MR. SNOW: All right, everybody ready? The President's schedule, early normal briefings. We're on our way to New York, where we'll go to Federal Hall. The President will first have an interview with Neil Cavuto, of FOX News, on the state of the economy address that the President is going to deliver afterward at Federal Hall. And then upon conclusion of that, he'll meet we Ceasar Borja, Jr. and other members of the Borja family. And then we will return home.

Questions. Read more Comment (0), Email this.

MR. SNOW: That's correct. Read more Comment (0), Email this.

MR. SNOW: His mother, brother and sister. His mother is Eva; brother, Evan; and sister, Nhia, N-h-i-a. Read more Comment (0), Email this.

MR. SNOW: That is correct. Read more Comment (0), Email this.

MR. SNOW: It's a private meeting. We will probably -- we may have a photo release. We're not going to do pool; this is a private meeting. Read more Comment (0), Email this.

MR. SNOW: What? Read more Comment (0), Email this.

MR. SNOW: I'm sorry, what? Read more Comment (0), Email this.

MR. SNOW: Because it's an appropriate thing to do. Read more Comment (0), Email this.

MR. SNOW: Well, I think -- look, the President is going to be dealing with a grieving young man and his family. The one thing we can assure him, from a policy point of view, is that we will plug the gaps in any coverage and anybody who needs treatment will get it. Period. Read more Comment (0), Email this.

MR. SNOW: First responders who need treatment will get the treatment they need. Many are already covered by insurance programs, many through their union; but if there are gaps in that, we're going to do it. We've already -- he will get -- the family will get some briefing also about ongoing medical efforts. Read more Comment (0), Email this.

MR. SNOW: What I'm saying is first responders. Read more Comment (0), Email this.

MR. SNOW: Well, at this point we're talking with the family of the first responder. I think at this particular juncture the most important thing to do is to talk to the Borja family, to pass on condolences and we do not look upon this as a political meeting, and I doubt they look at it as a political meeting, as well. Read more Comment (0), Email this.

MR. SNOW: I'm not getting into that sort of speculation. I'd send you off to the Department of Defense for any readout they're going to give. But let me just reiterate what the President said -- we're going to do force protection and people who are trying to kill our troops or to try to destabilize the democracy, we will respond to forcefully and appropriately. Read more Comment (0), Email this.

MR. SNOW: Well, I think it indicates the success of the President's program. If you take a look at the GDP numbers -- a couple of other items I'd draw your attention to: low inflation and high wage growth. What we're seeing now is vigorous growth -- I think it's 5.4 percent in wage growth in the fourth quarter. You guys will have handouts, so you can double check me on the numbers. The fact is, there's vigorous wage growth and it indicates that the President's proposal of cutting taxes and creating more opportunities for businesses and workers is, in fact, succeeding, and it's important that Congress continue to think about ways of expanding our prosperity. And the first thing it ought to do is to extend the tax cuts that are already part of the law.

I've also got Eddie Lazear here, Chairman of the President's Council of Economic Advisors. So if you want sage advice on economic analysis, Eddie is your guy. Read more Comment (0), Email this.

CHAIRMAN LAZEAR: I do. We've had this kind of economic growth for a number of years now. It's symptomatic of what we see as we come out of a recovery. Usually the first year or two is very, very strong, then it tapers off.

We've been fortunate in that this economy has been able to sustain growth for a long period of time. We're seeing it show up not only in growth of output in GDP, but we're also seeing wage growth, as Tony said. We're seeing high profits, which help the business climate, in terms of investment.

The only weak spot in the economy has been housing, and the very good news is that the economy is so robust that it's been able to grow at a very steep pace, despite the fact that the housing sector has slowed really to its historic levels. So it's not slowing relative to its past, it's just slowing to its historic levels. Read more Comment (0), Email this.

CHAIRMAN LAZEAR: We think there -- we think that we could see sustained growth. Remember, the labor market is extremely tight right now. We have a lot of people working. We've got 4.5 percent unemployment. Job growth is very strong. When you see that in the labor market, that suggests that the economy can continue to grow. Read more Comment (0), Email this.

MR. SNOW: Look, I'm not going to get into specifics. I'll let you -- the better thing to do is talk to the policy guys. Again, what you have is a situation where a lot of people were insured, and if there are holes in the insurance, we're going to plug them. The federal government has made a significant commitment, and we're committed to helping the first responders. Read more Comment (0), Email this.

MR. SNOW: Well, we'll have to see. Look, there are a lot -- what happened is that there was a big first payment -- the federal role began to expand only last October, as you know. So at this point, we are still getting data in. As a matter of fact, the first tranche of data should be coming in either tomorrow or the beginning of next week.

So rather than trying to do a back-of-the-envelope calculation, we'll take a look at the real numbers and find out what we've learned through the first quarter, and obviously we'll make appropriate adjustments as the data indicate. Read more Comment (0), Email this.

MR. SNOW: We'll find out. Again, we don't know what adjustments need to be made. So you're trying to talk into a vacuum. It may be that this is sufficient, it may be that it isn't. We'll just have to see. Read more Comment (0), Email this.

MR. FRATTO: Hi guys. We have the President's National Economic Advisor, Al Hubbard, here with us today. I'm going to run through a few things. Let me just tell you a little bit about the President's day. He had his normal briefings this morning. On the airplane with us is Congressman Ray LaHood. We'll be visiting his district today, in Peoria.

Something that wasn't on the schedule that went out -- I think you may have it -- but our first stop is going to be a visit with business leaders, breakfast meeting with business leaders in Peoria. It will be an opportunity for the President to spend some time talking to some of the local business leaders in the community and getting their sense of how the economy and the region is going there. And then of course we go the Caterpillar plant for a tour, and the President will make remarks to Caterpillar employees, and then we'll head back.

I'm going to ask Al Hubbard to give us a rundown of some of the themes the President will be discussing today, and maybe tomorrow, and then we can come back to questions after. DIRECTOR HUBBARD: Thanks, Tony. Obviously, he'll be highlighting how strong this economy is, how truly remarkable it is, given the challenges that we've faced over the last six years, starting with 9/11, and then the recession, and Katrina, and the war in Iraq. And despite that, this economy continues to expand and be very strong, unemployment at 4.5 percent. We've created over 7 million jobs since 2003, and there's nothing to suggest that we won't continue to have a strong and prosperous economy.

The President is going to be talking about what needs to be done to ensure that we continue our growth. Obviously, keeping the taxes low and making his tax cuts permanent are extremely important to that; continuing to support free trade policies. Caterpillar is a great example of how the American worker can compete with anyone on a level playing field. Caterpillar is enormously successful -- over half the products they manufacture are actually exported.

And every time we have a new free trade agreement with a country like Chile or Australia, the sales of Caterpillar dramatically improve. That's why the President is committed to continuing to expand our trade agreements and support the Doha Round and the Doha agreement.

He'll also be talking about the major initiatives that he discussed in his State of the Union -- health care reform, which is so important to America, to American businesses, most importantly to all Americans. The cost of health care has been growing at an unsustainable pace. It is too expensive. And the President has some, as you all know, very important reforms that would have a major impact on accessibility of health care, affordability of health care, especially for the uninsured.

One little detail that I think I'd like to make clear about our health care proposal: It helps every single working American, even those who don't pay federal income taxes, because everyone would get the opportunity to deduct on their payroll taxes, as well as their income taxes. So for someone buying individual insurance who does not pay federal income taxes, they would get an $1,125 tax credit, or a reduction in their payroll taxes if they bought single coverage. They'd get at $2,250 deduction if they bought family coverage. And that's for people who do not pay federal income taxes, because the President's proposal allows individuals who purchase health insurance to get the same deductions as people who get their health insurance from their employers.

He's also going to be talking about the importance of energy, and reducing our dependence on foreign sources of energy, and his commitment to reducing our dependence on gasoline by 20 percent within the next 10 years, which is very ambitious, but we believe that the ingenuity and the commitment of the American people will make that happen.

He will continue to talk about the importance of education, and he'll talk about that today at Caterpillar, because there's no question the inequality between the skilled and unskilled, in terms of compensation, has been growing over the last 25 years. The most important determinant of one's wages is one's education, and that's why the President is committed to No Child Left Behind, which is working. He's committed to having it, what do you call it in Congress, reauthorized, because what's important is that we dramatically increase the number of high school graduates who are prepared for college, and we do that by improving our K through 12 education system. And that's what the President is committed to. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Yes. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Well, I think the President has talked about the importance of global warming and climate, and the policies that he's promoted, in terms of alternative fuel, will have a dramatic impact on CO2 emissions. And within 10 years, assuming we meet our goals, we will stop the growth of CO2 emissions from automobiles. Read more Comment (0), Email this.

Q You talked about energy independence, and part of that being ethanol. And the President is also going to talk about free trade today. What's the rationale for imposing a tariff on imported ethanol? And why would the administration not lift that, if those are two things that the President aspires to? ... Read more Comment (0), Email this.

DIRECTOR HUBBARD: It's set to expire in 2009, and at that point in time we think it's appropriate for Congress to revisit that. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Well, he's going to be using talking points today, and tomorrow really it's a formal state of the economy, where he's going to talk about where the economy is, the condition of the economy, what's made us successful, and most importantly, what's important to ensure that we continue to be successful. Read more Comment (0), Email this.

DIRECTOR HUBBARD: I'll leave that up to the President. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Listen, the President mentions that every chance he gets, just like he mentions entitlements every chance he gets, because those are two initiatives that are so important to him, because he thinks they are so important to the country. We are -- feel more optimistic. We made a very, very bold proposal in October of '05, and we continue to -- Susan Schwab representing the U.S. -- continues to lean forward to work with our trading partners to work for an agreement. We are waiting for them to meet us halfway, or not even halfway. And hopefully that's a signal that the Europeans are going to be more aggressive, like we are, in terms of negotiating the Doha Round. Read more Comment (0), Email this.

DIRECTOR HUBBARD: We'll leave that up to him. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Again, TPA, we all know, is extremely important -- TPA meaning Trade Promotion Authority, the fast track -- is very important to passing any trade bill. And so that's been critical during this administration, and it will be critical to future administrations. Read more Comment (0), Email this.

DIRECTOR HUBBARD: We think it's important -- raising the minimum wage will cost some jobs, and we think it's important to counter that with tax breaks that will replace those jobs, so it will have a no-net impact on the number of jobs in America. And what's most important to the American worker is opportunity for work. Read more Comment (0), Email this.

DIRECTOR HUBBARD: Congress is working on it. I'm confident Congress will make sure that -- and the Republicans will make certain that there are appropriate tax breaks in the bill. Read more Comment (0), Email this.

DIRECTOR HUBBARD: I don't know the details, so I can't -- Read more Comment (0), Email this.

MR. SNOW: All right. As all of you know, the President is going to be highlighting the strength of the economy over the next couple of days. First, there will be a visit to Peoria, Illinois. He'll visit the Caterpillar headquarters and speak to employees, highlighting, among other things, the benefits of global trade and the way in which free and fair trade have enabled companies like Caterpillar to prosper on the global market.

Then he'll head to New York, the world's leading financial center, and deliver a speech on the state of the economy. He will deliver the New York speech at Federal Hall, where I believe George Washington took the oath of office, and Alexander Hamilton held forth as Treasury Secretary. The President also -- double check on that one, as well -- the President last was there in October of 2001.

Over the last six years the American economy has had to endure a great deal: recession, September 11th terrorist attacks, the bursting of the technology bubble, devastating hurricanes that have crippled entire regions. We have had corporate scandals, we have had wars in Afghanistan and Iraq and a larger war on terror; we have had an oil shock. And, despite all that, the economy continues to thrive.

And the President is going to talk about how to make sure that we build a basis for future and further prosperity in an increasingly competitive global economic environment that includes giving our kids the intellectual and educational skills they're going to need to compete. It means that we are going to try to reduce reliance on foreign oil. It means that we are also going to try to create better, fairer, more efficient legal and health care systems; deal with our long-term entitlement programs -- that is something that inflicts other industrialized nations; continue to expand free and fair trade and keep taxes low; and allow small businesses to thrive. So that is what the President will be doing the next couple of days -- you are all invited.

