January 24, 1986

I hope I haven't kept you waiting. I had to stop in at a meeting down the hall there of Republican mayors. I had a ticket to fix. [Laughter] Well, good afternoon, and welcome to the White House complex. I'm very glad that you could come by to see us and to hear our views on the issues that will shape the budget in 1986.

The Federal deficit is among the last major obstacles blocking America's path to 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 into higher brackets by inflation. 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, I think, are believers again.

There's one area where no one believes the Federal Government is doing a good enough job -- and that's getting Federal spending under control. And I'm with you -- I don't think so, either. 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 that's when I think we should have a constitutional amendment that says from here on, it'll always be a balanced budget. And when we get that, I'm going down there to the Jefferson Memorial to see if that statue of Tom is smiling. [Laughter] Because he's the first person that ever remarked about that. At the ratification of the Constitution, Thomas Jefferson very eloquently said it has only one glaring omission: ``It does not have a prohibition against the Federal Government borrowing money.'' So, let's catch up with him.

Well, I want you to know that the budget we submit in a couple of weeks is going to meet the deficit targets that were set by that legislation I mentioned. And it will do so while protecting Social Security and the safety net, while going 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 we plan to do that is by getting government out of activities that it can no longer afford or shouldn't have been doing in the first place. A case in point is our determination to sell Conrail and get the Federal Government out of the railroad business. Yesterday, before a group in this same room, I urged Congress to help us meet our deficit targets by approving the sale of Conrail. And I'm happy to tell you that the Senate passed its first test vote on that issue by a score of 90 to 7 yesterday, so I think we're on our way. I've heard that our budget will be DOA, dead on arrival, maybe even dead before arrival. Well, the gravediggers better put away their shovels and get out their hammers because we're not burying our budget. We intend to get that budget passed and to build a prosperity that lasts for all the American people.

And now let me address another issue -- defense. [Laughter] I know there are some who claim that we are 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 that we're calling for already represents a major compromise with the Congress. Indeed, while doing our best to improve the Nation's defenses, we have compromised with the Congress on every defense budget since September 1981. They have all been reduced below the figures that we had believed were essential if we were to be doing the job. We've compromised so much that this year, for the first time in more than a decade, 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 would attempt to terrorize, intimidate, or threaten us and our allies. While our defenses fell into disrepair during the 1970's, the Soviets raced ahead with the biggest military buildup in the history of the world. And that buildup continues. The Soviets are engaged in space weapons research. They are constantly adding to their nuclear arsenal and are tirelessly building up their conventional armed forces, especially their navy. I don't mind sharing with you one of the exchanges that I had with Secretary General Gorbachev. He suggested that maybe we were trying to bankrupt them by forcing them into an arms race. I ended that argument when I told him we were still just trying to catch up with what they were doing. But to gut the defense budget now would be to put at risk the developing nations of the Third World, including growing democracies like El Salvador and Ecuador, to endanger the defense of Western Europe. It would cripple our hopes for successful arms talks with the Soviets, and we cannot permit this.

Now, of course, there are some in this town who'll underestimate this budget and my intention to support it. That's all right. I got used to being underestimated all the way back in 1966 when I ran for Governor of California. When Jack Warner, head of the Warner Brothers Studio, where I had been under contract for 13 years as an actor -- when he heard about the campaign and that I was running for Governor, Jack said, ``No, no. Jimmy Stewart for Governor; Ronald Reagan for best friend.'' [Laughter]

But 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 and right here in Washington. You do that and Capitol Hill will get the idea; they're rather sensitive to that sort of thing. And, my friends, I want to thank you for all the support that you've already given us. Together we're participating in history. We are shaping America's future. The budget battle promises to be long and hard, but the rewards will be great. And once we bring deficit spending to an end, our nation will enter an era of unparalleled opportunity and growth. So, be heard, and realize that there are a great many of your friends and colleagues -- greatly intelligent and informed on a great many issues, but who don't really know how ridiculous the whole Federal budgeting process really is. We're trying to get that straightened out, too.

So, God bless you all. Thank you.

Note: The President spoke at 1:17 p.m. in Room 450 of the Old Executive Office Building.