Text 189, 855 rader
Skriven 2004-12-16 23:33:22 av Whitehouse Press (1:3634/12.0)
Ärende: Press Release (0412162) for Thu, 2004 Dec 16
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President Discusses Budget, Tax Relief at White House Conference
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President Bush on Thursday said, "I strongly believe that the role of
government is to create an environment that encourages capital flows and
job creation through wise fiscal policy. And as a result of the tax relief
we passed, the economy is growing."">

For Immediate Release
Office of the Press Secretary
December 16, 2004

President Discusses Budget, Tax Relief at White House Conference
Ronald Reagan Building and International Trade Center
Washington, D.C.



˙˙˙˙˙In Focus: Economy

9:32 A.M. EST

THE PRESIDENT: Thank you all. (Applause.) Thank you all for coming. Last
night I had the honor of attending a reception for those who have
participated in these series of panels, and I had a chance to thank them. I
said something I think is true, which is, citizens can actually effect
policy in Washington. In other words, I think people who end up writing
laws listen to the voices of the people who -- and can be affected by
citizen participation. So I want to thank you all for doing this.

We're talking about significant issues over the course of these couple of
days. We'll talk about an important issue today, which is, how do we keep
the economy growing; how do we deal with deficits. And I want to thank you
all for sharing your wisdom about how to do so.

One thing is for certain: In all we do, we've got to make sure the economy
grows. One of the reasons why we have a deficit is because the economy
stopped growing. And as you can tell from the previous four years, I
strongly believe that the role of government is to create an environment
that encourages capital flows and job creation through wise fiscal policy.
And as a result of the tax relief we passed, the economy is growing. And
one of the things that I know we need to do is to make sure there's
certainty in the tax code -- not only simplification of the tax code, but
certainty in the tax code. So I'll be talking to Congress about -- that we
need to make sure there is permanency in the tax relief we passed, so
people can plan.

If the deficit is an issue -- which it is -- therefore, it's going to
require some tough choices on the spending side. In other words, the
strategy is going to be to grow the economy through reasonable tax policy,
but to make sure the deficit is dealt with by being wise about how we spend
money. That's where Josh comes in -- he's the -- as the Director of the
OMB, he gets to help us decide where the tough choices will be made. I look
forward to working with Congress on fiscal restraint. And it's not going to
be easy. It turns out appropriators take their titles seriously.
(Laughter.)

Our job is to work with them, which we will, to bring some fiscal restraint
-- continue to bring fiscal restraint -- after all, non-defense
discretionary spending -- non-defense, non-homeland discretionary spending
has declined from 15 percent in 2001 to less than 1 percent in the
appropriations bill I just signed, which is good progress. What I'm saying
is we're going to submit a tough budget, and I look forward to working with
Congress on the tough budget.

Secondly, I fully recognize, and this administration recognizes, there --
we have a deficit when it comes to entitlement programs, unfunded
liabilities. And I want to thank the experts, and the folks here, who
understand that. The first issue is to explain to Congress and the American
people the size of the problem -- and I suspect Congressman Penny will do
that, as well as Dr. Roper -- and the problems in both Social Security and
Medicare.

The issues of baby boomers like us retiring, relative to the number of
payers into the system, should say to Congress and the American people, "We
have a problem." And the fundamental question that faces government, are we
willing to confront the problem now or pass it on to future Congresses and
future generations. I made a declaration to the American people that now is
the time to confront Social Security. And so I am looking forward to
working with members of both chambers and both parties to confront this
issue today before it becomes more acute.

And by doing so, we will send a message not only to the American people
that we're here for the right reason, but we'll send a message to the
financial markets that we recognize we have an issue with both short-term
deficits and the long-term deficits of unfunded liabilities to the
entitlement programs.

And I want to thank the panelists here for helping to create awareness,
which is the first step toward solving a problem. The first step in
Washington if you're interested in helping is to convince people that there
is a problem that needs to be addressed. And once we have achieved that
objective, then there will be an interesting dialogue about how to solve
the problem.

I've got some principles that I've laid out. And, first, on Social
Security, it's very important for seniors to understand nothing will
change. In other words, nobody is going to take away your check. You'll
receive that which has been promised. Secondly, I do not believe we ought
to be raising payroll taxes to achieve the objective of a sound Social
Security system. Thirdly, I believe younger workers ought to be able to
take some of their own payroll taxes and set them up in a personal savings
account, which will earn a better rate of return, encourage ownership and
savings, and provide a new way of -- let me just say, reforming --
modernizing the system to reflect what many workers are already
experiencing in America, the capacity to manage your own asset base that
government cannot take away.

So with those principles in mind, I'm open-minded -- (laughter) -- with the
members of Congress. (Laughter and applause.)

Anyway, thank you all for coming. I'm looking forward to the discussion.

