal, which is an investment in 20 of the hardest-hit communities across the country with the highest poverty.  And it does this by expanding tax credits, but also by making additional investments in existing administration programs. 

We think of these as sort of signature programs that have demonstrated real value and real impact that are expanding in this budget.  There's a $35 million investment improving public safety, anti-crime, anti-violence programs for these communities; a $350 million investment in the Department of Education's Promise Neighborhoods program; and a $400 million investment in HUD's Choice Neighborhoods program.

And the idea is for the agencies to be coordinating in making investments in these hard-hit communities to make sure that we're helping local leadership get communities on the other side of the tipping point to create opportunity, create jobs, make sure that folks are ready for those jobs, and that we're making opportunity available in these parts of the country again.  Part of the Ladders of Opportunity initiative also includes the President's proposal to expand the minimum wage, which you've heard about, to $9 an hour. 

The budget also outlines a variety of proposals to continue investing and building a competitive workforce.  One of the principles of such proposals is something you heard the President describe in the State of the Union address -- it's a high school redesign proposal.  It's a competitive $300 million fund to provide challenging and relevant learning experiences to students in high school, linking them to higher education, linking them to employers; improving instruction; and preparing students both for higher education as well as for the workforces that they will be entering when they finish school.

You heard Gene mention the Community College to Careers program.  And there is also in this budget a demonstration of the President's continued commitment to high-quality instruction and expansion of education in STEM fields -- science, technology, engineering and math.  In particular, what this budget proposes is a consolidation of a variety of STEM education programs that exist now all across the federal government.  There are some 200-such programs now.  The budget proposes to consolidate those so that we can maximize the use and the impact of every one of those dollars.

In addition, the budget builds on the President's previous proposals to control the cost of higher education.  So there is a $260 million First in the World fund to spur cutting-edge innovations aimed at driving the cost of college down.  There are reforms to campus-based aid programs, again, to reward colleges that are driving costs down and moving quality up.  And a $1 billion Race to the Top-style fund to support competitive programs in states, again, to drive higher education reform with a particular view towards reducing college costs.

I'm just going to highlight a couple of things as well with respect to energy in the budget.  The budget continues the President's all-of-the-above energy strategy that you've heard us talking about.  And just two quick highlights:  As an energy security trust, a $2 billion investment over 10 years to support research into a range of cost-effective transportation technologies.  And a Race to the Top-style investment of $200 million to encourage states to cut energy waste and build efficiency and modernize the grid.

So I know that's a lot of stuff, but let me stop there because I know we want to make sure to have time for questions.

MR. CARNEY:  Thank you, Cecilia.  So what we’ll do is I’ll call on folks who have questions for Alan, Cecilia, Jeff or Gene.  That's three directors and a chairman.  Pretty good group to ask questions of. 

And I’ll start with Jim Kuhnhenn. 

Q    Thank you.  I don't know who best answers a question, but I have two questions -- one on the corporate tax reform plan and the other one on chained CPI.  

In your corporate tax portion of the budget, you have a number of tax increases, including changes to the international tax system, elimination of oil and gas subsidies, and so forth.  Does all that additional revenue get used exclusively for lower corporate tax rates?  You’ve all in the past talked about a lower corporate tax rate of 28 percent, and a 25-percent tax rate for manufacturing companies.  I don't think that's mentioned in the budget, and I wondered why that wasn’t included.  And I can ask the CPI question after that if you could answer.

MR. SPERLING:  So there’s really -- there’s nothing new in our corporate tax proposal.  What the President and our posture has been on corporate revenue is the following:  We think there is a significant number of unjustified tax expenditures and loopholes in our current tax code, and we think some of them do have negative impacts in terms of shifting to tax havens.  And we have -- the President has put forward detailed proposals. 

The President believes that those proposals could be used to lower our deficit, or to help support more economically justifiable tax incentives.  However, what he has said for the last couple of years is that if there was a concerted effort -- which requires the business community working together, bipartisan congressional action to have historic comprehensive corporate tax reform that would lower rates, have a minimum tax on foreign earning that would discourage any type of race to the bottom in terms of tax havens -- if we were able to do that, he has said that he would accept a revenue-neutral corporate tax reform proposal. 

