February 18, 1988


To the Congress of the United States:

As we consider the state of our Nation today, we have much cause for satisfaction. Thanks to sound policies, steadfastly pursued during the past 7 years, America is at peace, and our people are enjoying the longest peacetime economic expansion in our Nation's history.

By reordering priorities so that we spend more on national security and less on wasteful or unnecessary Federal programs, we have made freedom more secure around the world and have been able to negotiate with our adversaries from a position of strength. By pursuing market-oriented economic policies, we have uncorked the genie of American enterprise and created new businesses, more jobs, improved production, and widespread prosperity. And we have done all this without neglecting the poor, the elderly, the infirm, and the unfortunate among us.

Seven Years of Accomplishment

Let me note a few of the highlights from our Administration's record of accomplishment:

The current expansion, now in its sixty-third month, has outlasted all previous peacetime expansions in U.S. history. Business investment and exports are rising in real terms, foreshadowing continued economic growth this year and next.

Since this expansion began, 15 million new jobs have been created, while the unemployment rate has fallen by 5 percentage points -- to 5.7 percent, the lowest level in nearly a decade. By comparison, employment in other developed countries has not grown significantly, and their unemployment rates have remained high.

Inflation, which averaged 10.4 percent annually during the 4 years before I came to office, has averaged less than a third of that during the past 5 years.

The prime interest rate was 21.5 percent just before I came into office; it is now 8.5 percent; the mortgage rate, which was 14.9 percent, is now down to 10.2 percent.

Since 1981, the amount of time spent by the public filling out forms required by the Federal Government has been cut by hundreds of millions of hours annually, and the number of pages of regulations published annually in the Federal Register has been reduced by over 45 percent.

Between 1981 and 1987, changes in the Federal tax code, including a complete overhaul in 1986, have made the tax laws more equitable, significantly lowered earned income tax rates for many individuals and corporations, and eliminated the need for 4.3 million low-income individuals or families to file tax forms.

At the same time, real after-tax personal income has risen 15 percent during the past 5 years, increasing our overall standard of living.

The outburst of spending for means-tested entitlement programs that occurred in the 1970's has been curbed. Eligibility rules have been tightened to retarget benefits to the truly needy, and significant progress has been made in improving the efficiency and effectiveness of these programs.

We have begun the process of putting other entitlement programs on a more rational basis. This includes medicare, which was converted from cost-plus financing to a system that encourages competition and holds down costs.

Federal spending for domestic programs other than entitlements has been held essentially flat over the past 5 years, while basic benefits for the poor, the elderly, and others in need of Federal assistance have been maintained. This is a dramatic improvement over the unsustainably rapid annual growth of these programs that prevailed before 1981.

The social security system has been rescued from the threat of insolvency.

Our defense capabilities have been strengthened. Weapons systems have been modernized and upgraded. We are recruiting and retaining higher caliber personnel. The readiness, training, and morale of our troops have been improved significantly. Because we are stronger, enormous progress has been achieved in arms reduction negotiations with the Soviet Union.

Federal agencies have undertaken a major management improvement program called ``Reform '88.'' This program has two main objectives: to operate Federal agencies in a more business-like manner, and to reduce waste, fraud, and abuse in government programs.

Some functions of the Federal Government -- such as financing waste treatment plants -- are being transferred back to State and local governments. In other instances -- such as water projects -- State and local governments are bearing a larger share of costs, leading to more rational decision-making in these areas.

Finally, we have made real progress in privatizing Federal activities that are more appropriate for the private sector than government. Notable examples include the sale of Conrail, the long-term lease of National and Dulles Airports, and the auction of billions of dollars in loan portfolios.

Related to this shift away from the Federal budget are our achievements on cost sharing and user fees, shifting the cost of projects and programs where appropriate to non-Federal sources.

While we have reason to be proud of this record of achievement, we must be vigilant in addressing threats to continued prosperity. One major threat is the Federal deficit.