Questions. Read more Comment (0), Email this.

Q The President said today that the United States would take firm action against Iran if military activities in Iraq threaten Americans. He doesn't seem persuaded that Iran's statement that it's going to become more military involved or in the economy of Iraq as a positive development. ... Read more Comment (0), Email this.

MR. SNOW: Well, I'm sure that there are ongoing conversations. The Prime Minister talks regularly with the ambassador and other officials in Baghdad. I honestly don't know where they stand in terms of those conversations. But they may discuss it. Read more Comment (0), Email this.

MR. SNOW: Well, we'll just have to see. You don't take -- it's a statement, let's see what actions follow. Read more Comment (0), Email this.

MR. SNOW: Right now what we are seeing is some evidence that the Iranians have been involved in activities that have led to the deaths of American soldiers and also the deaths of innocent Iraqi civilians -- and to the extent that that kind of activity continues, we will respond appropriately.

What you're asking us to do is to respond to something that hasn't happened. There is a statement of intent and we'll see how they follow through on it. We would certainly welcome Iran to start playing a constructive role in the region. And among other things, they could stop smuggling arms -- or at least contributing arms. They could stop contributing to terrorist organizations. They could stop supporting Hezbollah. They could, in fact, encourage people within the Middle East to promote peaceful negotiations with Israel on a two-state solution. There are a whole series of positive things they can do.

On a separate but equally important track, they could accept the offer that the United States and other nations have made to give them peaceful civil nuclear power in exchange for their renouncing any programs, verifiably, that could lead to the creation of nuclear weapons. And we have certainly extended our hand, in terms of much warmer, more constructive relations should they do so. Read more Comment (0), Email this.

MR. SNOW: Again, what we have seen -- I'm going to twist it in a different direction. We would love to see them start playing a positive role. Read more Comment (0), Email this.

MR. SNOW: We don't believe, we just -- as I just said, Martha, let's see what the actions are. You've characterized accurately the situation, which is, we have a statement. Let's see what happens in terms of actions, and then we will assess them. Read more Comment (0), Email this.

MR. SNOW: Absolutely. What he wants to do is to continue to have Trade Promotion Authority; every other President has had it. It is the ability to negotiate a good faith trade agreement without their later being changed by Congress, which means you have to go back to the table and kind of renegotiate. It is an important device in extending free trade and also allowing negotiators to operate effectively. President Clinton used it to positive effect during his presidency, as have prior presidents, and we certainly think it is important that Congress renew it. Read more Comment (0), Email this.

MR. SNOW: I don't know if he's talking about it tomorrow or Thursday, but he will be talking about it -- I mean, tomorrow or Wednesday, but he will talk about it this week.

Helen. Read more Comment (0), Email this.

MR. SNOW: I don't think he really thought a lot about it. It's nice to see Jane Fonda in front of the camera again. There are a number of people who were here making statements, and that's perfectly appropriate. This is a vigorous democracy. Read more Comment (0), Email this.

MR. SNOW: It's simply that there were predictions of a larger audience than showed up for the protest. Read more Comment (0), Email this.

MR. SNOW: No. Did you? Did you see 100,000? Read more Comment (0), Email this.

MR. SNOW: Honestly, I didn't go there, Helen, so I'm not going to characterize. Read more Comment (0), Email this.

MR. SNOW: Well, because it's pretty clear from the press accounts that nobody attached six figures to the number who appeared. Read more Comment (0), Email this.

MR. SNOW: Well, what the President also said is we're getting briefed up on them and he had not been fully briefed. So it's a little -- I'm afraid I'm not in a position to comment specifically on it.

But let's talk generally about the kind of action we've been seeing of late within Iraq, which is Iraqi and U.S. forces standing up against those who are trying to commit acts of violence -- at least according to press accounts, and that's all I can go on now, Bret. They were talking about an operation, actually, on Shia and Sunni together, who were trying to commit acts of violence that would disrupt Shia religious observances, much as we saw last year with the bombing of the Golden Mosque in Samarra.

We have seen the kind of impact that sort of action could have, in terms of inflaming sectarian violence. And it is important to go after those who try to commit such acts of violence. So it is certainly the kind of thing we expect to see more of, in terms of U.S. and Iraqi forces in joint operations going after these acts of violence. It also means that somebody had to provide information that was necessary for carrying out the operation.

Ultimately, the Iraqis are going to have to find a way to provide for their own security, and they are going to need to be able to conduct these kind of operations. They will need the intelligence capabilities, they will need the logistical capabilities. They clearly will need the arms and training to do it in a professional manner. So I know it's a very general answer to the question because even now the kinds of reporting we're getting are fluctuating, in terms of casualty counts and exactly where it was and so on, so I don't want to be too specific because, frankly, we don't have the specifics yet. Read more Comment (0), Email this.

Q Follow on a different track -- politics. Senator Clinton in Iowa talking about the war said, "The President has said that this war is going to be left to his successor. He's said that on more than one occasion. I really resent that. This was his decision to go to war." And she described it as "the height of irresponsibility." ... Read more Comment (0), Email this.

MR. SNOW: Let me try. (Laughter.) Read more Comment (0), Email this.

Q I want to ask you about the mixed messages that NPR pointed out during an interview with the President -- that the Vice President has been quoted as saying there's a lot of success in Iraq; the President has said there's not been enough success in Iraq, and that he doesn't approve of what's going on, either. How do you explain this disconnect and the kind of -- ... Read more Comment (0), Email this.

Q But when the President says that his Vice President is a glass half full kind of guy, might that be more charitable than others would allow, and they might think, no, when the Vice President talks about things going so swimmingly, that he's out of touch with what's going on? ... Read more Comment (0), Email this.

MR. SNOW: Well, the Vice President does have a lot of critics. Read more Comment (0), Email this.

MR. SNOW: No, I don't think so. Again, I think there are two ways you look at it. You can take a look at what happens -- it's important -- everybody says, we support the troops, and everybody praises the troops. Well, then acknowledge what they do. And when they do have conflicts in the field, they do succeed.

But the question now is building that capability among the Iraqis and also change in the way we do business in Baghdad proper, so that once you clean out a neighborhood you can keep it cleaned out, you can bring in jobs, you can build a foundation for real and permanent success. That's not something that was being done before and, frankly, the prior efforts didn't work. And so those of -- I think that's what the President and the Vice President are both talking about. Read more Comment (0), Email this.

MR. SNOW: Yes. Read more Comment (0), Email this.

MR. SNOW: Both the President and the Vice President -- again, you can take a look at this in two ways, Jim. If you take a look in terms of specific military engagements, you can point to successes. For instance, you take a look at what's been going on in Anbar, you can take a look at operations recently in Diala, you can take a look at what's been going on down south with attempts to create acts of violence or to commit acts of violence against Shia worshipers -- those would all count as "successes."

But on the other hand, there's also been, over the last year, the new phenomenon of sectarian violence that was not addressed effectively, and I think the President and the Vice President both agree that it was not addressed effectively and we need to find better ways of doing it. Read more Comment (0), Email this.

MR. SNOW: Yes, but it wasn't in the State of the Union speech; hence a state of the economy speech. Read more Comment (0), Email this.

MR. SNOW: Well, let's see. the State of the Union speech, as it was, took sort of the normal hour, once you put everything together, and we wanted a State of the Union address that could be focused on key issues and bold initiatives. And you know what? It is worth reminding people of how good this economy is.

We are starting to see signs of it, in terms of people's general confidence in the economy and certainly consumer behavior. But you look at polls a lot of times and people think, well, it's going great for me, but maybe it's not going great for everybody else. The fact is that the American economy, having absorbed the kind of body blows that lesser economies would not have been able to survive, has continued to thrive.

And the last thing we can do -- you know, American workers have done this -- there haven't been any special acts of heroism, people have just gone to work and they've worked hard and they've saved and they've said, okay, I'm going to do what I need for a home addition, or I'm going to save up some money and buy something for my kid, I'll buy more this year for Christmas -- whatever the case may be. People have worked hard to pursue the kind of goals to make life better for themselves and their families. And that has made our economy stronger. And the last thing we need to do to these workers who have put the U.S. economy on their back, through all of these various challenges, is now to say, do you know what, job well done, we're now going to cut your pay in the form of a tax increase.

So what the President is really arguing for is, let's go ahead, let's make permanent the tax increases that have enabled people to have more cash in hand to pump back into the economy, to create conditions of economic growth, and let's make life more rewarding, literally, for the people who are working hard in this country, including small businesses. Read more Comment (0), Email this.

MR. SNOW: No. No. I don't think -- as a matter of fact, this offers a chance to highlight it, don't you think? I mean, it's a separate speech. Read more Comment (0), Email this.

MR. SNOW: If you take a look -- any time a President gives a speech about politics, Sheryl, there are multiple audiences -- certainly Capitol Hill, but also the American public. For instance, in the State of the Union address, a health care plan that really does offer the possibilities of revolutionary change in the health care system that will make it user friendly, which a lot people complain that it is not today. He is talking about taking a new look at the way we go ahead and pursue energy innovation, so we cut our dependence on foreign oil, but at the same time we make the environment cleaner and we create new economic opportunity, rather than throwing people out of work. Read more Comment (0), Email this.

MR. SNOW: Well, we're going to find out. The Democrats, as I've noted many times, said that they wanted to come to Washington, they wanted to work with the President, they wanted to get things done. And I think the President has proposed things that make sense. People understand it. They understand that what he is talking about addresses some of their basic concerns about education, about the environment, about energy, about health care, about immigration, and people want to see action on those. And I think there are enough people of good will on both sides of the aisle that we may, in fact, be able to get things done. Read more Comment (0), Email this.

Q Tony, talking about people want to see action on things, you also brought into the issue of the economy the disaster of Hurricane Katrina. You have Mark Morial, the head of the National Urban League, calling for a summit, and you have people like Bruce Gordon still very upset. What can the White House do to help in this lowest (inaudible), particularly as it's concerned with New Orleans, because there seems to be a disparity between the other (inaudible) in the state. ... Read more Comment (0), Email this.

MR. SNOW: Well, I think they're getting pushed a lot by their constituents right now.

Peter. Read more Comment (0), Email this.

MR. SNOW: Yes. Read more Comment (0), Email this.

MR. SNOW: Sue Schwab and her counterpoint -- counterpart with the EU have been working very hard, and they've also been reaching out to the G20 nations. It's a very complex set of negotiations going forward. Also it's, I think, realized that it is going to be in the best interest of all to have success in the Doha round.

I cannot and would not get into details at this point. We are at a very important point of the negotiations. We've got a small window to get a lot of things done. And I know all sides are working very hard on this. But the President is deeply committed to working with all our allies. And they've assured us that they're committed also in working with us toward resolution. Read more Comment (0), Email this.

MR. SNOW: He's not going to talk in detail about it, but what he will do is once again point to the importance of free trade. You see, not only do we have free trade within the global structure of the Doha round, but also the United States is engaged in a series of free trade agreements that also have yielded real benefits for American businesses and workers. Read more Comment (0), Email this.

MR. SNOW: I don't know. We'll have to see. I certainly expect it to come up in reporter questions. But I don't know. Certainly, we're aware of the concern. And, frankly, what we do share is the belief that it is important to figure out every possible way to reduce carbon emissions and at the same time create conditions for continuing a strong economic growth.

There has been in the past -- and I think environmentalists realize this -- the creation of a kind of environmentalism that said the only way that we can clean the environment is to throw people out of work, shut down the factory, impose killer regulations -- in point of fact, there are real markets for making the economy cleaner. We have seen auto companies advertising the fact that their cars are cleaner than others and so on. It's something that Americans want and desire, so there are real market forces in favor of a cleaner environment. And, certainly, we'll continue working with any and all companies to do whatever we can.

Olivier. Read more Comment (0), Email this.

