June 25, 1981

Thank you for a very kind introduction, Mr. Chairman, and the gentlemen and lady who are here at the head table. She was a surprise guest to me. She had other appointments. She heard about the telephone calls to Washington, too. So, I'm delighted that she's here.

I also am meeting you with mixed emotions only about my own situation. Normally, you stand up here well prepared in your mind as to what you're going to say, but I think that any more I will only accept speaking engagements when the Congress is in recess. [Laughter] First, I was late and caused the whole luncheon to be late, and therefore I'm late in getting started here. And I'm not quite sure now as to -- well, I know that the speech I intended to make is hardly appropriate, because I was really going to go all out on a real stern message about the games that were being played in Washington and how I needed your help because of those games.

You might have heard a rumor to the effect that we've been suggesting a few changes back there. [Laughter] And the rumor is correct. But now as a result of all those telephone calls, you know that you helped, with your support, in getting adopted someting called the Gramm-Latta bipartisan budget reduction resolution. And it was a great victory to get Congress to vote the greatest reduction in Government spending that has ever been attempted.

In learning the ways of Washington, I discovered that was just a resolution and meant that the total figure was supposed to be the budget. But then it was all going to be broken up and delivered to all the various congressional committees for them to look at each program and see whether they came back with the proper figure and what they wanted to do with it. And so it became a bill of 4,000 pages, and the committees reported in, and most of the committees in the House, of course, are dominated by, literally, those of another philosophy. But the bulk of the committee reports back were very acceptable and went with the spirit of Gramm-Latta. Phil Gramm is the Democrat Congressman who helped coauthor that measure.

And there were a few committees that in a very important part of the program made changes which literally would have broken the budget before the year was out. And I came here intending to speak about the fact that through a parliamentary procedure, they were going to present -- to prevent a vote on Gramm-Latta II. That was the amendment that would remedy what that little handful of committees had done, but which would amount to more than $20 billion of increased deficit and prevent us from balancing the budget by 1984.

I'm extremely pleased and gratified to report to you that just today, in fact within the last hour or two, the American people have won two great victories in the Congress of the United States. First of all, on the House floor, Republican Congressmen joined by 31 courageous members of the Democrat party have joined together to defeat the gag rule that would have seriously damaged our plans for reducing the budget.

Twenty-four hours ago our defeat seemed almost certain; indeed, it was being openly predicted by the other side. But we have, since that first vote, won the second one now also, which means that the next order of business for the Congress is the voting on the Gramm-Latta amendment -- the son of Gramm-Latta. The simple truth is that Congress heard the voice of the people, and they acted to carry out the will of the people.

Even as we're gathering here now, I've been informed by the most recent call that the House leadership is engaged in an internal debate on what next step they should take. Well, it's my hope that the House will move quickly now to put our package of spending cuts to a vote. Certainly, there's no reason to delay or postpone beyond their July 4th recess. But let me just reemphasize here today just how important this vote earlier this afternoon is. It means that in the crunch of heavy pressure from all sides, the Congress of the United States seems ready and eager to join in the fight to curb runaway spending.

It means that in both Houses of the Congress and, indeed, on both sides of the aisle, there are enough Members who have the wisdom and courage to cast their vote in favor of America's overall economic interest, not just our special interests. It means that for the first time in many years, we have the opportunity to forge a new coalition in this country -- a coalition built upon people from all parties and from every background who will work together for the good of the Nation. It means, in fact, that we can have a new beginning in America, a new beginning toward economic progress for all of our people.

There's good news on the second front today, too, and that is with regard to the subject near and dear to all of you here -- the struggle to reduce taxes. Just a little while ago, the Senate Finance Committee, by a margin of 19 - 1, voted resoundingly for the package of tax changes that are virtually identical to those that I embraced earlier this year. That was another victory for the Nation, and I salute Chairman Bob Dole and the other Republican and Democrat members of his committee for their very swift and judicious action.

Let me just say from the bottom of my heart that we would never have come as far as we have today without the support of you -- the American people. I know from the many phone calls and personal visits that I've had with the Members of Congress over the past few months, and even over the past few hours, just how important grassroots support is to the passage of our economic recovery program. It's your support, it's your help that has been crucial from the day that I arrived in Washington. And when it comes, let me just say, victory will belong to you -- the people.

All we're really trying to do is return to some basic principles which have never failed us when we've lived up to them. For example, only by making government live within its means and restricting its role in our personal lives can we unleash the spirit of individual enterprise so essential to prosperity and the preservation of freedom itself. And the way we're doing this is by changing just one little two-letter word -- control by government to control of government.

Now, this doesn't mean it's clear sailing. There are some advocates of a different philosophy that are manning the barricades there in those puzzle palaces on the Potomac. [Laughter] But let's be clear about where the real credit goes for our progress to date. It goes to a group with a much greater force than our own, a group comprising tens of millions of people from every profession, every background, every region in this land. They don't consider themselves Democrats or Republicans so much as just deeply patriotic Americans, concerned about their country, determined to save its future while there's still time. We've summed it up in many of our most sacred documents -- it is simply, "We the people.''