Deficit Reduction, the Agreement, and G-R-H

If the deficit is not curbed by limiting the appetite of government, we put in jeopardy what we have worked so hard to achieve. Larger deficits brought on by excessive spending could precipitate rising inflation, interest rates, and unemployment. We cannot permit this to happen, and we will not.


[In billions of dollars]

1987 1988 1989 1990 1991 1992 1993

Receipts 854.1 909.2 964.7 1,044.1 1,124.4 1,189.9 1,258.1

Outlays 1,004.6 1,055.9 1,094.2 1,148.3 1,203.7 1,241.0 1,281.3

Surplus or deficit ( - )

-150.4 -146.7 -129.5 -104.2 -79.3 -51.1 -23.3

Gramm-Rudman-Hollings deficit targets

-144.0 -144.0 -136.0 -100.0 -64.0 -28.0 -0.0

Difference 6.4 2.7 -6.5 4.2 15.3 23.1 23.3

Footnote: Note. -- Totals include social security, which is off-budget.

The Congress acknowledged the pressing need to reduce the deficit when, in December 1985, it enacted the Balanced Budget and Emergency Deficit Control Act, commonly known for its principal sponsors as the Gramm-Rudman-Hollings (G-R-H) Act. This Act committed both the President and the Congress to a fixed schedule of progress toward balancing the budget.

In 1987, the budget deficit was $150 billion -- down $71 billion from the record level of $221 billion reached in 1986. This was also a record decline in the deficit. To some extent, however, this improvement represented one-time factors, such as a high level of receipts in the transitional year of tax reform. Economic forecasters predicted that without action the 1988 and 1989 deficits would be higher than the 1987 level. In order to prevent this, and to preserve and build upon the 1987 deficit-reduction progress in a realistic fashion, last fall the Congress modified the G-R-H Act. Specifically, it required that the 1988 deficit target be $144 billion and the target for 1989 be $136 billion.

Last year, members of my Administration worked with the Leaders of Congress to develop a 2-year plan of deficit reduction -- the Bipartisan Budget Agreement. One of the major objectives of the budget I am submitting today is to comply with that agreement -- in order to help assure a steady reduction in the deficit until budget balance is achieved.

The Bipartisan Budget Agreement reflects give and take on all sides. I agreed to some $29 billion in additional revenues and $13 billion less than I had requested in defense funding over 2 years. However, because of a willingness of all sides to compromise, an agreement was reached that pared $30 billion from the deficit projected for 1988 and $46 billion from that projected for 1989.

In submitting this budget, I am adhering to the Bipartisan Budget Agreement and keeping my part of the bargain. I ask the Congress to do the same. This budget does not fully reflect my priorities, nor, presumably, those of any particular Member of Congress. But the goal of deficit reduction through spending reduction must be paramount. Abandoning the deficit reduction compromise would threaten our economic progress and burden future generations.

This budget shows that a gradual elimination of the deficit is possible without abandoning tax reform, without cutting into legitimate social programs, without devastating defense, and without neglecting other national priorities.

Under the Bipartisan Budget Agreement, progress toward a steadily smaller deficit and eventual budget balance will continue, but this projected decline rests on two assumptions: continued economic growth, and implementation of the Agreement. If the economy performs as expected, and if the Bipartisan Budget Agreement reflected in this budget is adhered to, the deficit should decline to less than 3 percent of GNP in 1989. For the first time in several years, the national debt as a proportion of GNP will actually fall. Reducing the deficit and the debt in this manner would bring our goal of a balanced budget and a reduced burden on future generations much closer to realization.

Moreover, adherence to the Agreement, as reflected in this budget, will ensure the achievement of additional deficit reductions in future years, because in many cases the savings from a given action this year will generate deficit savings in subsequent years. Given the good start made in 1987, we have an opportunity this year to put the worst of the deficit problem behind us.