MR. SNOW: No, what -- I was -- he is not. What I was saying, I was talking in general terms. So that was my characterizing the fact that we've got a very competitive global environment. And in this environment, it is important to make sure that our workers have the education they need, the training -- because you need to have the intellectual capacity to change jobs and change careers a number of times. It happens now with amazing swiftness. Companies themselves change. They change names. They have new logos. They change their missions.

We have an economy that has far more sweeping rapid irregular change than previous generations -- than the previous generations of Americans have had to deal with. It creates a sense of excitement, but also there is a challenge to make sure that you've got the conditions to allow companies to innovate and flourish, and also the ability to make sure that workers have the training and education necessary to compete in that kind of an environment. Read more Comment (0), Email this.

MR. SNOW: No, no, no, no.

Sarah. Read more Comment (0), Email this.

MR. SNOW: Let me put it this way, what we would like to see is a Palestinian partner that is willing to talk about peace with the Israelis. We saw a suicide bombing today in Eilat. It is important to have a negotiating partner that renounces violence, acknowledges Israel's right to exist and will abide by all prior agreements made by previous Palestinian administrations with the Israelis. What we're interested in is a reliable partner for peace.

Go ahead. Read more Comment (0), Email this.

Q Thank you, Tony. Two questions. To the President's knowledge, has the United States Senate ever before voted to confirm appointment of a combat commanding general, like General Petraeus, and then voted to condemn the mission that he will lead in what would be an astounding hypocrisy? ... Read more Comment (0), Email this.

MR. SNOW: Well, thank you -- thank you for the editorial comment. Let's go to question number two. Read more Comment (0), Email this.

Q The Hill newspaper on Capitol Hill reports that Jane Fonda's fellow anti-war protesters were allowed to spray paint on part of the west front steps of the U.S. Capitol building on Saturday after U.S. Capitol Police were ordered by Chief Phillip Morse to fall back, after which 300 protestors spray painted, "Our Capitol building and you can't stop us."

And my question, does the executive branch believe the legislative branch should have allowed this treatment of the Capitol building of the United States? ... Read more Comment (0), Email this.

MR. SNOW: Go ahead. Read more Comment (0), Email this.

MR. SNOW: Not that closely really. I know there's this perception that we're all sitting around buzzing about it, but we really aren't. Read more Comment (0), Email this.

MR. SNOW: Yes, but it's just -- look, it is what it is, it's an ongoing trial, and we're not going to comment on it further. Read more Comment (0), Email this.

MR. SNOW: Well, again, as I said, as tempting as it is to jump into that, we're not commenting. Read more Comment (0), Email this.

MR. SNOW: I am glad I'm press secretary now. Read more Comment (0), Email this.

MR. SNOW: I'm not going to get into talks, but we've made it clear the North Koreans need to return to the talks without precondition, and then we can move forward.

Ann. Read more Comment (0), Email this.

Q Considering the size of the potential crowds of candidates who are already going to Iowa and New Hampshire, has the President been asked to authorize Secret Service protection for any of the announced candidates yet? And will the budget that comes out next week provide for what may be an unusually large number of candidates? ... Read more Comment (0), Email this.

MR. SNOW: What we're doing is -- I would encourage you to call the State Department about that. That's in their bailiwick, and they'll have a better answer for you.

Paula. You know, I noted you earlier you were in the second row. Now you're way back. I miss you. Come closer. Read more Comment (0), Email this.

MR. SNOW: In that case, go back. (Laughter.) Read more Comment (0), Email this.

MR. SNOW: Go ahead. Read more Comment (0), Email this.

Q In case of -- now you've got me speechless. The administration approach to health care, it's been argued that if you really wanted to reach low and middle class families you should have taken a refundable health care tax credit approach. ... Read more Comment (0), Email this.

Q Also, on health care and climate change, a growing number of states and localities are actually approaching the health care issue by trying to establish universal health care coverage, and also putting their own caps on greenhouse gas emissions, because they apparently feel the federal government isn't setting a high enough bar on either of those. ... Read more Comment (0), Email this.

The President today made additional disaster assistance available to the State of Alabama by authorizing an increase in the level of Federal funding for Public Assistance projects undertaken as a result of Hurricane Katrina. Read more Comment (0), Email this.

MR. SNOW: Welcome, everybody, to this morning's gaggle. I have with me Secretary of Health and Human Services Mike Leavitt, and Kate Baicker from the National Economic Council.

Before we begin, let me just -- a couple of comments on developments in Iraq. The Prime Minister today has given an address -- we don't have a full translation yet, but as you probably know from your own reporting, at least three basic and important points:

Number one, he has once again made it clear that there's going to be no safe haven for those committing acts of terror within Baghdad, regardless of whether they're Shia, Sunni, Kurd, Arab, you name it.

Secondly, he has told the Council of Representatives that he wants the Council, during its current legislative session, which just has a couple more weeks to run, to pass a hydrocarbon law and also de-Baathification reform. As you know, those are two hugely important political benchmarks.

Number three, he also talked about the fact that in certain neighborhoods within Baghdad people have been pushed out of their homes, quite often by advocates or practitioners of sectarian violence. He says that the government is determined to allow those people back into their homes, and to push out what he referred to as the squatters.

So you had a very assertive address on the part of the Prime Minister. We certainly welcome that, because it demonstrates the kind of vigor we've been talking about and that the American people expect, and also responds specifically to concerns members of Congress have been expressing, in terms of the aims of and the determination of the government of Iraq.

And with that, I'll take questions. Read more Comment (0), Email this.

MR. SNOW: Secretary Rice will be talking about it tomorrow, but we are, in fact -- and the President has discussed previously that we may be increasing our commitment in Afghanistan, and we will be. Read more Comment (0), Email this.

MR. SNOW: I think the amount is basically correct. Again, I'll let the Secretary confirm it tomorrow. But it's certainly in the ballpark. Read more Comment (0), Email this.

MR. SNOW: Correct, but it will have a military component. Read more Comment (0), Email this.

MR. SNOW: No real surprises. Senator Hagel was the only Republican to vote for it. He was a co-sponsor, however, so you expect him to sign on to his own resolution. The President understands that people have political concerns. What he has said is, let's give this chance -- this plan a chance to work. You've already seen significant action, I think, since the President -- well, significant action since the President announced the way forward in the sense that Muqtada al Sadr has told members of the Mahdi army to stop wearing black and to put their arms down, and he's also instructed members of his political party to return to the political process.

We have seen assertive action on the part of Iraqi forces and joint Iraqi-U.S. forces within Baghdad taking on terror. You've seen what the Prime Minister had to say today. I don't want to attribute that specifically to the President's announcement of a way forward, but it is clear that a sign of American determination not only builds confidence but also activism on the part of the Iraqi government. And we continue to believe that it's important to make it clear to the Iraqis that our job is to help them build capability, and we'll do it. Read more Comment (0), Email this.

MR. SNOW: No. What we want to do is, again, let members of the party -- and we know they will -- take a look at what happens as we proceed with the way forward. They know that five brigades are going into Baghdad, they know that 4,000 Marines are headed to Anbar, they know that there has been significant military improvement within Anbar, and they have all said things that we agree with: Number one, we cannot fail in Iraq. Number two, they support the troops. Number three, they want Iraqis in the lead.

We believe that the President's plan is the best way to achieve those objectives. We've also said, if you've got a better proposal that will achieve success in Iraq, help Iraqis get swiftly into the lead, and will demonstrate support for American forces, let us hear it. You have a patriotic obligation and you can do the whole nation a service. Read more Comment (0), Email this.

MR. SNOW: I don't think so. In fact, I don't expect it at all. I'll be talking to the House Republicans before the President does, but I think what House Republicans are looking for is they're going to want to talk about issues that came up in the State of the Union address, too, because that is going to play a significant role in politics over the next few months. So we'll talk about health care, we'll talk about immigration, we'll talk about energy, we'll talk about education, and we will talk about working together on Iraq, as well.

The fact is everybody in both Houses knows that we are going to proceed with the way forward, and they will have an opportunity to see results on the ground. And we also have no delusions, Americans want to see results on the ground, as well. Read more Comment (0), Email this.

MR. SNOW: I think at this point I really would resist talking about "latching on to," because it gives a sense of a sense of desperation, where, in fact, the President approaches this as a Commander-in-Chief. And as a Commander-in-Chief, it is his obligation to figure out how to succeed in Iraq. This is not a political exercise, this is an exercise in leadership.

To the extent -- we continue to look for each and every avenue towards success -- diplomatically, economically, politically and militarily. I think at this juncture, what we have are members expressing concerns -- perfectly understandable. We expect that. But also we understand that members of Congress will keep a keen eye out for what happens in the region and how events continue to unfold. Read more Comment (0), Email this.

MR. SNOW: Not particularly. We're talking with them, but we understand that members have concerns and they want to express them. Read more Comment (0), Email this.

MS. PERINO: All right, we have a short flight to -- we have a short flight to Delaware. So I have a few announcements to make, and I'll take as many questions as possible, and we'll see as far as we can get. And then we'll be around the rest of the day if you need anything.

So the President had his normal briefings this morning. He will tour -- can you guys back these off just a little bit, thanks -- tour of DuPont Experimental Station. He will tour a greenhouse that will feature cellulosic energy research. He will make remarks. There's about 1,150 attendees -- mostly are made up of DuPont employees. Secretary Bodman is on the plane. He will introduce the President. Congressman Mike Castle is also on the plane.

At 1:00 p.m. today, the President will meet with -- I'm sorry, 1:10 p.m., the President meets with General Dan McNeil, incoming Commander for NATO's International Security Assistance Force in Afghanistan. The President will congratulate General McNeil on his appointment. He's the first American assigned to this important position. They will discuss the situation in Afghanistan and the importance of success in Afghanistan as it relates to the war on terror. The United States is fully committed to providing the necessary resources to President Karzai.

And at 5:00 p.m. -- this is an addition -- at 5:20 p.m. -- we didn't have it on the schedule last night -- it was on the schedule, we just didn't put it on the public schedule, but should have -- meeting with the Joint Chiefs and combatant commanders. This is an annual meeting. The meeting will be in the Cabinet Room, followed by a dinner in the residence, in the Yellow Oval. He traditionally hosts this every year, as I mentioned.

This year's meeting with the President takes place on the first day of their three-day conference. This is an opportunity for the President to commend the senior defense leaders for their hard work and accomplishments in fighting the war on terror, defending our homeland, and maintaining a strong joint force.

I expect they will discuss progress to date on the new Iraq strategy, and then the continued efforts in -- to counter the Taliban in Afghanistan. He'll also talk about budgetary issues and working with Congress to ensure that they have the needed support for DoD operations and key programs.

Secretary of Energy Sam Bodman will also be on "Ask the White House" this afternoon to discuss the President's State of the Union address last night and the energy policy that was proposed in that speech. Read more Comment (0), Email this.

MS. PERINO: The "Ask the White House"? Read more Comment (0), Email this.

MS. PERINO: At 4:00 p.m.

And last announcement is that this morning, the President signed an executive order that directs the federal government to lead by example in advancing the nation's energy security and environmental performance needs. It's an order that consolidates five existing executive orders and two memoranda, and then establishes new and updated goals, practices, and reporting requirements for environmental, energy, and transportation performance and accountability.

A couple of examples are, the increased use of alternate fuels, including more use of alternate fuel vehicles such as hybrids; reduce federal petroleum consumption in fleet vehicles by 2 percent per year through 2015, and increase use of non-petroleum-based fuels; and reduce greenhouse gas emissions by reducing energy intensity by 3 percent a year, or 30 percent by 2015. And we will release that EO upon landing.

With that, I'll take any questions. Read more Comment (0), Email this.

MS. PERINO: Yes. Read more Comment (0), Email this.

MS. PERINO: Yes, the President traditionally hosts them every year. And so they're going to meet in the Cabinet Room, and then they'll have dinner in the Yellow Oval after. Read more Comment (0), Email this.

MS. PERINO: We were very pleased with the President's speech last night. We think that once people get past sort of the canned prebuttals of the State of the Union, and have a chance to look at the President's proposals, that we'll be able to have continuing dialogue with them.

