September 2, 1981

The President. Thank you very much, [Illinois State] Senator Don Totten, and thank you for going through a lot of wars together, as we have. Governor Jim Thompson, the Congressmen who have been up here -- Bob Michel, John Porter, Bob McClory, Lynn Martin, Tom Railsback -- but let me say one thing about -- and I think the other Congressmen here will agree with me -- if there's any justice in the world, when 1982 is over, Bob Michel, Minority Leader of the House, will be Bob Michel, Majority Leader of the House.

If ever there was a George Patton and Douglas MacArthur put together in our battles for the budget and the tax bills, it was Bob Michel.

I'm happy that our Secretary of Labor is here. He's going to break in the audience for me tomorrow morning. [Laughter] Depending on how he does is whether I'm going to run or stay. [Laughter]

Governor Thompson. I broke them in this morning, Mr. President. You're all right.

The President. Oh, okay. All right.

And our national committeeman, Harold Smith, and our State chairman, Don Adams, it's a great pleasure to be back here again. And I know that our time is limited, but I would like to just say a few things to you. I've told a few outside before we came in here that I'm surprised -- I've been taking that vacation at the ranch, part vacation, you know, the job goes with you -- but I've been surprised at all the things that I read that I've decided. [Laughter] I haven't decided any of them. [Laughter] That's what I'm going back to Washington for.

But, particularly right now, with all of the confusion and the trouble with the stock market and so forth, I was a little confused when I knew that a short time ago they said that the big surge in the stock market was due to their optimism about our economic package. That was before it was passed. And then it was passed after a lot of work. Now there's been a slump, and they say, ``Well, the slump is because the program isn't working.'' Well, it isn't. It doesn't start until October 1st. [Laughter]

Also, there is -- and seriously -- there is that question in people's minds, ``Can you cut taxes and fight inflation by so doing?'' Well, I believe very much that you can. Let me just read you something. ``Our true choice is not between tax reduction on the one hand and avoidance of large Federal deficits on the other. An economy stifled by restrictive tax rates will never produce enough revenue to balance the budget, just as it will never produce enough jobs or enough profits.'' John F. Kennedy said that back in 1962, when he was asking for a tax decrease, a cut in tax rates across the board. And he was proven right, because that -- the last tax cut, literally, that we've had -- actually produced more revenue for government, because the economy was stimulated and more people were working and there was more industry and productivity in America. And this is why we didn't just stop at cutting the budget, and we're not through cutting it yet.

Lost in the conversation about the budget cuts we have secured for 1982 was our constant reminder that we had to go about $70 billion more in cuts in 1983 and 1884 [1984]. And I can tell you now, we're going to do it, because we have no choice. It has to be done.

But when John Kennedy said those words, he was echoing the words of Ibn Khaldoun, a Moslem philosopher back in the 14th century, who said, ``At the beginning of the dynasty taxation yields large revenues from small assessments. At the end of the dynasty taxation yields small revenue from large assessments.'' We're going to get back to the beginning of the dynasty. This was why we had to have the tax program as well as the budget cuts, because budget cuts, yes, would reduce government spending, but what was going to get American productivity and American industry rolling again and able to compete in the world market? It was to get government out of the people's pockets to the extent that it was in there, create private capital that could meet the needs for business investment. And to those in business here tonight, let me urge: Invest, expand.

I've just received something that gladdened my heart. I received a statement that is going out to all the members of the iron and steel industry. And based on their optimism about our economic program, the steel industry is embarking on $5 billion worth of expansion, modernization and building of new plant, rehabilitating of old. All the member companies -- there has never been such an expansion in such a short period of time in the history of the steel industry. This, I believe, if it can be done simply on the promise of what the tax cuts will do and the budget cuts, ought to give us some indication of what's going to happen when they actually begin to be implemented.

But the fight isn't over, and that's why in 1982 coming up -- seriously I mean it -- we must send more people to Washington who believe, as we do, that there is a need for a turnaround in the country's policies. Send people there that will help and then be prepared for every kind of pressure from pressure-spending groups, from the bureaucracy that doesn't give up and has got a million tricks yet to be exposed as to how they're going to try to obstruct the progress and prove that this program won't work.

But we've had enough of roller coaster economics, and so we're going forward with this program. And we couldn't have gone forward with it without you. When the chips were down and the issue was in doubt, and believe me, it was -- I woke up on that fatal morning for the last passage and had already been told how many votes there were against us. But in the meantime, all of you had been busy, and the phones were ringing, and the wires were coming in -- not to us, but to the people who needed to get them, over there on the Hill. And when the vote was finally counted, as you know, we had won that battle.

