Plenary Session Transcripts

Governors Attending:

Guests:

Discussion Subjects:

• Economic Development and Commerce (EDC) – transportation priorities and prospects; federal telecommunications legislation; devolution of federal unemployment taxes; and roundtable discussion on privatization—government restructuring to preserve public resources and promote economic growth
• Human Resources (HR) – roundtable discussion on the condition of urban schools: problems and solutions; and discussion on "Jobs for America's Graduates"
• Natural Resources (NR) – the Administration's perspective on the state-federal relationship; and roundtable discussion on reinventing environmental protection
• Plenary Session Discussion Subjects - Federal tax reform; changing structure of the U.S. economy; federal budget; education; and health and welfare program reform

Points of Interest:

Governors reached bipartisan agreement on an outline for federal welfare reform, the primary focus of which was to seek consolidation of federal welfare programs into block grants to the states. Although much of the legwork had occurred behind the scenes, it was clear during plenary session discussion that this historic agreement among the Governors was expected to play a major role in influencing federal legislation that ultimately gave the states primary responsibility for moving people from welfare to work.

Jack Kemp, who had been selected to chair a commission on economic growth and tax reform, addressed the Governors regarding how the tax code could be restructured to foster entrepreneurial spirit and economic growth without inflation and to create opportunities to help people escape poverty. Kemp told the Governors that economic growth was currently too slow to provide any hope of balancing the budget, as a consequence of which tax reform was needed. He noted that in the past 20 years, the federal government's share of revenue had increased by 58 percent, while prices had more than doubled over wages. And he shared the striking finding by the Internal Revenue Service that it took 5.1 billion hours to complete tax forms and cost more than $200 billion in administrative dollars to raise $700 billion in income tax.

Kemp said that after six months of studying how best to restructure the tax code, the commission had concluded that a single tax rate was justified, with exemptions for low-income Americans and full deductibility of payroll taxes. The primary philosophy underlying this flat tax was that an overall tax reduction would move more money through the economy, helping to create jobs that in turn would generate more federal income tax revenue.

Senator Byron Dorgan of North Dakota emphasized the need to achieve simplicity in the tax system without sacrificing fairness. He argued that Kemp's flat tax proposal posed several problems, including the following.

• It was not in fact 'flat.' Instead, it amounted to a specified percentage rate for wage and salary earners and zero for those receiving money from inheritance, capital gains, interest, and/or dividends.
• It would eliminate the Earned Income Tax Credit, meaning that people in the roughly $20,000 income bracket would pay more in taxes than was currently the case.

Senator Dorgan went on to advocate the elimination of tax breaks for businesses moving their operations overseas.

During a session on the economy, Federal Reserve Board Chairman Alan Greenspan told Governors that the United States was confronting a set of forces pulling us in divergent directions. On one hand, the rapid acceleration of technology could be expected to raise our productivity and standard of living. But in the short run, the fallout in terms of mismatches between human skills and new technologies created uncertainty and insecurity. The uncertainty and insecurity were compounded by the fact that a sound support infrastructure was yet to be fully developed in the high-tech industry. And the increasing value of intellectual versus manual skill was increasing the wage gap. Greenspan made clear, however, his optimism that the new high-tech revolution would eventually achieve its full potential.

In answer to a question about his view of the flat tax idea, Chairman Greenspan said that he would recommend focusing on a reduction in spending before pursuing tax reform, because any tax system that had to finance high expenditure levels would undercut economic efficiencies.

Governors were presented with the Democratic and Republican perspectives on plans to balance the federal budget within the next seven years. White House Chief of Staff Leon Panetta said that the Clinton Administration had agreed to a total savings of $297 billion over seven years, up from its original proposal of $138 billion. Included were concessions to Republicans, among them higher cuts in Medicare, Medicaid, and taxes, and lower cuts in corporate subsidies. Also understood was that spending for discretionary programs—with the exception of education, the environment, and spending for high-tech projects, which the President was determined to protect—would have to be reduced by 10 to 20 percent to achieve the targeted savings. However, the President was concerned about a Republican proposal to permit retirees to choose from among private health insurance plans, which he feared would result in higher-income Medicare participants leaving the program and rendering it unsound.

Speaking on behalf of the Republican-controlled Congress, House Budget Committee Chairman John Kasich said that the previous 40 years had witnessed the pendulum swing toward large, centralized government. Now, the public felt that the federal government had acquired too much power and wasn't serving them efficiently and effectively, as a result of which the pendulum was swinging back toward the people. Kasich likened the American value system to a stool supported by the three legs of community, family, and faith, which together could address the needs of the poor.