I think that you saw some initial positive reaction on the energy piece. I think, collectively, everyone said, that might be something we can work on. If you think about it, over the years, there's been core bipartisan support for increased use of alternative fuels and renewable fuels. So that one is a little bit more ripe for a full-fledged discussion and to get hearings underway. It's an ambitious goal, but one, we think, that's attainable.

On health care, I see that one as a little bit more innovative and challenging. I believe it challenges the political imagination to think about how to upend the current health care system and have a very bold proposal that would change the way health care insurance is done in this country. I heard it was one of the most radical changes since Harry Truman actually gave the employer health care benefit -- tax benefit back in 1940.

So we have a lot of work to do in order to bring Congress along, but I think that the President also set a tone last night that will try to cool political passions, especially on a topic like immigration. Remember he said that convictions run very deep, but he believes that we can have a civil and serious discussion. And what he would like to see is a bill to his desk this year on that one. I think that that debate has been, again, discussed over the past few years, and it's ripe now for legislation to come to his desk. Read more Comment (0), Email this.

MS. PERINO: Well, I just announced the EO that the President did, but in the remarks of the President's speech? I think -- Read more Comment (0), Email this.

MS. PERINO: No. Read more Comment (0), Email this.

Q Congressman Boehner says that the U.S. should know within 60 to 90 days whether or not the Iraq surge plan is going to work. What's your reaction to that? He's effectively laying down a marker, saying if something doesn't happen within 60 to 90 days -- ... Read more Comment (0), Email this.

MS. PERINO: I didn't see his exact comments. I don't know if he meant -- what he meant -- what would happen at the end of 60 or 90 days. I think maybe he said we would know if it was headed in the right direction. And I think that General Petraeus and the commanders on the ground and supporters are the ones that could best answer that question, and we're not going to do it from Washington. And we're going to keep watch to make sure that they're meeting their end of the deal. Read more Comment (0), Email this.

MS. PERINO: That's for the federal government. Read more Comment (0), Email this.

MR. SNOW: Welcome. This is an on-the-record briefing. The material before you, these handouts -- the embargo is now broken on these, so these are reportable.

What we're going to do is to give you a detailed overview of the President's proposals in the State of the Union address. Steve Hadley will lead off with a summary. Let me just give you a description of the address. It roughly breaks down 50/50, domestic and foreign policy. The President will have -- and I will allow Steve to characterize the foreign policy aspects. Joel Kaplan, Deputy Chief of Staff for Policy, will run through the policy items, what you're going to find in the State of the Union policy initiatives book. Dan Bartlett also will do some communications framing. We will have questions, and we have to be out of here promptly at the top of the next hour.

So, with no further ado, Steve Hadley. MR. HADLEY: The President had an opportunity to lay out his new approach, new strategy for Iraq here two weeks ago Wednesday. As a consequence, he's not going to replow that ground in the speech tonight. What he's going to do is step back, make the point that the struggle in Iraq is part of a broader struggle between forces of democracy and freedom and the forces of extremism that support terrorism and tyranny. He's going to remind the American people that that is the struggle we see in the Middle East, and that Iraq is a part of that, and it is not just a military struggle, it is a broad struggle that is an ideological struggle between two very different views of the Middle East and what life in the Middle East should be about.

He, in that context, is going to talk about the consequences of failure in Iraq, not only in Iraq for Iraqis, but also the consequences of failure in the Middle East and beyond. He will make the point that it will strengthen extremists and terrorists, potentially give them safe havens from which to attack neighbors and also give them the capability to plan against targets here in the United States. So the security of the American people is very tied up with how we -- how the situation in Iraq plays out.

It would also strengthen Iran, an Iran already emboldened by diplomatic success seeking a nuclear weapon, and the prospect that that could pose for American interests in the region. And it would also undermine those in the region who have stood on the side of freedom and democracy, and have taken severe personal risks to standing up against the terrorists.

So it will be a lot about what is at stake. He will talk a bit about the strategy. He will emphasize the point that it is time for the Iraqi government to act, that he has made that clear, the kinds of things the Iraqis need to do. He will also mention, though, and emphasize the fact that security in Baghdad is essential if we are going to make progress with our overall strategy in Iraq. That is really the key issue that is being debated on the Hill today, and why he continues to believe that security in Baghdad is the key for progress in the region.

He is also going to talk about the broader issues in terms of the war on terror. He is going to mention the effort we are making, and both the successes and challenges that have occurred in Afghanistan; the undertakings to try and move towards peace in the Middle East and to implement the vision of two democratic states living side-by-side in peace and security. He's going to talk about the importance of maintaining the commitment and a clear voice on behalf of freedom in places like Cuba, Belarus, and Burma. He's going to talk about the importance of helping the people in Darfur.

Finally, he's going to emphasize that the foreign policy of the United States is not simply about war on terror, as important as that issue is, but that it is also about confronting the ongoing challenges of hunger, poverty, and disease. He's going to talk about his commitment to his initiative against HIV/AIDS, about the malaria initiative. He is going to call for Congress to continue to fund these initiatives, including funding the Millennium Challenge Account, and make the point that the foreign policy of the United States is not just about making the world safer, it is also about making the world better, and the elements of his program that are directed at that objective.

That's what he'll cover tonight. MR. SNOW: Joel. MR. KAPLAN: Thanks, Tony.

On the domestic side tonight, the President is going to lay out a positive, comprehensive vision for addressing real problems, real challenges facing Americans today, and he's going to provide real solutions.

I think you heard already in the past couple of days that the President did not want to do a laundry list-type approach that's kind of become the formula for State of the Union addresses. He wanted to focus on a handful of the most serious, biggest challenges that we face where there's real interest and real opportunity to work together across the aisle to come up with good solutions to those problems on behalf of the American people. And I'll just discuss briefly what those are, and then I guess we'll turn to Dan and some questions.

First of all, the President, because he wants to focus on a handful of key issues tonight, he'll note that he's going to address the state of our economy in remarks next week. He'll focus on three economic reforms that he does want to discuss very briefly related to the budget. The first is, he will reiterate that because of the strong economic growth and the revenues that that's generated, that we now have an opportunity to balance the budget within five years, and to do so without raising taxes on the American people, but rather to restrain the spending appetite of their government.

He'll also touch briefly on the challenge of earmarks and the need to make sure that the Congress reforms the process that allows special interest provisions to be inserted into bills, and to call on Congress to expose all earmarks to the light of day and to a vote of Congress, and to at least cut them in half by the end of this session.

Finally, on the budget, he'll talk about how our improved budget position gives us an opportunity to address the real, long-term fiscal challenge that we face which is in our entitlement programs, Medicare, Medicaid, and in particular, the opportunity to save Social Security.

The President will then turn to the four initiatives that he wants to discuss in some detail. The first is health care. You've heard, I think, a fair amount about that in the last couple of days, so I'll try to keep it brief on that. The President will lay out his plan for ensuring available and affordable access to health insurance for more Americans.

There are two related proposals to do that. The first is to reform the incentives in the tax code that work against a fair and efficient health system, in particular two things: The President will propose a reform that -- the current tax code discriminates against those who purchase their health insurance on their own, as in they don't get it through their employer. He wants to eliminate that bias in the tax code. He also wants to eliminate the bias in the tax code in favor of the most expansive and expensive health insurance policies.

The way he'll do that is by proposing a standard deduction for health insurance for anybody who has health insurance, whether they buy it from their employer -- or rather whether their employer provides it, or whether they buy it on their own, and regardless of how much it costs. The deduction is $15,000 for a family, $7,500 for individuals.

This helps three groups of people. Today, if you get your insurance through your employer, the President's proposal for 100 million people, 80 percent of the people in that category, the President's proposal will result in a substantial tax benefit. If you're in the category of people who currently provide health insurance on their own, by eliminating the discrimination in the code that group of people will get a substantial tax benefit. A family of four making $60,000 will get a $4,500 tax benefit. And the proposal will help millions of uninsured for the first time get a tax benefit that will put health insurance within reach.

Now, I say within reach because, while it's a substantial benefit, there are a number of low-income and chronically ill people for whom it will be a big help, on average about $3,300 but still not quite enough. And the President has a second proposal called Affordable Choices. And under that proposal, the Secretary of HHS will work with states that are willing to provide access to private affordable health insurance in their state -- if they're willing to do that, the Secretary of HHS will provide assistance in helping the state make sure that their low-income and uninsured can actually get access to that private affordable health insurance. So that's the health insurance proposal that the President will lay out tonight.

He'll also lay out a bold and ambitious proposal on energy. As the President described in last year's State of the Union, we have an addiction to oil, and he'll talk tonight about how that creates a national security risk for our country because it leaves us vulnerable to hostile regimes and to terrorists.

The President will announce a bold new initiative to reduce our gasoline usage by 20 percent in 10 years, by 2017. We're calling it 20 in 10. And the way he'll do this is with two proposals. To address our dependence on oil, you have to address the supply side and you have to address the demand side. On the supply side, the President will propose a new alternative fuel standard of 35 billion gallons -- mandatory fuel standard of 35 billion gallons by 2017. That's nearly five times the current renewable fuel standard of 7.5 billion gallons by 2012. So it's a very ambitious goal, but it's one we think is achievable.

On the demand side, the President will propose that Congress authorize a reformed and modernized CAFE, fuel economy system for passenger cars, that will allow the Secretary of Transportation to increase fuel economy in the same way we've done for light trucks, and by doing so, save up to 8.5 billion gallons of fuel. Together, the 35 billion gallons from the alternative fuel standard represents 15 percent of our gasoline usage in 2017; the 8.5 billion gallons that we're assuming from the increased fuel economy standards represents 5 percent of the gasoline usage in 2017. Together that will allow us to save 20 percent of our gasoline usage in 2017.

Obviously, that's a very ambitious, but achievable goal. It will -- while it will help address our dependency on foreign oil, it won't eliminate it. And so the President will also call on Congress to step up our production of domestic oil and resources in environmentally sensitive ways, and he will call on Congress -- in order to protect from severe disruptions of our oil supply in the future, he'll call on Congress to double the current capacity of the Strategic Petroleum Reserve to 1.5 billion gallons.

The President will also talk about education and immigration in the speech. On education, the President will call on Congress to strengthen and reauthorize the very successful No Child Left Behind Act, which was a signature, bipartisan achievement of the President's first term. The No Child Left Behind Act is working. It's closing the achievement gap. We've raised standards for students across the country and improved accountability. The President will insist that Congress, in reauthorizing it, strengthen the law, but also make sure that Congress does not water down the law or backslide and call it reform.

Finally, on immigration, the President will call tonight for Congress to engage in a serious and conclusive debate on immigration, so that they can pass and he can sign into law comprehensive immigration reform. He'll again highlight that comprehensive immigration reform requires us to secure our borders by doubling the number of Border Patrol and increasing our investments in infrastructure and technology. It requires improving our work site and interior enforcement. But even those measures alone will not secure the border unless we have a temporary worker program which will take pressure off of the border.

In addition to those three components, the President will talk about the need to address in a rational and humane way the millions of undocumented workers who are currently here, and he'll call on Congress to do that without animosity and without amnesty. Finally, any comprehensive immigration reform will include efforts at assimilation, to make sure that new immigrants to this country share in the values that have made the country great. MR. SNOW: Dan Bartlett. MR. BARTLETT: I'll just be real brief since most of this has been covered, and get to the questions. But, in essence, the message to the American people is, want to be a gracious President who welcomes and congratulates a Democratic Congress, but also to speak directly to the American people and say, hey, there are big things we can do together. There are big issues in which the American people expect, regardless of what side of the aisle you sit on, is to cross that aisle and work together. And the President -- through the policies he will outline tonight and what Joel has just described, we believe gives us a really unique opportunity to try to get some big achievements in the coming legislative calendar.

