


			   THE WHITE HOUSE

		    Office of the Press Secretary
______________________________________________________________
For Immediate Release                             April 15, 1994     


			    PRESS BRIEFING
				  BY
	  CHAIR OF COUNCIL OF ECONOMIC ADVISORS LAURA TYSON
	     
	     
			  The Briefing Room
		  

2:55 P.M. EDT
	     
	     
	     DR. TYSON:  Good afternoon.  Today, being April 15th, a 
day when millions of hard-working men and women in the country file 
their tax returns, it seemed appropriate to discuss the impact of the 
President's economic plan on taxes paid by the American people, and 
on the state of the American economy.
	     
	     Just some basic facts on taxes.  These are now facts 
which most Americans will recognize because they now have filed their 
taxes or are about to.  The facts are as we have stated them:  only 
1.2 percent of American households, those with adjusted gross incomes 
in excess of $185,000, have had their income tax rates increased.  
That means that 98.8 percent of American households have not had 
their income tax rate increased.  There has been no increase in the 
income tax rate for the middle class.  
	     
	     In addition, 50 million American households -- that's 16 
percent of the total -- are not eligible for an expanded earned 
income tax credit, a way to reward hard-working Americans who work 
full-time, bring their families out of poverty, and reward them for 
working hard.
	     
	     Finally, on the small business side, 90 percent of small 
businesses are eligible for tax cuts this year.  Only four percent of 
small businesses face higher tax bills as a result of the higher 
income tax rates.  
	     
	     So those are the facts; facts that we have stated 
throughout the preceding year.  But I think on tax day, as people 
have filed their taxes, those facts can be easily recognized.
	     
	     Another point I want to make on the tax side is to 
recall that the tax plan we introduced last year was part of the 
deficit reduction package, and we've already seen results on the 
deficit from that package.  With our fiscal year 1995 projections, we 
project three years of declining deficits, the first three-year 
period since Harry Truman was President.  The deficit relative to 
GDP, the deficit GDP ratio has -- will decline in 1995, fiscal year 
1995, to the lowest level since 1979 and will be cut nearly in half.  
The debt to GDP ratio, which had been on a steady increase since 
1981, will stabilize and then begin to fall.
	     
	     So we have fundamentally changed the course of the 
deficit and the debt relative to the size of the economy.  Now, the 
economy has, itself, responded to the deficit reduction budget plan 
put in place.  Once again, if you look at the recent economic 
numbers, the numbers are good.  They confirm our forecast which is, 
in fact, consistent with the forecast in the private sector.  The 
economy is on a solid growth path with modest inflation.
	     
	     We predict that the economy will grow this year at about 
3 percent, with a CPI inflation rate of about 3 percent.  Most 
private forecasters are about with us.  Many private forecasters are 
increasing their growth rate projections for this year, but not 
increasing their inflation projections for this year.
	     
	     Over the longer term, we believe the building blocks for 
a sustained period of moderate expansion with modest inflation are 
firmly in place.  We live in a world now with declining deficits 
relative to the size of the economy; sounder balance sheets; stronger 
productivity growth; and robust investment.  And these are the 
foundations on which sustained economic growth depend.
	     
	     Thank you.  Questions?  Yes.
	     
	     Q    When you say the rates haven't changed on the 
middle class, how do you take into account the movement of the 
threshold?  In the $21,000 range for adjusted growth, for instance, 
it moved down about $500 this year to a lower group.  And, therefore, 
for those people, the rate changed for those dollars.
	     
	     DR. TYSON:  I would say the following.  Basically 
there's no disagreement with the assertion that we have made that 
basically four -- people move all of the time in terms of their 
family income level and their taxable income.  I mean, there's a 
gross adjusted income and there's a taxable income.  Families move up 
and down in those tables.  What we did was adjust the tax rates, and 
with our projections of where people would be -- incidentally, 
projections that were confirmed by the CBO and confirmed by most of 
the private accounting groups that looked at this -- our projections 
were that the higher tax rates would affect only those families whose 
adjusted gross incomes were $185,000.
	     
