Equitable Tolling: The budget proposes to extend the period during which taxpayers with serious disabilities can file claims for refunds, helping to ensure that such taxpayers are not unfairly disadvantaged by the tax system.

Unwarranted Benefits and Other
Measures

The budget eliminates or shrinks a wide range of tax loopholes and preferences that are no longer warranted. Some involve highly specialized financial and accounting techniques. Restricting them would help balance the budget, increase the equity and efficiency of the tax system, and keep corporations focused on productivity and profits, rather than on tax minimization.

For example, the plan:

• Prevents certain tax-motivated financial manipulations, used to avoid capital gains

taxes.

• Clarifies the treatment of new financial instruments that aim to exploit the different tax treatment of equity and debt, by denying or deferring interest deducon certain instruments that have substantial equity features.

Limits the ability of some corporations to deduct the cost of interest associated with purchasing tax-exempt debt.

• Increases the penalty for substantial understatement of taxes, to reduce incentives for excessively aggressive tax planning by corporations with tax liabilities of $100 million or more.

Finally, the plan extends the Airport and Airway excise taxes, the Leaking Underground Storage Tank excise tax, and the Hazardous Substance Superfund excise and corporate income taxes, through 2007. The Administration, however, will propose legislation to replace the Airport and Airway excise taxes with fees for services that the Federal Aviation Adminstration provides.

President Clinton September 24, 1996

This budget fully supports America's global leadership and advances our national goalsprotecting our vital strategic interests and expanding the reach of democratic governance, ensuring our influence in the international community, promoting sustainable development and the expansion of free markets and American exports, and responding to new international problems and humanitarian emergencies that can undermine our security.

Protecting America's key strategic interests remains a timeless goal of our diplomacy. As we move toward the 21st Century, we

have a great opportunity to expand the scope of democracy, further ensuring that our interests remain unthreatened. Facing the dilemmas of peacekeeping, regional crises, and economic change, the international community needs the United States as a leader and a full partner, meeting its international commitments. Advancing U.S. interests in a global economy brings expanded missions to our diplomacy and trade strategy. A lessorderly world also creates new challenges to our security-from regional and ethnic conflicts, the proliferation of weapons of mass

destruction, international terrorism and crime, narcotics, and environmental degradation.

With such a broad agenda for leadership, America must not withdraw into isolationism and protectionism or fail to provide the resources required to carry out this mission. The budget proposes $19.5 billion for ongoing international affairs programs. While this seven percent above the 1997 request is level, it constitutes only slightly over one percent of the budget and 0.25 percent of Gross Domestic Product.

Protecting American Security and
Promoting Democracy

The first goal of America's international strategy must be to promote and protect our interests in regions that historically have been critical to our security. The Administration's record is encouraging. Through skilled diplomacy, the judicious use of military force, and carefully targeted bilateral and multilateral economic assistance, the United States has advanced the peace process in Europe and the Middle East, reducing threats to our interests in these key regions. Through diplomatic leadership, economic assistance, and trade negotiations, we have maintained our leadership in Asia. Our goals are to secure these achievements, advance the peace process, and deepen regional cooperation in the future.

Perhaps the most serious national security threat facing the Nation today hinges on the course of events over the next few years in the New Independent States (NIS) of the former Soviet Union. We have made substantial progress in helping encourage the emergence of free markets and democracy in the NIS. In particular, our relations with Russia are strong. The United States has provided unwavering support for the emergence of democracy in Russia, leading this past year to the first free presidential reelection in Russian history. Some other NIS countries are progressing more slowly toward democracy and free markets, but overall regional progress has been remarkable.

Nevertheless, the June 1996 Russian elections represent not only a success but a warning-the latter embodied in the large vote for President Yeltsin's opposition, an

opposition that derived its strength from Russia's severe economic distress. The Administration believes it is absolutely critical, at this turning point, to demonstrate our continuing support for democratic reform and free markets in Russia and throughout the NIS; the ultimate success of this process is vital to our national security. Moreover, we must begin to shape our assistance program in ways that support the mature trade and investment relationship that is starting to emerge between the United States and the countries in this region. Thus, the budget proposes $900 million for NIS funding, a 44-percent increase over 1997. The increase includes a Partnership for Freedom initiative, designed to initiate a new phase of U.S. engagement with NIS countries focused on trade and investment, long-term cooperative activities, and partnerships.

