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1THE BUDGET MESSAGEOF THE PRESIDENT
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2 THE BUDGET FOR FISCAL YEAR 1996
THE FEDERAL GOVERNMENT DOLLAR
WHERE IT GOES...
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DIRECT BENEFITPAYMENTS FOR
INDIVIDUALS48 %
NETINTEREST
16 %
NATIONALDEFENSE
16 %
OTHERFEDERAL
OPERATIONS5 %
GRANTS TO STATES
& LOCALITIES15 %
WHERE IT COMES FROM...
OTHER4 %
EXCISETAXES
3 %
CORPORATEINCOMETAXES
10 %
FISCAL YEAR 1996 ESTIMATES
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SOCIALINSURANCERECEIPTS
32 %
BORROWING12 %
INDIVIDUALINCOMETAXES
39 %
RECEIPTS, OUTLAYS, AND DEFICITS(In billions of dollars)
1994 1995 1996 1997 1998 1999 2000
Receipts ................................ 1,257.7 1,346.4
1,415.5 1,471.6 1,548.8 1,624.7 1,710.9Outlays
................................. 1,460.9 1,538.9 1,612.1 1,684.7
1,745.2 1,822.2 1,905.3
Deficit () ............................. 203.2 192.5 196.7 213.1
196.4 197.4 194.4On-budget deficit () ........ (258.8) (251.8)
(262.0) (284.5) (274.8) (283.3) (288.6)Off-budget surplus
........... (55.7) (59.3) (65.3) (71.4) (78.4) (85.9) (94.2)
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3THE BUDGET MESSAGE OF THE PRESIDENTTo the Congress of the
United States:
The 1996 Budget, which I am transmittingto you with this
message, builds on theAdministration's strong record of
economicprogress during the past two years andseeks to create a
brighter future for allAmericans.
When I took office two years ago, theeconomy was suffering from
slow growth,inadequate investment, and very low levelsof job
creation. We moved quickly and vigor-ously to address these
problems. Workingwith Congress in 1993, we enacted the
largestdeficit reduction package in history. We cutFederal spending
by $255 billion over fiveyears, cut taxes for 40 million low-
andmoderate-income Americans, and made 90percent of small business
eligible for taxrelief, while increasing income tax rates onlyon
the wealthiest 1.2 percent of Americans.And while we placed a tight
``freeze'' onoverall discretionary spending at 1993 levels,we
shifted spending toward investments inhuman and physical capital
that will helpsecure our future.
As we fought for our budget and economicpolicies, we moved
aggressively to open worldmarkets for American goods and
services.We negotiated the North American Free TradeAgreement with
Canada and Mexico, con-cluded negotiations over the Uruguay Roundof
the General Agreement on Tariffs andTrade, and worked with Congress
to enactimplementing legislation for both.
Our economic plan helped bring the deficitdown from $290 billion
in 1992, to $203billion in 1994, to a projected $193 billionthis
yearproviding three straight years ofdeficit reduction for the
first time sinceHarry Truman was President. Measured asa percentage
of our economythat is, GrossDomestic Product (GDP)our plan will
cutthe deficit in half.
By reassuring the financial markets thatwe were serious about
getting our fiscalhouse in order, our plan also lowered
interest
rates while holding inflation in check. Thathelped to stimulate
private investment andexports, and sparked the creation of
5.6million new jobsmore than twice the numberin the previous four
years.
Now that we have brought the deficitdown, we have no intention
of turning back.My budget keeps us on the course of
fiscaldiscipline by proposing $81 billion in addi-tional deficit
reduction through the year 2000.I am proposing to save $23 billion
byreinventing three Cabinet departments andtwo other major
agencies, to save $2 billionby ending more than 130 programs
altogether,and to provide better service to Americansby
consolidating more than 270 other pro-grams. Under my plan, the
deficit will con-tinue to fall as a percentage of GDP to2.1
percent, reaching its lowest level since1979.
Despite our strong economic record, however,many Americans have
not shared in thefruits of recovery. Though these Americansare
working harder and harder, their incomesare either stagnant or
falling. The problemis particularly acute among those with
lesseducation or fewer of the skills needed tocompete in an
increasingly global economy.To build a more prosperous America,
onewith rising living standards for all Americans,we must turn our
attention to those whohave not benefited from the current
recovery.
My budget proposes to do that.
Promoting a Rising Standard of Livingfor All Americans
I am proposing a Middle Class Bill ofRights, which will provide
tax relief to middle-income Americans. The Middle Class Billof
Rights includes a $500 per child taxcredit for middle-income
families with childrenunder 13; expands eligibility for
IndividualRetirement Accounts and allows families tomake
penalty-free withdrawals for a rangeof educational, housing, and
medical needs;and offers a tax deduction for the costsof college,
university, or vocational education.
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4 THE BUDGET FOR FISCAL YEAR 1996
Also as part of my Middle Class Bill ofRights, I am proposing to
revamp our confus-ing array of job training programs by
consoli-dating some 70 of them. In my G.I. Billfor America's
Workers, I propose to offerdislocated and low-income workers
``Skillgrants'' through which they can make theirown choices about
the training they needto find new and better jobs.
The G.I. Bill for America's Workers isthe final element of my
effort to improvethe education and skills of Americans, ena-bling
them to compete in the economy oftoday and tomorrow. In the last
two years,we enacted Goals 2000 to encourage Statesand localities
to reform their education sys-tems; revamped the student loan
programto make post-secondary education affordableto more
Americans; and pushed successfullyfor the School-to-Work program
that enablesyoung Americans to move more easily fromhigh school to
training or more education.
And I am proposing to pay for this MiddleClass Bill of Rights
with specific spendingcuts. In fact, I am proposing enough
spendingcuts to provide more than twice as muchin budget
savings$144 billionas the taxcuts will cost$63 billionover five
years.
Creating Opportunity and EncouragingResponsibility
By itself, the Federal Government cannotrebuild America's
communities. What it cando is give communities some of the toolsand
resources to address their problems intheir own way. My national
service programprovides incentives for Americans of all agesto
volunteer their services in local communitiesacross the country,
and earn money fortheir own education. The budget proposesto invest
more in our urban centers aswell as in rural areas, and to
continueour efforts to build stronger government-to-government
relations with American Indianand Alaska Native Tribes. And I will
workwith Congress to enact comprehensive welfarereform that
embodies the principles of workand responsibility for abled-bodied
recipients,while protecting their children.
My Administration has worked with Stateand local law enforcement
agencies to helpretake the streets from the criminals and
drug dealers who, in far too many places,now control them.
Congress enacted my crimebill last year, finally answering the
criesof Americans after too many years of debateand gridlock. We
pushed successfully forthe ``three strikes and you're out'' rule
forviolent criminals, and we are making signifi-cant progress on my
promise to put 100,000more police on the street. Congress
alsopassed the long-overdue Brady Bill, whichprovides for
background checks that willkeep guns out of the hands of
criminals.In this budget, I am proposing new fundswith which States
and localities can hiremore police, build more space in prisonsand
boot camps, invest in prevention programsfor first-time offenders,
and provide drugtreatment for many more drug users.
My Administration inherited deep-seatedproblems with the
immigration system, andwe have gone a long way toward
addressingthem. This budget proposes the strongestefforts yet,
including funds for over 1,000new Border Patrol agents, inspectors,
andsupport staff. While working to fulfill theFederal Government's
responsibility to secureour borders against illegal immigration,
thebudget also proposes funds to assist Statesthat are unduly
burdened with the health,education, and prison-related costs
associatedwith illegal immigrants.
We must redouble our efforts to protectthe environment. My
Administration hassought more innovative, effective approachesto do
so, and this budget would build uponthem. In particular, I am
proposing to workmore with State and local governments,
busi-nesses, and environmental groups on collabo-rative efforts,
while seeking more funds forhigh-priority programs.