	     Now, where you are in terms of taxable income -- you 
can't make a prediction where you are in terms of taxable income 
because the adjustments differ from family to family.
	     
	     Q    What if you move it?  If a family made exactly the 
same number of dollars last year -- a really lower-middle-class 
family, or even a poorer family that was in a low $21,000 range --
they don't have to move; the rate moves this year, the threshold 
moved down.  And therefore, they're into a different bracket without 
any change in income.  Do you call that a change in rate?
	     
	     DR. TYSON:  No, no.  We don't think that's true.
	     
	     Q    You don't think it's true, or you don't think it's 
a change in rate?
	     
	     DR. TYSON:  It's not a change in rate and I also think 
-- both things are true.  It's not a change in rate, and it's 
apparently also factually not correct.  But we can check on the 
factual -- since I would say both things are not true, one we know 
for sure, one we think not true, we'll check on that.
	     
	     Q    The opposite happened.  At the high end of that 
scale, the bracket moved out about $3,000 and actually reduced the 
marginal rate for the people at the high end of that scale.  But 
there were people affected the other way.
	     
	     DR. TYSON:  Well, we should check that.  You don't think 
that's true?  I have never heard that.  This is the first time I ever 
heard that, so --
	     
	     Q    Nobody in here makes that kind of money.  
(Laughter.)
	     
	     DR. TYSON:  I doubt that very much since what I would 
say in response to that is the one -- we looked very carefully at the 
bottom end of the table.  In particular, one of the basic objectives 
of our tax plan was to reduce the deficit with greater tax fairness.  
We paid particular attention to what was happening at the bottom end 
of the income distribution, which is why we were so intent on having 
a major expansion of the earned income tax credit.  So I don't accept 
the notion that we would not have paid attention to that part of the 
income distribution, regardless of what any individual here -- where 
they appear in the tax tables.
	     
	     Q    Dr. Tyson, what do you make of today's industrial 
production figures, and do they add to the argument in any way that 
is being made by some of the circles at the Fed who are concerned 
about inflation heating up the economy, heating up and inflation 
heating up, and the interest rates should go up?
	     
	     DR. TYSON:  Well, I basically have already pointed out 
-- I looked at the reports for this week.  We had two price reports; 
we had a retail sales report; we had industrial production report.  
Put those all together and it would lead us to say what I have now 
said a number of times, but I'll just repeat it.  
	     
	     This is evidence of solid growth, and it's evidence of 
modest inflation.  The industrial production index increased; it was 
a strong increase.  It was below what analysts had expected, however.  
Capacity utilization did increase; again, it increased somewhat less 
than analysts had expected.  Several industries did pick up in terms 
of industrial production in March.  Part of that pick-up was a result 
of depressed levels in January and February as a result of weather.  
There was a slight dip in output production levels in a couple of 
industries.
	     
	     So overall what you'd say here is that this is solid 
growth.  But it's growth -- then I think I should combine that 
assertion, or view, with the evidence coming in on the inflation 
side.  And the evidence coming in on the inflation side basically 
this week was, I think, consistent with our view that this is going 
to be a year of modest inflation.  We may see, as we predicted, later 
on this year, some up-tick in inflation.  It's a little early to 
tell, but it would be certainly within our forecast and within the 
forecast of most private sector analysts.  But one would characterize 
any increase this year as likely to be modest, and the overall 
inflation rate as likely to be modest.
	     
	     So the numbers confirm where we've been for quite some 
time on our view of the economy.
	     
	     Q    What are your concerns about the talk now of 
another increase in short-term interest rates next month?
	     
	     DR. TYSON:  I have no comment on this.  I have no way to 
know what's going to happen to short-term interest rates next month.  
And if I did, I would simply say that the Federal Reserve presumably 
has access to the same evidence that we have about the state of the 
economy, and they can look at the evidence; and it's their 
responsibility to make a decision about their policy agenda.
	     