So, again, if that’s not going to happen, and we’re going to stay with the status quo, the President believes that these measures should be eliminated.  If we’re in a status-quo world, then they should help contribute to the deficit.  But, again, if this is going to be a -- if there’s a once-in-a-generation moment to have comprehensive corporate tax reform that eliminates -- reduces expenditures, loopholes, unnecessary incentives, tax haven behavior, and lowers rates to make our corporate tax code more competitive, help incent, encourage more jobs on our shores, then he’s willing to do that in a revenue-neutral way.  That’s been our position for the last couple of years.  That is still our position right now.

MR. ZIENTS:  Can I add one thing there?

MR. SPERLING:  Yes, go ahead.

MR. ZIENTS:  And, again, this comes under the heading of nothing is new -- the $40 billion of annual extenders, those either have to be gotten rid of or paid for through revenue-neutral tax reform.

Q    And the goal is still 28 percent for a corporate tax rate?

MR. SPERLING:  That is what we have put forward, but I think what’s important to the President is really that it meets these principles.  If somebody has something that is not going to hurt the deficit, that’s going to meet his goals, we’re always open to other ideas.  But we think 28 percent, and 25 percent for manufacturing is a strong aspiration.  But if others have ideas about how you could even go further in a way that is pro-jobs and does not hurt the deficit, of course, we’re always willing to listen to other ideas.

Q    On chained CPI, you say the switch -- in the budget, you say the switch will apply to non-means-tested programs.  In addition to Social Security, can you give us an example of what some of those -- or a list of what some of those programs would be?  And how would you specifically protect the vulnerable populations in those programs?

MR. ZIENTS:  The means-tested programs would not switch over to chained CPI.  So the federal retirement program is an example of a program that would have chained CPI going forward.

Q    Veterans programs as well?

MR. ZIENTS:  The means-tested veterans programs are excluded.  So we could give you a longer list of where it applies.

MR. SPERLING:  SSI, Pell grants would be examples of things where the chained CPI would not apply.

Q    And would it apply to minimum wage as minimum wage is adjusted onward according to inflation?  Because you raised minimum wage to $9, but then the President in his State of the Union said it would then be adjusted onward by -- according to information.  Would it use the chained CPI formula?

MR. SPERLING:  We put the minimum wage proposal out, and we are hoping to have a strong bipartisan process to pass that.  And I think at this point we’ll probably wait to have those discussions.  The important thing for the President is to -- passing minimum wage is his belief that nobody who works full-time should be raising their children in poverty.  And there are -- people have different formulations for that.  What we really want is to see that discussion engaged.

MR. CARNEY:  Mark.

Q    Hi.  Bob Weiner, Main Street Radio and national paper columns.

MR. CARNEY:  I said Mark, sorry.  Mark Rosenthal.

Q    Oh, I’m sorry.

MR. CARNEY:  Go ahead.

Q    Should I go ahead?

MR. CARNEY:  Go ahead with Mark from Reuters and then we’ll get to you.

Q    Thank you.  You’ve said that the total of revenue that you would increase for deficit reduction is $580 billion.  Could you say how much total revenue would be increased to pay for other programs that you’re proposing, for example, the early childhood education and so on?  How much -- excluding the revenue increases from the 28-percent cap and the Buffett Rule and so on -- would you apply to investments?

MR. SPERLING:  So, as Jeff said, the budget offers -- keeps on the table the last offer to the Speaker, compromise offer, which had $580 billion of revenue from high-income individuals.  We then, as you know, put additional measures in our plan that could be -- that the Boehner offer, not conditioned on, but what we think would represent the kind of balanced economic strategy that we’ve discussed. 