Because investments in science and tech-nology pay off in higher
productivity andliving standards down the road, I am
seekingsignificant new funding for the AdvancedTechnology Program
at the Commerce Depart-ment's National Institute of Standards
andTechnology, NASA's New Technology Invest-ments, the Defense
Department's TechnologyReinvestment Project, biomedical research
atthe National Institutes of Health, and researchand development at
the National ScienceFoundation. I am also seeking to strengthen
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5THE BUDGET MESSAGE OF THE PRESIDENT
our coordinated efforts through the Adminis-tration's National
Science and TechnologyCouncil and to improve the payment systemfor
federally-sponsored research at collegesand universities.
I remain committed to comprehensive healthcare reform. The
problems that promptedme to send Congress the Health SecurityAct in
November 1993 have not gone away.Health care costs have continued
to soarfor individuals, businesses, and all levelsof government.
More Americans are losingtheir health coverage each year, and
manyothers are staying in jobs only out of fearof losing their own
coverage. I am askingCongress to work with me on a bipartisanbasis,
to take the first steps toward guarantee-ing health care coverage
to every Americanwhile containing costs.
Projecting American Leadership Aroundthe World
We have begun the post-Cold War eraand welcome one of its most
significantfruitsthe continuing efforts of Russia andthe
newly-independent states to move towarddemocracy and economic
freedom. We proposeto continue our support for this
fundamentalchange that clearly serves the Nation's long-term
interests.
My proposals for international affairs alsopromote and defend
this Nation's vital inter-ests in Central Europe, the Middle
East,and Asia. The budget supports the importantrole we play in
fostering our historic peaceprocess in the Middle East.
With the global economy offering the pros-pect of new markets
for American goods,we are redoubling our efforts to promotean open
trading system in Asia, as wellas in Latin America and the rest of
theglobe. I am, for instance, proposing increasedfunding for our
trade promotion agencies,such as the Export-Import Bank,
whichstrengthen our trade position. I am alsoasking for continued
support for the bilateraland multilateral assistance to
less-developednations that can prevent humanitarian crises,as well
as support for a strong Americanresponse to these crises.
Our military strength works in synergywith our foreign policy.
Our forces defendour interests, deterring potential adversariesand
reassuring our friends. My Defense Fund-ing Initiative, a $25
billion increase in defensespending over the next six years,
marksthe third time that I have raised defensespending above my
initial funding plan inorder to support and maintain the
mostcapable military force in the world. I amdetermined to ensure a
high level of readinessof U.S. military forces, to continue to
improvethe pay and quality of life for the menand women who serve,
and to ensure thatour forces are modernized with new systemsthat
will be available near the end of thecentury.
Making Government Work
None of our efforts can fully succeed unlesswe make Government
work for all Americans.We have made great progress with the
Na-tional Performance Review (NPR), which Iestablished early in the
Administration andwhich Vice President Gore has so ably runat my
direction.
Specifically, departments and agenciesacross the Government have
made substantialprogress on each of the NPR's four themes:putting
customers first, empowering employeesto get results, cutting red
tape, and cuttingback to basics. The departments and agencieshave
established customer service standardsand streamlined their
operations. They alsoare working with my Office of Managementand
Budget to focus more on ``performance''what Federal programs
actually accomplish.And they are doing all this while we arecutting
the Federal workforce by 272,900positions, bringing it to its
smallest sizesince John Kennedy was President.
We also greatly improved the Federal regu-latory system, opening
it up more to publicscrutiny. We plan to build upon our efforts,to
make sure that we are protecting thepublic while not unduly
burdening any oneindustry or group. We also overhauled theFederal
procurement system, cutting moun-tains of red tape and enabling the
Governmentto buy high-quality goods and services atlower cost.
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6 THE BUDGET FOR FISCAL YEAR 1996
Despite such progress, however, we areonly beginning our
efforts. I recently an-nounced a major restructuring of the
Depart-ments of Housing and Urban Development,Energy, and
Transportation, the General Serv-ices Administration, and the
Office of Person-nel Management. The budget contains detailsof
these restructurings and our related propos-als that affect
hundreds of other programs.
In the coming months, the Vice Presidentwill lead Phase II of
our crusade to reinventGovernmentan effort to identify other
agen-cies and programs to restructure or terminate,to sort out
responsibilities among the Federal,State, and local levels of
government, andto choose functions better performed by theprivate
sector.
Conclusion
Our agenda is working. By cutting thebudget deficit, investing
in our people, and
opening world markets, we have begun tolay the foundation for a
strong economyfor years to come. And by reinventing theFederal
Government, cutting red tape andlayers of management, we have begun
tomake Government more responsive to theAmerican people.
This budget seeks to build upon thoseefforts. It seeks to spread
the benefits ofour economic recovery to more Americansand give them
the tools to build a brighterfuture for themselves. It also seeks
to continueour reinvention effortsto eliminate or re-structure
agencies and programs, and tobetter sort out responsibilities among
theFederal, State, and local levels of government.
These proposals will help us to createa stronger economy and
more effective Govern-ment. I will ask for Congress's help inthese
efforts.
WILLIAM J. CLINTON
February 6, 1995
-
7PROMOTING A RISINGSTANDARD OF LIVINGFOR ALL AMERICANS
-
9PROMOTING A RISING STANDARD OFLIVING FOR ALL AMERICANS
The Administration's central economic objec-tive is to improve
living standards for thegreatest possible number of American
families.Since 1993, the President has laid a firmfoundationwith a
series of budget, trade,education, and other policies that have
helpedgenerate the remarkable economic recoveryof the last two
years. With his new MiddleClass Bill of Rights and this budget,
thePresident is building upon that foundationto raise take-home pay
for Americans todayand help them acquire skills and more finan-cial
security tomorrow.
Two years ago, ballooning Federal budgetdeficits were the
greatest barrier to risingstandards of living. The Government
soakedup so much private saving that interestrates soared and
businesses could not affordinvestments to make our economy more
pro-ductive, and our workers more prosperous.With a balanced
package of spending cutsand revenue increases, the President's
pro-gram brought the deficit down steeplyfrom$290 billion in 1992
to a projected $193billion in 1995marking three straight yearsof
deficit reduction for the first time sinceHarry Truman was
President. Through theVice President's National Performance
Reviewand subsequent legislation, Federal employ-ment has fallen by
nearly 100,000 and soonwill drop to its lowest level since
JohnKennedy was President.
On the tax side, the President and Congressincreased the earned
income tax credit, whichcut income taxes for 40 million Americansin
15 million working families. The taxcuts provided relief where it
was neededmost and, by augmenting low wages, fulfilledthe
President's pledge to ``make work pay.''The President also made 90
percent of Ameri-ca's small businesses eligible for tax relief.
Deficit reduction and spending restraintbrought interest rates
down. Lower interestrates and targeted tax relief jump-startedwhat
had been a weak recovery from the1990 recession. Since this
Administration took
office in January of 1993, the economy hasproduced a whopping
5.6 million new jobs,compared to 2.4 million in the prior
fouryears. Yet, inflation remains at the slowestpace in
decades.
Rapid job growth and low inflation areprerequisites for rising
living standards, wide-ly shared. But, alone, they are not
enough.
While freezing total discretionary spendingfor three budget
years, the President shiftedbillions of dollars to investments in
humanand physical capital that will help raiseproductivity and,
with it, living standardsdown the road. He focused on better
educatingthe young, making college more affordablefor millions of
students, improving workers'skills, and reforming the welfare
system toreduce dependency and increase opportunity.He worked with
Congress to create theGoals 2000 program, which rewards
localschools that set and pursue their own edu-cational milestones,
and a direct studentloan program, which cut the cost of
Federalsupport for higher education. At the sametime, he focused on
investments in scienceand technology and in physical capital.