They're difficult issues. They're ones that have been attempted to solve in the past and have come up short. We go into this process with no illusions about the atmosphere in which we're operating in. But the American people send a signal that they want Washington to act differently, they want their leaders to try to find common ground. And we believe both -- when you talk about the elements of the domestic agenda, as well as many elements of the war on terror, obviously there is a very emotional and highly charged debate when it comes to Iraq -- but there are many elements to this war, there are many elements to this foreign policy in which there has been broad bipartisan support. And collectively, if you look at the agenda the President will outline tonight, we do believe it's one that can serve as a basis for bipartisan outreach. MR. SNOW: All right, what we're going to do is, as in a press conference, we're going to group the questions by topic. We'll begin with the foreign policy questions. Once we've exhausted those, then we'll march through the policy items. Read more Comment (0), Email this.

MR. HADLEY: I don't think he'll break any new ground on Iran. He'll talk about the challenge that Iran poses in the region. He'll also talk about the extremist challenge, which is both a challenge from groups, Sunni groups like al Qaeda. He'll also talk about the challenge of Shia extremists. And, of course, a number of those are supported by Iran, as you know.

So it certainly is a part of the context in the Middle East. It's one of the things one has to consider about what our actions in Iraq and elsewhere would do toward strengthening and empower Iran and feeding Iran's ambitions in the region. But I think it will be things that you've heard from him before, said in a broader context. MR. SNOW: Let me suggest if you have questions, keep your hands up a little bit so folks with microphones can identify you. That way we can move a little more quickly. Read more Comment (0), Email this.

MR. HADLEY: Well, the President has been very clear. We think that there is -- we hope there is an opportunity for a democratic transition in Cuba, where the Cuban people will have an opportunity really for the first time to take control of their own future and define the kind of government they want going forward. We hope that is an opportunity that is going to come in the imminent succession that we see there.

The President has been very clear about Belarus. He has hosted dissidents and those who support freedom and democracy in Belarus in the Oval Office. He's been very clear that it's time for the Belarusian people again to be able to step forward and to find their own future.

And same in Burma -- I mean, we've been very clear. We were pleased to have an opportunity to get a Security Council resolution. Sorry that it was vetoed by two countries, but again, it put the issue of Burma as an issue for the international community. So it's an ongoing effort. Read more Comment (0), Email this.

Q Steve, if you could talk broadly about what he's talking about the global war on terrorism and Iraq. Does he really say anything new in talking about what effect it would have in the region and the world if there was failure in Iraq? And also I know you said he wants to look forward in this, but does he again acknowledge mistakes or failures in the past? Just basically, is there anything new on Iraq and global war on terrorism and the mistakes? ... Read more Comment (0), Email this.

MR. HADLEY: Well, he's covered a lot of the specific issues about Iraq, what our strategy was, what we've learned, particularly in terms of describing how the new Baghdad security plan differs from what we did in the past. This is an effort, really, to step back and paint a broader picture. So in some sense, he did that in the speech he gave two weeks ago Wednesday. I think it's a different speech with a different purpose tonight. MR. BARTLETT: I think just to amplify on that just for a second, Steve, the way he will talk about the kind of -- how this war has transpired, he'll talk about where we went from 2005 to 2006. In 2005, there were a lot of advancements in the democracy agenda -- and Steve can talk more to this -- and in 2006, the enemy fought back across the fronts, whether it be in Iraq, whether it be in Lebanon, whether it be in Afghanistan and elsewhere. And it's a good way to have -- the President can use this as an opportunity to discuss the nature of the enemy we're facing, why it is -- like I said, the interconnectedness between Iraq and the other elements of extremism, whether it be Shia-Sunni, as Steve described. So there will be some difference, some new language and new context to something you've heard him talk a lot about. Read more Comment (0), Email this.

Q Steve, back on Iran, if I could. As you know, in the last weeks there's been quite a debate over the degree of Iranian involvement in both the insurgency and the militias in Iraq. Will the President produce new evidence, new information about what Iran is doing in Iraq? And if not, why not? ... Read more Comment (0), Email this.

MR. SNOW: No, it's merely a matter of providing for energy security. This has been American policy for some time. As U.S. consumption has gone up, the capacity of the Strategic Petroleum Reserve to provide a cushion has, in fact, decreased over the years, and what we're doing is we're rebuilding the cushion. In the -- it certainly does fit into the overall picture of energy security, but it is not specifically designed for that. Read more Comment (0), Email this.

Q Real quick follow-up, Dan. You were talking about 2006 being the year when the enemy fought back. If you're listening to this speech, will you, as a listener, get any context of timing in the President's mind, how long Americans are expected his new plan to take, or how long we would expect the enemy to fight back? ... Read more Comment (0), Email this.

MR. BARTLETT: Well, he will definitely talk about the fact that in order to advance American interests in the world, we can't do this alone, that the civilized world plays a key role. And we have a diplomatic strategy on many fronts, including the six-party talks with North Korea; where it talks about our diplomacy through the United Nations; when it comes to Iran, talking about working with our allies and friends in the region to bring about peace in the Middle East, two states living side- by-side. So he will talk extensively about, and comprehensively about, our diplomatic strategy across many different fronts. Read more Comment (0), Email this.

MR. BARTLETT: Well, as you know, those six-party talks are underway and he's not going to be doing real-time analysis of that. But he's going to talk about the importance of having many voices speaking to make clear our intentions when it comes to North Korea's nuclear ambitions. Read more Comment (0), Email this.

MR. SNOW: No. Read more Comment (0), Email this.

MR. BARTLETT: That is not a part of the speech.

Just to amplify a little bit on what Tony just said there in his answer -- (laughter) -- is that the President is going to articulate why he made the decision he made with this new strategy, why he believes it has the best chance for success, what the ramifications of failure would be. And he's going to ask this Congress to give it a chance to work and to support our troops. And that's an important message, not only for the United States Congress, but there's an important audience with the American people.

He understands and will acknowledge the fact that there is skepticism. He's listened to their views. He understands that there are disagreements when it comes to the decision he made. But he did -- and our administration is doing -- what many people, including the new top military commander who is going to Iraq, has the best chance for success. And he'll make that case tonight. MR. SNOW: It's important to realize, as the President stressed before, there seems to be substantial agreement on a lot of things: Number one, you can't afford to have a failure in Iraq -- and he will explain more clearly to the American people exactly what that would entail and why it would be disastrous; number two, people want to support the troops; and number three, people want Iraqis in the lead -- all of which he will address. And then he'll make the further point that it is his view -- and he'll explain why -- that having a larger troop presence is essential for success in Iraq.

But there will not be direct engagement on resolutions on the Senate floor. There will be, as Dan pointed out, a forceful and clear argument of why the President, after a very exhaustive process of looking at all options, including some that have been raised on the floor of the Senate and elsewhere, has chosen this particular way forward. Read more Comment (0), Email this.

Q Dan, the 2002 State of the Union was, of course, when they used the "axis of evil" phrase for the first time, and it suggested a connection of some kind between the various terror forces and enemies. Is the President going to do anything tonight to suggest that the forces in the Mideast are in some way allied against us, that there is interaction beyond what we've seen in Iran and Iraq? ... Read more Comment (0), Email this.

MR. BARTLETT: Not in that context, no. Read more Comment (0), Email this.

MR. BARTLETT: He'll make very clear that a key element of the new Iraq strategy requires an active and willing partner in the Iraqi government, that they have to take steps to achieve concrete benchmarks that everybody recognizes have to be achieved in order to get political progress on the ground. The President also has made clear that there's not a military solution alone to this problem, that there has to be the type of reconciliation and reconstruction in that country for them to advance toward a more mature democracy that can meet the goals we all have and require less support from the United States.

I think the interesting thing -- and the President won't go into these details tonight -- but that there have been some preliminary but encouraging signs by the Maliki government. If you look at reports talking about Jaish al Mahdi and other extremist elements that have been taken down in the last several weeks, you look at some of -- it looks like there's more progress being made on the oil law and those things. So we're seeing a clear recognition out of Baghdad that the Iraqi government must make these types of advances in order to continue to have the support of the United States. Read more Comment (0), Email this.

MR. BARTLETT: Well, we've talked extensively, and he will list, specifically, many of the benchmarks that not only the United States expects them to meet, but the Iraqi people expect them to meet. And this has been a topic of conversation for the last two weeks, about linking and consequences for benchmarks. I think the Iraqi political system, the democracy you have on the ground there, as well at the democracy here, demonstrates that there will be consequences if these benchmarks are not met.

Everybody recognizes -- the President said that our commitment is not open-ended. So he'll make clear there are specific, measurable benchmarks both on the security front, and the political and economic front that the Iraqi government must make progress on. And the good thing is they recognize that, too. Their own electorate expects them to make similar progress. Read more Comment (0), Email this.

Q Dan and Tony, the President made, I believe, five speeches in the runup to the election in which he cast the global war on terror as the decisive ideological struggle of our time. He talked about Iraq as the central front in that war. Now you're saying that the public does not get the connection between what's happening over there and what might happen here. So why do you think, after all those speeches, the public still doesn't get that connection? And what is the President going to say tonight that is different, that he believes will change the public's mind? ... Read more Comment (0), Email this.

MR. SNOW: Well, first, let's let -- Elaine I think has a question. Read more Comment (0), Email this.

Q To kind of follow up on Sheryl's question, is he going to use the phrase "the new way forward" tonight in describing the strategy? Because as I recall -- I could be wrong, but I don't believe he used that phrase during his Iraq prime-time address. It was on all the fact sheets, correct? ... Read more Comment (0), Email this.

MR. SNOW: No, you're reading too much into it. Read more Comment (0), Email this.

Q Dan, that's the strongest I've heard you talk about actual benchmarks. In fact, I think you and the President have kind of gone out of the way to not say there were specific benchmarks, other than there were to be consequences if some troops didn't -- will he use the word "benchmarks," there are benchmarks in this? ... Read more Comment (0), Email this.

MR. BARTLETT: We used the term "benchmarks" two weeks ago. Read more Comment (0), Email this.

MR. BARTLETT: He's not going to use dates, no, but he's going to talk -- Read more Comment (0), Email this.

MR. BARTLETT: Oh, sure. Read more Comment (0), Email this.

MR. BARTLETT: He used a date two weeks ago, when he said that of all -- handing over the security of all the provinces to Iraqi lead by November of 2007. That's a specific date. Read more Comment (0), Email this.

MR. BARTLETT: We are not doing what others have done, is say, if this doesn't happen, we're going to withhold this funding, or if this doesn't happen, we're going to withdraw troops from here. And that is not a part of our strategy. Read more Comment (0), Email this.

MR. BARTLETT: To clearly articulate, and very publicly, in a very transparent way, the indicators and the measurements we will use to see if the Iraqi government is succeeding in doing the things that the Iraqi people and the American people and the international community expect them to do, as I said, on the military front, on the reconstruction front, the reconciliation front -- this goes to the oil law, it goes to the provincial elections, it goes to reconstruction dollars being evenly distributed, even to Sunni provinces. It goes to a lot of different -- reform the de-Baathification law. These are things that everybody recognizes as the benchmarks that need to be met.

And the President generally has said, this is not an open-ended commitment, you have to make progress in these. There are others who say you should get more specific, and tying specific consequences to specific benchmarks. The President won't do that tonight. MR. SNOW: We are not doing ultimatums.

Deb, Jim and then we go domestic. Read more Comment (0), Email this.

MR. BARTLETT: I think what you're seeing is that there is multiple ideas, multiple resolutions. There's a

-- the House of Representatives has ideas; the United States Senate has ideas; there's five senators here, there's seven senators here. There's a lot of debate going on in the United States Congress, which is important. And they have a role to play and they're going to make their views known.

But what the President feels obligated to do, not only speaking to the Congress, but to the American people, is to articulate the strategy that he has chosen and explain why he believes it will work and what he thinks will be the consequences if we fail in Iraq. Read more Comment (0), Email this.

MR. BARTLETT: I apologize if I misspoke. What I was saying was that there will be specific benchmarks he will articulate, as I just said -- reconciliation on the side of reform, de-Baathification laws, talking about an oil law; those things.