It isn't easy to thank you for all you've done, but I'll try. It's like Thomas Edison said, "Genius is one percent inspiration and 99 percent perspiration.'' When we announced our economic plan, millions of Americans sent a loud, clear message to Washington that enough is enough. And I think the Congress heard you, which just proves that Washington is still the only city where sound travels faster than light. [Laughter]

But now that you've tasted victory and are beginning to feel good, I'd better warn you I have a little favor to ask, and its strictly in the national interest. I simply want to ask you not to sit back and retire from action, as the battle still is not definitely won. I think you want spending reductions that you approved in that bipartisan budget resolution last month. I think you want a 3-year across-the-board tax rate reduction for every American taxpayer and nothing less.

Now, you know, I've been criticized for saying that Federal spending is out of control. But what else describes it? Consider, for example, those programs which have spending increases built into them directly by law. In 1967, the automatic spending program -- those are the things called entitlement programs, the redistribution of income -- they amounted to $57 billion dollars. Next year, they will amount to a staggering $428 billion, and our elected representatives don't have control over them. If we do nothing to change the laws, this uncontrollable spending will grow to the unbelievable level, by 1984, of more than a half a trillion dollars.

The food stamp program, just back a decade ago, 1970, cost $577 million. Today, again because of the automatic built-in growth, that program costs us $11½ billion. That's 20 times as much in 10 years.

Federal housing subsidies were $500 million just 11 years ago. Today, the cost is $6½ billion and without even adding one single new subsidy, the sum will jump over $10½; billion by 1985. That's 21 times as much as it was 11 years ago.

These programs have truly turned out to be good intentions run amok, budgetary time bombs set to explode in the years ahead, and the effect is to file enormous debts on the backs of our children, heavily mortgaging their future for some sake of temporary social cure. The American economic solution, which ignores reforms in these automatic spending programs, is really no solution at all.

Now, one of those critically important actions on which the Congress can now take action -- that was in that little package that they were trying to block -- is to cut the Federal redtape and wasteful spending by consolidating 83 confusing and duplicative Federal programs into block grants. It's not fair to ask the taxpayers to send their earnings to Washington and then charge them billions of dollars more to have this same money turned around and sent right back with strings attached. We can do better than that, and we can do it by cutting out the middleman and putting those funds in the hands of State and local governments where the citizens of America can have greater control of it.

Now I mentioned Phil Gramm, one of those courageous Democrats. I was saddened to learn the other day that the Chairman of the Democratic National Party has said that he would like to kick Congressman Phil Gramm, coauthor of that Gramm-Latta bill, out of the party. As you know, Phil's been a tireless supporter, as I've told you, and it's not a Democrat or Republican issue. It's an American issue. And I don't think it's our way to threaten to kick people out of any party for doing what they believe is right.

I can't advise Mr. Gramm what to do, but I want to assure him this: There are millions of Democrats, Republicans, and Independents who support what he does. They don't like the idea of partisan threats, and I do advise him, having been a Democrat once myself, I'll tell him to come on over, the water's fine. [Laughter]

But, you know, cutting the increase in spending, that's only one part of the program, and this is where I get down to that further request. The Government is taking too great a percentage of the gross national product in taxes. This percentage must be reduced if we're going to have the incentive we need to increase productivity. And we're not going to have recovery till we increase productivity, which requires capital investment of American business and industry.

Now, before I go on with that tax thing, let me just tell you something that's happened in the last few days. Fifteen of the major steel-producing companies in the United States have sent me a report, voluntarily, that they're going forward, all of them together -- well, not together, but I mean individually, but together in collection of what they're doing for the steel industry -- with improvement and modernization of existing plants to the extent of $3 billion, 200 million. And they have already done that, and they said they are going forward with it simply on the expectation of our recovery program. People who doubt whether the program will work: It's working before it's even been voted into effect. And I'm most grateful to them for what they're doing, and I know that it's going to mean a great deal. And it must be a reflection of what's happening in industry all over the country.

Now, we haven't proposed just a tax rate cut to relieve the over-burdened citizenry. In fact, in some ways we aren't proposing a tax cut at all. We're proposing to reduce or eliminate the tax increase that's already built in to our system, the biggest single tax increase in our nation's history, and it comes on top of the fact that Federal taxes have already doubled just since 1976. If I could paraphrase Will Rogers' line about never having met a man he didn't like, it seems that some in government have never met a tax they didn't hike. [Laughter]

We're living with a social security payroll tax that was increased some short time ago, which is scheduled to increase automatically several times in the next 5 years, and those increases have a kind of double whammy. At the same time that the percentage or that the rate increases, the percentage of earnings that that rate is applied to also goes up, so that like the income tax, we have a bracket creep, penalizing workers whose wages go up to keep pace with the cost of living. That social security payroll tax now is 13.3 percent of $29,700. In 1937 they said it would never be greater than $3,000 that would be taxed. The law, already adopted, calls for it to go to 15.3 percent of $66,900 of income.