	     Q    Dr. Rubin said yesterday that his instinct is that 
growth is going to be apparent to be higher than 3 percent this year.  
You're going to adjust your forecast anyway, I guess, soon -- you're 
probably in that process.  Don't you think -- and from your own 
analysis that growth is going to be higher than 3 percent this year, 
or the blue chip is at 3.7 percent, and the related question -- are 
you more settled in your own mind as to why long bond rates have gone 
up so much since last October?
	     
	     DR. TYSON:  Okay, the first question on, do I want to 
predict our forecast?  I don't want to predict our forecast.  We have 
not yet started the process, although the people most responsible for 
the process are here with me today; and we will probably start that 
process sometime within the next few weeks.
	     
	     It's the case -- as I have said repeatedly -- that this 
year we always felt that the chances of our forecast coming in under 
what the economy actually did were greater than the chances of our 
forecast coming in over what the economy did.  So, in that sense, I'm 
on record with the view that it's more likely that the economy will 
grow more than our 3 percent than less than our 3 percent this year.  
The evidence from the first quarter does suggest a growth rate of 
over 3 percent for the first quarter.  But you have to realize that 
that's one quarter of four quarters.  
	     
	     So, in any event, we don't have a prediction to make of 
our forecast right now.  But those are my observations of where we 
are.
	     
	     On the issue of long-term bond rates, I don't think that 
-- I and others who have talked about this have raised a number of 
reasons why long-term interest rates may have increase -- I mean, 
have increased.  A number of hypotheses have been offered.  I don't 
think at this point one knows for sure what weight to give each of 
those.  And the ones that I have mentioned are stronger than expected 
momentum in the economy; clearly, to the extent that the first 
quarter proves to be stronger than three and the year proves to be 
somewhat stronger than three, that expectation that the economy is 
growing stronger than anticipated would be one reason why long-term 
interest rates increased.
	     
	     Another might be, as I've said, an increase in 
inflationary expectations.  So far, here the numbers on what's 
actually happening to inflation do not suggest any reason for an 
increase in inflationary expectations.  But expectations are 
expectations.  You can't really predict them or explain them that 
easily, and that may be part of the issue.
	     
	     And then, finally, there are other issues such as 
various events which might have triggered some major adjustments in 
hedge funds that had some effect on financial markets both here and, 
to some extent, in the rest of the world.
	     
	     I don't think I'm ready yet -- I don't think anyone 
really is ready yet to sort of parcel out which share of the 
explanation goes with any of those factors.
	     
	     Q    Recognizing that the administration rarely wants to 
comment on interest rates, let me ask you again a version of what 
Peter asked a minute ago.  The elements that you say argue against 
higher interest rates really had been fairly constant throughout the 
year and the end of last year.  The President has been making these 
arguments and interest rates continue to go up.  They're creeping 
around now to where they were when you came into office, which is 
going to begin to begin to cost you the gains that we've enjoyed on 
the budget deficit.  Would another increase in interest rates begin 
to threaten that?  Would it be serious enough that --
	     
	     DR. TYSON:  You have to take into account both the 
increase in rates and how long the increase would persist, and also, 
what you think the growth rate of the economy is with those interest 
rates.  So, for example, if, as some forecasters think, growth this 
year is above three percent, one could imagine the deficit numbers 
coming in exactly as we predicted them or even better because, even 
though interest rates are somewhat higher than predicted, so is 
growth higher than predicted.  That scenario gives you a neutral-to -
improving effect on the deficit.
	     
	     So I think at this point, our reading of the economy 
suggests that right now developments are probably a wash, all right; 
that growth -- we think growth will be stronger in the first quarter 
than anticipated; interest rates are higher than we anticipated -- 
both things are true.  If you factor that in right now, it's a wash.
		  
	     It's important to point out that a lot of the 
projections on the deficit over the five-year budget window depend 
very much on what you assume about whether current rate increases, 
particularly at the long end, are permanent, they're going to come 
down, or they're going to go up more.  And I don't think right now -- 
it's very hard to predict which of those things will be true.
	     
	     Q    Can you count more, though, on interest rates than 
you can on getting the -- on the kick in growth?
	     