Most of the times that we -- almost all the times that we have additional revenues beyond that are to actually pay for other tax relief.  For example, we even have a reserve -- one thing that’s in our plan, mentioned -- is we do talk about extending for the additional five years the Obama increases in the earned-income tax credit, the child tax credit, and the American opportunity tax credit, the college tax relief.  In doing that, we believe that should be part of the baseline.  So if people in a negotiation accepted that that was part of the baseline, that would not have to be paid for.  But if somebody said they took a different view, we put in $150 billion as a reserve that could help pay for them. 

So that’s revenue there, to just be fiscally conservative, to say that we believe in extending those important tax incentives.  And that if people believe they should be paid for as opposed to being part of the baseline, they are in -- our baseline -- I believe the Maya MacGuineas’s group, others, keep that in the baseline, but if they didn’t -- so those are revenues that are really just in reserve if they were needed to pay for that.  Other revenues are for other of our tax cuts that we have going forward.

The one place where we explicitly raise revenues to do a new investment is what Cecilia talked about.  It is the tobacco tax to pay for early childhood.  That is a place where we are making a decision that we believe that additional revenue is justified for the positive that it serves in terms of early childhood and the deterrent effect that it has on smoking.

Q    If I could just also follow up on the chained CPI.  Speaker Boehner has criticized the administration for, in his words, “upholding that hostage to raising revenues.” If going to the chained CPI is a good way to rationalize entitlement programs and if it, in fact, also would raise revenues, why not handle that separately as an issue on its own?

MR. ZIENTS:  It’s not the President’s preferred policy.  He’s willing to do it as part of the comprehensive $1.8 trillion deal that puts us on a sustainable path, gets us out of this pattern of manufactured crisis after manufactured crisis.  So the condition for CPI is that it’s part of a balanced, comprehensive package.  And then, again, the second condition is that it has these protections to protect the most vulnerable and older recipients of Social Security.

MR. SPERLING:  And let me just add -- several of us have been part of many bipartisan budget agreements.  Obviously, when you’re having a bipartisan budget agreement it requires give and take on both sides.  You can’t have an agreement where one side says, if you make a compromise, they say, well, we’ll just take that.  That doesn’t work.  And it can’t work -- it couldn’t work the other way.  If they said, well, as part of your agreement, we’re willing to support your infrastructure plan but only if you did all the entitlement savings, we couldn’t say, oh, well, thank you, we’ll just take that.  You’d understand that was put on the table as part of a compromise.

Now, December 3rd, Speaker Boehner, Eric Cantor, Hensarling, Ryan wrote this President a letter very explicitly saying that they were willing to do $800 billion in revenues if it followed the offer -- the compromise that Erskine Bowles had put out to the super committee, which you know included CPI.  The Majority -- the leader, Minority Leader, Senator McConnell, again said that if you’re going to have a deal with revenues -- this was as recent as January 6th on “Meet the Press” -- that one of the things that they felt was needed for giving revenues was the CPI.

So when they’ve gone to us and said, this is one of the things you need to do for us to be willing to do a comprehensive package, obviously it doesn’t feel right or isn’t in the spirit of a bipartisan compromise to then say, if the President is willing to put that on the table, something that’s not ideal to him for a compromise, that therefore you can decide that’s just an à-la-carte menu that you can pick off.

We’ve made very clear that not everything in our budget has to be part of an agreement.  We’ve made very clear that the last offer to Speaker Boehner -- that everything else is not -- I’m sorry, that the last offer to Speaker Boehner is not conditioned on the additional investments that we think are best and are in our budget.  But the offer that is there for Speaker Boehner is not an à-la-carte menu, and you can’t decide to only pick out the concessions the President has made and not include the concessions that are from the Republican side, that need to be part of a bipartisan deal that could pass both houses.

MR. CARNEY:  John Harwood.

Q    If I’m reading this right, you propose $71 billion over 10 from restoring the estate tax to the 2009 parameters.  I thought that you guys signed in the fiscal cliff deal a permanent change in the estate tax at different levels in that.  So are you proposing to get rid of the deal that was in the fiscal cliff tax bill?

