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The White House
Office of the Press Secretary
For Immediate Release
February 02, 2015
South Court Auditorium
12:54 P.M. EST
MR. EARNEST: Good afternoon, everybody. The day that you’ve been waiting for for so long is finally here. The administration has released the budget. You all have heard us talk about this quite a bit already.
So what I am going to do is have my colleagues each make very short opening remarks to sort of talk about some of the highlights that they’ve been focused on in terms of putting the budget together, but we’re going to reserve the bulk of the time here to taking your detailed questions that I’ve been putting off for weeks, but now we can finally go through them.
So, Shaun, since you are the principal author here, why don’t you go first?
DIRECTOR DONOVAN: Great. Thank you, Josh. And I want to thank my colleagues — Jason, Cecilia and Jeff — for joining us as well today. And let me begin with where we’ve come from. This budget comes on the heels of a breakthrough year for America. In 58 months, we’ve created over 11 million jobs, and our unemployment rate fell 1.2 percentage points from the previous year — the largest annual decline in 30 years. The number of uninsured Americans has dropped by an estimated 10 million, and we brought our deficits below 3 percent of GDP, less than the 40-year average.
This budget supports the President’s ambitious vision for accelerating growth and expanding opportunity, and does so while meeting key fiscal tests of sustainability; reducing deficits to below 3 percent of GDP; and stabilizing debt as a share of the economy, and putting it on a declining path. It achieves these goals by paying for all new investments, replacing mindless sequestration cuts with smart reforms, and achieves $1.8 trillion in deficit reduction, primarily from health tax and comprehensive immigration reform.
I’ll talk primarily about the latter two prongs of our approach, and my colleagues will speak to some of the specific investments.
In 2014, we began to move away from manufactured crises in austerity, helping to lay the groundwork for stronger growth and job market gains. The Bipartisan Budget Act of 2013, or Murray-Ryan, as it’s widely known, reversed a portion of sequestration and allowed for higher investment levels in 2014 and 2015. Not only has the Murray-Ryan agreement contributed to improving job market and accelerating growth, but it allowed for important investments in critical priorities, ranging from early education and manufacturing, to providing appropriate funding for national security.
But that agreement expires at the end of this fiscal year, causing a return to sequestration in 2016 that would bring discretionary funding to its lowest level adjusted for inflation since 2006. That’s despite the fact that since 2006 the U.S. population has grown by 7 percent, and costs in some key areas, such as Veterans Administration medical care, have grown much faster than inflation. And it’s despite important needs in national security.
The Joint Chiefs have been very clear that a return to sequestration levels would significantly reduce the military’s ability to fully implement the President’s defense strategy. That’s why the budget proposes to end sequestration, fully reversing it for domestic priorities in 2016, matched by equal dollar increases for defense.
These investments are more than paid for with smart spending cuts, program integrity measures, and common-sense loophole closers. The proposed increases in the discretionary budget caps will make room for a range of domestic and security investments that will help move the nation forward, including a number of investments my colleagues, Jeff and Cecilia, will discuss in a moment.
And I want to emphasize again that every investment in the budget, both the discretionary investments made possible by reversing sequestration, and also the new and expanded tax credits for middle-class and working families, and mandatory investments that will expand access to community college and preschool — all of them are fully paid for through spending or tax reforms.
Meanwhile, the budget also achieves an additional $1.8 trillion in deficit reduction in the budget, primarily by focusing on the key drivers of our budget challenges — health care cost growth and inadequate revenue levels in the face of an aging population. Specifically, the budget includes about $400 billion in health savings that build on the Affordable Care Act, including measures that complement the administration’s other efforts on delivery system reform that Secretary Burwell announced last week, and will help maintain the historic slowdown in health care cost growth while improving health care quality.
The budget also raises about $640 billion in net revenue for deficit reduction from curbing high-income tax expenditures. And this year’s budget again reflects the President’s support for common-sense, comprehensive immigration reform along the lines of the bipartisan Senate-passed bill. In part because it helps balance out an aging population, immigration reform is good for the economy, for the Social Security Trust Fund, and our budget more broadly.
Overall, the budget brings deficits down below 3 percent of the economy, while putting debt on a declining path. It shows how we can build on the economic progress that’s been made over the last five years, and make investments to ensure that our country remains both strong and prosperous, while at the same time continuing our fiscal progress.
With that, let me turn it over to Jason Furman, who’s going to discuss the economic outlook and the budget assumptions.
MR. FURMAN: Good afternoon. As Shaun noted, the U.S. economy strengthened considerably in 2014, with the strongest job growth in any calendar year since 1999. Looking ahead, the administration expects that the economy will continue to grow at an above-trend rate of 3 percent per year in both 2015 and 2016. This assumption is in line with the forecast from the Congressional Budget Office and the Blue Chip consensus, and is somewhat more conservative than the latest international monetary fund forecast.
While the economy has come a long way since the recession, the expectation of additional above-trend growth reflects the widely held view that the economy is still returning to the full utilization of its resources.
Several factors are supporting this growth. Fiscal policy has shifted to a generally neutral stance, aided by the Ryan-Murray agreement reached at the end of 2013. If Congress continues to act without brinksmanship or harmful austerity, fiscal policy will continue to be conducive to strong growth. Consumer spending has picked up, reflecting the savings from the recent drop in energy prices. The ongoing improvement in household finances and increased economic optimism. And there’s continued room for growth in both business and residential investment.
The slowdown in growth for many of our key trading partners is, however, a headwind for the U.S. economy, and a downside risk to the near-term forecast. In the later years of the forecast window, we assume that the growth rate converges to our projected 2.3 percent rate of potential GDP growth. This matches the latest long-run forecast by the Blue Chip panel, and is generally in line with CBO’s recent estimate of 2.2 percent per year for potential. We also project that inflation will remain low, the unemployment rate will continue to edge down, and interest rates will rise as the economy continues its expansion.