	     DR. TYSON:  In what sense?  I'm not sure I understand.
	     
	     Q    Well, I mean, perhaps I'm answering my own question 
in the negative.  When interest rates were low, I mean that was 
solid.  You knew you were making gains at the deficit.  Now they're 
creeping up and you've got to count on accelerated economic growth, 
which puts even more pressure on the interest rates.
	     
	     DR. TYSON:  Well, look.  You have to recognize here that 
basically there are certain components of the deficit which are 
sensitive to the economy and the state of the economy, and certain 
components of the deficit that are under direct fiscal policy 
control.  What I will say here is that we have done -- independent of 
the state of the economy, by a series of tax adjustments and a series 
of spending cuts in a variety of programs over time, we have adjusted 
those parts of fiscal policy which a government can actually control 
to bring the deficit down.
	     
	     Whether the deficit in any given year is this number or 
that number is not totally under the control of the federal 
government because it is partly under control of the state of the 
economy.  We believe our deficit reduction package, both brings the 
deficit down relative to the size of the economy over time, and puts 
the economy on a good foundation for sustained economic growth.  
Since we believe that, we believe the deficit numbers will continue 
to come in showing improvement.
	     
	     Q    Dr. Tyson, how would you persuade the Americans in 
that 1.2 percent that this administration promotes tax fairness?
	     
	     DR. TYSON:  I would say the main reason it's important 
to emphasize that our tax program was a part of deficit reduction.  
Given the need to reduce the deficit, which the American recognized 
and put high priority on, we tried to develop a balanced and fair way 
of doing that.  Balance means balance between tax increases and 
spending cuts.  It means balance across spending programs -- we have 
in our spending cuts both discretionary and mandatory programs are 
affected.
	     
	     On the tax side, it means, essentially, looking to 
adjust rates in such a way that those at the top end of the income 
distribution who gained the most over the past decade of economic 
growth, and who can afford most to pay higher income tax rates, 
they're the higher rates.  And those at the bottom end of the 
distribution, who clearly were worse off in the last decade, and who 
clearly are least able to pay higher taxes because many of them --the 
16 percent of households working, eligible for the earned income tax 
credit -- cannot, even with full-time work, raise a family with 
children out of poverty.
	     
	     So that's what fairness is about.  It's saying, okay, 
given that we have to reduce the deficit and we have to do it in a 
balanced way, where have the gains been the greatest, where have they 
been the least, and where is the ability to pay the greatest and 
where is it the least?
	     
	     Q    Do you know offhand how much money is now in the 
President's deficit reduction trust fund?
	     
	     DR. TYSON:  I do not have a count of that right now.  I 
do not have a count.  
	     
	     Q    Is it ready?
	     
	     DR. TYSON:  Oh, I'm sure there's a count; I'm sure Leon 
Panetta could give you a count right now.  I could not.  I could not.
	     
	     Q       markets seem to be listening more to the Fed 
than to you about the state of the economy.  How do you get the 
American investor to accept your rosier picture?  And does it bother 
you that investors are just listening to the Fed instead of to the 
administration?
	     
	     DR. TYSON:  I don't know who -- you'd have to ask 
investors who they're listening to.  I try to -- one of the functions 
of the Council of Economic Advisors, a major function of the Council 
of Economic Advisors, is to provide objective and analytical reading 
of the evidence as we see it.
	     
	     So, for example, if we write a piece -- as I wrote today 
in the New York Times -- talking about we look at the evidence on 
inflation and this is what we see, that is out there to inform 
investors, inform the American public, inform educators of what our 
reading of the evidence suggests.  That is a task that we do.  I hope 
that the arguments are convincing.
	     
	     Q    But on the front page of the New York Times, Dr. 
Tyson, there was an article that essentially was taking the spotlight 
away from the editorial that you wrote.
	     
	     DR. TYSON:  I don't know who read which article.  Maybe 
people read both; I'm not sure.  That's your interpretation of how 
people read the newspaper.  I don't know how people read the 
newspaper.
	     
	     Thank you very much.

				 END3:13 P.M. EDT