MR. ZIENTS:  It kicks in, in 2018, so it’s -- the estate tax reverts back to the 2009 parameters as of 2018. 

Q    You mean under current legislation it already does that?

MR. ZIENTS:  No, under the President’s proposal.

Q    You’re proposing to do that?

MR. ZIENTS:  Yes, we are proposing that.

Q    But why so soon after the President signed that bill, which was permanent, would you propose to change it?

MR. ZIENTS:  This impacts very few estates.  I think the figure is 3 out of 1,000.  There’s still a $3.5 million individual exemption, $7 million per couple.  It takes the rate to 45 percent from 40 percent.  And we believe that in these fiscal times, that it’s responsible policy in 2018 for the estate tax to return to the 2009 parameters.

Q    Is that the biggest -- aside from tobacco and the deficit reduction tax proposals that you have, is that the biggest new revenue provision that you have, even among those that are used to offset other tax cuts for middle class and for --

MR. KRUEGER:  I believe so, but I’ll check for you to make sure.

MR. CARNEY:  Dave Shepardson.

Q    Two questions.  One on the Promise Zones -- is there a price tag for the whole program?  And then what’s the criteria for communities to take part?

MS. MUÑOZ:  So it’s essentially the sum of the numbers that I gave, the $35 million, which is essentially Department of Justice; $300 million at Ed; $400 million at HUD.  Aside from that, other agencies are going to align programs where they have the discretion to align programs but there aren’t necessarily new funds.  And then there’s a tax credit proposal as well which is part of that.

And the agencies are working now on the criteria.  But the goal is that if you are the leader of such a community -- so it could be a county, it could be a city, it could be a neighborhood -- it should feel like one doorway in to a partnership with the federal government, and it would be both resources as well as technical assistance.  We would seek to build also on a program that we have called, Strong Cities, Strong Communities, where federal agencies have actually embedded staff on the teams of six mayors around the country so that we’re really supporting local leadership and identifying clear goals and clear metrics, and breaking down the barriers within the federal government to make sure that we’re the best possible partner.

Q    And on the energy trust, security trust, is that $2 billion over 10 years in addition to the increase in the vehicle research budget that you’re talking about?

MR. SPERLING:  Yes, that’s my understanding it is.

MR. ZIENTS:  Yes, it’s a separate $2 billion trust fund. 

MR. CARNEY:  April, then Major.

Q    Hello.  I want to get in the weeds just a little bit about the kindergarten, full-day kindergarten, and the opportunity ladder issue.  Could you talk to me about how many teachers you’re expecting to add to this program, especially as you’re trying to make full-day versus half-day kindergarten plans?  How much is the cost?  And also, what -- I’m trying to marry the issue that this administration is trying to cut the numbers of people smoking with the ads and things of that nature, and then increase the tax on cigarettes at the same time.  So what kind of revenue are you expecting from that as you’re looking at cutting the numbers of those smoking?

MS. MUÑOZ:  So we’ve done pretty detailed calculations, because we know from previous experience that when you raise cigarette taxes by a certain amount, we know a couple of things.  One is that we know that it has the biggest impact on youth smoking, that young people are the most sensitive to changes in the price.  So we estimate that about 233,000 young people would not choose to smoke as a result of this particular tobacco tax proposal.  So we do know a little bit about how it impacts smoking, and that figures into our calculations about the revenue that it would raise.  The revenue that it raises is essentially the price tag for the early-childhood proposals.

With respect to your question about the numbers of teachers, we don’t have that level of granularity, in part because this is not -- this is a federal-state partnership the way the K-12 system is a federal-state partnership.  So while the federal government would be providing resources to the states, and the states would have a match, and providing some direction with -- so that we can ensure that what we’re providing here is a quality program, what we would seek to be providing is sort of a framework that the states would then use.  But they would also have some flexibility with respect to how to get there.

So because there’s a significant state part as well as a federal part, it’s really hard to estimate exactly the numbers of teachers that we would be talking about.  But I should say that among the federal standards that we would seek to make part of this framework, is to make sure that pre-K teachers were paid on the same scale as teachers in the K-12 system.