The economy has improved far more thaneven the most optimistic
forecasters predictedtwo years ago, and the deficit is muchlower
than anticipated. And yet, not everyonehas joined in the economic
recovery. Millionsof Americans continue to work harder andharder,
only to see their real incomes stagnateor even decline and their
jobs remain uncer-tain. The problems are particularly acuteamong
those with little education or fewskills. With this budget, the
President buildsupon his economic plan with the MiddleClass Bill of
Rightsboth short- and long-term policies to raise the living
standardsof those hard-working, middle-income Ameri-cans. His goal
is straightforward: Havingcreated millions of new jobs, he now
wantsto create jobs that are better and moresecure.
-
10 THE BUDGET FOR FISCAL YEAR 1996
The President's Middle Class Bill of Rightshas the following
four elements:
For tax relief, the President proposes amiddle-income tax cuta
tax credit forfamilies with children under age 13thatwill help
Americans with the day-to-daycosts of raising families.
To increase the Nation's savings and thefinancial self-reliance
and retirement re-serves of American workers, the Presidentproposes
expanded eligibility for Individ-ual Retirement Accounts (IRAs).
With thisprovision, most American families willhave a tax incentive
to make their owninvestments in their futures. And to helpwith the
major challenges of buying a firsthome, paying for catastrophic
health costs,withstanding the financial pressure of jobloss, and
financing education (to increaseour skills for the competitive
economy oftomorrow), the President would create op-portunities for
penalty-free withdrawalsfrom IRAs.
To nourish the skills workers need in to-morrow's economy, the
President proposesa tax deduction for the costs of post-sec-ondary
education. This gives averageAmerican families a tax cut if they
invest
in their children'sor their ownedu-cation and skills.
To equip today's workers, and tomorrow's,with the education and
job skills they needto compete effectively in the global econ-omy,
the President proposes a G.I. Bill forAmerica's Workers that
empowers individ-uals by awarding them skill grants andprovides
greater flexibility for State andlocal governments.
At the same time, the President proposesto build upon his
successes in opening foreignmarkets, to generate more of the
high-payingjobs associated with rising U.S. trade. Hewill negotiate
to expand membership in theNorth American Free Trade Agreement,
imple-ment the recent General Agreement on Tariffsand Trade, and
seek other bilateral andmulti-lateral opportunities to open new
mar-kets. He also will restructure U.S. tradepromotion programs to
target assistance toexporters.
In short, this budget builds on a baseof deficit reduction and
economic strengthby continuing to pursue sound fiscal policiesand
investments to bolster and further spreadour improved living
standards. It will makean enviable economic record even better.
-
11
1. Sharing the Benefits of EconomicGrowth
-
13
Table 11. AVERAGE HOUSEHOLD INCOME, BY QUINTILE(Incomes in
constant 1993 dollars)
Quintile Top 5PercentLowest Second Third Fourth Highest
1993 .........................................................
7,411 18,647 31,260 48,572 98,589 163,2281980
......................................................... 7,567
18,834 31,079 45,787 81,638 121,998Absolute Growth, 198093
..................... 156 187 181 2,785 16,951 41,230Percent growth
198093 ........................ 2.1 1.0 0.6 6.1 20.8 33.8
Source: Bureau of the Census
1. SHARING THE BENEFITS OF ECONOMICGROWTH
A MIDDLE-CLASS TAX CUT
The Problem of Lagging Incomes
On the domestic front, the President's high-est priority is to
spread the benefits ofour economic growth to average Americanswhose
incomes have remained stagnant oreven declined.
The roots of the problems of working Ameri-cans date back over
20 years. Rapid techno-logical advances have put a premium
oneducation and job skills. Generally speaking,those with high
education and sophisticatedskills have benefited in the last two
decades;their standards of living have risen. Thosewithout the
requisite education and skills,however, have had to work longer
hoursor more than one job just to maintaintheir living standards.
Even that wasn'tenough for the many whose living
standardsdeclined.
In recent decades, the middle class hasnot fully shared in the
benefits of a growingeconomy. From 198093, real incomes ofthe
middle one-fifth of households rose byonly 0.6 percent, an average
of under $200each (Table 11). Incomes of the top fifth,however,
grew by 20.8 percent, or about$17,000 each. Even more striking,
incomesof the top five percent grew by over 33percent, or over
$41,200.
As a result, the share of total householdincome enjoyed by the
middle class fell.The share going to the middle three-fifthsof
households fell from 51.8 percent in 1980to 48.2 percent in 1993.
The share of incomeenjoyed by the top fifth rose from 44.1percent
to 48.2 percent. Thus, by 1993,the top fifth of households was
receivingthe same share of income as the middlethree-fifths.
Moreover, the top five percent enjoyedmost of the growth in
income of the topone-fifth; its income share rose from 16.6percent
of all household income in 1980to 20 percent in 1993. Meanwhile,
the shareof income of the lowest fifth fell from 4.2percent to 3.6
percent.
Millions of working American families clear-ly have lagged
behind the pace of growingeconomic prosperityeven in the last
twoyears, when growth in the overall economyhas been especially
brisk. The President'sprogram is designed to help lift the
incomesof the broad middle class of American workers.
A First Step: The 1993 Tax Cut
Two years ago, the President and Congresstook a major first step
to raise the limitedincome growth and reduce the tax burdensof
lower-middle-income American workers:They made the earned income
tax credit
-
14 THE BUDGET FOR FISCAL YEAR 1996
1 By comparison, the Republican ``Contract with America''
propos-als would give 49.9 percent of their benefits to families
with in-comes over $100,000, and 28.3 percent to those with incomes
over$200,000 (the 2.2 percent of families with the highest
incomes).Families with incomes under $75,000 would get only 35.3
percentof the benefits. Thus, the small group of families that
enjoyed thebiggest income gains in recent years would get the
biggest tax cuts,while the vast bulk of middle-income families that
experienced onlymodest gains would get a smaller share.
(EITC) more generous and extended it tomore people. Their action
greatly reducedthe tax burden on these people and, bylifting
working families with children abovethe poverty line, fulfilled the
President's com-mitment to make work pay.
The EITC, which dates back to 1975,was originally designed to
offset the burdenof the Social Security payroll tax for low-wage
workers with children, and to supple-ment wages as a way to
encourage work.Congress extended it for two years in 1976,and
increased it while making it permanenttwo years later. Since then,
Congress hasperiodically increased and refined it. In 1993,the
President and Congress chose to makethe EITC available for the
first time topoor workers without children. Today, theEITC is
``refundable''that is, individualswho owe no income taxes still may
beeligible for a Federal refund. Consequently,the EITC helps to
raise average incomesof working families with incomes in thebottom
fifth of Americans.
In 1996, when the recent changes becomefully effective,
low-income families with twoor more children will receive a
40-percentwage subsidy on earnings up to $8,900.That is, each $100
of earnings will entitleworkers to a $40 EITC. The maximum
creditwill be $3,560 for workers who earn between$8,900 and
$11,620. The credit is phasedout for workers earning between
$11,620and $28,520.
In 1993, the imperative of reducing thedeficit precluded the
President and Congressfrom extending middle-income tax relief
tomore Americans. Now, with the deficit ex-pected to fall again in
1995, the Presidentcan continue the tax relief he began in1993
while maintaining his commitment tofiscal discipline: Under the
President's pro-gram, every dollar of tax cuts is offsetby spending
cuts described, in detail, laterin this budget.