Finally, I want to note that the forecast was finalized in November in order to give agencies time to prepare their budget estimates. On Friday, we learned that the economy grew 2.4 percent in 2014, above the 2.2 percent rate that was assumed in November and appears in the budget.
Moreover, both inflation and interest rates are also somewhat lower than we had forecast in November. We will, of course, have updated economic and budget projections in the mid-session review that would incorporate all of this information.
And with that, let me turn it over to Cecilia.
MS. MUÑOZ: Thanks very much, Jason. Good afternoon, everybody. You’ve heard us, in talking about the budget in the weeks leading up to today, that the budget is an expression of the President’s vision for what he wants — what he wants us to be, what he wants our economy to look like in the 21st century, and how we will continue to lead the world economically.
The supports for working families that you see in this budget, in particular, are an expression of the vision of both what helps us economically, as well as what supports the middle class and, in particular, supports and creates a good start for our youngest Americans. So I’m going to focus in a little bit in particular on the series of proposals around children and child care, because this budget presents the most comprehensive to date approach for early childhood education for children in this country, from birth until they enter kindergarten. And the hope here is that one of the many results of the policies that the President has put forward is more children entering kindergarten ready to learn.
So this budget sets a historic goal of helping every family with children under five find a place for their child to learn and grow while parents work. So the biggest elements of this plan include tripling the child care tax credit for middle-class families to up to $3,000 for families with young children, offering child care subsidies to low-income working families to serve an additional one million children a month by 2025, while also working to strengthen the quality of child care programs.
In addition, the President is repeating his Preschool For All program. This is the proposal to provide pre-K — high-quality pre-K to every four-year-old in this country. And there’s also an expansion of the Head Start proposed in this budget, in particular to make sure that Head Start can be offered for a full day throughout a full year, which is not currently the case for many Head Start programs.
So the combination of these proposals is essentially a comprehensive approach to early childhood development in a way which supports children and also supports working families.
There are other important investments in this budget in the K-12 system, as well as in higher education. You’ve obviously heard about the proposal to make community college free. We continue our commitment to Pell grants and other supports for families in higher ed. And there are important investments here in the Title I program under the Elementary and Secondary Education Act, an important $3 billion investment towards the goal of making sure teachers are full prepared and fully supported throughout their careers. And then a $1.2 billion investment towards creating better schools through re-designing high schools, through school improvement grants and investments in charter schools.
So altogether, what we see is an approach that’s really focused on, again, making sure that working families have the supports they need, particularly families with youngest children, but also making sure that we are investing in the full spectrum of the educational system from birth really through what we think of now as grade 14, by making community college as accessible in the future as high school has become for Americans today.
MR. ZIENTS: I thought I’d just spend one minute on what is really a core component of middle-class economics, and that’s the President’s plan on infrastructure. Infrastructure is critical to creating good middle-class jobs, and it’s also critical to our long-term competitiveness in a global economy.
We have an over-$1-trillion deficit in infrastructure. All of us feel it every day. Workers trying to get to work stuck in traffic. Businesses trying to get products overseas in an efficient manner to export and support good-paying jobs. Infrastructure is critical to all of this, and we’re not where we need to be.
The President goes very big on infrastructure in the budget to repair roads, bridges, freight, and our rail systems. It’s a long-term plan, so it’s six years — up from four years last year. We’ve been solving infrastructure in few-month patches. That is no way to plan infrastructure projects. So this is a six-year proposal. It’s $480 billion, which allows us to fund at about 40 percent above the current level of spend. And there are many high-return investments for that $480 billion. Importantly, it’s fully paid for through business tax reform — specifically the one-time money that’s overseas, bringing that money back and raising taxes on that money to pay for the plan.
So the bottom line is infrastructure is traditionally a bipartisan issue. Everyone agrees our infrastructure is outdated; it needs to be modernized. It’s also a twofer in that it supports good-paying jobs — good-paying, middle-class jobs — right away. And at the same time, it sets us up for long-term competitiveness in this global marketplace.
So with that, I’ll hand it back to Josh.
MR. EARNEST: Thank you for the top lines, guys. So with that, let’s go to questions. Who wants to be first?
Q Thanks, Josh. Jeff, I wanted to follow up on the infrastructure and corporate tax reform component. Do you believe that without a full corporate tax reform, you can still do a one-off on the 14 percent on accumulated foreign earnings? Or does that — can only that occur in the context of a broader corporate tax overhaul? And also, yesterday, Ways and Means Chairman Paul Ryan said that corporate tax reform has to occur in the context of small business tax reform as well, which would mean somehow dealing with individual income tax reform. So do you see those as inevitably —
MR. ZIENTS: We do believe in comprehensive business tax reform, which involves lowering the domestic rate, the statutory rate, which is at 35 percent — which is the highest in the world — to 28 percent, 25 percent for manufacturing; setting up an international system that is a hybrid system where you have a minimum tax of 19 percent, and then bringing back the money that’s overseas at this 14 percent that you mentioned. That is very different than a repatriation holiday, which we believe is bad policy.
You’re right that many businesses are small businesses, and the President’s plan does a lot for small businesses. It simplifies how small businesses file their taxes so they can use cash accounting, which is basically their bank statement rather than very complex accrual accounting. That’s available for all businesses up to $25 million. It also enables businesses to write off investments in their first year of up to a million dollars. That will really help simplify small business filings and lower rates for many small businesses.
So we believe in doing business tax reform across the board, while at the same time making sure that we do things that are good for the middle class. I mentioned in my opening, investing in infrastructure is good for the middle class, so that’s an important component of any tax reform that we do — making sure that we are benefitting the middle class.