DIRECTOR BOLTEN: Mr. President, thank you. Thank you for convening us. It
warms my budget heart -- (laughter) -- that you've taken the time to come
and talk about fiscal responsibility, which is so important, especially at
this time. We've come through some tough years, Mr. President, during your
tenure.

As you entered office the economy was entering recession, we had the
attacks of 9/11, we've had the war on terror, we've had corporate scandals
that undermined confidence in the business community. All of those,
together, took a great toll on our economy, and especially on our budget
situation, as you mentioned. And we've started to turn it around. The
economy is well out of recession, it's growing strongly, as I think our
panelists will talk about. And as a result of that we are seeing a
dramatically improving budget situation.

We originally projected our 2004 deficit to be about 4.5 percent of GDP,
and when we got the final numbers just a few weeks ago, it was down to 3.6
percent of GDP, a dramatic improvement. Now, that's still too large, but
it's headed in the right direction. You mentioned, Mr. President, the 2005
spending bills that you just signed last week. I think those have to be
regarded as a fiscal success, because you called on the Congress almost a
year ago to pass those spending bills with growth of less than 4 percent
overall, and especially to keep the non-national security related portion
of that spending below 1 percent, and they delivered. And that's the bill
that you signed just last week. We're working now, Mr. President, as you
know, on the 2006 budget. And I'm hopeful that we will keep that momentum
of spending restraint going.

What I think we will be able to show when we present your budget, about six
or seven weeks from now, is that we are ahead of pace to meet your goal of
cutting the deficit in half over the next five years. And I think that's
very important. And I think our panelists will talk a little bit about why
that is.

So let's step back a little bit from the Budget Director's preoccupations
and talk more broadly about the economy. Our first panelist is Jim
Glassman, who is senior U.S. economist at JP Morgan Chase. He's a frequent
commentator in the financial press; I think well-known in the financial
community.

And Jim, let me open it with you and ask you to talk about how the budget
situation is related to the economy overall, because that's really what
people care about.

MR. GLASSMAN: All right. Thanks, Josh. Thanks, President Bush, for inviting
us here to participate in this discussion. It's a privilege.

The federal budget is tied very closely to the fortunes of the economy.
When the economy is down, revenues are down. When the economy comes back,
revenues come back. In the last several years, we've seen that link very
closely. The economy slowed down, revenues dried up, the budget deficit
widened. It's happened many times before. And in Wall Street, Wall Street
understands this link between the economy and the budget, and that's why --
we anticipate that these circumstances are going to be temporary, and
that's why long-term interest rates today are at the lowest level in our
lifetime, even though we have a budget deficit that's widened.

And in fact, now, with the economy on the mend, the revenues are coming
back, and the budget deficit appears to us to be turning the corner. So I
think the prospects are looking quite good for the budgets going into in
the next several years.

Now to me, the link between the economy and the budget tells you there's an
important message here, and that is: Policies that enhance our growth
potential are just as important for our long-run fiscal health as are
policies to reform Social Security and health care reform. We know how to
do this, because over the last several decades, we've been reforming our
economy -- deregulating many businesses, breaking down the barriers to
trade. And it's no surprise that countries all around the world are
embracing free market principles. Free markets is the formula that has
built the U.S. economy to be the economic powerhouse that it is.

Now, I realize the last several years have been challenging for a lot of
folks, and it's hard for folks to step back and appreciate the amazing
things that are going on in the U.S. economy when they're struggling with
this, with the current circumstances. But I have to tell you, what we are
watching around the U.S. economy is quite extraordinary, and I would like
to highlight two things in particular that are important features of what's
going on in the U.S. economy, because it tells us -- that basic message is
it tells us that we're on the right paths, and number two, it tells us how
we might build on the policies that are helping to encourage growth.

The first important observation: productivity. Productivity in the U.S.
economy is growing almost three times as fast as the experts anticipated
several years ago, a decade ago. Now, we know why that's happening:
Economic reform has strength competition; the competition has unleashed
innovation; that innovation is driving down the cost of technology; and
businesses are investing in tools that allow us to do our jobs more
efficiently. Why that's important? Because most of us believe that what's
driving this productivity is information technology.

Now, in my mind when we're at an extraordinary moment like this with rapid
changes in technology, it opens up a lot of frontiers. Who is it that
brings that technology and creates growth? Who is that drives the economy?
It's small businesses. That's where the dynamic heart of the economy is.
And so policies that focus on making the business environment user-friendly
for small businesses, like the tax reform, are an important element of
building on this productivity performance that's going on, and building on
the information technology.

Second important aspect of what's going on in the U.S. economy -- everybody
knows we faced an incredible number of shocks in the last several years.
These shocks, which, by the way, destroyed almost half of the stock's
market value in a short period of time, for a moment, were potentially as
devastating as the shocks that triggered the Great Depression. And yet, the
experts tell us the recession we just suffered in the last several years
was the mildest recession in modern times. That tells you something about
the resilience of the U.S. economy. It tells you that we have a very
flexible economy to absorb these kinds of shocks. And I personally think
that this is the result of a lot of the reforms that we've been putting in
place in the last several decades. It has made us much more resilient.

I find this an even more incredible event because when you think about it,
we had very little help around the world. The U.S. economy was carrying
most of the load during this time. Japan, the number two economy, was
trapped by deflation. Many of our new partners in East Asia have linked the
U.S. economy, and they're depending on their linkage with the U.S. economy
to bring -- in hopes of a better future. The European region has been very
slow growing. They've been consumed by their own problems. So, frankly,
we've been in a very delicate place in the last several years; the U.S.
economy was the main engine that was driving this. And yet, we had this
incredible performance. I think it's quite important.

Now, when you ask economists to think about the future, where we're likely
to go, it's very natural -- the natural tendency is to believe that we're
going to be slowing down eventually -- and we can give you all kinds of
reasons why this is going to happen -- demographics, productivity slows
down. My guess is we would have told you this story 10 years ago, 20 years
ago, 100 years ago.

And I think what's quite incredible -- I'm, frankly, somewhat skeptical of
this vision that we all have, because, if you think about it, we've been
growing 3.5 percent to 4 percent per year since the Civil War. If we can
match that performance in the next 50 years -- and I don't see why that's
so hard to do, given the kinds of things we are discovering about our
economy and the kinds of benefits we see from all this reform -- then I
think the fiscal challenge that we see in our mind's eye will be a lot less
daunting than is commonly understood.

So, of course, I don't want to say that growth can solve all our problems.
It won't. There clearly are challenges on the fiscal side, and it's
important that we strengthen the link between personal effort and reward.
And that's why it's right this forum should be focusing on Social Security
reform and health care reform. Thank you.

THE PRESIDENT: May I say something?

DIRECTOR BOLTEN: Mr. President. (Laughter.)

THE PRESIDENT: Thank you. (Laughter.) Who says my Cabinet does everything I
tell them to? (Laughter.)

You know, it's interesting, you talked about the Great Depression, and if I
might toot our horn a little bit, one of my predecessors raised taxes and
implemented protectionist policies in the face of an economic downturn, and
as a result, there was 10 years of depression. We chose a different path,
given a recession. We cut taxes and worked to open up markets. And as you
said, the recession was one of the shallowest.

And the reason I bring that up is that wise fiscal policy is vital in order
to keep confidence in our markets and economic vitality growing. And that's
one of the subjects we'll be talking to Congress about, which is wise
fiscal policy. And that is the direct connection between the budget and
spending and confidence by people who are willing to risk capital, and
therefore provide monies necessary to grow our job base.

DIRECTOR BOLTEN: Mr. President, let's talk a little bit about how investors
see those issues that you and Jim Glassman have just been talking about.
Liz Ann Sonders is chief investment strategist to Charles Schwab and
Company. She's a regular contributor to TV and print media on the market
issues that investors care about.

And Liz Ann, let me just open it to you and ask you, how do investors see
those broad macroeconomic issues that Jim was just talking about?

MS. SONDERS: Thanks, Josh. Thanks, Mr. President. I do spend a lot of time
out on the road talking to individual investors. And I will say that the
deficit issue is probably, if not the number one, certainly in the top
three questions I get. I think there is a terrific amount of
misunderstanding, though, about the nature of deficits, how you get there,
how do you get out of a deficit situation, the cause and effect aspects of
it, and I'll talk about that in a moment.

And we know that higher deficits are a burden on future taxpayers, but I
think what, in particular, the market would like to see is the process by
which we go about fixing this problem. And I think the markets are less
concerned about the number itself and don't have some grand vision of an
immediate surplus, but the process by which we solve that problem.

There's a lot of ways to do that. It is all about choice. And certainly,
there's one theory, that the only way to solve it is to raise taxes. I
don't happen to be in that camp, and I would absolutely agree with Jim and
certainly with this administration that the policies absolutely have to be
pro-growth.

And I think the other benefit that we have right now, and Marty Feldstein
talked about this yesterday, the difference between the Waco Summit and
this conference today as representing a very strong economy right now
versus a couple of years ago. And what that allows you to do is have this
much stronger platform from which you can make a sometimes tougher
decision. And I think that's a very important set of circumstances right
now. I would agree with Jim, also, at the bond markets perception of this,
the fact that long-term interest rates are low so we have at least have
that camp of investors telling you that maybe the risks aren't quite high
as some of the pessimists might suggest.

Forecasting is also difficult. I know your Administration suggested that
going beyond five years is a tough task. And it is. The market, however,
builds itself on making forecasts for the future, and often times will
develop a consensus about something, and I will say that I think the
consensus is one maybe of a little bit -- maybe not pessimism, but not a
lot of optimism from a budget deficit perspective. So, I think the
opportunity comes with showing some effort. And you can really turn the
psychology of the market very, very quickly under a circumstance where
maybe market participants are actually pleasantly surprised by the turn of
events.