Meeting National Priorities

In formulating this budget, I have endeavored to meet national priorities while keeping to the terms of the Bipartisan Budget Agreement and the G-R-H Act. In essence, the Agreement limits the 1988-to-1989 increase in domestic discretionary program budget authority to 2 percent. To address urgent national priorities insofar as possible within this overall 2 percent limit, my budget proposes that some programs -- such as those for education, drug enforcement, and technology development -- receive larger funding increases, while others are reduced, reformed, or, in some cases, terminated.

High-priority programs must be funded adequately. One of our highest priorities is to foster individual success through greater educational and training opportunities. For example:

I propose an increase of $656 million over the $16.2 billion appropriated for 1988 for discretionary programs of the Department of Education. Although State and local governments fund most education activity, Federal programs provide crucial aid for the poor, the handicapped, and the educationally disadvantaged.

I have proposed reform of our over-centralized welfare system through State experimentation with innovative alternatives. In addition, my initiative would overhaul current employment and training programs for welfare recipients, and strengthen our national child support enforcement system.

By emphasizing housing vouchers, I would provide housing assistance to 135,500 additional low-income households in 1989 -- 8 percent more than the 125,000 additional households receiving housing subsidies in 1988.

Ineffective programs to assist dislocated workers would be replaced by an expanded $1 billion worker readjustment program (WRAP) carefully designed to help those displaced from their jobs move quickly into new careers.

In addition, I am proposing funds to strengthen U.S. technology and make America more competitive. For example:

I propose a continued increase in federally supported basic research aimed at longer-term improvements in the Nation's productivity and global competitiveness. This budget would double National Science Foundation support for academic basic research, increase support for training future scientists and engineers, and expedite technology transfer of Government-funded research to industry.

I would provide $11.5 billion for space programs, including: essential funding for continued development of America's first permanently manned Space Station; increased support for improving the performance and reliability of the space shuttle; a major new initiative, the Advanced X-ray Astrophysics Facility, for space science; further support to encourage the commercial development of space; and a new technology effort, Project Pathfinder, designed to develop technologies to support future decisions on the expansion of human presence and activity beyond Earth's orbit, into the solar system.

I also recommend $363 million in 1989 to initiate construction of the Superconducting Super Collider (SSC), including $283 million for construction and $60 million for supporting research and development. The SSC as currently envisaged will be the largest pure science project ever undertaken. It will help keep this country on the cutting edge of high energy physics research until well into the next century.

This budget also reflects my belief that the health of all our citizens must remain one of our top priorities:

I continue to urge enactment of an affordable self-financing insurance program through medicare to protect families from economic devastation caused by catastrophic illness.

To attack the scourge of AIDS, I propose $2 billion for additional research, education, and treatment in 1989 -- a 38 percent increase over the 1988 level and more than double the Federal Government's effort in 1987. This includes $1.3 billion in funding for the Public Health Service.

Building upon the Nation's preeminence in basic biomedical research, I seek a 5.1 percent increase for non-AIDS research at the National Institutes of Health;

Our fight against drug abuse must continue, as well as our efforts to protect the individual against crime:

For expanded law enforcement, including efforts targeted at white collar crime, organized crime, terrorism and public corruption, I propose $4.5 billion -- an increase of 6 percent over 1988.

For drug law enforcement, prevention, and treatment programs, I propose $3.9 billion in 1989, a 13 percent increase over the 1988 level.

To relieve prison overcrowding and adequately house a growing inmate population, I would provide $437 million -- more than double the $202 million devoted to Federal prison construction in 1988.

Other areas of Federal responsibility receive priority funding in this budget:

For the Federal Aviation Administration to continue its multi-year program to modernize the Nation's air traffic control systems, I would provide $1.6 billion -- a 44 percent increase over the level of 1988.

To improve coordination of Federal rural development programs and to redirect funding toward needy rural areas and program recipients, I propose a rural development initiative to be coordinated by the Secretary of Agriculture.

To carry out the joint recommendations of the U.S. and Canadian Special Envoys on Acid Rain, I recommend total funding of $2.5 billion for innovative clean coal technology demonstration projects over the period 1988 through 1992.

I also recommend an expansion of hazardous waste cleanup efforts, with an increase in Superfund outlays of some $430 million in 1989.