The President's New Proposal
The President targets his new tax cutsquarely at the middle
class. More than60 percent of the benefits will go to familieswith
incomes below $75,000; 87 percent will
go to families with incomes below $100,000.1(See Table 12.)
The President's tax cut has three mainelements aimed at
strengthening families,promoting education, and encouraging
saving:
$500 non-refundable credit for each de-pendent child under the
age of 13: Thiscredit will be fully available to taxpayerswith
adjusted gross income (AGI) of lessthan $60,000, then phased out
for incomesfrom $60,000 to $75,000. To insure thatthe tax cut does
not increase the deficit,the credit is phased in only as fast
asspending can be cut. That is, the creditwill be $300 for 1996,
1997, and 1998,and $500 for 1999 and beyond.
This credit will provide substantial taxrelief. For example, a
two-parent, two-childfamily with $50,000 of wage and salaryincome
(in 1995 dollars) and $7,500 of itemizeddeductions will enjoy a 21
percent cut intaxesfrom $4,875 to $3,875once the creditis fully in
place. For hard-pressed workingfamilies, this tax saving could
serve as amortgage payment or as a reserve againsta significant
medical bill or other importantexpenses.
Deduction for up to $10,000 in post-secondary education and
training ex-penses: This benefit will be available fortuition and
fees (for the taxpayer, spouse,or dependents) for any college,
university,or vocational program eligible for Federalassistance.
Also, taxpayers will be able totake the deduction ``above the
line''; it willreduce their AGI and not be limited totaxpayers who
itemize deductions.
The maximum allowable deduction will bephased in. It will start
at $5,000 in 1996and rise to $10,000 in 1999 and beyond.Taxpayers
with AGI (before the deduction)below $100,000 will be eligible for
the fulldeduction; it will be phased out for taxpayerswith AGI
between $100,000 and $120,000.
-
151. SHARING THE BENEFITS OF ECONOMIC GROWTH
Table 12. PERCENTAGE DISTRIBUTION OF THEPRESIDENT'S MIDDLE-CLASS
TAX CUT PROPOSAL
(1994 income levels)
Family Economic Income Class 1(In thousands of dollars)
Number ofFamilies inFEI Income
Class(millions)
President'sMiddle-Class
Tax Cut(percent)
010
...........................................................................................
14.9 0.11020
.........................................................................................
18.4 1.12030
.........................................................................................
16.0 4.33050
.........................................................................................
22.4 23.35075
.........................................................................................
17.4 32.575100
.......................................................................................
9.9 25.6100200
.....................................................................................
8.8 12.4200 & over
................................................................................
2.4 0.6Total 2
........................................................................................
110.7 100.0
Source: Department of Treasury, Office of Tax Analysis, January
9, 1995.1 Family Economic Income (FEI) is a comprehensive income
concept that is broader than adjusted
gross income.2 Families with negative incomes are included in
the total line but are not shown separately.
(For taxpayers filing as single or head-of-household, it will be
phased out over theAGI range of $70,000 to $90,000.) Whenfully
implemented, this deduction could pro-vide tax savings of $1,500 to
$2,800 formiddle-income families.
Because college costs hit in large lumpsums, even
upper-middle-income families findthem hard to swallow. The prospect
of suchexpenses and a burden of debt upon gradua-tion can deter
some familiesespecially thoseof lower incomefrom making this key
invest-ment. This deduction will strengthen theeconomic incentive
for doing so, thus promot-ing long-term increases in productivity
andeconomic growth as well as broadening eco-nomic opportunity.
It also will help level the playing fieldbetween investments for
physical capital andthose for human capital. Investments
forphysical capital, such as plant and equipment,are eligible for
deductions for depreciation.Individuals' investments in skills and
training,however, generally are not eligible for
suchdeductions.
Greatly expanded Individual RetirementAccount (IRA) options:
Today, couples withAGI of up to $40,000 can make fully
deductiblecontributions of up to $2,000 to IRAs. The
President would double the income limitto $80,000 (phased out at
$100,000) forfamilies, and raise it to $50,000 (phasedout at
$70,000) for individuals.
The President's proposal would extend fullydeductible IRAs to
the vast majority of tax-payers. Moreover, it would index these
incomelimits, as well as the $2,000 maximum con-tribution, for
inflation; eligibility and incomelimits would increase over time.
In addition,taxpayers eligible for deductible IRAs couldselect a
new ``Special IRA,'' which providesits tax benefits at the time of
withdrawal,not contribution. Rather than receive a taxdeduction for
contributions, individuals couldelect to pay no taxes on the money
theywithdraw from IRAs after at least five years.Finally,
individuals with AGI below the eligi-bility levels could convert an
existing IRAto a Special IRA.
Individuals also could withdraw funds earlyfrom an IRA without
paying the 10-percentpenaltyif they use the money for:
Post-secondary education;
Purchase of a first home;
Unemployment spells of 12 weeks or more;
-
16 THE BUDGET FOR FISCAL YEAR 1996
Care of an incapacitated elderly parent orgrandparent; or
Medical expenses in excess of 7.5 percentof AGI.
From the IRA expansion, too, the taxcut could prove substantial.
Taxes for middle-income families could fall $600 to $1,120if both
spouses work and contribute themaximum $4,000 to their IRAs.
Expanded IRAs will promote savings, help-ing families and the
economy as a whole:They will encourage middle-income familiesto
save, enhancing their long-term economicindependence; and they will
increase theavailability of capital to U.S. business, expand-ing
investment and speeding the growth ofproductivity and incomes.
Currently, the U.S. personal savings rateis low in historic
terms and by internationalcomparison, handicapping investment and
eco-nomic growth. The expanded IRAs will senda signal to Americans
that saving is important.The availability of these new
opportunitieswill encourage private financial institutionsto spread
the word.
SECURING HIGHER INCOMES
Education . . . has a bigger impact on earningsand job security
than ever before . . . Every Americanneeds the skills necessary to
prosper in the neweconomy . . . So let's invest the fruits of
today's recov-ery into tomorrow's opportunity.
President ClintonAddress to the NationDecember 15, 1994
The President's G.I. Bill for America's Work-ers, the fourth
element of his Middle ClassBill of Rights, will ensure that all
Americansincluding those who don't benefit from thetax cutshave the
opportunity to get theskills they need. This initiative not
onlycomplements other parts of the Middle ClassBill of Rights but
also builds on the Adminis-tration's success, working with the last
Con-gress, in improving the education systemfrom preschool through
college, thus helpingto insure that the next generation will
enterthe workforce better prepared than previous
ones. By focusing on adults as well asyouth, this education and
training initiativewould make lifelong learning opportunitiesfor
all Americans a reality.
The Lifelong Learning Agenda
The comprehensive set of initiatives forlifelong learning began
with successful, bipar-tisan legislation of the last two years
toincrease educational opportunity and qualityfor young people and
make college moreaffordable:
Head Start Act;
Goals 2000: Educate America Act;
School-to-Work Opportunities Act;
Improving America's Schools Act; and
Student Loan Reform Act.
Through these laws, the Administrationand Congress are making
pre-school moreeffective, helping States set challenging stand-ards
for our schools, helping schools incor-porate those standards into
system-wide ele-mentary and secondary education improve-ments,
enabling high school students to moresuccessfully move from school
to work andfurther education, and making college loansmore
affordable. These laws help States andlocalities raise the
achievement and skilllevels of all students and workers in orderto
build a sounder economy, and strongdemocracy, in the future.
The final component of this agenda isthe President's new skills
initiative. Workingwith States, communities, and the privatesector,
it will produce a thorough restructuringof the wide array of
Federal education andtraining programs, make job search
assistancemore effective, and put more dollars directlyin the hands
of workers and job seekerswho need and want new skills.
