This budget reaches balance in seven years in the right way--by cutting wasteful spending while upholding our commitments to senior citizens, to children, to working families, and to the needy.

It achieves a balanced budget in 2002, a goal to which the President is committed, by basically using the economic and technical assumptions of the Congressional Budget Office; and it achieves a surplus of $40 billion under economic and technical assumptions of the Office of Management and Budget. But it also protects our fundamental values as Americans.

The President and congressional leaders have worked hard to find agreement on a plan to balance the budget over seven years. While they have not finished the job, the President believes strongly that their negotiations have been productive and have brought the two sides closer together. He is committed to doing whatever he can to complete the task.

In their talks, the President and the leaders have outlined a variety of proposals. The minimum amounts of savings which the plans have in common in the major budget categories (e.g., $124 billion in Medicare, $297 billion in discretionary spending) add to some $700 billion--enough to balance the budget and also provide a modest tax cut.

To be sure, significant policy differences remain in the negotiations--over the size and distribution of a tax cut; whether Medicaid continues to guarantee health coverage to senior citizens, the poor, and people with disabilities; and so on. But the President believes the Administration and Congress should balance the budget now, setting aside the remaining policy differences for another day. He has proposed that the two sides quickly enact the savings that they have in common and give the American people a balanced budget.

The President's budget saves $596 billion over seven years. Among its major elements, the budget:

These major elements of the President's budget are described in more detail below.


The President's Medicare plan strengthens and improves the program, reducing spending by a net $124 billion over seven years and guaranteeing the solvency of the trust fund for more than a decade. Specific reforms give seniors more choices among private health plans, make Medicare more efficient and responsive to beneficiary needs, attack fraud and abuse through programs praised by law enforcement officials, cut the growth rate of provider payments, and hold the Part B Premium at 25 percent of program costs.

Provider Payment Reforms and Program Savings

Provisions to Improve Rural Health Care

The President's plan enhances access to, and the quality of, health care in rural areas. To do so, it extends the Rural Referral Center program, directs Medicare reimbursement for nurse practitioners and physician assistants, improves the Sole Community Hospital program, and expands the Rural Primary Care Hospital program.

Program Improvements That Expand Choices and Add Preventive Benefits

The President's plan transforms the traditional fee-for-service program from a bill-paying insurance program into a responsive health plan by giving Medicare the authority to adopt many of the purchasing and quality techniques pioneered by private sector payors.

The budget also expands and improves Medicare managed care by:

In addition, the budget expands coverage of preventive benefits to include annual mammograms and the elimination of mammography coinsurance, colorectal cancer screening, and increased payments for flu shots. Finally, the budget introduces a respite care benefit to provide some relief for families caring for relatives with Alzheimer's disease.


The President's plan for Medicaid reforms the program but preserves the guarantee of health and long-term coverage for the most vulnerable Americans. It saves $59 billion over seven years responsibly, by limiting spending on a per-person basis (a "per capita cap") and reducing Disproportionate Share Hospital payments and retargeting them to hospitals that serve large numbers of Medicaid and uninsured patients.

The plan provides special payments for States to transition into the new system, and to meet the most pressing needs. It also gives States unprecedented flexibility to administer their programs more efficiently. Finally, this plan retains current nursing home quality standards and continues to protect the spouses of nursing home residents from impoverishment.

Program Savings

Provisions to Increase State Flexibility

The budget includes a number of policies to give States more flexibility in managing their Medicaid programs, such as:

Protections for Low-income Seniors and Native Americans

The President's plan retains the policy of helping low-income seniors through the shared Federal-State responsibility for their Medicare premiums, copayments, and deductibles. It also retains payment protections for Medicaid-eligible Native Americans treated in Indian Health Service facilities. These protections are not subject to the per capita cap.

