

                 THE BUDGET MESSAGE OF THE PRESIDENT

  To the Congress of the United States:

  The Fiscal Year 1995 budget, which I transmit to you with this
message, builds on the strong foundation of deficit reduction,
economic growth, and jobs that we established together last year.  By
encouraging private investment--and undertaking public investment to
produce more and higher-paying jobs, and to prepare today's workers
and our children to hold these jobs--we are renewing the American
dream.

  The budget continues to reverse the priorities of the past, carrying
on in the new direction we embraced last year:

 o It keeps deficits on a downward path;

 o It continues our program of investment in long-term economic
   growth, in fighting crime, and in the skills of our children and
   our workers; and

 o It sets the stage for health care reform, which is critical to our
   economic and fiscal future.

  When I took office a year ago, the budget and economic outlook for
our country was bleak.  Twelve years of borrow-and-spend budget
policies and trickle-down economics had put deficits on a rapid upward
trajectory, left the economy struggling to emerge from recession, and
given middle class taxpayers the sense that their government had
abandoned them.

  Perhaps most seriously, the enduring American dream--that each
generation passes on a better life to its children--was under siege,
threatened by policies and attitudes that stressed today at the
expense of tomorrow, speculative profits at the expense of long-term
growth, and wasteful spending at the expense of our children's future.

  A year later, the picture is brighter.  The enactment of my budget
plan in 1993, embodying the commitment we have made to invest in our
future, has contributed to a strengthening economic recovery, a clear
downward trend in budget deficits, and the beginnings of a renewed
confidence among our people.  We have ended drift and broken the
gridlock of the past.  A Congress and a President are finally working
together to confront our country's problems.

  Serious challenges remain.  Not all of our people are participating
in the recovery; some regions are lagging behind the rest of the
country.  Layoffs continue as a result of the restructuring taking
place in American business and the end of the Cold War.

  Rising health care costs remain a major threat to our families and
businesses, to the economy, and to our progress on budget deficits. 
Our welfare system must be transformed to encourage work and
responsibility.  And our Nation, communities, and families face the
ever-increasing threat of crime and violence in our streets, a threat
which degrades the quality of life for Americans regardless of their
income, regardless of their race, regardless of where they live.

  We will confront these challenges this year, by acting on health
care reform, welfare reform, and the crime bill now under
consideration in the Congress, and by continuing to build on our
economic plan, with further progress on deficits, and investments in
our people as well as in research, technology, and infrastructure.

                          WHAT WE INHERITED

  When our Administration took office, the budget deficit was high and
headed higher--to $302 billion in 1995 and well over $400 billion by
the end of the decade.

  When our Administration took office, the middle class was feeling
the effects of the tax changes of the 1980s, which had radically
shifted the Federal tax burden from the wealthy to those less well
off.  From the late 1970s to 1990, tax rates for the wealthiest
Americans had declined, while rates for most other Americans had
increased.

  When our Administration took office, the economy was still
struggling to break out of recession, with few new jobs and continuing
high interest rates.  In 1992, mortgage rates averaged well over eight
percent.  Unemployment at the end of 1992 stood at 7.3 percent, and
barely a million jobs had been added to the economy in the previous
four years.  The outlook for the future was slow productivity growth,
stagnant wages, and rising inequality--as sagging consumer confidence
demonstrated.

                           A NEW DIRECTION

  Today, whether it is the deficit, fairness, or the status of the
economy, the situation is much improved.

  The budget I am submitting today projects a deficit of $176 billion,
a drop of $126 billion from where it would have been without our plan.
If the declines we project in the deficits for 1994 and 1995 take
place, it will be the first time deficits have declined three years
running since Harry Truman occupied the Oval Office.

  The disciplines we have put into place are working.

  We have frozen discretionary spending.  Except in emergencies, we
cannot spend an additional dime on any program unless we cut it from
another part of the budget.  We are reducing low-priority spending to
fulfill the promise of deficit reduction as well as to fund limited,
targeted investments in our future.  Some 340 discretionary programs
were cut in  1994, and our new budget cuts a similar number of
programs.  These are not the kind of cuts where you end up spending
more money.  These are true cuts, where you actually spend less. 
Total discretionary spending is lower than the previous year--again,
in straight dollar terms, with no allowance for inflation.