To continue filling the Strategic Petroleum Reserve (SPR) at the current rate of 50,000 barrels per day, I would provide $334 million in 1989. Contingent upon the enactment of legislation authorizing the sale of the Naval Petroleum Reserves (NPR), I would provide an additional $477 million to bring the fill rate up to 100,000 barrels per day, and an additional $208 million to establish a separate 10 million barrel defense petroleum inventory to offset the disposition of the NPR.

To improve the speed and accuracy of tax processing and expand information services provided to taxpayers, I would provide a $241 million increase for the Internal Revenue Service. These funds are designed to assure smooth implementation of the 1986 tax reforms.

Maintaining peace in a troubled world is the most important responsibility of government. Fortunately, during the past 7 years, our defense capabilities have been restored toward levels more consistent with meeting our responsibility to provide an environment safe and secure from aggression. Specifically, combat readiness has been improved, and our forces have been modernized.

The proposals for national security contained in this budget represent an essential minimum program for keeping America safe and honoring our commitments to our friends and allies. Anything less would jeopardize not only our security -- and that of our friends and allies -- but also would dim the prospects for further negotiated agreements with our adversaries.

As called for in the Bipartisan Budget Agreement, my budget requests defense funding of $299.5 billion in budget authority and $294.0 billion in outlays for 1989. It also provides for about 2 percent real growth in these programs in future years. Also, as called for in the Agreement, my budget requests $18.1 billion in budget authority for discretionary spending for international affairs. This includes $8.3 billion in security assistance to allied and friendly countries where the United States has special security concerns.

Needed Programmatic Reforms

Incentives. -- It is essential to continue to change the incentive structure for many domestic Federal programs to promote greater efficiency and cost-effectiveness. This budget proposes to create such needed incentives.

Many Federal programs offer payments without sufficient regard for how well taxpayers' money is being spent. For example, farm price support programs, under the Food Security Act of 1985, are much too costly. I plan to continue pushing for the elimination of artificially high price supports, thereby reducing the need for export subsidies. In particular, I plan to propose amendments to the Act to modify the counterproductive sugar price support program that currently poses significant problems in the areas of trade policy, foreign policy, and agricultural policy. The importance of agricultural trade to the economic health of the farm sector and the Nation as a whole mandates increased reliance on free markets, not government largess.

The budget proposes certain reforms in the medicare program in order to achieve the savings agreed to in the Bipartisan Budget Agreement. First, as justified by the results of several independent studies, I propose to reduce the add-on payment for teaching hospitals under the prospective payment system (PPS) for indirect medical education from 7.70 percent to 4.05 percent, the best estimate of the added costs incurred historically by teaching hospitals. Second, I propose to limit medicare overhead payments for graduate medical education and make consistent varying secondary payor enforcement mechanisms. To reduce escalating supplementary medical insurance costs and help slow future increases in beneficiary premiums, I propose to limit payments for certain overpriced physician procedures, limit payments for durable medical equipment and supplies, and eliminate a loophole in the payment process for kidney dialysis. In total, these reforms would reduce spending for medicare by $1.2 billion from the level that would occur if current law were continued. Spending for the medicare program would still increase by 7 percent from 1988 to 1989.

Although the provision of needed legal services for those who cannot afford them is an important goal in our society, the current system earmarks a large portion of the funding to ``National and State Support Centers'' that have been criticized for political involvement. I urge Congress to disallow use of Federal funds for such ``think tanks'' and limit the use of funds to the direct assistance of the poor in need of legal aid.

The Government often continues programs at the Federal level that are no longer needed. This is the case with rural housing programs, the Economic Development Administration, urban mass transit discretionary grants, urban development action grants, sewage treatment, Small Business Administration direct loans, housing development action grants, the housing rehabilitation loan program, and economic development programs of the Tennessee Valley Authority. Efforts to reverse this situation have been undertaken by prior administrations as well as my own, but the limited results to date indicate the difficulty of curbing excessive government involvement in these areas.