Typically, when you look back in history, and you look at processes by
which we've improved a deficit situation, those that have been accompanied
by better economic growth have typically been those where the focus has
been on spending restraint, entitlement reform. Those times where we have
improved the deficit, but it's been in conjunction with weaker economic
growth are typically those periods where tax increases have been the
process by which we have gotten there.

And I also think that many investors misunderstand the relationship between
deficits and interest rates, and there is a theory building now that higher
deficits automatically mean higher interest rates. Well, case in point,
it's just the most recent experience, but we can even go back to the late
'90s -- the reason why we went from deficit to surplus was because the
economy was so strong. Because the economy was strong, the Federal Reserve
was raising interest rates, the reason why we went into deficit was because
the economy got weak, which is the reason why the Federal Reserve had to
lower interest rates. So you have to understand, again, the cause and
effect here.

The path of least resistance, of course, is to make everybody happy. But
something has to give. You've all talked about this, the "no free lunch"
idea. But I'm just a strong believer that entitlement reform and long-term
priorities take precedent right now over short-term fixes, certainly if it
required tax increases. And I think that, Mr. President, you talked about
having political capital, I'll go back to this idea that we now have
economic capital that allows us to not disregard the short-term fixes for
the deficit here, but really take this opportunity for long-term structural
reform.

I'm a big believer in personal accounts, empowering investors. My firm
built by "the Man," Chuck Schwab, is all about empowering individual
investors. And I think these long-term adjustments that need to be made,
which is really a part of this whole conference, are so important right
now. And I think that's absolutely what the market wants to see.

Thanks.

THE PRESIDENT: Good job. You're not suggesting that economic forecasts are
as reliable as exit polling, are you? (Laughter.)

MS. SONDERS: I'm not going there. (Laughter.)

DIRECTOR BOLTEN: Mr. President, I'm going to move on. (Laughter.) I'm glad
that Liz Ann raised the distinction, as you did in your opening remarks
between our short-term picture and our long-term picture. Our short-term
picture is, indeed, looking a lot better. I think we'll be able to show a
very clear path toward your goal of cutting the deficit in half over the
next five years. But the long-term picture is very challenging. We're very
honored to have with us Tim Penny, who is a professor and co-director of
the Hubert Humphrey Institute of Public Affairs. He's also a former
Democratic Congressman and an expert on a lot of the long-term issues we're
talking about.

And, Congressman, let me turn it over to you and ask you to talk a little
bit about what are these entitlement programs, and why are they important
for our long-term budget picture?

CONGRESSMAN PENNY: Well, I think -- thanks, Josh, and Mr. President. I
think the first thing to note is that the long-term picture is rather
bleak, that the status quo is unsustainable. And when you talk about the
difference between discretionary and entitlement spending, that tells the
story.

Discretionary spending, as you referenced earlier, is the part of the
budget that we control annually. It comes out of the general fund; it's
education, it's agriculture, it's defense, it's a whole lot of stuff that
we think about as the government.

But the entitlement programs are those that are on automatic pilot. They're
spelled out in law and the checks go out year in and year out, based on the
definitions in law. So if you're a veteran, you're entitled to certain
health care benefits under this system. If you're a farmer and you grow
certain crops, you're entitled to subsidies. There are some that are
means-tested. In terms, we give them to you only if you need them; and
that's where our welfare programs and much of our Medicaid spending comes
into play. And then there are the non-means tested entitlement programs,
and among those are Medicare for the senior citizens and Social Security
for senior citizens. So, they're age-based programs.

And those entitlement programs are the biggest chunk of the federal budget.
I think it's constructive to look back over history. In 1964, all of these
entitlement programs, plus interest on the debt, which is also a payment we
can't avoid, consumed about 33 percent of the federal budget. By 1984,
shortly after I arrived in Congress, they consumed 57 percent of the
federal budget, and today they consume 61 percent of the federal budget.

Now, let's look forward a few decades and see where we're going to be with
entitlement spending. By the year 2040, just three -- well, actually four
of these sort of mandatory programs are going to eat up every dime --
income taxes, payroll taxes, all other revenues that we collect for the
federal government: Medicaid, Medicare, Social Security and interest on the
debt will eat up everything. There won't be a dollar left in the budget for
anything else by the year 2040. That tells you the long-term picture, and
it is bleak. So something has to give. Doing nothing is not an option.

Let's look at Social Security alone. And this is something that my
colleague, Mr. Parsons, will speak to in a few minutes. There are huge
unfunded liabilities here. We haven't honestly saved the current Social
Security trust fund. Even though extra payroll tax dollars are coming in
each year, they're not honestly being set aside for this program. Just by
the year 2040, there's about $5 trillion of unfunded liability in that
program. Now, we've got to come up with the money somehow to replace those
promised dollars. And it's no easy task. And I know that a million, a
billion, a trillion sort of gets lost on the average listener, so I always
like to explain that if you're looking at a trillion dollars, just imagine
spending a dollar every second, and it would take you 32,000 years to spend
a trillion dollars. So even in Washington, that's big money. (Laughter.) Or
as we say in farm country, it's not chicken feed. (Laughter.)