Reforms to Make Health Coverage More Accessible and Affordable

In his State of the Union address, the President challenged Congress to enact insurance reforms that would enable more Americans to maintain health insurance coverage when they change jobs, and stop insurance companies from denying coverage for pre-existing conditions. This budget requires that plans make coverage available to all groups of businesses, regardless of the health status of any group members. Insurers would have to provide an open enrollment period of at least 30 days for all new employees (whether or not they were previously insured), and insurers could not individually underwrite new enrollees--i.e., their premiums would have to match other enrollees' with similar demographic characteristics.

To increase affordability, the President's insurance reforms phase out the use of claims experience, duration of coverage, and health status in determining rates for small businesses. To put the self-employed on a more equal footing with other businesses, the reforms gradually raise the self-employed tax deduction from 30 to 50 percent. And to help give small businesses the purchasing clout that larger businesses have, the budget gives technical assistance and $25 million a year in grants with which States can set up voluntary purchasing cooperatives.

Health Insurance for the Temporarily Unemployed

The budget gives individuals who lose their health insurance when they lose their jobs premium subsidies to pay for private insurance coverage for up to six months. States would receive funding to design and administer the program, which would provide coverage for about 3.8 million Americans a year. During the four-year period for which this program is authorized, a Commission would study and provide recommendations to the Administration and Congress as to making it permanent.


For too long the welfare system has undermined the values of work and family, not strengthened them. The Administration has made steady progress in reforming welfare. In 1993, the President's economic plan gave tax cuts to 15 million working families through the Earned Income Tax Credit, which rewards work over welfare. The Federal Government collected a record $10 billion in child support in 1994. The Administration has given 35 States the freedom to experiment with welfare initiatives to move people from welfare to work and protect children.

The President is determined to keep working with Congress to enact a bipartisan welfare reform bill that moves people from welfare to work and protects children. The President's plan repeals the existing system, replacing it with one that requires work and provides child care so people can leave welfare for work. It saves $40 billion over seven years while promoting sweeping work-based reform and protecting children.

Time-Limited Employment Assistance and Child Protection

Everyone who can work should go to work, and no one who can work should be able to stay on welfare forever. The budget repeals Aid to Families with Dependent Children (AFDC) and replaces it with a new, time-limited, conditional entitlement in return for work. Within two years, parents must go to work or lose their benefits, and after five years, benefits end. The budget gives States new flexibility to design their own approach to welfare reform. At the same time, the plan provides vouchers for children whose parents reach the time limit, and protects States in the event of economic downturn or population growth.

The budget authorizes $3.8 billion above current law for child care to move recipients from welfare to work, and to help the working poor. It also includes an $800 million performance bonus fund to reward States that move people from welfare to work. It has tough new child support enforcement measures and a new Work First program to make welfare a transitional work-based system. And it preserves the national commitment to foster care and adoption assistance programs, preserving States' ability to respond to growing caseloads.

Supplemental Security Income (SSI) For Disabled Children and Others

The budget tightens eligibility standards for childhood disability benefits; retains full cash benefits for all eligible children; tightens eligibility for children now on the rolls, but provides that children found ineligible would not lose benefits until January 1998; trims cash benefits of children in families with relatively higher incomes; eliminates eligibility for SSI on the basis of drug addiction or alcoholism; adds resources for more continuing disability reviews; and provides new tools to collect SSI overpayments.

Food Stamps and Child Nutrition

The budget maintains the national nutrition safety net for the Food Stamp and Child Nutrition programs, enabling them to respond to the changing circumstances of families and children they serve.

Under the budget, the Food Stamp program continues to index basic benefits to inflation; all energy assistance counts as income; a work requirement makes adults aged 18 to 50 with no dependents ineligible for Food Stamps after six months of each year unless they work 20 hours a week or participate in workfare or training (although eligibility continues if a State fails to supply a training or workfare slot); and new integrity measures crack down on fraudulent Food Stamp trafficking and reduce program waste.

The budget better targets food subsidies for Family Day Care Homes, and makes other minor changes in Child Nutrition programs.