Regulatory Relief. -- For 7 years I have worked to reduce the excess burdens of government regulation for all Americans -- working men and women, consumers, businesses, and State and local governments. As a result, various departments and agencies have reduced the scope and costs of Federal regulation. Federal approval of experimental drugs has been expedited, making them available to treat serious or life-threatening diseases when other treatments do not work. Excessive burdens on State and local governments are being lifted. Access to goods and services has been made easier, and at less cost. Federal reporting requirements on individuals and businesses have been eased, as well as the paperwork burden on those who wish to compete for contracts with the Federal Government. Under the leadership of the Presidential Task Force on Regulatory Relief, headed by the Vice President, the Administration will continue these and other efforts to lessen the burden of excessive government regulation.

As a case in point, my budget proposes termination of the Interstate Commerce Commission, contingent upon enactment of legislation that completes deregulation of the motor carrier industry. There is no justification for continued economic (as opposed to safety) regulation of surface transportation, and there is a substantial argument against it. As a result of economic deregulation of trucking and railroads, consumers save tens of billions of dollars each year, and the industry is healthier, more innovative, and better able to adapt to changing economic circumstances. This is no time to turn back the clock.

Privatization. -- The government and the private sector should do what each does best. The Federal Government should not be involved in providing goods and services where private enterprise can do the jobs cheaper and/or better. In some cases, the fact that no private provider exists is a reflection of government policy to prohibit competition -- as with first class mail service. In other cases, an absence of private providers reflects a government policy of providing large subsidies -- as with uranium enrichment. Invariably, the taxpayer ends up paying more for less.

Accordingly, my budget proposes that a number of Federal enterprises be transferred back to the private sector, through public offerings or outright sales. Following our successful sale of Conrail and auctioning of $5 billion in selected loan portfolios, I am proposing the sale not only of the Naval Petroleum Reserves, but also of the Alaska Power Administration, the Federal Government's helium program, excess real property, and a further $12 billion in loan portfolios. In addition, I have proposed legislation to authorize a study of possible divestiture of the Southeastern Power Administration, and plan to study possible privatization of our uranium enrichment facilities, as well as ways of making the U.S. Postal Service more efficient through greater reliance on the private sector. Such ``privatization'' efforts continue to be a high priority of this Administration, and I look forward to acting on the final recommendations of the Privatization Commission, which I established last September.

Privatization does not necessarily imply abrogation of government responsibility for these services. Rather, it recognizes that what matters is the service provided, not who provides it. Government has an inherent tendency to become too big, unwieldy, and inefficient; and to enter into unfair competition with the private sector.

The Federal Government should also depend more on the private sector to provide ancillary and support services for activities that remain in Federal hands. Therefore, I am proposing the development of a private mediating institution to reduce the backlog of cases before the U.S. Tax Court. I propose that the private sector be relied upon for booking functions for concessional food programs. I also encourage the complete privatization of wastewater treatment plants, certain mass transit projects, the Department of Agriculture's National Finance Center, and the Rural Telephone Bank.

In addition, our Administration plans to initiate privatization and commercialization efforts involving Federal prison industries, relying on a private space facility for micro-gravity research opportunities in the early 1990's, commercial cargo inspection, military commissaries, Coast Guard buoy maintenance, and the management of undeveloped Federal land. Moreover, my budget proposes that the work associated with certain Federal employment positions be reviewed for the feasibility of contracting their responsibilities out to the private sector as yet another way to increase productivity, reduce costs, and improve services.

One of the best ways to test the worth of a governmental program or a particular project is to shift some of the cost of that program or project to the direct beneficiaries. We have done that, for example, with water resources development projects. As a result, local sponsors and users choose to proceed only on the projects that are most important and most cost effective.