The consequences I said will be the fact that the Iraqi people and the United States of America do not expect an open-ended commitment to a government that is not meeting these goals. In a general sense, I am trying to make -- to clarify to both of you -- and I'm not saying that there are specific ultimatums or consequences tied to each of these benefits -- these benchmarks. But what I am saying is that everybody recognize that this is the decisive period for the Iraqi government. This is the period where they have to step up and make key advancements on the political front, the reconstruction front and the security front. And their own elected people are going to hold them -- their own political process is going to hold them to account and the President has made clear to the American people that we expect them to make progress on those accounts. MR. SNOW: And to add to that, there have been some signs -- one does not want to leap to conclusions based on those -- you have seen more aggressive and forthright action against Shia militias. We all not only have the captures, but we also have movement. You have changes in behavior on the part of Muqtada al Sadr in terms of the kind of public stance he's taking in also telling his people to go back to the Council of Representatives. That made possible a quorum that's going to enable the legislature to move toward passing such things as oil laws and de-Baathification reform.

So again, we don't want to make too much of it, but on the other hand, you're starting to see some movement. There have been reports of brigades beginning to make their way toward Baghdad. All of those things that the American people ought to keep an eye out for. Read more Comment (0), Email this.

Q Dan, I wonder if you could talk about the overall political context for this speech. He's arguably in worse shape than he's ever been for one of these speeches. How is that reality reflected in this? How does it change his goals? Does he have to show he's relevant, especially on domestic issues? ... Read more Comment (0), Email this.

Q This is for Joel on the energy question, one factual question and then a broader question. The factual question: Is it your position that Congress needs to pass legislation on CAFE standards? That's not something that you guys can do on your own, that the Secretary of Transportation can't just order an increase in the standards?

And number two, just philosophically, are you able to discuss to what extent the President has -- in sort of the first part of his presidency, he really focused a lot on supply, on energy and drilling in ANWR and stuff, and this speech obviously seems like it's much more of a focus on the demand side. And if you could just explain how the President philosophically has shifted on that issue. ... Read more Comment (0), Email this.

Q On the CAFE standards, the one measure you've got in here aimed at consumption is a measure that will impact a struggling industry and a struggling sector based in a struggling state. And I wonder, A, whether or not there was any consideration of looking at other industries or other ways at affecting energy consumption, and B, whether or not there's anything either in the speech or coming later that might soften the economic impact that that's going to have on the auto industry. ... Read more Comment (0), Email this.

MR. SNOW: Yes, it begins with a section on -- first he will great the new Speaker -- it is an historic opportunity, so there will be some comments on the new Congress and the new Speaker. Then he will talk about the domestic policy sections. And then the back half of the speech -- roughly 50/50 -- the back half of the speech will be on Iraq, but also on the larger war on terror.

In addition, the President will be talking about diplomatic efforts; as Dan was pointing out earlier, that's an enormously important part of what we do. And the President also will talk about humanitarian elements, whether it be with regard to addressing malaria or AIDS, also is an important national security concern. So it's going to be a broad and thoughtful discussion of foreign policy. It is not simply half the speech on Iraq. Iraq certainly will come up, but to give people a sense of how all the pieces of foreign policy fit together, and that will also involve about half of it. Read more Comment (0), Email this.

MR. BARTLETT: Not specifically. MR. SNOW: No, not specifically. Read more Comment (0), Email this.

MR. KAPLAN: Well, what's new ground is that we've got a new Congress, and it's a Congress that we're hopeful will be very eager to take up in a serious, and as I said at the outset, conclusive way, this issue. The President is going to recognize that this is an issue on which convictions run very deep. But he thinks now is the time for the administration and the Congress to work together. He's laid out the principles of reform that, when packaged together, make up the type of comprehensive reform that's essential to really fix the problem. And I think he's hopeful, and we're all hopeful, that this new Congress is going to want to take up the challenge. Read more Comment (0), Email this.

MR. KAPLAN: He's not going to mention that in the speech tonight. As I mentioned at the outset, the President wanted to focus this speech on a handful of specific issues. Obviously, there's a broader agenda that the President will continue to talk about. He had a very important -- we had a very important statement in the statement of administration policy when the stem cell bill was on the floor of the House. And we'll continue educating the American people and the Congress about the technological breakthroughs there, as well. Read more Comment (0), Email this.

MR. KAPLAN: Yes, he will mention, again, as he did last year, the importance of continuing the research and development, and hopefully very soon, commercialization of plug-in batteries and the things that are needed to take the next step in hybrid and electric vehicles.

I'm sorry, what was the first part of the question? Read more Comment (0), Email this.

MR. KAPLAN: Yes, thank you. As I said in the outset, what the President is announcing is an ambitious, but we think, achievable goal. But it's a technology push. Basically, as I mentioned, we're on the cusp of some very important technological breakthroughs, in particular, in cellulosic ethanol. As it stands now, we've seen a very dramatic increase just in the last couple of years in the use of corn ethanol. So, as a result, even though it was just a year or two ago that the 7.5 billion gallon mark was set for 2012, we're coming up quickly on that mark and we're going to surpass it within a year or so.

So we're going to be continuing to increase the amount of corn ethanol. But to reach the goal of 35 billion gallons equivalent in 2017, we're going to need to see some technological breakthroughs. And that's why the President is setting this goal so that investors, venture capitalists, researchers, scientists are all focused on that goal and can expedite and accelerate that technology. And we're optimistic that it can happen. And when it does, we'll be able to meet that goal. MR. SNOW: I'm going to apologize. We are not going to be able to get to all the questions because -- at least I have to break out of here at 3:00 p.m., and I think these guys also have commitments, so we're -- MR. BARTLETT: Hey, Tony, can I just add one point to this? MR. SNOW: Yes, please. MR. BARTLETT: The other thing that Joel made a little comment on, but the President will also make clear the benefit the environment will gain by this policy of a very ambitious pushing of the envelope on technology in an alternative space, and that it does help us address what he will call the serious challenge of global climate change. MR. SNOW: As a matter of fact, at the end of the decade there will be -- the carbon dioxide emissions from automobiles and other such sources will actually stabilize and begin to decline in future years. So that's a very significant goal. Read more Comment (0), Email this.

Q Actually, to follow on that, the fact sheet mentions that you expect that the CO2 emissions will be reduced about 10 percent a year from the energy initiatives. Should we look for any new language on climate change, any sort of philosophically new acknowledgments of the scope of the problem or what needs to be done to address it? ... Read more Comment (0), Email this.

Q A follow-up on climate change. There's a growing number of CEOs from a wide spectrum of industries that significantly contribute to greenhouse gas emissions who are calling for mandatory cap in trade, and have indicated that without that, what you're suggesting will not be enough, it will not be done quickly enough to reduce greenhouse gases before you reach actual environmental -- dire environmental and economic consequences. So why are you opposed to regulating industries that are calling for regulation? ... Read more Comment (0), Email this.

Q This is maybe for Joel and for Dan, but congressional reaction to the health care proposals that have been out since, I guess, Friday night has been almost withering. Labor groups have been very critical. Are you confident you're going to be able to get these changes through Congress? And have you had back-channel talks with them where you have important leaders lining up with you? Because on the surface, it doesn't appear that you do. ... Read more Comment (0), Email this.

Q On the earlier question about how the CAFE standard change would affect a struggling state like Michigan, Joel, you had brought up the health care issue. Could you do two things? One is, could you explain how you think this health care proposal would help the big three in terms of mitigating some of the obvious challenges it will present? And two, how do you address the issue of why companies aren't going to start decoupling health care when they can just say to employees, well, you get a tax credit for that, and we'll give you something else? You buy it out on the market. ... Read more Comment (0), Email this.

MR. KAPLAN: The President wants employers and employees to make these decisions based on something other than the incentives of the tax code, which distort the tax code. So employer- provided insurance is an important part of our system, and for lots of employers that's going to continue to be the right answer, and we hope it will continue to be the right answer. What the President is focused on is making sure that the people who work for those employers get the benefits of the tax code whether or not they buy the most expensive plan, or whether they buy a less expensive plan. And he wants to make sure that people who don't work for an employer who provides that insurance get the same tax benefit. He wants to make sure that the tax code doesn't distort the market in favor of higher plans or in favor of those who have employer-provided coverage, as opposed to those who don't. Read more Comment (0), Email this.

MR. KAPLAN: I don't know if "many" employers is true. I think it's true that probably some will, just as some are today. And the difference -- Read more Comment (0), Email this.

MR. KAPLAN: I don't know that we have an estimate. MR. BARTLETT: We'll get back to you if we have them. Read more Comment (0), Email this.

MR. KAPLAN: Because of what I mentioned in the -- the question about -- Read more Comment (0), Email this.

MR. KAPLAN: I think probably it would, but more would also pick up -- more would be able to buy insurance in the individual market in a way that they can't now. And the ones that do buy it now would get a very substantial tax benefit. Read more Comment (0), Email this.

MR. KAPLAN: Yes, there will be a net increase in the number of insured under this policy. And particularly, when you combine it with the policy that Secretary Leavitt will be working on with the governors to provide incentives to states who make basic private health insurance affordable. MR. BARTLETT: Now, isn't that crystal-clear to everyone? Any other -- Bill, I saw you had your hand up there. Anybody else? We good? Everybody's good? Read more Comment (0), Email this.

MR. FRATTO: Good afternoon. Thanks for coming on relatively short notice. We wanted to give you all an opportunity to dig in a little bit to the health proposals that President Bush alluded to in his radio address this weekend, and make sure that you have an opportunity to talk to some of our policy experts and to get a little bit deeper into it so that we're all on the same page.

We're excited about the proposals the President put forth and will put forth tomorrow night in his State of the Union address. We've asked Julie Goon, who is with the National Economic Council and a health care policy expert, and Kate Baicker is a member of the Council of Economic Advisors, to give a fuller briefing on both -- we're going to talk about both proposals. I'm going to ask Julie to come up first to frame up the issue in the context of President Bush's -- the way he views health care and health care reform. And then we'll ask Kate to get in a little bit more deeply on the tax proposal and how that will affect health care and health care reform.

So, Julie, do you want to come up and lead us off? MS. GOON: Thanks, Tony, and thanks to all of you who are here today.

I think I just want to start out by saying the President has had a whole series of health policies that continue to remain the foundation of the things that we are doing in the health care area, including the work that is going on with respect to transparency and getting more information available to consumers; the work with respect to health information technology and health savings accounts, trying to make insurance more portable across state lines, et cetera.

But in looking at the coming year and recognizing that this is the year that the state Children's Health Insurance Program is up for reauthorization, that this is a good year to really refocus and re-target on a lot of the ideas that people have had about how to provide for more insurance coverage for people who don't have access to that coverage right now.

The President felt that it was important that we ensure that affordable coverage is available in the states, that is why an important piece of what he's going to be talking about tomorrow has to do with the Affordable Choices Initiative that will help states who make basic private affordable health insurance available in their states, provide additional help to those states to help subsidize insurance coverage for people who are poor and who are uninsurable at this point.

And I think Secretary Leavitt has been very instrumental in pulling this initiative together. He's been talking to a lot of governors who have come forward with their own ideas. We'll be doing more of that over the next several weeks, and the President will be talking about that, as well, in the State of the Union. And it's part of the fact sheet on health care that came out today.

Complementary to that is the need to address some of the biases in the tax system and reform the tax code to realign those incentives to provide for more of a reason for people to purchase health insurance coverage. As many of you know, right now you have a tax benefit for the purchase of health insurance coverage if you purchase it within the employment setting. If you have to buy health insurance in the non-group setting you do not get that same kind of tax advantage.

And so the tax reform proposal that the President will put forward in the State of the Union levels the playing field between insurance coverage purchased inside the employer market and outside the employer market, and does it in a fairly innovative and creative way, in a way I think that we haven't seen before, and Kate will be able to talk in more specific detail about that. But, essentially, it puts in place a standard uniform deduction for the purchase of health insurance coverage. So if you purchase coverage, you get this deduction, and it's the same for everybody.

This is an immediate benefit to people who don't have insurance now who have wanted to purchase it but haven't been able to do so because of the cost of health insurance coverage and because they don't get this tax benefit. It's an immediate benefit to people who have purchased coverage in the non-group market already, and it helps a majority -- millions of Americans who currently have insurance coverage through their employer -- will get additional tax benefit as a result of this change in policy.

