I am pleased to welcome OMB Director Raines before the Joint Economic Committee this morning.

      I would like to start on a positive note by observing that there seems to be some consensus on both sides of the aisle that the size of the federal government relative to the economy is currently too large. Here at the JEC we have done some research suggesting that when the federal government as a share of the economy rises too high, it tends to undermine economic and income growth. Therefore, I was pleased to see that the Administration proposes to reduce the size of the federal spending below 19 percent by 2002. This is a good general objective, and one that many in Congress agree with.

      It's also positive to see the Administration proposing an expansion of IRA incentives to save. I agree that American families need less punitive tax treatment of their saving and investment. In fact, I would propose that we go further and raise the IRA deduction ceilings for middle class taxpayers. Yesterday I announced a plan to introduce legislation to phase in a significant increase in IRA deductibility and to make IRAs more broadly available.

      Unfortunately, there is room for some disagreement as well. As expressed in the Washington Post and elsewhere, there is widespread skepticism about the validity of the Administration's budget numbers. The back loading of most of the spending restraint until after the Administration leaves town has not inspired confidence, but only raised questions about the seriousness of the Administration's proposal. It also appears likely that the Administration really is proposing spending increases veiled in a dubious five year plan purporting to balance the budget, but in reality leaving significant and growing deficits.

      The Administration's tax proposals also have raised serious questions. Among economists of different stripes there is agreement that narrowly targeted tax items should be avoided so that tax rates can be as low as possible. Not only is this principle being violated, but the tax credits proposed by the Administration are widely viewed as inefficient and in some respects counterproductive. We will address these issues in more detail during the question period.

      Another issue discussed in the Administration budget is the possible reduction of the CPI adjustment used to index the income tax and benefit programs. I think we should be very cautious about taking steps that would affect many millions of people by triggering $1 trillion in increased taxes and benefit restraint over the next 12 years. I have requested a BLS study on the issues raised by the Boskin Commission report, and would suggest that we should wait until this BLS study is available in several months before acting. We need to consider more than one point of view before making important decisions in this area.

      In closing, I would like to note that the business cycle expansion that began in 1991 continues into 1997. This expansion has resulted in employment increases, unemployment declines, and improvement in the budget situation. This expansion is not rooted in the policies of either party, but reflects the hard work of the American people. This is a good time to address structural problems in budget and tax policy.

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