Title XX

The President's plan cuts the Social Services Block Grant by 10 percent, beginning in 1996.

Benefits for Legal Immigrants

The budget tightens sponsorship and eligibility rules for SSI, Food Stamps, and AFDC for non-citizens, forcing sponsors to bear greater responsibility for those they encourage to come to the United States. It counts (or "deems") sponsors' income in determining whether immigrants are eligible for benefits--until immigrants become citizens.

It also preserves eligibility for Medicaid; maintains the exemption for the disabled and the very elderly from deeming; and establishes a uniform definition of eligibility across the AFDC, Food Stamps, SSI, and Medicaid programs.


Reward should follow responsibility. Those who play by the rules--who work hard, especially to support a family--should see the benefit of their efforts. With wages at the low end of the income scale often lagging, and with the task of parenting only getting harder, the budget provides support to make that hard work pay.

The Earned Income Tax Credit (EITC)

The budget ensures that low- and moderate-income taxpayers are rewarded for work and helped in meeting their family responsibilities through the EITC. The budget protects the EITC's dramatic expansion of 1993 that helped reward work for over 15 million families and households. Consistent with the Administration's multi-faceted efforts to improve compliance, the budget saves $5 billion by improving both the targeting of the EITC and compliance while continuing to ensure that eligible and deserving workers can claim and receive the EITC.

The Minimum Wage

In terms of purchasing power, the minimum wage is near a 40-year low. It is well below the minimum needed for a full-time, full-year worker to support a family. The best economic evidence suggests that a moderate increase in the minimum wage would improve the standard of living of millions of workers at little or no economic cost. The President proposes to increase the minimum wage from $4.25 to $5.15 per hour, in two equal steps.


The budget cuts discretionary spending by $297 billion over seven years, while investing in education and training; the environment; science and technology; law enforcement; and other priorities to help raise living standards and the quality of life for average Americans.

While shifting available resources to high-priority investments, the budget also makes choices among non-investment programs. It limits cuts in the most important of those non-investments by eliminating others and applying recommendations of the National Performance Review on cutting red tape and bureaucracy.

Nothing is more important to future living standards than education and training. The workers of today and tomorrow will need the best education and skills they can get to acquire high-wage jobs in the new global economy. The budget funds a broad agenda of life-long learning by investing in Head Start for disadvantaged children; the Safe and Drug-Free Schools and Communities program to create safe learning environments; Goals 2000 to help States and school systems extend high academic standards, better teaching, and better learning to all students; AmeriCorps to help young Americans serve their communities and earn money for college; expanded college scholarships to cover more recipients and increase the maximum grants; and, finally, expanded School-to-Work opportunities and improved job training for dislocated workers and low-income adults. It also funds an educational technology initiative to make children technologically literate and connect every classroom to the information superhighway by 2000; expanded work-study to help one million students work their way through college by 2000; a $1,000 merit scholarship for the top five percent of graduates in every high school; and charter schools to let parents, teachers, and communities create public schools to meet their own children's needs.

The budget protects the environment and public health, placing a priority on environmental enforcement and increasing funds for the Environmental Protection Agency's operating program--the backbone of our efforts to protect the environment. It continues the President's commitment to protect the national parks and forests, wildlife refuges, other public lands, sensitive ecosystems (such as the Northwest Forests and South Florida Everglades), and marine sanctuaries. The budget funds Superfund to protect residents near toxic waste sites, and gives States more flexibility to ensure water quality by consolidating the Clean Water and Safe Drinking Water revolving funds. In addition, the budget supports the Agriculture Department's Water 2000 initiative to bring clean water to rural areas. It also promotes energy efficiency in Government-owned and operated buildings and in privately-owned buildings through voluntary partnerships, and promotes the use of alternative energy sources. It provides funds to address a wide range of research and international environmental challenges, including global climate change, ozone depletion, and commitments under the North American Free Trade Agreement. It also funds tax incentives to encourage companies to clean up "brownfields"--abandoned, contaminated industrial properties in distressed areas.