Q The 14 cannot occur absent broader —
MR. ZIENTS: It is not a one-off proposal. It’s part of a more comprehensive approach to fix what is clearly a broken business tax system. And at the same time, we want to make sure that as we’re addressing business tax reform, that we’re doing things that are good for the middle class.
MR. EARNEST: Justin.
Q I know that, Josh, you described this as kind of the open — I know that you’ve described this as kind of the opening of a negotiation, and I was interested in something that the President said while he was unveiling it today. He said, “I’m not going to accept a budget that locks in sequestration going forward,” and I’m not going to “accept a budget that severs the vital link between [our] national security and [our] economic security.” So I’m wondering, as you guys are entering a negotiation with Republicans in Congress, whether those are both kind of bright lines that you’re going to insist on in any budget document that might actually pass.
MR. EARNEST: So you’re asking if there are additional ones beyond the ones that the President mentioned today?
Q Would you veto, I guess, legislation that doesn’t include those two aspects?
MR. EARNEST: Well, we just put out our budget proposal today and we haven’t seen anything from Republicans yet, so I don’t want to be — I mean, Republicans have found it a virtue for some reason to declare a budget dead on arrival before having seen it. I don’t think I want to put myself in the same position. The President has indicated that he’s willing to consider good ideas from either side of the aisle wherever they — from wherever they originate, particularly if they’re going to benefit middle-class families.
And I think that’s part of why you’ve seen the President identify at least those two areas as essentially deal-breakers for him, because continuing to leave the sequester in place does have a negative impact on our ability to support middle-class families, and it certainly has a negative impact on the ability of our men and women in the military to keep our country safe. You don’t have to take my word for it; we’ve obviously seen just about every uniformed military leader who’s spoken on this issue has raised the same concern.
So the kind of concerns — the good news in all of this, I think, is that the concerns that the President has raised along these lines are consistent with concerns that at least some Republicans on Capitol Hill have raised as well. We know that there are Republicans who are concerned about the sequester, both in terms of the impact it’s having on the economy and the impact it’s having on national security, for example.
So despite the President being pretty declarative about those two elements, I don’t think that necessarily is going to rule out or make it that much more difficult for us to be able to try to find common ground on some common-sense budgeting proposals that are in the best interest of our national security and the best interest of middle-class families.
DIRECTOR DONOVAN: Josh, just from a fiscal perspective, I also think that there is growing bipartisan recognition that discretionary spending is not the important issue from a fiscal perspective. In fact, our discretionary spending is at near its lowest level as a share of our economy as it’s ever been. And I also think it’s important to remember that national security is dependent on more than just the Department of Defense budget.
In fact, in the non-defense category is all of the commitments we’ve made to our veterans. It includes the Homeland Security budget, which obviously is a critical part of protecting our country. It’s why it’s critical that we get a bill done, a full year bill for 2015 right now.
So I think we have to see this, in addition to the investments that Jeff and Cecilia have talked about, as this connection between the defense and the non-defense part of the budget. You really can’t — that’s what the President said today — you cannot break that link.
MR. EARNEST: Good. We’ll go back to this side. Jim.
Q Mr. Donovan, you said the budget would be good for Social Security. I haven’t had a chance to read the budget this morning. Can you tell us exactly how this budget would strengthen the Social Security system?
DIRECTOR DONOVAN: Well, broadly speaking, the long-term deficit is significantly helped by this budget. Just to be clear — and CBO put out these numbers last week — under current law, we would see both deficits grow above 4 percent of GDP and the debt grow over 80 percent of GDP. What this budget does is to reverse that course. It keeps deficits under 3 percent of GDP every year of the budget window. And, critically, it starts to bend that curve on debt, so it stabilizes and then begins to reduce debt as a share of GDP.
Specifically, on Social Security Trust Fund, one of the fundamental problems we’re facing is that the number of workers that we have relative to the number of retirees that are supported by Social Security has been shrinking. And so comprehensive immigration reform is actually one of the most critical things that we can do to shore up the long-term solvency of Social Security, and as a result, to improve our deficit challenges in the long run.
And in fact, you might have seen last week that just from the executive actions that the President took late last year, there is a positive impact on the Social Security Trust Fund because of additional payments that come into that. And so comprehensive immigration reform on a much larger scale would improve that.
CBO’s numbers are that comprehensive immigration reform — and that’s what we reflect in our budget — in the first decade is about $160 billion of deficit reduction; in the second decade, it’s almost $700 billion of deficit reduction. So it grows over time as more workers come into the country, pay taxes, and pay into the Social Security Trust Fund.
MR. EARNEST: Kristen.
Q Thanks. Couple questions. Is there anything in this budget that specifically discourages tax inversions, first? Secondly, if you are serious about finding common ground with Republicans, why not include a plan in this budget for entitlement reform? I know that that was a big part of the 2011 budget discussions. And then I just want to get your thoughts on the sequester. You’ve been talking about the fact all day that the deficit has been reduced by two-thirds, you said. So did the sequester ultimately work?
MR. EARNEST: Jason, do you want to do inversions first?
MR. FURMAN: Yes. I’m also happy to start on the entitlement part, too.
In terms of inversions, the budget repeats a proposal the President had made last year and actively called on Congress to pass that would set the threshold that you have — as long as you’re majority-owned by your historical U.S. shareholders, you’ll be treated for tax purposes as a U.S. company. So it would take away the ability to find a smaller foreign company, acquire them, and shift over to them.
The entire business tax reform agenda, though, is also about making it more attractive to invest in America and to close a number of the other loopholes that companies use that complement what they’ve done on inversions. So all of this, as the Secretary said when he announced what he was doing administratively on inversions, that helped, but it couldn’t do as much as what you could do legislatively. So that proposal repeats itself here.