For the major components of the LifelongLearning Agenda, the
budget proposes $27.7billion, an increase of $2.5 billion over
the1995 leveland an increase of $5.2 billion,or 23 percent, over
1993. (See Table 13.)
What We Have Achieved
In the U.S., education is mainly a State,local, and private
sector responsibility. The
-
171. SHARING THE BENEFITS OF ECONOMIC GROWTH
Table 13. THE BUDGET INCREASES INVESTMENT IN MAJOR PRO-GRAMS FOR
LIFELONG LEARNING BY $2.5 BILLION OVER 1995, ANINCREASE OF $5.2
BILLION, OR 23 PERCENT OVER THE 1993 LEVEL
(Budget authority, in millions of dollars)
1993Actual
1995Estimate 1
1996Proposed
Change:1995 to
1996
Change:1993 to
1996
Head Start
...............................................................
2,776 3,535 3,935 +400 +1,159Goals 2000
...............................................................
.............. 403 750 +347 +750Education for the Disadvantaged
(Title I) ............ 6,686 7,233 7,441 +208 +755Professional
Development (Title II) ....................... .............. 320
735 +415 +735Charter Schools
.......................................................
.............. 6 20 +14 +20Education Technology (ED and DOL)
................... .............. 40 98 +58 +98Safe and Drug-Free
Schools 2 ................................. 582 482 500 +18
82School-to-Work (ED and DOL) [included in G.I.
Bill for America's Workers entry]G.I. Bill for America's Workers
.............................. 12,426 13,186 14,202 +1,016
+1,776
Total BA, lifelong learning ............................ 22,470
25,205 27,681 +2,476 +5,211
Loans for education and training (in millions ofdollars)
..................................................................
17,873 25,757 28,356 +2,599 +10,4831 Includes proposed
supplementals and rescissions.2 Reflects Congress' cut below the
appropriation request in 1995.
Federal Government provides less than 10percent of total public
funds spent for thesepurposes. This tradition of local
responsibilityand control precludes the possibility of top-down
reform. If schools are to improve,States, local school districts,
and individualschoolstogether with parentsmust take thelead and
play active roles. Quality, equity,and access to education are,
however, criticalnational concerns. Acting as a partner withStates,
local communities, and the privatesector, the Federal Government
invests itsresources in three primary areas:
To stimulate reform (e.g., Goals 2000 andSchool-to-Work);
To supplement State and local resourcesfor particular,
high-priority purposes (e.g.,educating the disadvantaged and
makingschools safer and more drug-free); and
To make postsecondary education more af-fordable (e.g., Pell
grants, student loans,and the new tax benefits for training).
Head StartReforming the PreschoolSystem: Head Start provides
comprehensiveservices, such as education, health care, and
nutritious meals, for disadvantaged three-to-five-year-old
children and their families.The new infant and toddler initiative
thatthe President and Congress enacted in 1994as part of the Head
Start Act, allocatesabout four percent of 1996 Head Start fundsto
reach children under age three and theirfamilies.
Evaluations of Head Start children havefound short-term gains in
IQ scores, betterreading and math skills, better
emotionaladjustment, and improved health. FormerHead Start children
are likelier to be promotedto the next grade and less likely to
beassigned to special education classes. To as-sure that all Head
Start programs consistentlydeliver the high-quality services needed
toproduce such results, the Administration andCongress enacted
major quality improvementsto Head Start in the 1994
reauthorization.
The 1994 Act supports investments to at-tract and retain workers
at Head Startcenters, thereby increasing the stability ofthe
program environment and improving thequality of instruction. These
investments en-able Head Start centers to improve teacher-
-
18 THE BUDGET FOR FISCAL YEAR 1996
Chart 1-1. 32 THOUSAND NEW HEAD START OPPORTUNITIES FOR CHILDREN
IN 1996
Note: Slots for the age 0-3 initiative in 1993 and 1994 show
participation in the Comprehensive Child Development Projects
(CCDP) and Head Start Parent Child Centers (PCC).
THOUSANDS
1993 1994 1995 1996675
700
725
750
775
800
722
749 753
784
REGULAR SLOTS ALL DAY SLOTS SLOTS FOR AGE 0-3 INITIATIVE
0
child ratios, hire education and health special-ists, upgrade
facilities, and make otherchanges that local managers deem
appropriateto raise the quality of their programs. ByMay 1995, the
Department of Health andHuman Services will develop
performancemeasures for evaluating the quality of localprograms.
The Department is working toensure accountability and will take
promptaction against poorly performing grantees,including
termination if necessary.
Having begun the process of improvingHead Start's quality, the
Administration willfocus as well in 1996 on increasing thenumber of
children who benefit from theprogram. The budget would create
31,500new opportunities for children, including theprovision of
full-year, full-day slots, part-time slots, and slots for the new
infantand toddler initiative. (See Chart 11.) Alltold, the budget
provides for 784,000 slotsin 1996, for which it proposes $3.935
billion
for Head Start, an increase of $400 million,or 11 percent, over
the 1995 level.
Goals 2000: Educate America Act: The1994 enactment of Goals 2000
marked anew era in education reform, one that engagesall schools
and students. Goals 2000 codifiesthe National Education Goals,
gives Statesnew reform resources, and sets the expectationthat all
children will achieve the high stand-ards that States develop. It
helps Statessupport local districts and schools in theirefforts to
align curriculum, instruction, andprofessional development with
challenging newstandards. And it helps States make schoolsmore
accountable to parents, students andthe public.
Goals 2000 draws on research and inter-national comparisons that
show that all stu-dents can reach far higher academic standardsthan
we have asked of them. It incorporatesa strategy far different from
prior Federalreform endeavors; it addresses a national
-
191. SHARING THE BENEFITS OF ECONOMIC GROWTH
problem with a national, not a Federal,strategy. Rather than
impose a top-downapproach filled with mandates, it focuseson
fostering bottom-up, local reform guidedby challenging State
standards. The goal:To create a long-term, productive
partnershipamong local schools, school districts, States,and the
Federal Government to bring allstudents to higher levels of
achievement.
Goals 2000 calls for maximum State flexibil-ity, as reflected in
the Education Department'simplementation strategy. It imposes no
addi-tional constraints and offers States new waiverflexibility
through which to bring almostall Federal elementary and secondary
edu-cation programs into their reform efforts.Each State is
tailoring its reform approachto its needs. For example, some States
maybegin with improved teacher training, otherswith curriculum
redesign, and still otherswith enhanced parent involvement.
Under Goals 2000, the Federal Governmentwill work with States to
carefully evaluatereform. It will help the States learn fromeach
other while it conducts national levelresearch and collects
information that Statesneed to support their efforts. Over time,the
Federal Government will work with Statesto create performance
indicators for systemicreform, which might include:
The pace by which States establish objec-tive, high-quality
academic content andperformance standards, and align profes-sional
development and assessment withthem;
The change in the percentage of studentswho meet or exceed
reading and math pro-ficiency levels, as measured by the Na-tional
Assessment of Educational Progress;and
The performance of students in high-pov-erty schools, compared
to those in otherschools.
The budget proposes $750 million for Goals2000, an increase of
$347 million, or 86percent, over 1995.
Improving America's Schools Act (reau-thorization of the
Elementary and Second-ary Education Act of 1965): Title I
providesfunds to raise the educational achievement
of children in low-income areas. In 1994,the President proposed
and Congress adoptedchanges to focus Title I resources betteron
areas with the largest concentrations oflow-income children; set
the same high stand-ards for those children as for others; andhold
schools accountable for making progresstoward achieving those
standards. States nowhave much more flexibility to use fundsas they
deem necessary to achieve bettereducational results for children.
The budgetincludes $7.441 billion for Title I, an increaseof $208
million, or three percent, over the1995 level.