There have been a lot of people who have been concerned that doing something like this doesn't necessarily improve the market for health insurance, and I would just like to point to our experience over the last couple of years in the Medicare Part D program. As many of you remember, when that debate started, folks didn't think there would be people who would be interested in offering prescription drug coverage in the Medicare program. A number of companies came forward to do so. Initially the actuaries estimated that the cost of that coverage would be fairly high, and would grow. And as all of you know, when seniors and other beneficiaries got a look at the choices that were available to them, what was in those benefit packages and what the costs were, as a result of their choices, we have a very competitive market in Medicare Part D, and the average premium is down 40 percent from what it was anticipated to be when that program first started.

So getting back to the specifics on the tax piece, why don't I turn it over to Kate, and then we're both available to answer more questions on this. Thank you. MS. BAICKER: Thanks. So Julie did a great job laying out the big landscape of what we'd like to do, and then I'm going to be the geek and try to explain how it actually works. So any clarifying questions would be most welcome.

As you know, right now when you get insurance through your employer, that insurance isn't subject to taxation, so it's part of your compensation that you're getting income and payroll tax-free. And that means that people have a really strong incentive to get more generous employer policies to cover all the health care they might want to consume because if you go out into the health care marketplace to buy a doctor's office visit, you're usually paying for that with after-tax dollars. But if you get that covered by your employer-provided plan, it's covered with pre-tax dollars, and that's a big discount. And that's a lot of the reason why we see such generous first-dollar coverage in the employer market as the norm, unlike other industries, like auto insurance or home owner's insurance.

So what this proposal would do is change the system to level the playing field in two ways. It will level the playing field for people who are buying insurance on their own, relative to those who are getting it in the employer market, or through their jobs. And it will level the playing field for people who want to get basic policies with lower premiums, and then pay for routine care out of pocket relative to people who want to get more generous, deluxe, gold-plated plans. Right now the most generous tax benefits are reserved for people with the most generous employer-provided health insurance.

What this plan would do is give a flat, standard deduction for anybody who purchases any kind of health insurance, no matter how much the health insurance costs and no matter where they get it. It would be $15,000 for people purchasing family policy, $7,500 for people purchasing single policies. So if your employer is giving you insurance through your job, you get the standard deduction. If you go buy health insurance on your own, you get the standard deduction. If your policy costs $5,000, you still get $15,000 of compensation tax-free. If your policy costs $20,000, you still get $15,000 of compensation tax-free, using the family example.

So who does this help, who does this hurt, what's the total cost? It's revenue-neutral over the whole health care system and over the 10-year budget window. Anybody who doesn't have insurance right now has a really strong incentive to go get insurance. Right now an insurance policy on the individual market or the non-group market, if you're just going to get your own family policy, the average cost of one of those policies right now is about $5,200.

Take a family earning $60,000 in the 15-percent income tax bracket, 15-percent payroll tax bracket, if they are currently uninsured and they go buy insurance, under the current system it costs them $5,200 today. Under this system in 2009, once it phases in, they get $15,000 of compensation tax-free. They're paying 30 percent marginal tax rate on that, so that's $4,500. That's a huge chunk of the cost of an insurance policy out there. So it makes insurance much more affordable for those people.

So anybody who is uninsured right now is a big winner under the proposal. So are people who are buying insurance on their own. If you're out there and you've already purchased your own non-group insurance or your own insurance not through your job, for the most part you're getting no tax benefit. So this is a pure win for you. Your tax bill goes down.

Now, what about people getting insurance through their jobs right now? Anybody getting a policy under the standard deduction, a family policy of less than $15,000, or an individual policy of less than $7,500 would immediately see a lower tax bill. That's because they would get a standard $15,000 deduction for a family, but then they would have to count as taxable income their insurance policy, but it would be lower than the $15,000, so their tax bill would go down.

That's 80 percent of the policies offered in the employer market. So as of January 1, 2009, when this policy gets implemented, we hope, if you look at all the policies offered in the employer market, 80 percent of them would be under that standard deduction. So those policies would be subject to lower taxes.

Twenty percent of the policies, the ones that are left, are actually higher than the standard deduction. And that means that if people didn't change their behavior at all, their tax bills would go up because they would be taxed on the extra amount above the standard deduction. So if your policy for your family costs $20,000, you get the standard $15,000 deduction -- that leaves $5,000 extra taxable income that you'd have to pay income and payroll taxes on that you don't now. So those 20 percent of people might see their tax bills go up. On the other hand, they have some time between now and then to change their compensation packages.

One of the things that we think is inefficient about the way our tax system treats health care is the strong subsidy for more generous employer-provided policies relative to everybody else -- people buying insurance on their own or people getting less-generous policies. This would give people a chance as they're negotiating contracts with their employers to take more of their compensation in the form of wages and less in the form of health benefits. So that 20 percent has some recourse between now and then.

The other way that helps keep the whole package revenue neutral is that the $15,000 or $7,500 would be indexed to CPI, not general health care costs, and one of the goals of this policy is really to rationalize our health care spending so that we're getting higher-value, more efficient care, and we hope in the long run that that substantially brings down the trajectory of growth in national health spending overall, because people will be purchasing higher-value plans, they'll be allocating their health care dollars more efficiently. We think that will bring down national health spending both immediately, as people change the quantity of health insurance versus wages that they take in their compensation packages, and even more in the long run, as there's an incentive to develop a more rational, efficient health care system, more cost-effective technology, more provider competition.

So that's the bare bones, but I bet that there are questions. Read more Comment (1), Email this.

MS. BAICKER: So the deduction, the standard deduction has nothing to do with how much your health insurance costs under this proposal. That's the part that's hard to get your mind around because it's so different from how it works right now.

So if you -- no matter how much your health insurance costs, no matter how much is spent on your health insurance by you and your employer, you get a $15,000 deduction for your family. Now is that a win or a loss for you? It depends on how much you were spending before, and really it depends on how much you were spending with pre-tax dollars before. Now, for everybody the employer portion is pre-tax. For most people in big firms, the employee contribution is pre-tax, too, because you're doing it through a cafeteria plan or an FFA. For some people, their employee share towards their employer premium was already being taxed.

So when we think about the tax benefit that you get because of the standard deduction, that doesn't depend at all on how much your health insurance policy costs. But when you think about how much that is relative to what you're paying now, you want to think about how much of your premium now is getting paid with pre-tax dollars. For most people, that's the employer plus the employee share. For some people, it's just the employer share. Read more Comment (0), Email this.

MS. BAICKER: So let me put it another way, your taxable income, if this policy is implemented, will be your wages and anything your employer is paying for health insurance. You're already paying your share out of your wages, so your total taxable income is the check that you get, plus whatever your employer has paid directly to the health insurance company. You may have to give back some of your check for the health insurance. And then you get to take off of that $15,000. And so for 80 percent of policies that $15,000 is more than what was getting pitched in. But for some people, it might be less. Read more Comment (0), Email this.

MS. BAICKER: I believe today in '07, the average employer policy is $11,500 -- MS. GOON: For a family. MS. BAICKER: For a family, or I think the average family policy overall, so it incorporates the mix of the number of people in the family. Then the policy gets implemented -- this proposal will be implemented in 2009 -- the $11,500 average today, if you were to inflate that up to 2009 so that you could compare it to the $15,000 would be more like $13,600. And that's the number that we used to figure out the 80 percent-20 percent breakdown. Read more Comment (0), Email this.

MS. BAICKER: All the calculations were done in 2009 dollars. Read more Comment (0), Email this.

MS. BAICKER: No, there's no assumption like that -- no, no, no. Read more Comment (0), Email this.

MS. BAICKER: I gave some examples, and I hope that those weren't taken as the general rule, so let me -- Read more Comment (0), Email this.

MS. BAICKER: Exactly. Right, and so then I gave as a benchmark for you a comparison for what the average individual market policy costs. But that doesn't mean everybody would find it for that. I was just trying to give you a sense of how far that would go for a family that's on their own. So one of the groups that we're concerned about, the uninsured; we're concerned about families who are going out on their own to buy health insurance; and then we're concerned about people getting insurance from their employer, and I tried to give you some statistics for each group. Read more Comment (0), Email this.

MS. BAICKER: That's why the two proposals that Julie talked about dovetail so nicely, and I'll turn back to her in a second. But I'll remind you that it's income and payroll taxes. So some of the -- think about families who are earning too little to pay income taxes, too much or with the wrong family structure to be on a public program. They're still getting the payroll tax benefit, which is substantial. Read more Comment (0), Email this.

MS. BAICKER: Right, and that's 15 percent, so they're still getting 15 percent of $15,000 or 15 percent of $7,500 for an individual, even if they have no income tax liability. That said, there are going to be some groups for whom that's not enough to get them a health insurance policy because somebody is sick, because they're very low income. And for those groups, the Affordable Choices Initiative is there to help fill in the gaps. MS. GOON: And as Kate said, that's why these two policies are so complementary. A lot of states have been looking at their options to try and use the flexibility that was given to them in the Deficit Reduction Act, to do waivers in their Medicaid programs, to look at subsidizing coverage beyond the Medicaid eligibility groups, et cetera. And the Affordable Choices Initiative is a way that we want to help states who want to make insurance affordable for their citizens by ensuring that we are providing additional federal help towards that end as long as the state is committed to making basic affordable health insurance available in that state. Read more Comment (0), Email this.

MS. BAICKER: The deductions would start at $15,000 for a family, $7,500 for an individual in '09, when it took effect, and then they would be indexed to CPI, so they would grow gradually over time. Read more Comment (0), Email this.

MR. FRATTO: That's the phase in. There's no, sort of -- MS. BAICKER: There is nothing until 2009, and then it's here. Read more Comment (0), Email this.

Q And then the other question, is this perhaps an indirect way of trying to encourage more health savings accounts, since it seems like a lot of people's encouragement here is to buy high-deductible standard policies, which often can be paired with HSAs? ... Read more Comment (0), Email this.

Q One other question. For those that are uninsured now, it's arguable that some of them, because they don't have insurance, or have preexisting conditions that might be rejected, or they might have to pay quite a bit more for a standard policy, and how does your plan address -- ... Read more Comment (0), Email this.

MS. BAICKER: So question one, it treats all people with private health insurance the same way. So it doesn't matter where you're getting it -- if you're buying it on your own, if it's through a former employer or a current employer, as long as you have at least catastrophic coverage or better, then you get the standard deduction. So retirees are given the same benefits from the tax code as everybody else. So it really levels the playing field for them.

As for revenue-neutral, it's revenue-neutral over the 10-year window together. So in the early years, it's a revenue loser, and in the later years, it's a revenue winner. Read more Comment (0), Email this.

MS. BAICKER: I don't have that in front of me. Roughly in the middle. But I'll check. But there's a -- I think it's roughly in the middle, but I'll have to check that for you. Read more Comment (0), Email this.

MS. BAICKER: Again, I don't have that whole stream in front of me. We can get that information for you. And that will be in the budget. Read more Comment (0), Email this.

MS. BAICKER: This is part of a long-run philosophy to level the playing field, and to really let people pick the mix of compensation that's best for them. People like getting their insurance through their employer, and they're going to continue getting their insurance through their employer for a lot of people. Some people may go to the non-group market once this playing field is more level for them, and they have that option. And a lot of people who are not getting any insurance are going to have options open to them that weren't open before. But it's definitely part of a long-run philosophy to level the playing field and let people change their compensation mix accordingly. Read more Comment (0), Email this.

MR. FRATTO: That's a decision for -- that's not a question for us. What this reform does is remove inequities in the tax code, where you have a certain part of America that receives a 100 percent benefit, and another portion of our citizens that receives zero or near zero benefit through the tax code. We think about it as tax reform that levels the playing field and provides a basic, standard benefit to all Americans.