Just to take the first crack at entitlements, and then others could build on it. This is a budget that does include $400 billion of savings from reforming our health system. Those reforms to our health system are very much in the spirit of what we’ve done to date, which is about how to make the health system more effective and efficient. When you do that, it brings down costs, it saves money for the budget, it saves money for seniors, and it slows the cost growth in health care.
That’s part of an overall fiscal approach, though, that includes reforming the tax system and reforming the immigration system. So it follows in the same path that the President has in previous budgets of balanced deficit reduction coming from the spending side, coming from the revenue side, and sufficient to get the debt on a declining share of the economy, which is what economists would think is important.
MR. EARNEST: Shaun, do you want to add to that?
DIRECTOR DONOVAN: Just two quick points I would make. One, there’s been a lot of focus, rightly so, on our short-run deficits and how much they’ve come down. This has been the fastest period of sustained deficit reduction since after World War II. But we’ve also seen substantial improvements in our long-run deficits. And the single biggest driver of that has been the slower growth in health care costs.
Just to take one example, if you look at CBO’s numbers, our spending on Medicare and Medicaid in the year 2020 is now expected to be almost $200 billion lower, just in that one year, than it was when the President came into office.
So what Jason is talking about on entitlement reform is incredibly important, but building on that as well, we have a new proposal in the budget this year which would adopt bipartisan legislation on what’s called the doc fix, or SGR. We would adopt that, paid for, because everything in the budget is fully paid for, and we would add some additional reforms to that legislation that build on what Sylvia Burwell, Secretary of HHS, has done on delivery system reform. So if we can keep driving those costs lower, even more important than Social Security or other entitlement issues, this issue of health care cost is the single most important place where we can really bend the cost curve in the long run on entitlement savings.
MR. EARNEST: And then there’s the question of the sequester and whether or not it worked.
MR. FURMAN: Let me just say, first of all, if you just look at the deficit reduction to date, more of it this past year was because of the tax deal that restored the Clinton-era rates on high-income households and the Affordable Care Act, the combination of those, than from the sequester.
Second of all, the most important test of your fiscal policy, as Shaun says, is where you are over the medium or long run. And there, those steps dwarf the impact of the sequester in terms of changing our medium- and long-run debt and deficit trajectory.
DIRECTOR DONOVAN: We have detailed charts in the budget that we could provide to you that show precisely what role it’s played. But, again, to Jason’s point, it’s dwarfed in the long run by these other –- and also, the fundamental point that it’s not going to where our challenges are in the long term on the fiscal side.
Discretionary spending, once again, it’s at a very low level relative to GDP. And, in fact, over our budget window, it continues to grow smaller as a share of GDP because it is not growing as fast as GDP. So it is not the fiscal challenge that we focus on. If anything, the reverse; if we want to grow our economy, we need to make the investments that Jeff and Cecilia have talked about.
MR. EARNEST: Roberta.
Q How did you choose the 14 percent level for the tax on bringing back overseas profits? And would there be any limits on what companies could do with those repatriated funds? And do you have forecasts for the impact on the economy if a considerable amount of company brought back those funds?
MR. ZIENTS: That rate of 14 percent is about 40 percent of the 35 percent. Importantly, it will be on all dollars overseas. So this is not voluntary; it’s mandatory. And the dollars would come back to the U.S. hopefully to be invested in good U.S. jobs and manufacturing facilities, but there would not be a specific requirement on those dollars. The requirement is that they all pay 14 percent.
MR. EARNEST: This side of the room. Kevin.
Q Josh, thanks. I want to ask a couple questions. First, the debt. For all the high-fiving and balloon-releasing about the deficit, which is impressive, the debt is a ticking time bomb. How aggressive is your policy toward reducing the debt?
DIRECTOR DONOVAN: So as I said earlier, on our current course, debt would grow as a share of the economy from about 75 percent now to about 81 percent by 2025. What we do in our budget is bring that down substantially so that debt as a share of the economy shrinks from about 75 percent of GDP down to 73 percent of GDP by the end of the window, so by 2025.
And I think perhaps even more importantly, the key things that we’re doing, unlike sequestration, the key things that we’re doing for our long-term fiscal future grow in importance as you get beyond 10 years. So the tax changes that we’re talking about, for example, on capital gains, they’re structured so that the scale of revenues they bring in grows over time. Immigration reform is something where the impact would grow substantially over time. And many of the things that we’ve talked about before on health care costs, delivery system reform and others, the benefits would compound over time as you bring the growth in health care costs down below the growth of GDP. So all of those are the most important things that you can do in the long run to bring down our debt.
At the same time, what we should recognize is that we owe a debt to our seniors who have paid into Social Security and other benefits. What we can’t do is make reforms that break that promise to them, and recognize that we have a demographic bubble that we are dealing with through roughly the mid-2030s. And if we can get through that period with debt stabilized and on a declining path as our budget does, we put the nation in a much better position as the number of workers grows, particularly if we can pass immigration reform.
Q And a very quick follow. I want to ask about military spending in general. Fighting the wars on terror and everything that is still happening — it is very real. Does this budget address, in your estimation, everything that needs to be addressed, or is there more that you can do to make sure that the American people are safe?
DIRECTOR DONOVAN: Well, first of all, we have to recognize that the country has made real progress. The President talked about in the State of the Union address that when he came into office, that we had 180,000 troops overseas in Iraq and Afghanistan. We’re down now to 15,000 and on a downward trajectory there. And so we’ve had real benefits in terms of the lives of our brave service people who are serving overseas.
At the same time, there are real fiscal benefits from that. We’re spending $130 billion less this year just on emergency military costs than we were when the President came into office. And because of his stewardship of our national security, those costs continue to decline by another more than $10 billion in our budget proposal.