The new Title II Professional Developmentprogram provides funds
to States and edu-cational institutions to support the
intensive,high-quality training of teachers and adminis-trators.
The program will enable educatorsto achieve higher levels of
professional excel-lence and help students achieve the newacademic
standards and learn in accordancewith new State curriculum designs.
The budg-et includes $735 million for Professional Devel-opment, an
increase of $415 million, or130 percent, over 1995.
Of the other elements in the new Act,three are especially
significant:
Charter SchoolsFunds for States andschool districts to support
the developmentof new types of public schools that en-hance
parental choice and operate sub-stantially free of Federal, State,
and localregulations that may impede better stu-dent achievement.
The budget includes$20 million for Charter schools, an in-crease of
$14 million over 1995's first yearfunding.
Technology for EducationActivities(including a ``Technology
Learning Chal-lenge'') to create a partnership amongStates,
schools, and the private sector toraise education and training
achievementby innovatively using technology. Thebudget proposes $83
million for the Edu-cation Department and $15 million for theLabor
Department; the $98 million totalrepresents an increase of $58
million, or145 percent, over 1995's first year funding.
Safe and Drug-free Schools and Com-munitiesThe restructuring of
programs
-
20 THE BUDGET FOR FISCAL YEAR 1996
of drug abuse prevention and school vio-lence reduction, giving
States and schoolsmore flexibility to use funding to meettheir
needs. The budget proposes $500million for these activities, an
increase of$18 million over 1995.
School-to-Work Opportunities Act:School-to-Work supports State,
local, and pri-vate efforts to build an education and
trainingsystem that helps all youth get the knowledgeand skills to
move smoothly from schoolto career-oriented work or to more
educationor training. States and localities tailor theiractivities
to local needs, such as by developingnew curricula that integrate
academic andoccupational learning; linking high school andone or
two years of postsecondary technicaleducation; using mentors to
help young peoplelearn the requirements of the workplace;and
providing ``skill certificates'' that employ-ers can trust in
choosing a qualified youngperson.
For example:
Boston builds on a youth apprenticeshipmodel, integrating paid
work experiencewith new curriculum; and
Oregon's South Coast Region uses the skillcertificate approach,
focusing on careers inhealth care, finance, tourism,
manufactur-ing, shipping, forest products, and com-mercial
fishing.
Recognizing the link between schools andthe labor market, the
Labor and EducationDepartments administer School-to-Work
jointlythrough a single office that works with States,localities,
and the private sector. The budgetproposes $400 million for
School-to-Work, anincrease of $150 million, or 60 percent,
over1995. (For more discussion, see ``HelpingYouth,'' below.)
Reforms of the Student Loan System:The guaranteed loan program
structure thatevolved over the past 30 years was verycostly, hard
to administer, and subject toabuse. In response, the President
proposedthe Student Loan Reform Act, which Congressenacted in
1993.
The Act launched the Federal Direct StudentLoan Program to
replace the guaranteedlending program, which works through
7,500
lenders and 46 State and non-profit intermedi-aries (``guaranty
agencies''). The new programfinances loans efficiently by sending
themdirectly to students and schools through simpleelectronic
transfers. It greatly simplifies bor-rowing for students, parents,
and schools.And for the first time, it gives borrowerssubstantial
repayment flexibility, particularlythrough the ``pay-as-you-can''
optionborrow-ers only repay each year what their incomepermits.
Under this option, nobody needsto fear that borrowing for school
might leadto loan defaults or that loan burdens mightbe too great.
The Act extends the Pay-as-you-can option to all borrowers underthe
old program through ``consolidation loans.''The Act will save an
estimated $6.8 billionfrom 19952000.
Direct lending began successfully in 1994,with 226,000 new
loans. To maximize thebenefits of direct lending for students,
familiesand schools, and to further lower taxpayercosts, the
Administration is proposing tospeed up Direct Loan implementation
sothat all new loans are direct loans by July1, 1997, saving an
additional $5.2 billionfrom 19962000. (See Chart 12.)
THE AGENDA AHEAD
During its first two years, the Administra-tion focused on
improving education frompre-school through college. These
investmentsare critical to the Nation's future. But wealso must
provide better opportunities forthose adults who are already in the
workforceand whose education may prove insufficientto meet the
challenges of today's economy,or whose skills may prove equally
insufficientto move them into new or better jobs.
The Problem with Job Placement and JobTraining Programs
Today's patchwork of Federal job placementand training programs
grew up over morethan 60 years. Each element was designedwith the
best of intentionsto respond toa specific concern. In the end,
however,the system does not meet the needs oftoday's economy or fit
the President's goalof a streamlined, more effective system.
The many programs, with their conflictingrules and
administrative structures, con-
-
211. SHARING THE BENEFITS OF ECONOMIC GROWTH
1995 1996 1997 1998 1999 20002.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Chart 1-2. STUDENT LOAN PROGRAM COSTS WOULD BE REDUCED 12
BILLION DOLLARS OVER SIX YEARS, 1995-2000
OUTLAYS IN BILLIONS
NOTE: Pre-SLRA baseline is adjusted for interest rate, inflation
and loan volume differentials, to make them comparable.
SLRA SAVINGS:$6.8 B, 1995-2000
1996 BUDGETADDITIONAL SAVINGS:
$5.2 B, 1996-2000
1996 BASELINE
PRE-STUDENT LOAN REFORMACT OF 1993 (SLRA) BASELINE
1996 BUDGET POLICY
0
fuse the people they are intended to help,add bureaucracy at
every level, and wastetaxpayer money.
Not surprisingly, States and localitiescomplain about the
problems of copingwith so many different Federal rules andreporting
requirements.
In many programs, bureaucrats makechoices about jobs and
training for individ-uals, as if individuals cannot choose
forthemselves; nor is the private sectorplugged in enough to
help.
Job seekers and those who seek skill train-ing do not receive
high-quality informationand assistance. Pell grants and
studentloans do permit ``choice''recipients usethe Federal aid at
the institution theychoosebut recipients cannot make in-formed
choices because they do not get re-liable information on job and
career oppor-tunities or on the quality of training pro-viders to
choose from.
The quality of training and related serv-ices is uneven, and the
programs often donot require accountability for results;
in-stitutions continue to get Federal funds re-gardless of
performance.
The Solution: Reinventing Programs byEmpowering People, States,
and LocalCommunities
The President intends to help workers,job seekers, local
governments, and the privatesector meet the demands of the new
economyby scrapping the confusing maze of Federaltraining programs.
He would break downtraditional hierarchies and bureaucracies,
put-ting most resources directly into workers'hands. Funds also
would go directly to Statesand localities, so they could design the
jobsearch and training-related systems that theydetermine are
needed to help youth andadults to qualify for, and get, good
jobs.
-
22 THE BUDGET FOR FISCAL YEAR 1996
0 500 1,000 1,500 2,000 2,500 3,000 3,500
1,176
2,682
277
1,784
2,829
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
5,500 6,000 6,500 7,000 7,500
6,578
7,107
Chart 1-3. 1.6 MILLION MORE GRANTS AND LOANS FOR PEOPLE TO MAKE
THEIR OWN CHOICES OF TRAINING AND EDUCATION
DISLOCATED WORKER SKILL GRANTS
LOW INCOME SKILL GRANTS
PELL GRANTS FOR AAs AND ABOVE
B. INDIVIDUAL EDUCATION ACCOUNTS (STUDENT LOANS)
A. SKILL GRANTS AND PELL GRANTS
THOUSANDS OF LOANS
1996
1996
1995
1995
1995
1996
1996
THOUSANDS OF AWARDS
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
5,500 6,000 6,500 7,000 7,500
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Able to acquire the skills and informationthey need to compete,
workers will havemore control over their own futures. Giventhe
opportunity, States and communities willdesign the job training and
related servicestheir citizens need. The Federal Governmentwill
ensure that services continue to beprovided to the disadvantaged
and that theFederal funds in question produce measurableresults.