  As for entitlement spending, the Omnibus Budget Reconciliation Act
of 1993 achieved nearly $100 billion in savings from nearly every
major entitlement program.  Pay-as-you-go rules prevent new
entitlement spending that is not paid for, and I have issued an
executive order which imposes the first real discipline on
unanticipated increases in these programs.  For the future, health
care reform will address the fastest growing entitlement
programs--Medicare and Medicaid--which make up the bulk of spending
growth in future budgets, and the Bipartisan Commission on Entitlement
Reform, which I have established by executive order, will examine the
possibility of additional entitlement savings.

  While we have imposed tough disciplines, there is one more needed
tool.  The modified line-item veto, which would provide Presidents
with enhanced rescission authority, has already been adopted by the
House as H.R. 1578.  If enacted, it will enable Presidents to single
out questionable items in appropriations bills and require that they
be subject to an up-or-down majority vote in the Congress.  I think
that makes sense, and it preserves the ability of a majority in
Congress to make appropriations decisions.

  In addition to budget discipline, we made dramatic changes that
restored fairness to the tax code.  We made the distribution of the
income tax burden far more equitable by raising income tax rates on
only the richest 1.2 percent of our people--couples with income over
$180,000--and by substantially increasing the Earned Income Tax Credit
for 15  million low-income working families.  Thus, nearly 99 percent
of taxpayers will find out this year that their income tax rates have
not been increased.

Results

  Finally, the most significant result of our commitment to changing
how Washington does business is growing economic confidence. 
Investment is up--in businesses, in residences, and in consumer
durables; real investment in equipment grew seven times as fast in
1993 as over the preceding four years.  Mortgage rates are at their
lowest level in decades.  Nearly two million more Americans are
working than were working a year ago, twice as great an increase in
one year as was achieved in the previous four years combined; and the
rate of unemployment at the end of 1993 was down to 6.4 percent, a
drop of nearly a full percentage point.

  The fundamentals are solid and strong, and we are building for the
future with a steady and sustainable expansion.

                          THE ECONOMIC PLAN

  How did all this happen?  Our economic plan had three fundamental
components:

Deficit Reduction

  First, the introduction and eventual enactment of our $500 billion
deficit-reduction plan--the largest in history--brought the deficit
down from 4.9 percent of GDP, where it was in 1992, to a projected 2.5
percent of GDP in 1995 and 2.3 percent of GDP in 1999.  This
substantially eased pressure on interest rates by reducing the Federal
Government's demand for credit and by convincing the markets of our
resolve in reducing deficits.  Those  lower interest rates encouraged
businesses to invest, and convinced families to buy new homes and
automobiles, along with other durable goods.

Investment

  Second, we proposed, and Congress largely provided, a set of fully
paid-for measures to encourage private investment (beyond the
inducement provided by deficit reduction) and commit public investment
to our country's future.  The first component was making nine out of
ten businesses eligible for tax incentives to invest in future
growth--including a major expansion of the expensing allowance for
small businesses and a new capital gains incentive for long-term
investments in new businesses.

  The second component was public investment in the future: in
infrastructure, technology, skills, and security.  These investments
are directed toward preparing today's workers and our children for the
new, higher-paying jobs of the modern economy; repairing and expanding
our transportation and environmental infrastructure; fighting crime;
expanding our Nation's technological base; and increasing our health
and scientific research.

  Among other things, we greatly expanded the very successful Head
Start program and WIC nutrition program for pregnant women, infants,
and young children; provided a major increase to fulfill the mandate
of the Intermodal Surface Transportation Efficiency Act (ISTEA)
authorization; provided initial funding for the National Service Act
and new funding for educational reforms and other education and
training initiatives; began the process of fulfilling my goal of
putting another 100,000 police officers on the streets of our cities
and towns; and provided additional resources for urban and rural
development.

Trade

  Finally, our long-term economic strategy depends on the expansion of
our international trade markets.  In 1993, we did more than at any
time in the past two generations to open world markets for American
products.  The ratification of the North American Free Trade Agreement
(NAFTA) establishes the largest market in the world.  By lowering
tariffs on our exports to Mexico, the agreement is going to increase
jobs in this country--and, if previous experience is a guide, they
will mostly be high-paying jobs.

  We also completed work on the Uruguay Round of the General Agreement
on Tariffs and Trade (GATT), a worldwide agreement to reduce tariffs
and other trade barriers that will also create high-paying jobs and
spur economic growth in this country.