At the same time, the budget recognizes that in our base investments, in the DOD budget, not our emergency costs but our base budget, there are places where we need to invest. And that means investing in our service people. It means investing in making sure our technology stays ahead of other countries, whether that’s in space or other research and development.
So there are a number of places where we recognize it, and that’s why you see a $37 billion increase in 2016 for the defense budget that really focuses on where those needs are and keeping Americans safe.
MR. EARNEST: Jim.
Q Thank you, Josh. And, Cecilia, I wanted to ask you, if I could, about the $1 billion being sent to Central American countries to address the issue that happened last summer with the immigrants coming across the border. When there, the biggest problem that people who are not in the government talk about is government corruption. What is the United States going to do to protect that billion dollars to make sure it doesn’t appear and land up in Swiss bank accounts, and instead actually helps the people there?
MS. MUÑOZ: So I’ll tackle this a little bit, but with the reminder that I’m the Domestic Policy Advisor so I will also turn to my colleagues.
The focus of the resources going to Central America is really both to improve safety as well as development. When you’ve heard the Vice President talk about it, he talks in very strong terms and makes a comparison to what we did in Colombia, which required enormous investment of resources as well as political capital by the Colombians in partnership with the United States. And we’re talking about building the same kind of partnership with the Central American countries to make sure that they’re advancing economically, but that they’re also making the advances that are needed with respect to safety and security.
You’ll recall that the reason for — one of the stated reasons for the crisis in the arrival of unaccompanied minors that we saw last summer had to do with folks’ fear, in particular fear of violence affecting young people. So we’re dedicating resources to a panoply of things with a goal being that the United States be a good partner to these societies and help strengthen them so that they’re able to deal with these problems in country rather than confront the kind of crisis that we had here.
And I think it’s a broader illustration of the notion that we have to approach these issues as a hemisphere, and that the United States has to be thinking about this and thinking about situations like the situation we experienced last summer. From a much broader perspective, that was not just a migration situation; it was a migration situation which resulted from a much larger phenomenon that we have a role to play in making sure that we mitigate.
DIRECTOR DONOVAN: So just to add a little bit on Cecilia’s point, Plan Colombia has been remarkably successful in going at exactly the same issues that you talked about. And so as a piece, as a Cecilia talked about this comprehensive approach, a specific piece of the funding that we would dedicate is on governance reforms and would be directly targeted at making sure that you build the government institutions and also attack the kind of graft and corruption that you’re talking about.
The other thing I would just mention on this: This is something that the President and the Vice President really have been focusing on for some time. And we’ve already taken a number of steps where the three countries in particular that we’re focused on have already agreed to a number of things to strengthen, whether it’s the rule of law or to stop corruption within their systems. And we can get you more specifics on those, but there are steps that have already been committed in advance of us making this commitment.
I think it’s also important to recognize that this is one of many opportunities that the President’s efforts on Cuba have begun to open up in the hemisphere. We have a moment of opportunity to move forward together with countries across the hemisphere so that we’re much more likely now, as Cecilia said, to get other countries investing — the source, the three countries themselves — but other countries, as well, that would support our efforts.
MR. EARNEST: Thank you. On this side. Let’s see. Lalit.
Q Yes, thank you. Can you give us some more details about your Asia Pacific rebalance? And is the increased budget allocation for cybersecurity, is it driven by the threats being posed by China and Russia?
DIRECTOR DONOVAN: I’m sorry, just to make sure, you said on the Asia Pacific rebalance?
Q Yes, yes.
DIRECTOR DONOVAN: I think what probably would be best, given that we don’t have a national security staff here, is if maybe if we could follow up with you specifically. There are a number of places where we are increasing investments to focus on the Asia Pacific rebalance. But I’m not sure we have the expertise, the right expertise here to get into detail on those.
MR. EARNEST: So, Lalit, I’ll have somebody follow up with you, okay?
MR. EARNEST: Cybersecurity. Shaun, can you take that? Or, Jeff? I’m sorry.
DIRECTOR DONOVAN: We do have a range of investments around cybersecurity, well over $10 billion of investment that is going toward cybersecurity. That includes both research and development, investments that are part of a broader significant expansion of R&D, as well as specific investments at the Department of Homeland Security; at OMB actually, which is responsible for setting policy in many of these areas; and also in our national security agencies, more broadly. So it is a specific area, and you’ll see called out in the budget presentation today, many more details on exactly where those are focused.
MR. ZIENTS: And I’ll remind folks that the President has sent to the Hill legislation on data breach and on information sharing, and encourages those pieces of legislation to move forward as fast as possible in bipartisan way. The President also will be hosting a summit on cybersecurity on the West Coast at Stanford University on the 13th of this month, so in 10 days or so.
MR. EARNEST: All right. Jonathan.
Q Three questions.
MR. EARNEST: I was actually referring to —
Q Oh, sorry.
Q Hi, a number of these proposals have been in this budget for quite some time — closing the carried interest loophole, the Buffett Rule. They were not passed by a Congress that had Democratic control in the Senate. What can you do in the coming year to bring Republicans to the table? And what makes you think that these plans actually have life this year with the new Republican Congress?
MR. EARNEST: Well, I’ll take the first crack at this, and Shaun may have some other ideas on this too. I mean, I think the first thing that comes to mind, Jonathan, is just that the fact that they didn’t pass the first time doesn’t mean they’re not good ideas. I think the reason that they’re included in the budget once again is because they are good ideas, and we’re going to continue to advocate to members of Congress in both parties that they should consider them and actually include them in legislation.