So the other way you can look at this is your Social Security statement
comes in the mail every year, and it gives you some sense of your promised
benefits in the Social Security system. But on page two of this statement,
there's an interesting asterisk. And the asterisk says, "By about the year
2040, we're not going to be able to pay you all of the benefits that we're
promising you. We're going to be about 25 percent short of what we need to
pay those benefits." So, what does that mean we would have to do if we wait
until the last minute to fix this program? We'd either have to cut benefits
dramatically, or we'd have to impose the equivalent of a 50-percent payroll
tax increase on workers to get the money into the system to honor the
promised benefits.

So huge benefits cuts or a huge tax increase -- I don't think that's where
we want to go, especially since 80 percent of Americans now pay more in
payroll taxes than income taxes. I don't think that's a solution that
they're going to applaud. But, frankly, it is the kind of solution we're
left with if we wait too long to fix the mess. We waited too long 20 years
ago. When I first arrived in Congress in 1983, we had a Social Security
shortfall. We were borrowing money out of the Medicare fund to pay monthly
Social Security checks. So what did we do, because we were already in a
crisis? We cut benefits by delaying cost-of-living adjustments; we cut
benefits by raising the retirement age, first to 67 and -- 66, and
ultimately to 67; and we increased payroll taxes, significantly, during the
1980s. And so we basically said to future workers, based on that
legislation in 1983, you're going to pay more and get less.

I mean, to me, that's the problem with waiting until the last minute to fix
this, is that you give people a worse deal. So my view on this is that, for
the long-term -- we can't wait until the crisis hits to address the issue.
We have to look at these challenges now and give the next generation a
better deal. And if we plan ahead and plan appropriately, we can do that.

So we need to act before it's too late. And then I think we send all the
right signals, and we do a better deal for younger workers then -- sort of
the same old, cut benefits raise taxes, a solution that's been imposed in
the past.

THE PRESIDENT: I appreciate that. I think the issue has shifted. I think
there are more people now who believe they'll never see a check than people
are worried that they'll have their check taken away. And I think it's
important for Congress to understand that. And my attitude is, exactly like
Congressman's, and that is, is that now is the time to deal with it. And
it's going to be very important that we reassure our seniors who depend
upon Social Security that nothing will change as -- and that's been part of
the political problem. And any time anybody mentioned the word, Social
Security, the next thing that followed was -- yes, he's saying that because
he's going to take away your check. And really what we're talking about is
a new generation. I appreciate you pointing that out, Tim.

CONGRESSMAN PENNY: If I can just add this one point, if we had saved these
surpluses honestly in personal accounts over the last 20 years, we'd be
well on the way to fixing this problem by now. And so we may be a little
late in getting this done, but it's still important to move in that
direction.

THE PRESIDENT: Thank you.

DIRECTOR BOLTEN: Somebody who's been directly involved in -- and a leader
in trying to formulate a solution for the Social Security problem is Dick
Parsons, who is CEO and chairman of TimeWarner. And he was chairman of the
President's commission on Social Security, co-chair with late Senator
Patrick Moynihan, whom I know we all miss at this time.

Mr. Parsons, we're grateful that you're here, and I wonder if you would
follow on Congressman Penny's remarks and talk a little more specifically
about your commission's work, what problems you saw, what solutions you
saw.

MR. PARSONS: Thank you, Josh, Mr. President. The President said earlier
that we have to recognize that we have a problem with Social Security. I
think everybody does. And I don't know that they share the urgency that Tim
just spoke to, and the President just spoke to, or really understand the
nature of the problem. So, let me take a step back and talk about --
approach it from a slightly different angle, talk about what is the problem
with the Social Security system, which was created in 1935 as what they
call a pay-as-you-go system.

Now, most people here know that, but it was amazing to me when we had our
Social Security Commission, they were all around the country, we had a
number of public hearings, and the people would come and say, "Well, what
are they doing with my money?" Well, what most people didn't know is they
were taking your money that you pay in every day, or every week when you
get a paycheck, and within a very short period of time it's going out the
other door to pay benefits, pay-as-you-go -- money comes in, it goes out to
pay the benefits.

Now, that system was created at a time when for every person who is
eligible to participate, retirees, let's call them, there were 40 people in
the work force. There were 40 people working to support one. It was also
created at a time when the average life expectancy for males was such that
the average man would not live to see the day that he could qualify for
Social Security. So, you would pay in -- and the system was built in part
-- this is not cynical, this is just fact, on the notion that half the
people who paid in would never get anything out because they would be dead.