Q    Do you have a ballpark, though?

MS. MUÑOZ:  I don’t.

Q    So you have the funds, but you don’t necessarily --

MS. MUÑOZ:  Right, because each state is going to make its own determinations about how best to achieve the goals of the program.

MR. CARNEY:  Major Garrett.

Q    I just want to follow up on April’s question about the funding stream for the pre-K, because if you, as a public policy goal, achieve fewer smokers, you might have a lower revenue stream 10 years out than you do now.  But I would imagine the pre-K need is going to be consistent and rather predictable over many budget cycles, not just 10 to 20 years.  Do you have any fear that this could become a mandate that runs out of funds, or that you may have to future adjust the tobacco tax to keep pace with the need?

MS. MUÑOZ:  So we have built that into the calculations.  I mean, obviously our ability to predict the future is limited.  But we do know that there have been increases in cigarette taxes previously, so we do know something about how they work, how they impact smoking, and what kind of revenue you can expect.  And we’ve built that into the calculations.  So we believe that we’ve covered the 10-year cost of this program the way we’ve designed it.

MR. SPERLING:  Major, when Office of Tax Analysis or Joint Tax Committee do this, I mean, when they do their score, they do project what the impact is on behavior and adjust.  So that is adjusted into the score, so it’s not just a static level.  So it is built into the score, their predictions of how it would actually affect usage.

MR. CARNEY:  Lori Montgomery.

Q    Thanks.  Maybe I’m just getting old, but I’m having a really hard time figuring out the deficit reduction numbers this year.  By your calculations, the effect of your proposals on deficits reduce your 10-year projection by $1.4 trillion, which is less than the $1.8 trillion in the package.  And I’m a little bit confused about the difference, A.  And then, there also seems to be a difference between the $5.3 trillion in deficits you’re racking up over the decade and the increase in the debt, which is much larger.  So could you explain?

MR. ZIENTS:  Well, on the first question, in the current law is the sequester, which is 100 percent, across-the-board, indiscriminate spending cuts.  We are replacing the sequester, which has always been the President’s intent, with balanced deficit reduction.  So in current law you have the across-the-board, pure spending cuts which are hurting the economy, which were never intended to be policy, and they're replaced with balanced deficit reduction.

The other thing that's going on I think, Lori, that's causing some of your confusion is that we are clear about our willingness to do the $1.8 trillion deficit reduction, as we talked about on that first slide.  At the same time, we believe there are important investments to be made -- we just talked about a bunch of them -- each of which is offset.  So I think the place to pivot to is that chart that I showed which is deficits as a percent of the economy and how we’re driving them down year over year.  We’re below 2 percent at the end of 2023; we’re at 1.7 percent.  And debt is on a declining path.

So it can be confusing because we have the $1.8 trillion offer; it replaces the sequester, which was never intended to be policy, with balanced deficit reduction.  And we do also have the investment modules.  But to be clear, the President is willing to do the compromise offer with Speaker Boehner separate from the investment modules.

Q    Well, looking at total deficit reduction separate from the sequester and OCO and all the others --

MR. ZIENTS:  So I think the right way to think about the total deficit reduction is the $2.5 trillion that we’ve achieved to date --

Q    No, no, no, I mean just in this budget, what’s the total --

MR. ZIENTS:  $1.8 trillion is the incremental, which is made up of $400 billion of health care; $200 billion of discretionary; $200 billion of other mandatory; the chained CPI that we talked about; and the $580 billion of revenue, and then the interest savings resulting from the $1.6 trillion.

You can walk through that on table S-3 and we can work with you offline to do that.

Q    What’s the difference then between the $5.3 trillion in deficit that you’re racking up over a decade, and the $5.7 trillion increase on the debt?

MR. ZIENTS:  Gene, jump in here, but I assume that’s the interest that’s accumulating on the current debt that we have.

MR. SPERLING:  I think it’s publicly held versus total debt.

MR. ZIENTS:  So that’s another distinction is we always look at publicly held, so you have the interest that’s accumulating on the current debt.  So let’s make sure that we walk through any specific numbers with you.  It’s hard to do real time without seeing the numbers you’re looking at.  But do focus on where are we driving debt -- deficits as a percent of the economy.  That’s the metric that everybody uses.  They’re on a declining path.  They’re below 2 percent at 1.7 percent at the end of the window.

MR. SPERLING:  The other reason I think it’s so important to look at that is, you’re right, we’re still in a world where people are often using different baselines, et cetera, but all of that comes out in the wash when you just look at the bottom line.  And if you look at the bottom line, whether you count a $50-billion decrease as in something that was supposed to be in the baseline, or whether you count it as a revenue, or whether you count it as a spending or the categorizations.  All those things that you and I and about 18 other people in the world care deeply about, all of them don’t actually matter when it comes to what the ultimate impact is, and that is:  Are you as a country seeing your debt declining as a percentage of your income, or increasing?  And so just to reemphasize what Jeff said, the bottom line is the bottom line and what matters.

MR. CARNEY:  Jessica Yellin.

Q    Two questions.  One is, would you give a little more information on how you want the $3 million cap on 401Ks to work?  Do you see a threshold adjusting every year?  Do you want money above $3 million being segregated into another account?  What happens to that?  And then, my second question is on the social safety net, the other end of the spectrum.  How do you propose to protect the oldest Social Security recipients?  Do you want, for example, a one-time payment to people who have been in the program for 20, 25 years?

MR. ZIENTS:  Why don't I do the second question and then Gene do the cap on the IRA.  There is an adjustment for older Social Security beneficiaries that kicks in at age 76 and begins to phase in at that point.  This is consistent with what Bowles-Simpson also recommended as part of movement to chained CPI.  So there is an adjustment that starts at age 76.

Q    Is it a yearly adjustment?

MR. ZIENTS:  Yes.  It’s based off of 5 percent of average wages.

MR. SPERLING:  And fully phases in at around -- it goes from 76 to 85 in the adjustment. 

Look, the IRA is obviously our entire rationale as a country for giving tax incentives to retirement was to overcome myopia -- make sure people invest more so they don't under save for their future.  That's good for them.  It also makes sure the rest of us don't have to pay -- have more government spending that is needed.

There isn't a lot of justification, if any, for why you would be giving those tax incentives for somebody who was able to account for over $3 million in an IRA where most people are putting in a few thousand a year.  So what the budget does is it says that once you have an amount sufficient to finance an annuity of $205,000 a year, that anything above that just should not -- you should not get the deferral of taxes on; you should not get tax-exempt treatment on.  And right now, at 2013, that amount comes to $3 million. 

When you think of things we ought to do at a time when we're asking for some tough choices across the board, this should be in the heavily no-brainer category that anything above $3 million does not require tax deferral or a tax-exempt contribution. 

Q    The Republicans have been complaining about using war savings in this budget.  You're using it to pay for I guess about $166 billion on new spending on jobs and infrastructure programs, as well as accounts in your deficit figures.  What's the rationale for using war savings to pay for new programs and putting it in as deficit savings when we never paid for them in the first place?

MR. ZIENTS:  So this is directly the result of the President's policy to end the war in Iraq and Afghanistan.  It's CBO.  It's in their baseline.  So this is consistent with CBO.  And, importantly, it closes the door for additional discretionary spending, so it's good budget discipline.  We are using it, as you said, to offset jobs investments in the $4.3 trillion that we've talked about several times.  None of the OCO savings is part of that $4.3 trillion of deficit reduction.  It's additional deficit reduction beyond that.

Q    Right, but the Republicans say that your total deficit reduction -- if you back that out and you back out the sequester -- is closer to a $100 billion in your budget when you take it as a total. 