  In addition, we established the U.S.-Japan Framework for a New
Economic Partnership so that we can work to increase Japanese imports
of U.S. goods and services and promote international competitiveness. 
And to relieve unnecessary burdens on U.S. businesses, we eliminated
unneeded export controls on certain technology to encourage exports of
U.S. high-technology products.

                            THE YEAR AHEAD

  In 1994, we will build on the strong foundation we laid in 1993.

Fiscal Discipline

  We continue to implement the $500 billion in deficit reduction from
last year's reconciliation bill.  To achieve the required hard freeze
in discretionary spending and make needed investments, we propose new
cuts in some 300 specific non-defense programs.  That includes the
termination of more than 100 programs.  Many of these savings will be
controversial, but we have little choice if we are going to meet our
budget goals.

  On the other side of the ledger, this budget contains no new tax
increases.

New Investment

  The investments in this budget continue to target jobs, education,
research, technology, infrastructure, health, and crime.

  Investing in people. First and foremost, the goal of our economic
strategy is to provide more and better paying jobs for our
people--both today and in the future--and to educate and train them so
that they are prepared to do those jobs.

  The budget contains a major workforce security initiative to promote
job training and reemployment. In the past, government has provided
workers who lost their jobs with temporary unemployment benefits to
tide them over, and little else.  But in this new era, when the
fundamental restructuring of our economy is causing permanent layoffs
and the virtual shutdown of entire industries, we need to create a
reemployment system.

  This budget begins the process of establishing that system, which
ultimately will give dislocated workers easier access to retraining,
job-search, and other services designed not only to help them through
a difficult period but also to prepare them to thrive in productive,
new jobs.

  We also continue to invest in our most precious resource--our
children--with proven, effective programs, as well as with new
initiatives to confront the problems of a changing society.

  We propose to expand funding for the school-to-work program, which
will provide apprenticeship training for high school students who do
not plan to attend college.  And our  budget expands the national
service program, which gives our young people an opportunity to serve
their communities and earn money towards college.

  We provide strong support for the Goals 2000 program, which I hope
Congress will enact early this year, to help local school systems
reform themselves to educate our children for the 21st century.  We
must set high standards for all of our children, while providing them
with the opportunity they deserve to learn.

  We also provide major increases for WIC and for Head Start, which we
will seek to improve as well.  And we significantly expand and better
target the Title I program, which focuses on needy children to make
sure they can take full advantage of our educational system.

  Investing in know-how. America has always sought to be the world's
leader in science and technology.  In some arenas in recent years, we
have lost that status.  But in the remainder of this decade and in the
21st century, we must be sure that the United States is on the cutting
edge of research and technological advances.

  To that end, the 1995 budget proposes critical investments in the
National Institute of Standards and Technology's Advanced Technology
Program; NASA's research, space, and technology programs; the National
Science Foundation; the information superhighway, on which the Vice
President has worked so hard; and energy research and development.

  In addition, I am determined to continue assisting the industries
and communities which have supported our Nation's defense as we
continue the defense downsizing that began in the mid-1980's and
accelerated in the early 1990's with the end of the Cold War.

  I am proposing significant investments in the Technology
Reinvestment Project, which will work with the private sector to
encourage the development and application of dual-use technologies. 
And the budget also includes additional resources for the Office of
Economic Adjustment, which provides planning grants to communities as
they convert their local economies to profitable peacetime endeavors.

  Investing in physical capital. The Nation's capital infrastructure
and the economies of too many urban and rural communities have
suffered too long from neglect.  Last year, we began to address these
shortfalls, and in 1995, we propose to continue these initiatives.

  We propose, first, to continue full funding of core highway programs
within the ISTEA transportation authorization act, as well as a
substantial increase in Mass Transit Capital Grants.  To help provide
this level of funding, the budget proposes rescission of many highway
demonstration projects, which frequently are an inefficient allocation
of taxpayers' dollars.

  In addition, we propose to continue the restoration of our
environmental infrastructure with investments in the technologies of
the future under the Clean Water Act and other environmental programs.

  Last year, we enacted legislation to establish urban and rural
Empowerment Zones.  This year, we will designate those zones, as well
as enterprise communities, to attract investment to neglected
communities and provide the kinds of services needed to support
economic development.

  In this budget, HUD outlays for housing assistance, services to the
homeless, and development aid to distressed communities will increase
substantially, with aid to the  homeless nearly doubling from the
previous year.  Both housing aid to families and aid to the homeless
will be restructured to support transitions to economic independence.