So, where are we today? Today there are three people in the work force for
everybody who's eligible for Social Security. Today life expectancy is
expanded anywhere from five to seven years, depending on gender, since the
time the system was created, so that the great majority of people who
participate will live to see benefits. The fastest growing part of our
population is 85 and up. So, we have a totally different set of
circumstances that we're dealing with. And it's only going to get worse in
the sense of -- or more distant from the way the situation that existed
when the system was created. By the year 2020, you'll have two people in
the work force for every person eligible to receive benefits. And life
expectancies will be even greater then.

So the whole factual basis that underlies this pay-as-you-go system has
changed. And what happened is, and Tim mentioned, that we have huge
underfunded shortfalls in the system. If you -- they usually do this on an
actuarial basis out 75 years. If you look out 75 years and say, how

much does the system promise it will pay, and you look out 75 years and
say, under the existing tax scheme, how much money are we going to be able
to have to pay it, in current dollars, in actual dollars, it's about an $11
trillion to $12 trillion shortfall over 75 years. If you roll that back
into the current dollars and you say, what would it take today to close
that, it's about $4 trillion. So that's the problem.

The problem is we've promised more than the revenues that we have, or that
we can look to, to pay. So what's the solution? The traditional solutions
are, as Tim just indicated, either we increase the taxes so you get more
revenues in, or you decrease the benefits so you get less money out. The
problem with that is it's a BAND-AID. And given these demographic shifts
that we're talking about that we see, it simply can't last. You might be
able to put one more BAND-AID on the wound and patch us over for another
five or six years.

But for example, some people say, why don't you just life the wage cap?
Only the first $90,000, as of the beginning of the year, is subject to
Social Security taxes. Well, even if you eliminate the wage cap, that only
buys you four, five, six more years, and then you're back in the same
problem. We have to face up to the fact that the country is in a different
place than it was when this system was created. And the fix needs to be
structural. It needs to be fundamental. We need to change the architecture
of Social Security.

And what I mean by that is we gradually have to move from a system that is
based on a pay-as-you-go basis when you had 40 people in the work force for
everyone not, to a system that is on a fund-as-you-go basis, where people
can begin to start to fund and put away the money that they will look to in
their later years for their support and sustenance.

Now, this is not unprecedented. This is exactly what's happened in the
business world. Every corporation in America, mine included, has been
engaged over the last 20, 25 years in a migration from pay-as-you-go kind
of pension arrangements, to funded arrangements. Now, nobody has gotten
there -- very few have gotten there -- probably Charles Schwab has gotten
there -- in terms of fully funded arrangements right now. But putting the
money away now to pay liabilities in the future. This is what private
accounts is all about. And that's why the Commission came down recommending
in all of the options that we put forward, private accounts. It's the
beginning of shifting from complete pay-as-you-go to starting to fund some
of our future liabilities now.

And that's -- at the end of the day, while the government is, in law and in
sort of a forced social reality, a different entity than the business
community, economically, it's not. Economically, it's going to have to step
up to the same reality that business had to step up to, that we can't
continue a system that puts a huge burden on future generations that
they're not going to be able to meet. We're going to have to start saving
and funding our responsibility to ourselves on a current basis.

And that's why we made private accounts as a beginning step -- this is not
privatization of Social Security. What it really is, is -- and again, this
isn't unprecedented; this is what business has done -- it's beginning to
have a hybrid system where you have a floor, a base, below which no one can
go that is funded on what they call a "defined benefit" basis -- that you
will get this money, this minimum amount of money, no matter what. But then
you have an ability above that to enhance that on a defined contribution
basis -- i.e., you put money away now, invest it wisely, and it will come
back to you and give you an even better standard of living in a future
time.

So that's essentially the nature of the problem and why we thought that it
was time for structural, architectural change to Social Security, not just
tinkering. You can't -- you know, tinkering can't work anymore. The
demographics -- this was Pat Moynihan's point. He would say, demography is
your destiny. We just can't do what we've done in the past any longer.
We've got to do something different, and this was an idea that made sense.

DIRECTOR BOLTEN: Mr. President, you mentioned that for current seniors,
this is not a debate for them, that those at or near retirement, this
discussion that's going on now, should not affect what they -- what they've
been promised and what they can expect to get. It's the next generations
that this is debate -- that this debate is about, and who should be
concerned about it. You mentioned, Mr. President, that a lot of the next
generation doesn't think that there will be benefits there for them.

Sandy Jacques is somebody, obviously, from that younger generation. She's a
single mom from West Des Moines, Iowa, and she's active in a group called,
Women for Social Security Choice. And Sandy, let me ask you to speak for
the -- speak for regular folks and younger regular folks -- (laughter) --
and tell us why you got involved in this organization, why are you active
on Social Security issues?

MS. JACQUES: Sure, Josh. Well, I think the President stated it the best
when he said, most people in my generation believe that we're more likely
to never get a benefit than to have our check taken away from us. I guess
it would be nice to get to the point where we had a check and then we're
worried about it being taken away.