There's one other thing I'd like to touch on because, as I say, I know the time is limited, and I do want to at least get down and be able to say hello to some of you here before we have to break up. But let me, if I could, tell you about the other thing. This morning, I understand that the Washington Post had a lead article to the effect that I was retreating with regard to national defense. Well, now let me state something here. When we say we have to make further cuts, this is across the board, and we realize there's no department of government that doesn't have waste in it that can be eliminated or reduced. And we're going to set out -- and that includes the Department of Defense.

That does not mean that we are retreating from the program we adopted of an annual 7-percent increase in defensive spending to restore our defensive capability and close that window of vulnerability that has been opened in recent years with the superiority of the Soviet forces. We're going to continue, at the same time we are going to continue to urge them to sit down with us in a program of realistic strategic arms reduction. But it will be the first time that we have ever sat on our side of the table and let them know that there's a new chip on the table. And that chip is: There will be legitimate arms reduction, verifiable arms reduction, or they will be in an arms race which they can't win.

Now, one last thing. I know there's been a lot of concern about the volunteer military and would it work or were we going to have to resort to a draft. And as you all know, I've been campaigning up and down the country that I'm opposed to a peacetime draft. We never had had one until the years following World War II. And we've taken some steps. We've taken some steps for a realistic pay scale that we want for the men in the military. And I'm happy to tell you tonight that the enlistments are up, higher than they've ever been. The educational and quality level of the men enlisting is higher than it has ever been. The percentile of the lowest in education that we take in the military is the lowest that it has ever been.

And I've received a couple of letters, one on the domestic situation and one on the military, that made me very proud. One was from a lady here in Illinois. She was working in a Federal program on the Federal payroll. And she wrote to tell me frankly that she was one of four who were working in this particular task, and she said there isn't enough work for one. And she said, ``When we came close to the end of the fiscal year, I was one who was told, `Quick. Go out and spend the money that was left over.' '' And so she said, ``I sit at a magnificent new executive desk and a brand new typewriter. The only thing they could do to spend the money was to buy new furniture.'' Well, that's a bygone era. That isn't going to happen anymore in Washington, D.C. If there's money left over, it's going to be returned.

And we've already had one department head, international aid, AID, who presented me with a big facsimile of a check, about that high and that wide, which was for several hundred million dollars which was not going to be spent and which he was returning to the Secretary of the Treasury. Well, this letter from this lady in California [Illinois] -- and incidentally, we're doing our best to try and find her some employment that will fully utilize her character and her abilities.

The second one came from a young man in the service -- submarine duty, an enlisted man. He said he was really speaking on behalf of 180 shipmates, and he told me how good it was to be an American. And then he said, ``We may not be the biggest navy in the world; we're the best.''

I had the pleasure a few days ago of standing on the deck of the Constellation, our great carrier out there with a crew of nearly 5,000, and see all these young men and see their teamwork as they were getting planes off the deck, into the air, on the catapults, three at a time, then see the demonstration of the air power while it was in the air and then, finally, to speak to them, and then was privileged to stand there and watch 40 men step forward and sign up for re-enlistment. And incidentally, we have a new high also in the volunteer military of re-enlistments now.

So, I think things are going pretty well. And I have every confidence in the world, as I said all during the campaign, that all we had to do was get government out of the way and turn you, the people of this country, loose to do what you can do so well, and our problems would go away. And I'm positive that they are going to go away and that they've begun to go away already, even if our program doesn't start until October and some of it in January. [Laughter]

But God bless all of you. And now I'm going to get off of here. I've talked too long, but I've wanted the chance -- oh, one point. I'll have a postscript. [Laughter] High interest rates. I heard Jim [Governor James R. Thompson of Illinois] talking about them, and he was absolutely right. High interest rates aren't something that someone deliberately imposes on the people or the economy. They are the result of inflation, not the cause. And that's why we're going forward with this battle against inflation to bring those interest rates down, because until we do, there are industries in this country that cannot exist or prosper. And they will come down. But as long as inflation is continuing and as long as there is a belief that there are going to be huge deficits, the interest rates are going to stay up, because there are too many people trying to borrow too little money -- and the biggest borrower of all is the United States Government -- to pay off those deficits.

So, we're going to whittle at those deficits, and when you hear the screams of anguish from some whose toes are being stepped on, just think that they can't be half as bad as the moans of the unemployed in this country today. And we're going to put them back to work.

God bless you, and thank you very much.

Note: The President spoke at 6:11 p.m. at the Republican fundraiser in the Empire Room at the Palmer House.