  I also propose to continue our rural development initiative, with
grants and loans that represent a 35-percent increase over the
previous year.  This assistance will provide for improved rural
infrastructure and services, such as water treatment facilities and
rural health clinics, increase rural employment, further diversify
rural economies, and provide rural housing opportunities by expanding
assistance to allow low- and moderate-income residents to become
homeowners.

  Investing in quality of life. This budget continues our efforts to
enhance environmental protection and preserve our natural resources.

  We propose both to strengthen the stewardship of these resources and
improve environmental regulatory and management programs.  We increase
state revolving funds for clean water and drinking water, and we
propose the establishment of four ecosystem management pilot projects.
In addition, we are proposing significant improvements and reforms in
the Superfund program, as well as important international
environmental initiatives.

Health Care Reform

  Enactment of health care reform, with its focus on controlling
health care costs, is the key to making even greater progress on
deficits.  Indeed, if the Congress adopts the Health Security Act in
1994, we believe that deficits will fall to 2.1 percent of GDP in
fiscal year 1999, the lowest since 1979.

  Of course, deficit reduction is only one reason for health care
reform.  Providing health security to every American, with a package
of comprehensive benefits through private health insurance that can
never be taken away, is critical not only to long-term budget
restraint but also to long-term economic growth, to the productivity
of our workers and businesses, and to the health and peace of mind of
all Americans.

  With some 58 million Americans lacking insurance at some time during
the year; with the estimated 81 million Americans with preexisting
conditions paying more, unable to get insurance, or not changing jobs
for fear of losing their insurance; with the small businesses that
cover their workers--and a majority do--burdened by the skyrocketing
cost of insurance, which is 35 percent higher for them than it is for
big business and government; and with 76 percent of Americans carrying
policies that contain lifetime limits, which can leave them without
coverage when they need it most--this country is facing a health care
crisis.  And we must confront it now.

  In addition to our health care reform effort, the 1995 budget
contains key investments in health care and research.  We propose the
largest increase ever requested in research funds for the National
Institutes of Health.  This national treasure not only keeps our
Nation in the forefront of health research but has demonstrably saved
millions of lives and improved the quality of millions more.  The
additional investment we propose will help NIH with its research in
many areas, from AIDS to heart problems, from mental health to breast
cancer.

Welfare Reform

  A major initiative for my Administration has been and will continue
to be overhauling our welfare system.  We must reward work, we must
give people the wherewithal to work, and we must demand
responsibility.

  Welfare reform has already begun.  The first step was the expansion
of the Earned Income Tax Credit last year.  That expansion rewards
work by ensuring that families with a full-time worker will not live
in poverty.

  The second stage of welfare reform is health care reform.  Our
current health care system often encourages those on welfare to stay
there in order to receive health insurance through Medicaid.  When we
require that every worker be insured, that disincentive to work will
disappear.

  The next element of welfare reform is personal responsibility.  Our
welfare reform plan will include initiatives to prevent teen
pregnancy, ensure that parents fulfill their child support
obligations, and try to keep people from going on welfare in the first
place.  We must remember this: governments do not raise children,
parents do.

  The ultimate goal of our reforms is to have our people rely on work,
not on welfare.  Our plan will build on the Family Support Act by
providing education, training, and job search and placement for those
who need it; it will require people who can work to do so within two
years, either in the private sector or community service; it will
restore the basic social contract of providing opportunity and
demanding responsibility in return.

Crime

  Enactment of the crime bill now being considered in the Congress is
also essential, and it should happen quickly.  We simply cannot
tolerate what is happening in the streets of  our cities and towns
today.  Crime and violence, the proliferation of handguns and assault
weapons, the fear that millions of Americans feel when they emerge
from their homes at night--and even in the daytime--must be confronted
head-on.

  We need to toughen enforcement, and we need to provide our local
governments with the resources they need to take on the epidemic of
violent crime.  The crime bill will provide substantial resources,
enough to fulfill my commitment to put 100,000 additional police on
our streets.  This budget funds major pieces of the crime bill, and I
urge the Congress not only to approve the authorizing legislation but
to provide the financial resources to back it up.