Management Improvements. -- As we all know, the Federal Government has a major effect upon our daily lives through the direct delivery of services, the payment of financial assistance through various entitlement programs, the collection of taxes and fees, and the regulation of commercial enterprises. As the 21st century approaches, the Federal Government must adapt its role in our society to meet changing demands arising from changing needs and requirements. At the turn of the century, the U.S. population will exceed 268 million, with a greater proportion of elderly requiring more specialized services. The Nation will operate at a much faster pace as changes in technology and communication link the world's economies, trade, capital flows, and travel as never before.

I have asked the Office of Domestic Affairs and the Office of Management and Budget to work with the President's Council on Management Improvement to conduct an in-depth review and recommend to me by this August what further adjustments in the Federal role should be made to prepare for the challenge of government in the 21st century. This summer I will receive their report, ``Government of the Future.'' I also intend to complete the ``Reform '88'' management improvement program I started 6 years ago to overhaul the administrative, financial, and credit systems in our Federal Government; to implement productivity and quality plans in each agency; and to examine the needs of the Federal work force of the future. I want to leave a legacy of good management of today's programs, with plans in place to handle tomorrow's challenges.

Efforts to improve the management of the Federal Government must be continued. We have all heard stories of the horrible waste that occurs in the Federal Government. Some of it is obvious -- like the billions of dollars in unneeded projects that were included in the thousand-page 1988 spending bill that was dropped on my desk last December. Some are not obvious -- like the billion dollars in unnecessary interest expense the government paid, year after year, because it lacked a cash management system, or the billions of dollars lost annually for lack of a credit management process to ensure collection of the trillion dollars in loans owed the Federal Government.

In July 1980, I promised the American people: ``I will not accept the excuse that the Federal Government has grown . . . beyond the control of any President, Administration or Congress . . . we are going to put an end to the notion that the American taxpayer exists to fund the Federal Government. The Federal Government exists to serve the American people . . . I pledge my Administration will do that.'' I have delivered on that promise.

The first step was taken within months after my inauguration when I formed the President's Council on Integrity and Efficiency, composed of the agency Inspectors General. By the time I leave office, they will have delivered savings of over $110 billion in reduced waste, fraud, and abuse to the American people.

Then, in March 1982, I initiated the world's largest management improvement program with these words: ``With Reform '88 we're going to streamline and reorganize the processes that control the money, information, personnel and property of the Federal bureaucracy.'' I told my Cabinet at that time that ``we have six years to change what it took twenty or thirty to create -- and we came to Washington to make changes!'' I have followed up on that commitment. The President's Council on Management Improvement has overseen this effort, and is generating significant results.

These efforts are described in greater detail in my Management Report, which is being submitted concurrently. They can succeed only if all Federal managers and employees work together. Therefore, I propose in this budget a new approach to paying Federal employees who increase their productivity. I ask the Congress to modify the current system of virtually automatic ``within-grade'' pay increases for the roughly 40 percent of employees eligible each year to one that is based on employee performance. This will give Federal employees stronger incentives to improve service delivery and reduce costs to the taxpayer.

The Budget Process

As I have stressed on numerous occasions, the current budget process is clearly unworkable and desperately needs a drastic overhaul. Last year, as in the year before, the Congress did not complete action on a budget until well past the beginning of the fiscal year. The Congress missed every deadline it had set for itself just 9 months earlier. In the end, the Congress passed a year-long, 1,057-page omnibus $605 billion appropriations bill with an accompanying conference report of 1,053 pages and a reconciliation bill 1,186 pages long. Members of Congress had only 3 hours to consider all three items. Congress should not pass another massive continuing resolution -- and as I said in the State of the Union address, if they do I will not sign it.

I am asking for a constitutional amendment that mandates a balanced budget and forces the Federal Government to live within its means. A constitutional amendment to balance the Federal budget -- and a provision requiring a super-majority vote in the Congress to increase taxes -- would impose some much-needed discipline on the congressional budget process. Ninety-nine percent of Americans live in States that require a balanced State budget, and a total of 32 States already have passed resolutions calling for a convention for the purpose of proposing a balanced budget amendment to the U.S. Constitution.