Louis Gerstner of IBM talked about the upcoming education summit, which was intended to give Governors the tools they needed to help boost student performance. At the summit, every Governor would be accompanied by a CEO from his or her state as a full partner in the effort to achieve educational excellence. More than a dozen companies were scheduled to give demonstrations of ways in which technology could restructure schools to improve their performance, make them more accountable, and achieve higher standards.

During his address to the Governors, President Bill Clinton said that the genuine debate in this country wasn't between government and the market or about the desirability of big versus small government. Instead, it was that although we could no longer expect government to provide the solutions to all of our problems, neither could we afford to return to an era in which people were left to fend for themselves. What this nation needed, the President argued, was to clearly define the roles of each level of government, of the private sector, and of families and communities.

Memorable Quotes:

John Kasich, Chairman of the Budget Committee of the U.S. House of Representatives, said: "A budget is never about numbers, or I wouldn’t have much interest in it. The budget is a fight about values. The budget is a fight about philosophy. The budget is a fight about vision and hopes…the budget of the United States is an effort by the Congress to figure out how to make America better, how to make America more prosperous…what’s happened over the period of the last 41 years is that we as Americans have allowed the pendulum to swing up towards a big central government. And we have done it for the right reasons, and the most noble of reasons. And those reasons have a foundation of one single thing…for the individual in America to be able to live their dreams…Maybe the gemstone, the cornerstone, of all the power and money and influence we sent to the central government can be viewed in the context of the civil rights movement, where Americans, because of their color, had to ride in the back of the bus as a best case, and in most cases, in many corners of this country, were treated like animals. And we said, with great compassion, great hope, that we wanted to use the central government to beat down the barriers of racism and discrimination. And we’ve gone a long way. But you know, like…any other pendulum at some point, it’s time for the pendulum to swing back. And frankly, what we’re fighting about today, the Republicans on Capitol Hill and the Administration, is about philosophy, common sense, and that pendulum. And what we’re arguing [are] the reasons why we sent money and power and influence to the central government to empower individuals is precisely why we need to bring the pendulum back. Because frankly, ladies and gentlemen, in your states you know that Americans over about the last decade have felt as though they’ve sent too much power and too much money and too much influence to the central government. And they believe in their hearts that it’s time to end the frustration that they feel, and the sense of hopelessness throughout our communities, that they can’t stand up to the government, and the government isn’t serving them. That if in fact we can give the power and the money and the influence back to our citizens in all the towns, in all the villages of this country, they can do better themselves to solve problems where they live…"

President Bill Clinton said: "…we have seen in our own country that there are new threats to our security that are a function of the age of possibility, where people can move around in a hurry, where people can get information on the Internet about how to build bombs, where anybody can be a neighborhood terrorist because of the high-tech information you can get, as long as you’ve got a computer, where someone in Tokyo can break open a little vial of poison gas and kill hundreds of people." [The President was referring to a religious cult’s 1995 release of sarin gas in the Tokyo subway.]

Selected Policy Positions Adopted:
(1) Calling for NGA to work with Congress to ensure the raising of points of order pursuant to the proposal of unfunded mandates; (2) encouraging the federal courts to permit states to craft innovative solutions to state problems without substituting their own judgment for that of the states; (3) calling for use of an accurate Consumer Price Index in dealings with the federal budget and state budgets; (4) outlining the Governors’ wishes with respect to finalization of federal welfare reform, including the desire for flexibility in meeting work requirements, performance incentives for states exceeding employment-related performance targets, an increase in the administrative cap on child care funds, and an increase in the exemption to the five-year lifetime limit on benefits to 20 percent of the caseload; (5) supporting Medicaid reform guaranteeing that the health care needs of the nation’s most vulnerable populations be met, that health care costs be contained, and that states have maximum flexibility in design and implementation of cost-effective systems of care; (6) urging enactment of legislation consolidating employment and training programs into grants for states to use in the development of a comprehensive state workforce development system; (7) recommending that a federal regulatory agency be required to certify that the benefits of proposed environmental protection regulations justified the costs; (8) outlining principles for defining federal, state, and local responsibilities in the financing and provision of public health services; (9) reaffirming the Governors’ belief in federal—not state—responsibility for the provision and financing of health care to Native Americans; (10) supporting federal energy assistance to low-income households to meet heating and cooling needs; and (11) supporting extension of the Farm Bill that eliminated government agricultural subsidies.

Presidential Addresses: