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The Task Remaining

The urgent question of our time is whether we can make change our friend and not our enemy.

Bill Clinton

The plan presented in these pages is as bold as the challenges it confronts are daunting. It calls for fundamental change to invest in people; to reward hard work and restore fairness; to recognize our families and communities as the cornerstones of America's strength; to reclaim our future.

This plan promises rising standards of living, productivity and national savings. It stimulates job growth and provides insurance that the current slow recovery will be lasting and strong. It invests in the education, training and health of our people. It encourages the private sector to modernize and acquire the tools and technology to compete in the global economy. And it confronts our deficit head on, with a serious, fair plan to bring it under control and generate economic growth.

The Perils of Inaction

Achieving this change will not be easy. But the cost of not changing is far greater.

After the fiscal failures of the last twelve years, we cannot accept the status quo. While every American can sense the weakness in our economy from day to day, the real cost of inaction becomes clear only when we examine the course that our economy and budget will follow if we do not change.

Under the policies left by the previous Administration and taking a cautious view of the economic outlook, the budget deficit will decline for the next two years, and then begin to grow even as the economy continues to recover and expand (Chart 4-1). As a percentage of the GDP, a better measure of its impact on the economy, the deficit declines through 1996, but then begins to climb (Chart 4-2).

Far more troubling, however, these deficits will be so large that the national debt will grow faster than the economy (and thus will increase as a percentage of the GDP) all the way to the forecast horizon (Chart 4-3). This path cannot be sustained. If rising deficits are left to cascade into debt, hence into interest costs, and then back into still higher deficits, there can be no good economic outcome. And the longer this vicious cycle is left to build its momentum, the more painful the jolt when inevitably it is broken.

The Administration's economic plan controls the deficit before the deficit controls our economy. In a fair and measured way, the plan will bring the deficit down until, by 1997, it will be $140 billion lower than it would be if we cling to the status quo. The deficit under this program falls from 5.4 percent of the GDP in fiscal year 1993 to 2.7 percent in 1997. This is 1.9 percent of GDP lower than would occur under the policy left behind by the previous Administration.

To be cautious, we have based our deficit projections on an extremely unfavorable path of economic growth, with slow progress of productivity and real economic output growing less than two percent per year in the long run. Under those circumstances, the deficit would rise slowly after 1996 even with the aggressive deficit reduction policies recommended by this Administration. Though much improved relative to past economic policies, this outcome is unacceptable (Chart 4-1). As a percentage of the GDP, the deficit would rise in the long run (Chart 4-2); and the growth of the national debt relative to the GDP would continue (Chart 4-3).

This Administration believes that its policies of deficit reduction and public and private investment will increase the growth of productivity and incomes, thereby increasing Federal revenues, retarding the expansion of Federal spending, and forcing the deficit down. If the economic outcome is more favorable than we have assumed, the deficit will grow more slowly. Under the more optimistic assumptions, the deficit will be nearly stabilized as a percentage of the GDP. The economy will grow more rapidly than the national debt, and so the debt as a percentage of the GDP will fall slowly. Eventually we will reverse the borrow and spend legacy of the 1980s.

The Role of Health Care Costs

Even the most favorable scenarios for economic growth under our plan leave unfinished business, however. The budget totals conceal rapidly rising health care spending that threatens to bankrupt our national treasury.

Recently, health care costs have accounted for almost half of the increase in Federal spending; if we do nothing, by decade's end one in every four Federal dollars will go to providing health care. Relentlessly rising costs will continue to stunt long-term economic growth and terrorize American families unless and until we achieve fundamental change.

Later this spring we will deliver to the Congress a comprehensive plan for change. That plan will control health care costs and will provide security to families, so that they cannot be denied the coverage they need. It will root out fraud and outrageous charges, and make sure that paperwork no longer chokes consumers or doctors. And it will maintain American standards the highest quality medical care in the world, and the choices we all deserve.

Our health care plan will bring costs under control. And while the savings we achieve will go mostly to the private sector, taxpayers will benefit as well. Federal funds will be freed for investments in education, training, and the technologies of tomorrow.

That reform will control the growth of Medicare and Medicaid spending in the long term, and thereby supplement the deficit reduction in this economic program. If the growth of Federal health care costs can be limited to the rate of growth of the population, plus the rate of inflation, plus two percent, the deficit will decline in dollar terms and as a percentage of the GDP (Charts 4-1 and 4-2); and the increase in the ratio of the national debt to the GDP of the 1980s will be reversed (Chart 4-3).

Enactment of the economic plan and health care reform together will reverse the failures of the 1980s, and put the economy on a sound footing for the next century. It will reduce the threat of financial instability posed by a national debt rising faster than our income. It will stop sending the signal to the rest of the industrialized world that our economic policy is out of control. Most important, it will add to the prosperity and security of the American people and allow us to compete more effectively in the global economy.

Conclusion: A Vision of Change for America

Throughout our history, at every critical moment, Americans have summoned the courage to change, to adapt our nation's policies and institutions to changing problems and a changing world. Once again we face such a challenge. Now we must change our course.

We need a change to restore what makes America great: a vision of economic and political freedom; of the rewards of hard work and initiative; of a fundamental sense of fairness, of our families and our communities as foundations of our strength; and of every generation's obligation to create a better life for those that follow.

The plan we present invests in our people and promises an America where a growing economy produces rising living standards and high-wage, high-skill jobs. It rewards hard work and restores fairness, providing opportunity in return for responsibility. It ends twelve years of government that served only the privileged and returns that government to its rightful owners: the American people.

Here in Washington, the powerful special interests are already doing their best to suffocate change. They oppose it because they profit from the status quo. They refuse to listen to the American people's call for change.

It is our responsibility to answer that call and restore hope to our people. The voices of conventional wisdom will first whisper and then shout that it cannot be done. But we must summon the wisdom and courage to reject convention and embrace the new direction that we have needed for so long.