The second thing is, we also would acknowledge that this is going to be a compromise; that we’ve got Republicans who are in charge of the Congress, we’ve got a Democrat who’s sitting in the White House. So anything that emerges from these proposals and discussions about the budget will require an effort to try to find some common ground. And maybe there will be an opportunity to include some things in this budget that Republicans haven’t previously supported, in exchange for some things — some new ideas that they may have.
The third thing is — and this is, I think, a good segue to Shaun — is that there are a pretty substantial number of things that are included in this budget that have been previously supported by Republicans. And I think it is a good indication that by focusing on what we think the core goals should be, in terms of protecting the country and investing in middle-class families, that there should be some reasonable common ground that we can find. That’s why the President so strongly advocates ensuring that we not allow a disagreement over one issue, like immigration, to become a deal-breaker over all the others.
There are a lot of important things that we can do where there does appear to be some common ground. I’m not suggesting that this is easy, or that anybody here thinks it’s going to be easy, but there certainly is an opportunity that’s worth pursuing. Shaun, do you want to just do two or three of sort of some of the best ideas that are included in this budget that have previously been supported by Republicans?
DIRECTOR DONOVAN: Sure, and Jeff may have some thoughts on this as well, given his focus on tax policy. But there are a number of things — the financial fee is a good example, but also the linkage between international tax reform and infrastructure, which were included in the Camp plan. And many of the proposals — whether it’s around child care or a number of the other things that Cecilia focused on, free community college — have been ideas that not only have had Republican support in the past, but actually legislative proposals that we’ve seen with bipartisan support.
So that doesn’t mean there’s been support for every one of the ideas — I think Josh is exactly right. But we will see I think a significant opportunity to get some of these — to advance some of these ideas going forward.
The other thing I would just point out, which I think you’ve got lots of good examples from the budget last year, whether it’s on minimum wage or others — it isn’t just about what the federal government does, it’s also about what mayors and governors and other local officials do. And I think there is a real opportunity in many of these ideas to build momentum and support in a way that Congress may not lead on them but they may end up following because of work that happens in other parts of the country.
MR. ZIENTS: I would just add that, yes, I think there is, at a strategic level, real alignment. I used the example that we talked about some of infrastructure and tax reform. Everybody agrees that we have to fix our infrastructure. Everybody agrees that the current tax system doesn’t work, that our statutory rate at 35 percent is the highest in the world, that our international system is dysfunctional.
And then everybody agrees a top line — not everyone, but both Republican leaders and some Democratic leaders, including the President, most importantly, agree on the basic framework for the approach. So there’s a lot in the detail, but the strategic alignment is real and significant. And then you can be more granular and look at something like expanding the EITC, the childless EITC, which both the President proposes in his budget and Paul Ryan proposes.
So I think you have strategic alignment in some very important areas, and then you have specific alignment around proposals that both Republican leadership and the President agree upon. So we’re hopeful that we can get some of this stuff done.
MR. EARNEST: Okay. Over here. Connie.
Q Thanks. Cecilia, on the 529 plan, tuition plan, how safe is that? Is there any chance that could be rolled back and we would lose our investment?
MS. MUÑOZ: We’ve already said — we’ve already essentially backed away from the original 529 proposal. It was also a very, very small part of the restructuring of the various offerings with respect to savings for a college education.
So the point here is that this administration continues to be committed to making sure that we’re making resources available to make college more affordable. So the budget includes things like making sure that Pell grants are permanently protected from inflation. We have the community college proposal. But we also have a consolidation of the various tax credits and other sort of structures that exist now. And the idea being that we learned that a significant number of folks who participate in one program ended up not participating in the one that would have benefitted them more because there are so many different options and it can be confusing.
So the goal here is to consolidate in such a way that more middle-class families, and families working to get to the middle class, get the support that they need to pay for college and to repay student loans.
MR. FURMAN: The administration has no plans or proposals in the 529 space.
DIRECTOR DONOVAN: Just to put a — as the budget wonk here, to put a number on this — what we’re proposing in the budget is a nearly $50 billion-dollar increase in tax benefits toward paying for college. And so, on a net basis, what you’ll see is that the President’s proposal dramatically improves college affordability through the tax system compared to what we currently have.
MR. EARNEST: John.
Q Two questions. One for Josh, one I think for Jason. Josh, what do you think the effect of this budget will be for Democrats heading into the 2016 election, both at the presidential level and at the congressional level? Is there anything in here they’re not going to like? And then for Jason, on carried interest, which Jonathan mentioned a moment ago, it’s my understanding that that loophole could be closed without congressional action with the reinterpretation at the Treasury or IRS level. Is that the case? And if so, why not just close it?
MR. EARNEST: As it relates to the 2016 question, I will confess this is the first time I’ve sort of thought about the budget in that context. My suspicion is that everybody who looks at this will think that there is at least one element in the hundreds of pages that they’re presented with, or they’ll think to themselves, gee, I might have done it a little bit differently. I suspect that’s true of the vast majority of Democrats, both those who are in office and those who are contemplating running for a different one.
But, at the same time, I also think that what is codified in the series of volumes that were presented today is a pretty cogent vision for how to move the country forward and how to grow our economy from the middle out; that by focusing on middle-class economics, we can build the kind of country that is in the best interest of middle-class families but also is in the best interest of the longer-term stability of our country. That there is an opportunity for us to use this new foundation that we have laid, after recovering from the crisis over the last six years, to really build this country in the direction of making it more fair and more free, and creating more opportunity for everybody who lives here. And I think that really is the core of the President’s vision and I think that reflects a vision that I think the vast majority of Democrats out there can agree with.
The truth is, I think that there are a lot of reasons that Republicans can find to agree with that as well. The question is, will they put politics aside and actually try to work to try to find common ground with this administration to do that, or will they not — which has been consistent with their pattern in the last six years. But hope does spring eternal around here.