The budget also invests in science and technology, through a balanced mix of basic research, applied research, and technology development, including through cooperative projects with private industry and universities. It adds funds for biomedical and behavioral research at the National Institutes of Health, for basic research and education at the National Science Foundation, for basic research at NASA (including Mission to Planet Earth) and other agencies, and for such important initiatives as the Advanced Technology Program and the Technology Reinvestment Project.

Finally, the budget continues the President's aggressive efforts to combat crime, which have helped to dramatically reduce violent crime in major cities. The budget fully funds the President's Community Oriented Policing Services (COPS) initiative, adding 23,000 more police in local communities across the country, bringing the total additional police under COPS to 100,000 by 2000. Also, it funds the Violent Crime Reduction Trust Fund that, among other things, will expand support for State and local crime-fighting activities and prisons. It provides funds with which the FBI and other law enforcement agencies will launch a war on juvenile crime and gangs that involve juveniles. And it funds more border patrols to prevent illegal immigration and more inspections to prevent the hiring of illegal immigrants.


The President's plan targets tax relief to middle-income Americans through his Middle Class Bill of Rights, which he originally proposed in last year's budget. This new plan also includes estate tax relief for small businesses and family farms, expanded expensing for small businesses, pension simplification, and the "brownfields" initiative cited in the previous section.

Middle Class Bill of Rights

The President again proposes the three feasures of his Middle Class Bill of Rights, and enhances the proposed child credit.

(1) The budget phases in a $500 tax credit for dependent children. The full credit is available for families with incomes of under $60,000, and the credit is phased out at incomes of $75,000. The taxpayer will first calculate the effect of the child credit (and all other credits) and then calculate the EITC; this makes the EITC more valuable to moderate-income working families with children.

(2) The budget phases in a $10,000 tax deduction for education and training expenses, including college tuition.

(3) The budget expands Individual Retirement Accounts (IRAs), such as by doubling over time the income limits for tax-deductible IRAs and allowing families to make tax-free withdrawals for a range of educational, housing, and medical needs.

Small Business Estate Tax Relief Act of 1996

To address the liquidity problems that may arise upon the death of a farmer or small business owner, the budget increases the amount of property eligible for a favorable four percent interest rate on deferred estate tax from $1,000,000 to $2,500,000. It also extends the eligibility for deferral to additional entities, and it extends the five-year interest-free deferral period and four percent interest rate provision to certain entities that cannot now take advantage of them.

Small Business Expensing

As the President advocated in 1993, and as Congress has now agreed by including it in the Balanced Budget Act, the budget increases the amount of tangible depreciable property that small businesses can expense each year from $17,500 to $25,000. (The increase will be phased in by annual increments.)

Pension Simplification

Building on bipartisan efforts in Congress, the President proposes to simplify rules (and expand coverage) for pension plans sponsored by businesses of all sizes, nonprofit organizations, and State and local governments, as well as for multiemployer plans. The budget includes a new, simple retirement savings plan (the National Employee Savings Trust or the NEST) for small businesses that combines the most attractive features of the IRA and the 401(k) plan, minimizes administrative and compliance costs, and eliminates the need for employer involvement with the Government.


The budget saves $59 billion by cutting corporate tax subsidies, closing loopholes, and improving tax compliance. It includes provisions that the President proposed in December and others.

For example, the budget prevents corporations from achieving tax arbitrage by deducting interest on borrowings against life insurance policies on their employees or where the corporation owns tax-exempt obligations; addresses recent developments in tax-motivated financial products; curtails manipulation of the tax accounting rules; and tightens existing rules that are designed to prevent tax avoidance through expatriation and the use of foreign trusts.

The Administration continues to support revenue neutral initiatives to promote sensible and equitable administration of the tax laws. These include tax simplification initiatives and technical corrections.

In addition, the Administration supports, and wants to work with Congress to provide, revenue neutral extension of various tax provisions that have expired.

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