How it affects businesses -- there are dynamics there that will work out between businesses and their employees. I could tell you businessmen who -- business owners who are in the administration, people who -- people like Secretary Paulson and Al Hubbard and others who have run businesses feel that their employees want employer-provided health coverage and they want to provide it because it's their way of attracting the best talent. And so there are incentives here that we can't predict -- that's going to be decided between businesses and their employees. MS. BAICKER: And just one thing to add on. The health care system overall, because of the inefficiencies that are built in, is a big burden on all of us. It's a big burden on employees and employers and taxpayers and the federal budget. And something needs to be done to rein in health care spending because we're not getting value for our dollars. So this proposal will be a big step in the direction of getting more bang for the buck for our health care spending, because I think nobody in the country can afford to keep spending more and more and more money on a health care system that's broken. Read more Comment (0), Email this.

MS. BAICKER: This is revenue-neutral tax reform. There are always going to be some winners and some losers, but the people who might initially be losers have options. Read more Comment (0), Email this.

MS. GOON: If you buy supplemental policies right now, I don't think you get any tax benefit from that, because you're doing it all in after-tax dollars. MS. BAICKER: This is for purchasers of private health insurance. Read more Comment (0), Email this.

MS. GOON: So I'm retiree on Medicare? Read more Comment (0), Email this.

MS. GOON: I think we have to get back to you on that, but I don't think this speaks to this supplemental insurance. It's traditional -- Read more Comment (0), Email this.

MS. GOON: Yes, primary health insurance. And Medicare is taking care of that for those beneficiaries. Read more Comment (0), Email this.

Q I wonder -- I'm just doing some quick back-of-the-napkin math here -- at what point does the average cost of a family plan cross over that $15,000 barrier and the deduction there no longer is as effective as if it were under the -- two or three years -- ... Read more Comment (0), Email this.

MS. BAICKER: Oh, the average policy get to $15,000? A few years after 2009. I can sort of do a back of the envelope, that if it goes from $11,500 to $13,600 between now and 2009, then I'm going to say -- MS. GOON: I think we'd want to get back to you on that. MS. BAICKER: Yes. MR. FRATTO: Just to be clear, any projections on that are relatively static projections, right? MS. GOON: Right. MS. BAICKER: Absolutely. MS. GOON: They don't take into account changes in the health care marketplace that we expect to occur as a result of this policy. Read more Comment (0), Email this.

MS. GOON: I didn't say that. Read more Comment (0), Email this.

MS. BAICKER: There are a number of channels through which this will affect health care consumption. Immediately it will affect quantities that people consume because they'll be changing their mix of compensation and their choice of health care plan. It will affect prices through provider competition. And then in the long run, it will affect the development of more cost-effective health technology. And that's your real bang for the buck.

Putting all of that together, our best guess is that within the medium-term, you're talking about lowering health expenditures, a share of GDP, by about half a percentage point, and that's a lot of money. MR. FRATTO: And if there's any question as to whether the health care delivery system, in terms of selling health policies, acts in any way like a market today, ask yourselves right now -- and I won't ask for a show of hands -- but if anyone here knows what the value of your policy is, what you pay for health care. I'd say very few of you have any -- and I don't know, either. Very few of us have any idea of what our health policies cost.

So that's compensation that we're receiving from our employees that we have zero transparency on. It doesn't show up in your W2 form; you have no idea of what that share of your compensation is.

And I'll ask a second question -- is when was the last time you were sitting at home eating dinner with your family and received an annoying phone call from a health insurer trying to market you a health care plan? This just doesn't happen today because there isn't the market for it. Insurance companies are not out there trying to sell you the best policy at the best price. Read more Comment (0), Email this.

MR. FRATTO: That's right. Read more Comment (0), Email this.

MR. FRATTO: Exactly. (Laughter.) Read more Comment (0), Email this.

MS. BAICKER: I don't have the year-by-year breakdown. So it's revenue-neutral over the 10-year window and it's a loser in the first five years, and a winner in the second five years -- or at the beginning and at the end, but I don't know exactly where the break-even point is. Read more Comment (0), Email this.

MS. BAICKER: It does not affect the 2012 budget -- deficit. So that maybe the tipping point -- Read more Comment (0), Email this.

MS. BAICKER: I think it's a revenue loser in the short run, and a revenue winner in the long run. Read more Comment (0), Email this.

MS. BAICKER: I'll have to get that for you. I don't have that number in my head. Read more Comment (0), Email this.

MS. BAICKER: I have -- well, I can tell you a couple of numbers which are not exactly the number you want, unfortunately, but they're close. The family who is purchasing insurance on their own, how much are they going to get back on average? They're going to get back $3,650 on average, roughly. So that's not the -- so their tax bill is going to go down by $3,650 because of this policy. Because they're buying health insurance on their own right now and they're not getting any tax benefit. So that's one group.

Another group, people who are uninsured right now, but that we guess would -- we project would go get insurance because of the policy, they're going to get a tax benefit of around $3,350.

The last one that you wanted to know is what's the average benefit for that 80 percent of employers, and I don't have that one. So I'll get that one. MR. FRATTO: Do you want to talk about the share in the quintiles -- MS. BAICKER: Yes. So here's another -- here's a statistic that also speaks to that indirectly. If you look at the distribution across the income distribution -- so how much of a tax benefit does the lowest quintile get versus the highest quintile because of the policy? About -- the top quintile, the top 20 percent of income has a slight tax increase because of this. The other four quintiles, first, second, third, fourth, have a tax decrease.

So it's budget neutral overall, but it makes the tax code slightly more progressive than it was before, so it's a slight increase for people at the high end of the income distribution, and a slight tax decrease for everybody else. Read more Comment (0), Email this.

MS. BAICKER: I do not have the average tax increase handy, but the percent increase for the top quintile is .1 percent, a tenth of a percent. And then the -- for the top quintile. And then for the other quintiles, it looks like it averages around negative .3 percent. But we'll get you the dollar figure. Read more Comment (0), Email this.

MS. BAICKER: So there are two pieces of this policy. From the tax proposal we think upwards of 3 million or more newly insured people. But then that's one piece. Then there is the Affordable Choices Initiative. MS. GOON: Yes, and I don't think that they've got complete estimates on the number of uninsured. They think that will pick up. It depends on, again, how these negotiations go with the states and what they expect to do. But initial estimates were fairly significant, and we'll get that to you. Read more Comment (0), Email this.

MS. BAICKER: The idea is that right now people face a dulled incentive to figure out what the highest value of care is, because the tax system subsidizes only care that you get through an employer insurance plan and not care that you purchase out-of-pocket. So it pushes you into a first-dollar insurance coverage plan where you pay for even routine care with a really low co-pay, which means you don't ask the doctor how much it costs. It costs you $10.

I know -- has anyone ever tried to ask the doctor, how much does this visit cost? They can't even tell you, they don't know. So this would add forces of competition and people evaluating which providers are the highest value providers, which insurance plan is the highest value plan for me, because it's no longer subsidized relative to wages. And that also works really well with the President's information executive order, getting better information about prices, about quality, about different providers, cost-effectiveness. You need that information to help people make better decisions and to get higher value out of the system. MR. FRATTO: Let me -- because this question came up a couple times -- let's just be very clear on that point also. The shortest answer is, no. Are you asking, is there a bias in the administration towards trying to get people off of employer-provided health care? Flat-out no. In no way. What we have are people receiving employer-provided benefits that are subsidized through the tax code, and those on the other side of the room here who are receiving no benefits. And the effort is to try to provide a standard equitable share of the benefit. Read more Comment (0), Email this.

MS. BAICKER: There's a bias now against that, that we're trying to remove. We're trying to level the playing field. MS. GOON: And as Kate had indicated, there may be lower cost plans that rely on other techniques -- smaller panels of doctors, more utilization review. It provides a bias towards people looking at the cost of their coverage and trying to determine if what they've got is really what they need for their situation. Read more Comment (0), Email this.

MS. BAICKER: That, again, I don't have with me except to say that it's revenue-neutral. So that is exactly equal to the revenue given out to everybody else once you have the indexing. I don't have that handy. MR. FRATTO: You're asking for a year-by-year breakdown. And we'll work with our friends at Treasury. I know that they're going to do some work on this also, and we'll see at some point over the next couple days if we can have it. But as Julie mentioned, this will show up in the budget. Read more Comment (0), Email this.

MS. BAICKER: No, so that's a good clarifying question. There's some confusion over that, so let me try to explain it as best I can. And then you can ask again and then I can try again. Right now employers don't pay taxes on the wages that they pay their employees, or the health insurance benefits. Those are all cost of business. They're not taxed. That remains the same. So nothing changes there.

What changes is that the health insurance premiums that they pay on your behalf becomes taxable income to you just like any other form of wages, so it's treated just like -- Read more Comment (0), Email this.

MS. GOON: The tax break for the employer remains the same. MS. BAICKER: So as far as the employer is concerned, everything is the same except they now treat this premium that they were paying for you just like they treat the wages that they paid you. So it shows up on your W2. It's FICA -- payroll taxes are due on it and income taxes are due on it. But you get to take the first $15,000 of your compensation -- if you have a family plan -- tax-free. So for 80 percent of the policies offered by employers, that's going to be -- that $15,000 is going to be more generous than the add-on of the premium that you're getting paid. Read more Comment (0), Email this.

MS. BAICKER: That was the question that was asked that I could not answer, so I'm going to get a number for you, and have to get back to you. Read more Comment (0), Email this.

MS. BAICKER: That will be the net increase in the number of insured people just from the tax piece alone, then layered on top of the affordable choices initiative. Read more Comment (0), Email this.

MS. BAICKER: Some of the people are not earning any money, some of the people are sick, some of the people are choosing not to take up insurance. So because it's a very heterogeneous group of people who are uninsured, it's hard to find one magic bullet. It takes a system of policies to address their diverse needs, and they have different needs in different states. And that's part of the reason to rely on state initiatives to address the specific needs of that uninsured group. So this picks up a lot of people, but you really need some targeted programs. Read more Comment (0), Email this.

MR. FRATTO: Ten years. MS. BAICKER: The main thing that changes is that the $15,000 or $7,500 initial exclusion is indexed by inflation, not by projected health costs. So if people did not change their behavior at all, the exclusion would be going up like this, and premiums would be going up like this. And so more people would be finding their premiums higher than the $15,000 over time if they didn't change their behavior.

So that's -- the baseline, when you decide whether something is revenue-neutral or not, you're comparing it to the status quo. And in the status quo, health care costs are rising, rising, rising, whereas in this system the exclusion grows at a lower rate, grows at CPI -- inflation -- and we think people will change their behavior, although that -- to the extent they change their behavior it just looks even better than that. But because the $15,000 exclusion grows more slowly than health expenses would if we didn't do anything, in the beginning you spend a little bit more money and in the end you get a little bit more money back. MR. FRATTO: There's also a market impact here that we think will have an affect on the future pricing of health care policies, and that's the fact that the benefit is where it is; that you have a benefit that is -- you have a $7,500 standard deduction for individuals, $15,000 for families. There is an incentive for those marketing health insurance to get within that number and to trend towards CPI, because that's what -- the people they're marketing it to, whether they're getting it through their employers or buying it on their own, will want to have the full benefit. And so they're going to try to market plans that fit within the benefit. MS. GOON: And again, you can look at the Part D experience, and that's exactly what happened in the second year of bids in Part D, is that people who were at the high end of those policies brought down their premiums. Read more Comment (0), Email this.

MS. BAICKER: Because your tax benefit is flat, and so your tax benefit is the $15,000 exclusion for the families, $7,500 for individuals. We don't expect that people are taking compensation cuts because of this; they're changing their mix of compensation between wages and health insurance. But under this system, wages and health insurance are both taxable. So people may -- we expect that health spending will go down, because people will say, wait a minute, now that you're not subsidizing my health insurance relative to my other wages, I'd like my next raise to come in the form of cash, not in the form of more expensive health benefits. But both of those would be taxable under this system.

So that mix of compensation will no longer affect tax revenues and will no longer affect an individuals' well being, and that's the great thing about it, is that people will no longer distort their compensation towards health insurance, because we're pushing them towards it. We won't be doing that anymore. Read more Comment (0), Email this.