So I guess I'm here because I want to make sure that we do get to the point
where my generation retires and we do have Social Security around and
intact for us. But more importantly, as you mentioned, I have a daughter at
home. Her name is Winter; she's 10 years old. And I want to make sure that
she has Social Security when she retires, as well.

And I believe that the only way to really get to that point is with
personal retirement accounts. They're really the only way to update or
modernize Social Security in a real way without tinkering it, as Mr.
Parsons talked about and as Congressman Penny when they were in Congress,
because then you only resort to a tax increase or benefit cut. With
personal retirement accounts you have money in an account and that money is
allowed to grow, and it's that growth that actually will help to fix Social
Security for future generations.

Without that, if we wait, we will have to resort to raising payroll taxes
or cutting benefits like they did in the '80s. To speak to raising payroll
taxes on a personal level, I can't afford a payroll tax increase. In fact,
I think I definitely pay more than enough right now, and that's another
reason why I support Social Security reform. I am not one of these young
people that is willing to give up on that money I'm already paying into the
system. I want to see the system fixed so that I can get that money back
when I retire.

And as Tim mentioned, by 2040 -- I actually retire in 2044 -- unless the
retirement age is raised again, but in 2044 we're already at the point if
we do nothing, I will get 25 percent less than what I should get under the
current system right now. So, that is why this issue is very, very
important to me.

But I also want to talk about current seniors right now. My grandma is
already retired, my dad actually plans to retire next year, and my mom a
couple years after that. It's very important to me to make sure that their
benefits remain intact for them. It's too late for them to invest in a
personal retirement account. But because of that we need to make sure that
we guarantee their benefits through their retirement, because it's
something that they've been relying on. And it's, I think, our duty to make
sure that we make sure that happens.

But at the same time, I also think it's the country's duty to make sure
that we fix Social Security now so that it's around for when future
generations retire because personal accounts are really the only way to
give us retirement security in the future for me, and more important, my
daughter. Because if I am faced with a 25-percent benefit cut when I retire
they may be looking at raising payroll taxes on my daughter and younger
generations at that time. So really, that's why this is very important to
me, Josh.

THE PRESIDENT: You know, one of visions of personal savings accounts is
that Sandy will be able to pass her account on to Winter as part of
Winter's capacity to retire, as well. It is a novel concept, clearly
different from the current system where you don't pass anything on.

MS. JACQUES: That's a great point. That's also very important to me because
if you do get to the point where you're raising payroll taxes, or cutting
benefits to make Social Security solvent at that time, you still don't own
your benefits. With a personal account, you own the money that's in that
account. And I'm sure Winter will be hoping that I have a very modest
retirement so that there is some left for her -- (laughter) -- when I die.
But -- so that's a very important aspect, as well.

THE PRESIDENT: One of the things on personal accounts that listeners must
understand is that you cannot take -- if a personal account, in fact,
exists, you can't take it to the race track and hope to really increase the
returns. (Laughter.) It's not there for the lottery.

In other words, there will be reasonable guidelines that already exist in
other thrift programs that will enable people to have choice about where
they invest their own money, but they're not going to be able to do it in a
frivolous fashion, which will mean two things. One, it's more likely there
will be a rate of return higher than that which is in the Social Security
trust; and secondly, more likely to be actual money available when you
retire.

DIRECTOR BOLTEN: Mr. President, we've been focused on -- principally so far
on the retirement security of today's and future seniors. It's also very
important that seniors have some security about their health care
situation. And so we're privileged to have with us Dr. Bill Roper, who is
Dean of the School of Medicine at the University of North Carolina, in
Chapel Hill. And he's also head of the UNC health care system. Dr. Roper
also served in a previous Bush administration as, among other things, as
the head of the Medicare system. So he knows a lot about this stuff. And
let me just ask Dr. Roper to bring us out of the retirement system and into
the health care system, and tell us what are the challenges we face there,
and what do they mean for our budget situation.

DR. ROPER: Thanks, Josh. And thank you, Mr. President. I think that is my
role, is to say, remember health care; remember Medicare. Surely, the focus
on Social Security is important, but there's this other large and, indeed,
faster-growing entitlement program called Medicare. Just a few numbers to
make the point: This year the Medicare program is one-eighth of the entire
federal budget. Ten years from now, that's projected to be one-fifth of the
federal budget. And by 20 years from now, Medicare will be larger than
Social Security, so it will be the largest federal entitlement, under
current growth rates.

Another point: This year, 2004, the trust fund that our payroll taxes go
into that pays for hospital and related benefits in Medicare, more money is
going out of that trust fund to pay for current needs right now for seniors
and others in the Medicare program than payroll taxes are going into it. So
the balance in the trust fund is beginning to go down, and it's projected
to be entirely exhausted, under current spending patterns, by the year
2019.