Also, I am asking the Congress for a line-item veto, so that my successors could reach into massive appropriation bills such as the last one, cut out the waste, and enforce budget discipline. Forty-three State Governors have a line-item veto; the President should have this power as well. As Governor of the State of California (1967 - 1975), I used the line-item veto 943 times. The California State legislature upheld each of these vetos, even though both Houses were controlled by the opposition party.

In addition, I propose the following further reforms to the budget process:

(1) Joint budget resolution. The budget process has so degenerated in recent years that the presidential budget is routinely discarded and the congressional budget resolution is regularly disregarded. As a remedy, I propose that henceforth the Congress and the Executive collaborate on a joint resolution that sets out spending priorities within the receipts available. The requirement of a Presidential signature would force both branches of government to resolve policy differences before appropriations measures must be formulated. The budget process could be further improved by including in the budget law allocations by committee as well as by budget function.

(2) Individual transmittal of appropriation bills. The current practice of transmitting full-year continuing resolutions skirts appropriations committee-subcommittee jurisdictions. More importantly, it does not permit the Legislative and Executive branches to exercise proper scrutiny of Federal spending. Therefore, I propose a requirement that appropriations bills be transmitted individually to the President.

(3) Strict observance of allocations. During the 1980s, an unacceptable budget practice evolved within the Congress of disregarding congressionally approved function allocations. Funds regularly were shifted from defense or international affairs to domestic spending. I strongly urge that each fiscal year separate national security and domestic allocations be made and enforced through a point of order provision in the Budget Act.

(4) Enhanced rescission authority. Under current law, the President may propose rescissions of budget authority, but both Houses of Congress must act ``favorably'' for the rescission to take effect. In 1987, not a single rescission was enacted, or even voted on, before expiration of the 45-day deadline. I propose a change of law that would require the Congress to vote ``up or down'' on any presidentially proposed rescission, thereby preventing the Congress from ducking the issue by simply ignoring the proposed rescission and avoiding a recorded vote.

(5) Biennial budgeting. The current budget process consumes too much time and energy. A 2-year budget cycle offers several advantages -- among them, a reduction in repetitive annual budget tasks, more time for consideration of key spending decisions in reconciliation, and less scope for gimmicks such as shifting spending from one year to the next. I call on the Congress to adopt biennial budgeting.

Truth in Federal spending. -- As part of my Economic Bill of Rights, I will shortly transmit legislation that will require any future legislation creating new Federal programs to be deficit-neutral. In addition to requiring the concurrent enactment of equal amounts of program reductions or revenue increases, my proposal would require that all future legislation and regulations be accompanied by financial impact statements, including the effect on State and local governments.

Adoption of these reforms should enable the Federal Government to make informed decisions in a deliberate fashion that fosters rational priorities. The American people deserve no less from their elected representatives.


Looking back over the past 7 years we can feel a sense of pride in our accomplishments. Important tasks remain, however. The large and stubbornly persistent budget deficit has been a major source of frustration. It threatens our prosperity and our hopes for lessening the burden on future generations.

Two years ago, the Legislative and Executive branches of government responded to this threat by enacting the G-R-H Act, which mandated gradual, orderly progress toward a balanced budget over the next several years. My budget achieves the 1989 target of the amended Act while preserving legitimate programs for the aged and needy, providing for adequate national security, devoting more resources to other high-priority activities, and doing so without raising taxes.

My budget also embodies the Bipartisan Budget Agreement reached last November. In presenting this budget, I am keeping my end of the bargain. I call upon the Congress to uphold its end -- by ensuring that appropriations and other legislation are in full accord with the Agreement. By exercising this measure of restraint and self-discipline, we can secure great benefits for the Nation: a lower budget deficit, reduced demand on credit markets, more stable financial markets, a steadily declining trade deficit, and continued prosperity with non-inflationary growth. And, by reforming the budget process, the Congress can improve its decisionmaking and garner the thanks of a grateful public. Surely, these are small prices for what is at stake.

Ronald Reagan

February 18, 1988.

Note: The message was not issued as a White House press release.