MR. FURMAN: In answer to your second question, Treasury and the IRS are responsible for administering the tax system, so you should ask them that question in terms of specific regulations. In terms of our budget proposal, we’re asking Congress to change the law so that income that is essentially like any other form of income, but earned in certain activities, gets taxed as such. And that’s a common-sense idea.
Q The President wants carried interest to be taxed as ordinary income, which is in this budget and has been in past budgets, and his Treasury Department and IRS are able to make policy to do that. I guess the question is, why not just do it?
MR. FURMAN: I think you should ask Treasury and IRS what their authorities and plans are in this area, because this is –- they’re responsible for implementing the tax laws that Congress passes.
MR. EARNEST: Yes, this gentleman right here in the back.
Q Hi. Steve Stromberg with the Washington Post Editorial Board.
MR. EARNEST: Hi, Steve.
Q Instead of relying on corporate repatriation to fund infrastructure, why not just raise the gas tax?
MR. ZIENTS: The President has not proposed and has no plans to propose an increase in the gas tax. The plan that we’ve described here — using dollars from overseas, bringing them back to the U.S., and raising money in order to fund a long-term, six-year reauthorization at a level that’s close to 40 percent higher than current spend — we think is the right plan. It’s got a lot of traction. That said, the President is open to other proposals and would consider other proposals that Congress contemplates.
MR. EARNEST: Bill.
Q Just a quick two-part. Cecilia, I was interested in what the pay-for is for the two free years of community college, if you might. And also, Jeff, just kind of following up on that question, how real is this infrastructure plan? And aren’t you, in effect, raising taxes on American businesses, which seems to be a non-starter with this Republican Congress? And then, secondly, expecting them to believe that once you raise taxes once, it’s just a one-year only and it won’t become a permanent thing.
MS. MUÑOZ: So I’ll start. The revenue raisers that we’ve described in the course of the tax reforms that we laid out a couple weeks ago are more than enough to cover the community college program as well as the other elements of the budget that I described.
MR. ZIENTS: Sorry, repeat the first part of your question.
Q So the first part is, so you’re (inaudible) this infrastructure — bringing the money back from American corporations. How real is it to expect this Congress to basically raise taxes on American businesses or ask them to pay a tax they’re not paying now? And then, secondly, to believe that this is a one-time only tax?
MR. ZIENTS: Well, it’s part of, as I mentioned earlier, a comprehensive approach to business tax reform. And a very important component of that is to make sure that this is also good for middle-class families, infrastructure investment being central to that.
The long-term plan here is revenue neutrality, so no additional money from corporate or business taxes. That said, there is this one-time opportunity, because of the $2 trillion that are overseas, that would be taxed here at a much lower rate — 14 percent — and that raises the money to do the six-year reauthorization at a much higher level than our current spend. So it’s long-term revenue neutral, but this one-time opportunity to tax the $2 trillion, which has not been taxed, which is overseas, at 14 percent.
MR. FURMAN: Could I just add one thing to that? Because I think there’s been some confusion about the relationship between this proposal and something that would be completely different and, in many ways, the opposite of this proposal, which is a repatriation holiday. And I think in the course of explaining that difference, it also helps answer your question.
The proposal the President is making would be mandatory on all overseas earnings as opposed to an election that could be made. As a result, it raises money — $270 billion over 10 years — as opposed to a repatriation holiday would lose money. And then the third that I think gets at your question, this is part of a plan to reform the tax system. So on a going-forward basis, you would have a 19 percent minimum tax on all the earnings of foreign subsidiaries of U.S. corporations. And because it’s part of a plan that deals with the earnings that have been incurred in the past and the earnings in the future, it becomes a stable system as opposed to a one-time measure that then raises a question about how you’re going to deal with it again in the future.
MR. EARNEST: And just on the politics of this, the other thing that occurs to me is that when the President was running for this office in 2007 and 2008, he was strongly advocating raising taxes on the wealthiest Americans -– something that Republicans said was dead on arrival, that they would never approve of. But in 2012, shortly after he was reelected, and which he campaigned on this issue again, he did actually succeed in getting a Republican majority in the House of Representatives to eventually vote for a tax increase on the wealthiest Americans. So the point is, just because they’re against it now doesn’t mean they’ll be against it in the end.
MR. ZIENTS: Well, and to that end, the framework, as I’ve mentioned a couple times, that the President has, of lowering the statutory rate, creating this minimum tax that Jason just described and bringing the money back from overseas with the one-time toll charge, using that money for infrastructure — all four components are the same as Chairman Camp’s plan from last year, the Republican House Ways and Means plan.
MR. EARNEST: Major.
Q Three quick items. How do you achieve your mandatory savings that you’re projecting over 10 years? What is the baseline VA number for this year, and how do you project VA spending to have to increase going forward? And what’s your disposition of overseas contingency operations funding?
DIRECTOR DONOVAN: So on the mandatory side, we discussed a little bit earlier there’s about $400 billion in savings on Medicare and Medicaid. In addition to that — so those are not the only mandatory savings in the budget, so I want to be clear. There’s program integrity savings that we would achieve, for example, at IRS. Because we’re under-investing in IRS capacity, we’re actually losing out on tax collections to the tune of tens of billions of dollars. So it’s about $60 billion of mandatory savings we’d get if we invested more in collection and enforcement at IRS. That’s one example.
Crop insurance is another area where we think we can improve the system, encourage farmers to actually be planting more, lower the excess profits of insurance companies. So there’s are a range of other — my point is there are a range of other mandatory savers in this, not just on the health side.
But on the health side, there are a range of them. Jason has I think pretty great expertise here that include reforms on the provider side that accelerate the kind of savings measures that we’ve seen in areas where we think there are not current incentives to save. And that’s things like home health care aids and a range of other ways that we — the payment arrangements we have with providers. There are also some — about 20 percent of the savings, which focus on ensuring that particularly the highest income beneficiaries are paying their fair share.