The region at the heart of the Cold War conflict-Central Europe-has made enormous progress toward institutionalizing free markets and democracy. It is no longer a threat to American and European security; it is starting to be a partner in the transatlantic community. The economies of the Northern tier countries, such as Poland, the Czech Republic, and Hungary, are largely free and privatized; they are moving from direct assistance, which soon they will no longer require, to significant economic integration with the United States and Western Europe. At the same time, countries in this region are reshaping their security relationships with the West as they move toward potential membership in NATO.

Central European countries in the Southern tier also have made great progress. U.S. leadership has been critical in ending the bloody hostilities in Bosnia, establishing new governments through free elections, and beginning economic reconstruction. The pace of reconciliation and recovery remains gradual, and the need for continued American leadership is great. The other countries in the southern part of this region also look to the United States to remain committed to their struggle to create democratic governments and free, open markets.

The budget proposes to increase funding for economic assistance in Central Europe to $492 million-including the final $200 million installment on the U.S. commitment to Bosnian reconstruction. While programs for the Northern tier are phasing down, we must continue to support implementation of the Dayton Peace Accords and to sustain the emergence of free market democracies in the Southern tier. In addition, the budget seeks to increase support for foreign military financing for the countries of Central and Eastern Europe through the President's Partnership for Peace initiative, which will facilitate their efforts to meet the conditions for membership in NATO.

Our strategic interest in in peace in the Middle East is as strong as ever. The peace process has achieved much already. The need for reconciliation remains urgent, and America continues to play a leadership role in the effort to craft a durable, comprehensive regional peace. The budget proposes $5.3 billion for military financing grants and economic support to sustain the Middle East peace process. The proposed increase of nearly $100 million includes $52.5 million for an initial U.S. contribution for the Bank for Economic Cooperation and Development in the Middle East and North Africa, which will play a key role in promoting regional economic integration. The budget also provides additional security assistance to Jordan, recognizing that country's needs and its important contribution to the peace process.

The rest of our economic and security assistance programs are designed to support peace and democracy in countries and regions where our leadership has helped those processes emerge: consolidating democratic gains in Haiti; supporting reconciliation and peace in Guatemala and Cambodia; and strengthening the capacity of African governments to provide regional peacekeeping on that troubled continent.

Ensuring America's Leadership in the
International Community

Following World War II, the United States assumed a unique leadership role in building international institutions to bring the world's nations together to meet mutual security

and economic needs. It took an alliance to win the war, and it clearly would take an alliance to ensure the peace. We sponsored and provided significant funding for the United Nations, the International Monetary Fund, and the World Bank, along with specialized and regional security and financial institutions that became the foundation of international cooperation during the Cold War.

To ensure financial stability for this international community, the members of many of these organizations entered into treaties or similar instruments committing them to pay shares (or "assessments") of the organizations' budgets. Congress ratified these agreements, making them binding on us. For international financial institutions, like the World Bank and its regional partners, the United States has made firm commitments to regular replenishments, subject to the congressional authorization and appropriations processes.

Now, America's leadership in this international institutional network is threatened. In recent years, Congress has not fully appropriated the funds needed to meet the treatybound assessments of international organizations or our commitments to the multilateral banks. As a result, U.S. arrears now total over $1 billion to the United Nations and other organizations, much of it for peacekeeping operations, and over $850 million to financial institutions. Congress has raised some legitimate concerns about how these organizations operate, but America's failure to meet its obligations has undercut our efforts to achieve reforms on which the Administration and Congress agree. Today, our ability to lead, especially in the process of institutional reform, is being seriously undermined.

The Administration believes that we must end the stalemate this year-and that we can do so consistent with our goal of institutional reform. With new leadership in the United Nations, we have a unique opportunity. The budget proposes to fully fund the 1998 assessments for the United Nations, affiliated organizations, and peacekeeping, and to pay $100 million of our arrears. It also seeks a one-time, $921 million advance appropriation for the balance of U.N. and related organiza