Defense and International Affairs

  Profound shifts are taking place in America's foreign relations and
defense requirements.  When we came into office, we faced dramatically
changed international conditions and problems, but we inherited
foreign and defense policies and institutions still geared, in many
ways, to the conditions and needs of the Cold War.

  This budget reflects the major changes we are carrying out in the
content, direction, and institutions which ensure that our interests
are defended abroad.  We are committed to remaining engaged in a world
inextricably linked by trade and global communications.  The nature of
that engagement is changing, however.

  We remain committed to maintaining the best trained, best equipped
and best prepared fighting force in the world.  Thanks to our 1993
Bottom-Up Review of defense, this force is being reshaped to meet the
new challenges of the post-Cold War era.  We can maintain our national
security with the forces approved in the Bottom-Up Review, but we 
must hold the line against further defense cuts, in order to protect
fully the readiness and quality of our forces.

  We have put our economic competitiveness at the heart of our foreign
policy, as we must in a global economy.  We are following the success
of NAFTA and GATT with further market-opening negotiations and
intensified focus on the promotion of U.S. exports.  We are paying
particular attention to the Asian and Pacific markets, which have the
most dynamic growth of any region in the world.

  We are dedicated to the enlargement of the community of free market
democracies, both as a way of ensuring greater security and as a way
of expanding economic opportunity.  Our programs for the New
Independent States of Europe and Central Asia are the centerpiece of
this effort.

  We are responding aggressively to the new international security
challenges that face us: regional conflicts, the proliferation of
weapons of mass destruction, the movement of refugees, and the
international flow of illegal narcotics.  And we are addressing
threats to the global environment and rapid population growth with a
program to promote sustainable development.

  Finally, we are fundamentally reforming and restructuring our
international cooperation programs, giving an entirely new post-Cold
War structure to our efforts by rewriting the basic legislation that
has guided such programs for more than thirty years.

National Performance Review

  The Vice President's National Performance Review (NPR) has paved the
way for major reforms of how our government works, which are essential
to making government  more efficient and responsive.  Last year, we
began implementing its recommendations.  With this budget, that effort
shifts into high gear.

  First, this budget implements the reduction by 100,000 of Federal
positions required by my Executive Order of last year.  Indeed,
because of discretionary spending constraints, our proposals actually
exceed that total by 18,000.  In addition, planning has begun on the
further downsizing that will be required to implement the remaining
portion of the 252,000-position personnel reduction recommended by the
NPR.  With this downsizing, we will bring the number of Federal
employees to the lowest level in thirty years.

  To reach these goals, we need to be able to offer incentive packages
to those whose positions will be eliminated.  This is one of our
highest legislative priorities, and it requires attention now.  These
"buy-out" packages will minimize the need for more costly reductions
in force, are less disruptive since they are voluntary, and save the
government money in the long run.

  The time also has come for swift passage of procurement reform,
another of our highest priorities.  Streamlining procurement is
essential to meeting our personnel downsizing targets.  And overhaul
of the current, wasteful system can give us significant savings, as
well as improved performance by government suppliers.

  Further, this budget contains many of the specific programmatic
savings proposed by the NPR.  These savings have been used in large
part to help us meet the discretionary spending freeze.

  With my executive order last year, we also began the process of
reforming one of the basic functions of government--the regulatory
process.  Regulations are often necessary to  improve the health,
safety, environment, and well-being of the American people.  Our goal
is a more open, more fair, and more honest process that produces smart
regulation: rules that impose the least burden and provide the most
cost-effective solutions possible.

  Finally, all of our departments and agencies have begun to reform
their basic operations, including their financial and other
administrative practices.

  The goal of the NPR is to make government work better and cost
less--and to make it more convenient and responsive to those it
serves.  That is not something that can be completed in one year, in
four, or even eight.  But we have a responsibility to begin, and that
we have done.

Conclusion

  These are the priorities I seek to pursue in the coming year.  Last
year, we succeeded in breaking the gridlock that had gripped
Washington for far too long.  In contrast to past budgets, which
lacked credibility, we made sure to use cautious estimates, and we
shot straight with the American people.

  The results are evident.

  We said we would bring the deficit down, and we did.  We said we
would revitalize the economy, and we did.  We said that we would help
the private sector to create jobs, and we did.  We said that we would
reduce the size of the bureaucracy, and we did.

  Last year, my Administration and the Congress worked side by side to
move our country forward.  Let us extend that record of achievement in
1994.



  William J. Clinton

February 7, 1994