Thus, this initiative is based onseven key principles:
1. Empowering individuals;
2. Providing good data to guide choices;
3. Insuring accountability to consumersand taxpayers;
4. Creating leaner government;
5. Providing greater flexibility to Stateand local
communities;
6. Making the private sector a partner;and
7. Creating effective paths from schools towork.
Of the 163 Federal job training programsthat the General
Accounting Office identifiedin January 1995, this proposal would
incor-porate all those that directly support generaljob search and
job training assistance. Thebudget reflects the inclusion of 70
programs,representing over 60 percent of 1995 fundingfor the
programs GAO identified. (See Table14.) Of the rest, some were
terminatedor not funded in 1995 and the others arenot appropriate
for inclusionfor example,some primarily assist business
development;others provide physical rehabilitation for thedisabled.
Thus, they do not fit the descriptionof general job search or
training.
While proposing to streamline programs,the President also seeks
to increase overallfunding by $1 billion, reflecting his
beliefthatnow more than evereducation andtraining are the ladder
into the middle-class and the best insurance that workershave
against economic change.
-
231. SHARING THE BENEFITS OF ECONOMIC GROWTH
Table 14. THE G.I. BILL FOR AMERICA'S WORKERS COMBINES 70
PROGRAMSINTO ONE WORKFORCE DEVELOPMENT SYSTEM, AND INCREASES
FUND-ING $1 BILLION OVER 1995
(Discretionary budget authority, in millions of dollars)
Sets of Categorical Programs 1995Enacted System
Components1996
Proposed
JTPA adult programs
........................................Dislocated worker programs
.............................Pell grants
..........................................................Employment
service ...........................................State
postsecondary renew program ................Research, evaluation
and demonstrations .......One-Stop Career Centers
..................................JTPA and other youth programs
......................School-to-Work (ED and DOL)
..........................Vocational education programs
.........................Adult education and family literacy
programs
9971,2966,247
9122048
1201,630
2501,178
488
Skill and Pell grants to individuals:Dislocated workers
.........................................Low-income persons
.......................................Pell grants for AA degrees
and above ..........
Subtotal, individual grants ........................
State-defined services system:Adults (including One-Stop)
..........................Adult and family literacy
..............................Youth (including School-to-Work)
.................
5823,0594,480
8,121
2,685490
2,906
Total: Total:.Categorical programs
................................ 13,186 Better Jobs and Skills
System ................ 14,202
Loans for education and training (in millionsof dollars)
........................................................ 25,757
Loans for education and training (in millionsof dollars)
........................................................ 28,356
The new jobs and skills initiative willallow each State to
devise an integratedstrategy that unifies all elements of
thetraining and education system. The buildingblocks are described
separately below (thoughthe Federal Government would no
longerrequire States to maintain separate programs).
Helping Adults: The President's proposalwould create ``Skill
grants'' for unemployedand low-income workers and job
seekers.States would create systems to give individualsthe
information they need to make informedchoices with these grants and
ensure thatworkers are not defrauded by incompetentor unscrupulous
providers. The proposal wouldmake 1.6 million more grants and
loansavailable in 1996 than in 1995. (See Chart13.) It also would
support State effortsto design new, more flexible, integrated
sys-tems that will provide information aboutjobs and training,
counseling, placement as-sistance, and other services.
Individuals would get Skill grants or Pellgrants of up to $2,620
a year for training;
The budget proposes $3.6 billion in 1996for Skill grants for
technical education and$4.5 billion for associates and
bachelor'sdegree courses through Pell grants. The
student loan programs will provide an-other $28 billion in loan
capital to helpfinance training and higher education;
Low-income persons would get Skill grantsbased on family income
and cost of edu-cation, in the same way they do now underPell
grants; and
Dislocated workers who need trainingwould qualify for Skill
grants without anincome test. Adults who lose their jobs andneed
skill training to get a new one wouldreceive income support.
The proposal would build upon progressunderway through
``One-Stop Career Centers''to encourage States and localities to
designand implement new systems of placementand training-related
services within five years.
It would provide $2.7 billion, most of itto States to design and
operate the newsystem; and some for Federal activitiessuch as
oversight, research, evaluation,and response to multi-State layoffs
andnatural disasters; and
It would provide $490 million for adultand family literacy,
which the States coulduse as they want for basic skills
instruc-
-
24 THE BUDGET FOR FISCAL YEAR 1996
tion, GED preparation, and English-as-a-second language
training.
Helping Youth: Too many young peopledo not now get the necessary
preparationfor jobs or for more education by the timethey leave
high school. Many do not evenfinish high school, in part because
theysee no connection between schooling andsuccess in the job
market. As discussedabove, the School-to-Work Opportunities
Actlaunched a national reform of education andworkforce preparation
programs for America'syouth. Now, to build on and intensify
thateffort, the President's proposal will helpStates, communities,
and the private sectorcompletely restructure the primary
Federalyouth training programs.
Under the proposal, States and localitieswill continue to
receive School-to-WorkOpportunities Act funds to link school
sys-tems, postsecondary education, and theprivate sector. These
funds phase out by2001 as systems are implemented;
The proposal would consolidate most fundsunder the Perkins
Vocational EducationAct into one in-school youth grant
toStates;
It would consolidate most funds under theJTPA IIC (year-round
youth programs),JTPA Summer Youth Jobs programs, andother youth
programs into one grant toStates to serve dropouts and
high-riskyouth; and
It would strongly encourage States and lo-calities to implement
an integrated School-to-Work system to serve in-school and
out-of-school youth. They could submit a singleplan to the
Education and Labor Depart-ments to combine Perkins, JTPA,
ESEATitle I, and other youth funds. The Fed-eral Government would
quickly waiveupon request any remaining Federal re-quirements that
impede success.
Maintaining and Enhancing the PrivateSector Role: The private
sector has animmediate, direct stake in the quality ofjob training
and related systems. It is estab-lishing skill standards that can
serve asthe basis for holding training providers ac-countable for
results. Under the President'sproposal:
Business and labor will be key partnersin designing adult and
youth programsand in providing essential data on jobsand skill
demands; and
Government will recognize and giveawards to firms that have
enjoyed themost success in upgrading the skills oftheir workforce.
The most competitive andproductive firms are improving such
skillsby way of formal training, on-the-job train-ing, and
investments in mid-career edu-cation, and by empowering workers to
takegreater responsibility on the job.
Improving the Pell Grant Program: ThePell grant program provides
need-based grantsto 4 million low- and middle-income
under-graduates for vocational training and associ-ates and
bachelors degree programs. Abouthalf the recipients come from
families withunder $10,000 in income, and over 90 percentcome from
families with under $30,000 inincome. Awards range from a minimum
of$400 up to a maximum limited by annualappropriations.
Studies show that Pell grants help raisethe participation rates
of low-income studentsin post-secondary programs. As such, theyare
another important ladder into the middleclass. Currently, about
one-third of Pell fundsare used for non-degree programs and arenot
integrated with other Federal and Statetraining activity.
Individuals who use thesefunds get little information about career
op-tions or the quality of vocational schools.
In the new skills initiative, Pell grantfunds for vocational
training would become``Skill grants'' (as described above).
Recipientswould benefit from information about jobsand careers
before enrolling in training andwould learn the quality of training
at eachschool.
For 1996, the budget would raise themaximum Pell grant to its
highest levelever at $2,620, the same as the new Skillgrantsa $280,
or 12-percent increase, overthe 1995 level.