MR. ZIENTS:  I'd have to walk through their math.  What I can tell you is that it's driven by policy.  It's consistent with CBO.  It closes the backdoor on discretionary spending.  And we're using, as you said, about $160 billion to offset directly investments in infrastructure and jobs.  We are not counting any OCO savings in the $4.3 trillion, which is the result of the $2.5 trillion that's already been achieved and the $1.8 trillion that we just went through.  So it's not in that $4.3 --

MR. SPERLING:  And it's not, as Jeff said, in the $1.8 trillion offer, compromise offer.  So however you want to debate the accounting for that, it affects neither the bottom line on the deficit as a percentage of GDP or the debt GDP.  It has no difference on that calculation of the ultimate bottom line.  It has no effect on the $4.3 trillion, as Jeff said.  No effect on the $1.8 trillion.  And, for the record, the total OCO savings is I believe $675 billion.  So the amount being used to offset the rebuilding, modernizing infrastructure and the jobs is about perhaps a fourth of the amount of savings.

MR. ZIENTS:  But, again, just to repeat what Gene said earlier, there are lots of different ways to look at the numbers.  At the end of the day, where are we on deficits, and is debt on a declining path as a percent of GDP -- those are the two key metrics.

MR. SPERLING:  And I think people who care about fiscal discipline should take very seriously what Jeff said about locking this in and not allowing this to be a cushion that people can go to.  I think it is an important fiscal discipline policy and there's no reason it shouldn't be credited as such. 

MR. CARNEY:  And I think, if I could just add to this, people who care about fiscal discipline should note that the same Republicans who make those assertions are ones who claim that their budget can give a $5.7 trillion tax cut mostly to the well-off and well-to-do and yet balance in 10 years, but they will not tell you how.

Last question, Donovan.

Q    Thanks, Jay.  Quick question, there’s not a lot of new stuff in here.  And as you’ve said, it relies -- Alan, you said it’s based on a forecast from November.  Could you help explain why this is so late?  Why did this take so long to come out?

MR. ZIENTS:  The prime budget season for OMB is November, December.  And given what was going on with the fiscal cliff negotiation, we needed to put much of it on hold to understand what was going to happen in the fiscal cliff negotiation.

Coming out of that, obviously, there was a deal struck to extend the middle-class tax cuts, to increase taxes for families above $450,000.  There were changes in the discretionary caps for 2013 and 2014.  So those had major impacts on the budget process.  We lost that couple-of-month period of time.  We ramped back up.  We had complexity around the sequester and the sequester kicking in unfortunately on March 1st.  So given those delays primarily driven by fiscal cliff negotiation, made worse by the sequester, the budget was delayed, and we’re happy to be rolling it out today.

MR. CARNEY:  I’ll do --

Q    Just --

MR. CARNEY:  Go ahead, Donovan.

Q    One very quick follow-up.  On the tobacco tax, it tends to disproportionately affect the poor, who smoke more.  Is there -- what does the administration say to critics who say that this is a further infringement on the freedom of the American people -- they don't want to pay more out of taxes, whether it’s on cigarettes or anything else?

MS. MUÑOZ:  Well, it is true that people who don't smoke won’t pay this tax.  And it is also true that we are doing, as you heard asked earlier, our level best to help folks who are trying to quit smoking, including under the Affordable Care Act smoking-cessation programs are available as a preventive service without copays or co-insurance.  So folks will have greater support in being able to stop smoking if that's what they choose to do.

MR. CARNEY:  And finally, the gentleman from Main Street Radio, not named Mark.

Q    And, again, apologies, but when I was handed a mic I thought it meant talking. 

MR. CARNEY:  I called on someone else by name, that’s all.  But go ahead.

Q    So what about the argument that when you cut Social Security, and now 50 percent of -- the bottom 50 percent of Social Security recipients get 90 percent of their income from it, so means testing is going to be very difficult.  And even in response to Boehner, and when you cut Medicare, you’re just adding to poverty among the elderly, which is now down to 7 percent from 65 percent before the programs.  And, on the other side, if you means test, you’re pulling away the broad support for Medicare and Social Security, and you’re endangering the programs politically.  That was Claude Pepper’s argument.  So that’s why the programs were designed that way in the first place.  Can you address those?