And there are also then things like controlling drug costs; other things that right now are leading to — even though health care costs are growing much more slowly than they have historically, we still have areas where costs are growing quickly, like particularly some of these designer, new prescription drugs that we think could be brought under the umbrella of cost-saving proposals that have worked in other areas of Medicare and Medicaid.
How did I do, Jason?
MR. FURMAN: Yes, I thought that was fine. If you have your budget, pages 105 to 119 have 15 pages with dozens and dozens and dozens of mandatory proposals that, on net, save money — of which Shaun hit the highlights. I thought you had two others. But they seem like numbers we could get you afterwards.
MR. EARNEST: VA and OCO.
DIRECTOR DONOVAN: So OCO, I mentioned earlier, is down about $130 billion since the President came into office. It declines another $11 billion under our proposal. And on VA, I don’t have the precise number in front of me, but it is a substantial increase for veterans health care, I think in the range of 7 percent. But let me get you a specific number.
MR. EARNEST: Major, we’ll follow up with you on that.
Q Thanks. Josh, you mentioned that you said that you had — first time you had thought about the budget in a 2016 context. I wanted to ask you a little bit about that, because isn’t this something that you’re hoping that Democrats will seize this sort of mission of helping the middle class? And also if I could ask Mr. Donovan to expand a little bit on the idea why you targeted crop insurance and the savings from that — because it’s not playing well in Kansas.
MR. EARNEST: (Laughter.) To allude to a famous book. In terms of 2016, one reason is that we’ll have a fiscal year 2017 budget that will be out in early 2016 too. So I guess that would be one reason. The second reason is, we certainly do hope that Democrats and Republicans will seize on the ideas that are included in this budget, but not for political end, but to actually get something done in Congress that would benefit middle-class families. That’s what our aim is. And that’s why maybe I should have thought about it more in a 2016 context, but hadn’t, because our principal goals here are around bipartisanship and around actually trying to get action on Capitol Hill on this and not just a talking point.
DIRECTOR DONOVAN: So maybe to go back to Josh’s earlier point, if you look at the broad scope of proposals that we have in the budget and recognize the fact that we have roughly 100 different cuts, consolidations, reforms, two significant programs, I’m sure that there will be places in the country and, as Josh said, things that Democrats and Republicans alike will find that they may not totally agree with. But we have in past years proposed reforms to crop insurance, as well.
Specifically here what you find is there are places where, for example, by the way that we structure these insurance programs, we actually encourage farmers not to plant on their land, for example. We also have other places where we encourage or we subsidize farmers in farming techniques that actually are less sustainable for the land that they’re working. And so we think that these are smart reforms that both maintain the basic protection of farmers for real emergencies that happen, but don’t actually encourage them not to plant when they could, or encourage them to follow practices that are actually not good for the very land that they depend on.
MR. EARNEST: Julie.
Q Hi, thanks. I wanted to ask about the debt again. I know you’ve said that there are some mandatory savings in this that would help with the sustainability of Social Security and Medicare in the long run. But you started out by saying that now with economic growth, and things starting to move again, this budget was an opportunity for the President to really say what he thought should happen. And I wonder why a lot of people are saying this is a missed opportunity. He didn’t choose to — rather than shave a little bit off a very fast growth — projected growth of entitlements over the next decade, he didn’t choose to really tackle them. Is it just too politically difficult to do that?
DIRECTOR DONOVAN: Let me just, I guess, disagree with the fundamental premise. When the President came into office, he recognized what I think a broad group on a bipartisan basis recognize is the single most important contributor to the long-run growth in the cost of our entitlements, which was the spiraling cost of health care. And, in fact, what we’ve achieved since he came into office, in part because of the recession we inherited, but also because of structural reforms in our system, have now substantially lowered the long-term cost of entitlements.
I’ll go back to the point I made. Just in the year 2020, you’re talking about almost $200 billion of savings in Medicare and Medicaid. And if you look at the projections in the budget this year long run, you see substantially lower costs far out into the future for these programs than we had when the President came into office.
And the fact that we’re adopting not just the $400 billion in Medicare and Medicaid savings that we discussed in the budget, we’re also adopting a bipartisan proposal on the doc fix, on SGR reform, which incorporates additional delivery system reforms that will lower the cost of health care in the future, and a range of other things that we’re doing beyond just the Medicare and Medicaid investments, on precision medicine, and a whole range of other areas. I think we have a very strong argument that the President has been focused on since the beginning, on the key drivers of our long-term entitlements. And he continues to be focused with some real momentum behind us in lower health care costs.
I also think — and this has been I think lost a little bit in the sort of political back and forth around immigration — in addition to health care costs, the single most important thing that we can pay attention to is that we have a demographic imbalance in our country. We have a growing number of retirees for the number of workers that we have in the country. And therefore, immigration reform is fundamentally something that alters the balance on our entitlements in a way that very few other things do, because it grows the number of workers that we have per retiree. And that’s why the contributions to the solvency of the Social Security Trust Fund, on Medicare and Medicaid — all of those are enormous out-year benefits that should not be ignored in this debate.
MR. FURMAN: Can I just add just a tiny bit economically. In 2008, in the transition with Larry Summers, Tim Geithner, Christy Romer, Peter Orszag, the whole original economic team was trying to figure out what the right fiscal goal was going to be. And economically, the decision was the right fiscal goal was to make sure the debt was falling as a share of the economy, which would require the deficit being below about 3 percent of GDP. That’s a goal we achieved in 2014. That’s a goal we need to take additional steps on taxes, on health care and on immigration in order to make sure we continue to meet that goal over the n