January 27, 1986

I don't know how long you've been in here, but if you've been in here since before it was snowing, I can tell you it's snowing outside now. [Laughter] They don't have that in California. Well, good morning, and welcome to the White House complex. I'm glad that you could come by to see us and hear our views on the issues that will shape the budget debate in 1986.

The Federal deficit is among the last major obstacles, I think, blocking America's path to literally permanent prosperity. In these past 5 years, we've cut tax rates by nearly 25 percent and then indexed the brackets to protect people from being bumped by inflation up into higher brackets. We've seen inflation itself drop by two-thirds, interest rates tumble by more than half, and we've seen more than 9 million Americans find jobs during 3 straight years of economic growth.

Americans are believers again. But there's one area where no one believes the Federal Government is doing a good enough job, and that is getting Federal spending under control. Even though tax revenues have been growing, spending has been shooting up even faster. And so the Congress passed the Gramm-Rudman-Hollings amendment that mandates steadily declining deficits until we reach a balanced budget in fiscal year 1991. And I want you to know that the budget we submit in a week will meet the deficit target set by that legislation; and it will do so while protecting Social Security and the safety net -- the safety net is the term, you know, in 1981 that we used to talk about those programs to help the truly needy -- and it will go forward with the bare minimum that we need in defense spending growth and without increasing taxes.

We've got to get government in shape for the 21st century. And one of the ways that we plan to do that is by getting government out of activities it can no longer afford or shouldn't have been doing in the first place. To name just one case in point, we're determined to sell Conrail and get the Federal Government out of the railroad business. Never should have been in it in the first place. You know, I can remember back in World War I, when the Government took over the railroads. And if World War I had lasted as long as World War II, there wouldn't be any railroads anymore. [Laughter]

But now let me address another issue: defense. I know that there are some who claim that we're spending too much on defense, that defense is somehow being allowed to escape the harsh scrutiny of the budget process. Well, forgive me, but the modest defense growth we're calling for already represents a major compromise with the Congress. Indeed, while doing our best to improve the Nation's defenses, we've compromised with the Congress and given in on every defense budget since September 1981. And we've compromised so much that this year, for the first time in more than 10 years, the defense budget has actually fallen below what it was the year before. But by far the most important point is this: Of all the items in the budget, defense is the only one which must be decided with reference not only to American policy but to the policies of foreign powers who might attempt to terrorize, intimidate, or threaten us and our allies. It's more or less dictated by what someone in some other country is doing.

While our defense fell into disrepair during the 1970's, the Soviets raced ahead with the biggest military buildup in history. And that buildup continues. I had the pleasure when Mr. Gorbachev brought up the point of our military buildup to me -- as if it was somehow aimed at them -- when he finished saying that, I had the pleasure of saying, ``Mr. General Secretary, we're still playing catchup with you.'' And he changed the subject. [Laughter] But the Soviets are engaged in space research, are constantly adding to their nuclear arsenal, and are tirelessly building up their conventional armed forces, especially their navy. To cut the defense budget now any more than we have would put at risk the developing nations of the Third World, including growing democracies like El Salvador and Ecuador, and would endanger the defense of Western Europe. It would cripple our hopes for successful arms talks with the Soviets, and we can't permit this.

Now, of course, there are some in this town who will underestimate this budget and my intention to support it, and that's all right. I got used to being underestimated all the way back in 1966 when I first ran for Governor of California. I was under contract for 13 years to Warner Brothers Studio. And Jack Warner, the head of Warner Brothers, when he heard about the fact that I was in a campaign for Governor, he said, ``No, no. Jimmy Stewart for Governor; Ronald Reagan for best friend.'' [Laughter] Well, the doubters had better really get ready, because we intend to get that budget passed and build a prosperity that will last for all the American people.

The first step to cutting the Federal deficit is cutting the hot partisan rhetoric. If we work together, the American people will be winners because controlling spending will increase economic growth. There's no question that Gramm-Rudman-Hollings is going to demand some hard choices, but I'm confident that our budget makes the right choices and that it deserves your support. So, please, let your voices be heard -- both at home with your neighbors and your friends -- because I found out a great many people just don't understand how ``Mickey Mouse'' the budgeting system in Washington really is. It's confusing. So, tell them, but also let your voice be heard right here in Washington. I've said many times, over and over again, up on Capitol Hill: ``It isn't necessary to make them see the light, just feel the heat.'' [Laughter] If you make your voices heard, Capitol Hill will get the right idea. I thank you all for the support that you've already given us. Together we're participating in history, shaping America's future.

The budget battle promises to be long and hard, but the rewards will be great. For once we bring deficit spending to an end, our nation will enter an era of unparalleled opportunity and growth. And once we, through Gramm-Rudman-Hollings, reach that point where the budget is balanced, then we must have an amendment that says from then on the Federal Government's budget will have to be balanced. And when that happens, I'm going to go right down there to the Jefferson Memorial and see if he's smiling -- [laughter] -- because he's the first fellow in our nation's history that called for that. When they were ratifying the Constitution, Thomas Jefferson said it has one glaring omission: It has no proviso prohibiting the Federal Government from borrowing money. Well, it's about time we caught up to Thomas Jefferson and made that a fact of life.

God bless you all, and thank you very much for being here.

Note: The President spoke at 11:03 a.m. in Room 450 of the Old Executive Office Building.