MR. SPERLING:  Every single thing that this President does that affects Medicare is designed to protect it, protect its guaranteed-benefits structure, its universality for all seniors.  The measures in our plan -- as you know, Medicare was supposed to be insolvent in 2016.  The measures in the ACA pushed it to 2024.  These measures would push it another four years out on solvency.  This President has rejected very strongly anything in the premium support or vouchers that would in any way segment people so that there were incentives designed to segment those depending on how young or healthy you were versus older and having health issues.  So this President is completely dedicated to that. 

Now, as the President has said, we do have a challenge.  It’s not our only fiscal challenge, but the cost of Medicare growth -- I mean, health care growth, while Medicare growth has come down significantly and, most importantly, the Baby Boom generation does create challenges.  And the President is trying to do very sensible reforms that protect that core benefit structure.

Now, in terms of the means testing, the only thing -- what’s in this proposal -- and this was one of the three things that some of the Republican leadership has called for -- is to have some means testing on Medicare.  Now, the way -- what the President has done is propose that, in part B, the premium that is paid by those who are well-off in their senior years would be higher.  So right now, the average Medicare recipient only bears 25 percent of the cost of part B Medicare, the part that goes to -- for your doctor coverage.

Prior to the President coming in, there has already been policies that said at $170,000 a couple and above, people would pay higher than 25 percent.  And that ranges up to about $420,000 a couple.  So what this proposal does is it says that if you are an older couple that has income of $170,000 or above, you're going to pay a higher percentage of the cost.  But in all cases, you still have a benefit of being in Medicare.  If you're making $500,000, you're going to pay the large fraction of what the cost of that program is so that the rest of general revenues, the rest of the public is not subsidizing it.

But in all cases, an older American -- anyone -- is still better off being part of the Medicare part B program.  So there's nothing that we have done that in any way tears the program apart -- quite the opposite.  What the President has fought hardest for is against things like premium support.  There's been a lot of talk about the fact that he was willing to accept their condition of CPI.  But you should also recognize that the President has not accepted their condition of raising the Medicare retirement age to 67.  That's something that he has both privately and publicly rejected. 

And in terms of Social Security, nothing in the proposal we have with the adjustments we have would increase the elderly poverty rate.  And what the President is trying to do, all of the savings from -- to the effect that the CPI has impact on Social Security, those go back and actually help close about 10 to 15 percent of the solvency gap for Social Security.  We put fund savings back to adjust, as Jeff said, for older Social Security recipients. 

And just remember, too, that this President has fought so hard to also protect Medicaid in this budget.  We have minimal Medicaid savings.  Medicaid is where older Americans get their long-term health care from, and he has made that a very, very tough fight.

So I think when you look at what this President has done overall, it is just a hard, fast defense of what he considers some of the crown jewels of our government and key for retirement dignity.  And everything he does is designed to make sure that they're as strong for the next generation as they have been for previous generations.

Q    A higher percentage goes to what on Medicare?

MR. SPERLING:  I think it goes to 35 or 40 percent as you hit the $170,000.  Is that what you're talking about?  And then, it goes up a little higher as you go up the bracket, with the highest being over $420,000 a couple.  But in all cases, you're paying for a higher percentage.  Your Medicare premium is paying for a higher percentage of your Medicare part B.  But, again, everyone still has an incentive to still be part of the Medicare program. 

Q    A higher percentage, you mean at the top of $450,000?

MR. SPERLING:  Let me check.  I want to make sure that we have the exact details on that.  So why don't you check back on that. 

MR. CARNEY:  I want to thank everyone very much.  I want to thank you for your questions.  I wanted to note, just if I could, to end on Gene's answer, which is that when the President accepted some demands, if you will, from Republicans to include in the offer to the Speaker of the House, one of those demands or proposals from Republicans that he rejected was that we raise the retirement age for Medicare and Social Security.  He rejected that because he felt that it was not fair or good policy. 

Thanks very much.

END

1:55 P.M. EDT