More Accountability at all Levels
The President proposes to make the neweducation and training
system meet the testthat businesses face every day: it must
deliver
-
251. SHARING THE BENEFITS OF ECONOMIC GROWTH
value to its customers or risk losing resources.The system will
reflect the principles ofperformance-based management at all
levels.
Individuals will have the resources to buytraining, and the
detailed reports on thequality and track records of eligible
edu-cation and training institutions to let themmake sound choices.
Ineffective institu-tions will not survive.
Individuals will be able to use their Fed-eral dollars only at
institutions with goodtrack records, in terms of their
students'achievement against recognized skillstandards and their
success in the jobmarket.
State-designed job search, job information,and training-related
services will have toprovide data to the public and to the Fed-eral
Government on how effectively theyare using resources.
Training providers will have to meet mini-mum quality standards
in order to receiveFederal funds.
Training providers will have to producecustomer-friendly
``Report Cards,'' spellingout how well they perform on such
factorsas job placement of hard-to-employ per-sons as well as
others, and the earningsof graduates in relation to program
costs.
The Labor and Education Departmentswill assess the system's
overall perform-ance at the national level and make itsperformance
the basis for future budgetproposals.
WELFARE REFORM
Under true reform, the welfare systemwould support the
President's goal of ensuringthat everyone, including welfare
recipients,receive the training they need to go towork. It would
provide temporary help forAmericans who have fallen on hard
times,while giving them the tools to return tothe economic
mainstream.
By that standard, the current system isbadly flawed. The vast
majority of Americansseem to agree, according to public
opinionpolls:
75 percent believe that welfare is rife withfraud and waste and
does little to helppoor people;
85 percent believe that it should be trans-formed into a program
that creates jobsfor the low-income; and
89 percent support a two-year welfarelimit, after which
able-bodied recipientsshould get a job or do community service.
Today's system does too little to preventthe conditions that
lead to welfare dependency,such as teen pregnancy and poor
education.It also provides a series of roadblocks forthose who want
to get off welfare. It doesnot give many the training they need
tobe self-sufficient or help them find jobs.Nor does it force most
fathers to take respon-sibility for their families. Low-income
parentswho want to work often cannot get daycare or health care for
their children, orfind a job with wages high enough to movetheir
families out of poverty.
The President has pledged to ``end welfareas we know it.'' Last
year he submittedlegislation, the Work and Responsibility Act,to
accomplish that goal. This year, he willwork with Congress to enact
comprehensivewelfare reform that embodies the principlesof work and
responsibility for able-bodiedwelfare recipients and protects their
children.
A Brief History of Our Welfare System
At the turn of the century, our welfaresystem still reflected
the English poor laws.Assistance went to the poor, but often onlyto
those willing to live in poorhouses orto place their children in
institutions orwith other families as apprentices or inden-tured
servants. Responding to public concernsabout the living conditions
of large numbersof children, President Theodore Roosevelt con-vened
the first White House Conference onChildren in 1909. Conferees
agreed that,where possible, children should remain withtheir
families. As a result, many Statesenacted mothers' pension laws to
keep familiesintact.
The Great Depression spurred furtherchanges to America's
decentralized, loose-knitsocial welfare system. Private and
publicagencies could not handle the massive needs
-
26 THE BUDGET FOR FISCAL YEAR 1996
Chart 1-4. HOW LONG DOES THE AVERAGE AFDC RECIPIENTSTAY
CONTINUOUSLY ON WELFARE ?
UP TO1 YEAR
56%
8+ YEARS9%
3 - 7 YEARS
21%
2 YEARS14%
SOURCE: 1994 Greenbook, p. 442.
of so many destitute families. In August1935, President Franklin
Roosevelt signedthe Social Security Act, establishing
severalassistance programs with shared Federal-State
responsibility, including Aid to Depend-ent Children (now Aid to
Families withDependent Children, or AFDC), which isconsidered the
Government's main welfareprogram.
Welfare Today
First designed primarily to aid widowswith young children, AFDC
has expandedover the years to serve children whose fatheror mother
is absent, disabled, or unemployed.Rising rates of divorce and
out-of-wedlockchildbearing, along with an expansion ofeligibility
and higher participation ratesamong the eligible, swelled the
populationof AFDC recipients. In 1936, a half-millionindividuals
received AFDC assistance. Today,14 million individuals (two-thirds
of themchildren) get such help each year, and the
Federal and State governments spend nearly$23 billion a year.
(Despite perceptions tothe contrary, however, Federal spending
onAFDC amounts to less than one percentof the Federal budget.)
Length of Time on AFDC: Today, manybelieve AFDC fosters
long-term dependency.Once a family begins to receive
welfare,critics contend, parents may begin to relyon monthly cash
payments instead of seekingwork. While the charge is true of a
smallcore of people that tend to stay on therolls for a long
timeabout 9 percent staycontinuously for at least eight
yearsmostAFDC recipients receive assistance only tem-porarily, as
Chart 14 shows.
Large numbers of recipients find jobs, andothers marry and leave
welfare. About 70percent leave AFDC within two years, accord-ing to
a recent study. But while they maywant to remain independent, many
familiesreturn to welfare. Some have trouble combin-
-
271. SHARING THE BENEFITS OF ECONOMIC GROWTH
1970 1980 1985 1990 19910
5
10
15
20
25
30
35
Chart 1-5. OUT-OF-WEDLOCK BIRTH RATES IN THE U.S.NEARLY TRIPLED
BETWEEN 1970 AND 1991
SOURCE: 1994 Statistical Abstract of the U.S., p. 80.
11%
18%
22%
28%30%
PERCENT
ing work and family responsibilities; otherslack the social and
work-related skills tokeep a steady job.
Changes in the Family: Critics also con-tend that the welfare
system promotes out-of-wedlock childbearing. To be sure, the
per-centage of such births nearly tripled between1970 and 1991; by
1991, 30 percent ofall births were by unmarried women. (SeeChart
15.) But numerous studies have foundlittle or no relationship
between these trendsand the level of welfare benefits.
Instead,out-of-wedlock childbearing seems rooted inbroader economic
and cultural changes thathave affected all segments of society.
Non-Payment of Child Support: Due tochanges in the family, by
1992 nearly oneof every four children under age 18 inthe U.S. lived
in a family where the motherhad never married or the father was
absentbecause of divorce, separation, or death. Aserious related
problem is that large numbers
of absent parents never assume responsibilityfor paying child
support. In 1989, only 43percent of low-income women were
awardedchild support through the court system. (SeeChart 16).
Nor does a court award always translateinto child support
itself. Only about halfof low-income women who receive a legalorder
mandating support receive any money.The result is that
three-quarters of thesefamilies are getting no help from the
child'sfather (57 percent with no award, and 18percent with no
payment, as Chart 16shows).
While the federally-sponsored, State-runchild support system has
made great strides,collecting about 14 percent more child supportin
1992 than 1991 for AFDC-supported fami-lies, the system still needs
vast improvement.In 1992, only about 12 percent of parentsthat were
absent from AFDC families andbeing pursued by State agencies
actually
-
28 THE BUDGET FOR FISCAL YEAR 1996
Chart 1-6. MOST POOR WOMEN RECEIVENO CHILD SUPPORT
RECEIVED SOMECHILD SUPPORT
25%
HAD AWARDS BUT RECEIVED NO PAYMENT
18%
HAD NO CHILDSUPPORT AWARD
57%
SOURCE: 1994 Greenbook, p. 463.
paid up. The Urban Institute estimates thatanother $34 billion
in outstanding child sup-port potentially could be collected each
year,for AFDC and non-AFDC families combined.
The 1988 Family Support Act andInnovative State Programs
In 1988, Co