All of that is driven by changing demographics. We're aging as a society
and we have a more expensive health care system. Now, a lot of times we in
the health policy community beat up on ourselves, saying that's a terrible
thing that we're devoting so much to health care. I think it's important to
point out that health care is something that we value tremendously as a
society. The ability to spend so much on health care is part of our being a
very healthy economy and a society that says, we want to invest in our
health, especially to help seniors.

And many good things result from health care. A very careful study a few
years ago by some economists showed that if you look carefully and count
the costs and count the benefit that technology -- technological advances
in health care are worth the cost. The benefits far outweigh the costs. And
so we ought to continue to feel good about that, especially those
investments in prevention that end up paying rich dividends down the line.

Projections about how much we're going to spend in Medicare is more
difficult than the projections for Social Security. Everybody who is going
to be a senior citizen 50 years from now has already been born. So we know
how to project Social Security numbers. But we don't know what medical
advances are going to occur, what new technologies, new treatments, new
drugs, whatever, are going to be there. We don't know how much they're
going to cost. Some will surely save money; some will cost more. The
benefits there are substantial. But the simple point is, the growth rate
for Medicare is unsustainable. We just can't devote the entire federal
budget to health care.

So the question becomes, how do we constrain that growth? What do we do
about it? And broadly speaking, we face two options. One is to do what
Medicare has done over the last several decades, and I was there in the
'80s and the '90s, and we put in place what are called, administered price
systems, which is the government deciding how much to pay hospitals and how
much to pay doctors, and running those systems so that we try to restrain
the rate of growth to the extent possible.

The alternative, which many people, myself included, and you, sir, are
advocating is a much greater reliance on individuals and empowering them to
make choices, helping them see the value of investing in preventive
behavior, better health for themselves long-term, providing information on
who are the quality health care providers so that people can make choices
about where to go for themselves, and moving us towards a time when we will
see head-to-head competition between alternatives to Medicare and the
traditional Medicare program. The Medicare Modernization Act of last year
took us important steps in that direction. But we have much more to do.

In general, we need to see that the philosophy of private accounts applies
to Medicare just as we've been talking about Social Security. So we need to
move towards more choices for individuals, more competition in market
forces and health care, and more organized integrated care -- especially
for people with chronic illnesses, because they're the ones who end up
costing so much. If we can intervene early with preventive techniques, as I
said, we can lower that rate of growth in spending and end up with a
program that we value just as much as the one that we value today, but
doesn't cost as much.

THE PRESIDENT: Thanks for mentioning the Medicare bill. One of the reasons
I was strongly for it was because it did begin to interject a sense of
choice for seniors into the marketplace. And secondly, it recognized that
medicine has changed. And when you have a kind of a static system where
government makes the decisions, it's hard sometimes to get bureaucracies to
adjust to the reality. And the reason why I believe the prescription drug
benefit was a vital component of a new and modern Medicare system was so
that we could prevent hospital stays, for example, by the judicious use of
prescription drugs. And Medicare -- I've said this a hundred times around
the country -- Medicare would pay for hospitalization for a heart attack,
but wouldn't pay for the prescription drugs the could prevent the heart
attack from occurring in the first place, which didn't seem like a very
cost-effective way to try to provide good health care.

And the reforms in the modernization program that we've got there has
begun, I think, to address the inadequacies of Medicare as a result of
decisions being made at the federal level. But you're right, we've got more
to do.

DR. ROPER: A lot more to do, but it's a step in the right direction.

THE PRESIDENT: Thank you.

DIRECTOR BOLTEN: Mr. President, I want to bring our economists back in now,
because we've heard about some daunting challenges in the Social Security
system, in the health care system -- and let me ask Liz Ann first, what are
markets and investors looking to the federal government to do at this
point?

MS. SONDERS: Let me stay on Social Security reform from a minute. NBC/Wall
Street Journal just had an interesting poll out this morning, that was
reported showing about 50 percent of the surveyed population was not for
private accounts. What I found more interesting was a little bit later in
the report, there were more questions asked than just that, and there was
another more general question asked about, if these same folks had the
opportunity to put more money in the stock market, would they? And 80
percent said, yes.

So I think this goes back to this idea of a lot of misunderstanding, I
think. One of the problems that we're dealing with now is because many in
the Wall Street community very much believe in private accounts, there's
this natural assumption that it must only be because Wall Street is going
to be a huge beneficiary of these private accounts. And certainly what I
think makes the most sense -- and the person for whom I work, Chuck Schwab,
thinks makes most sense, is that you are very controlled. As you said, Mr.
President, a thrift savings plan kind of program where your options are
very limited, it's very index in nature. The fees are structured to be so
minimal that in fact even the studies have show that under any set of
proposals Wall Street doesn't make any money on this for another seven or
eight years. I think there is this natural assumption that if Wall Street
is for it, it must mean that they are going to be big financial
beneficiaries of it.

I just think, again, it goes back to w