Like the budget reforms that we seek, the tax package that will help stimulate the economy by providing capital investment to modernize and expand our industrial machine, individuals, even with husband and wife both working, have no surplus to put in savings accounts or insurance. Investors with capital to invest have been driven to tax shelters because of the low after-tax return on investment. There's less money for research and development. The number of patents issued to American companies has been declining for the past decade, while Japanese patent activity, here in America, has increased in each of the 53 United States patent fields.

Now, ironically, some of those who helped pass the tax increases of which I've spoken are now the first and the loudest in charging that our proposal is designed to benefit the wealthy. Well, that's not true. Those who will get the biggest percentage of reduction in their total tax burden will be the lower- and the middle-income families. Our program provides incentives so that more people can share in our prosperity.

The other charge is that it's too risky to cut tax rates when we're running a giant budget deficit. Well, I hope I'll be forgiven for pointing out that they are also the same people who helped create those deficits. But I'm happy to say there are others, as we've learned today, on both sides of the aisle, who can come together and support the bipartisan tax bill that's coauthored by Republican Barber Conable and Democrat Kent Hance. And this bill is the result of negotiations between Members of Congress and our own administration.

The principle of across-the-board cuts and the marginal tax rates over a 3-year period has been maintained in that bill. Now, it's true that I slid back from a 30-percent cut to 25 percent in 3 years for personal income, but this made possible the other tax cuts which I believe will be great stimulants to saving, investment, and increased productivity.

Some of the other tax cuts -- I could have won an Oscar for my appearance of reluctance in giving into them. [Laughter] But I don't feel I can accept any further changes, even though those who are unenthusiastic about the tax cuts have said they would settle for a 15-percent cut over 2 years. Well, in the first place, that built-in tax increase will amount to 22 percent over 3 years. Our proposal will eliminate that and give at least a small reduction.

In addition, I believe the third year is important particularly for small and independent business, which creates 80 percent of the new jobs and which pays the individual tax rather than the corporate tax. Individual entrepreneurs can look ahead and make plans better with the assurance of 3 years of stability in the tax picture.

Now, let me say just a word about those marginal tax rates that we propose to reduce. In this land, born of a desire to be free, middle-income Americans are being pushed into punitive tax brackets once reserved for the wealthy. Not too many years ago, only 3 percent of those who work and earn were in a 30-percent bracket. Today, a full one-fourth of the work force is paying that marginal tax rate. And when your social security and State income taxes are included in the total tax burden, the average family finds they're facing a 40- to 44-percent marginal tax rate. No wonder middle-class families find they can't put money aside or have means to send their children to college. The worker finds it isn't worthwhile to put in overtime or to try to upgrade him or herself. Productivity drops, and we become less competitive in the world market.

We have to change what has been in existence since the Great Depression, and that is the philosophy of tax and tax, spend and spend, elect and elect.

Now, it's economic nonsense to say that lowering the tax rates will add to our deficits. We've been having tax increases -- the most recent, the biggest in our history, as I said -- but we're also running the biggest deficits, because government doesn't tax to get the money it needs. Government will always find needs for the money it gets.

By contrast, we find that every time government has had a broad reduction in tax rates, the boost in prosperity is so immediate that while taxpayers pay less individually, government revenues actually go up because of the increased prosperity. And the latest example, in the early sixties, was John F. Kennedy's program, and the same voices were raised against that tax reduction that are raised today.

The Conable-Hance tax bill will give almost three-fourths of the income tax relief to those earning between $10,000 and $60,000 a year. They presently pay 72 percent of the total income tax. So, it sounds like it's a fairly even thing across-the-board.

In addition, the unjust penalty imposed on married couples where husband and wife are both working will be relieved. Individuals will be allowed to deduct $1,000 a year for personal retirement programs even if they are already involved in another pension program. And of special interest to farmers and family-owned businesses, the estate tax exemption will be raised to $600,000, and of even greater help, there will be no estate tax at all for a surviving spouse.

Well now, this is just a hasty sketch of the tax changes for individuals. The plan will provide incentive, because people don't work so they can pay taxes, they work to earn more after-tax income. To the doubters, I address one question I've asked over and over again and I never have gotten an answer once in Washington: ``Why is it inflationary for you to keep and spend more of your own money and it isn't inflationary if government takes it and spends it the way it wants to?''

The Conable-Hance bill calls for lowering the 70-percent ceiling on so-called unearned income to the 50-percent ceiling. Capital gains will be lowered, and business will get the biggest tax reduction in our nation's history -- some $60 billion in depreciation allowances, et cetera.

To those who say we can't cut spending, lower taxes and, yes, rebuild the defenses we need in this dangerous world, I have a six-word answer: ``Yes we can, and yes we must.''

It was with some sadness the other night that I watched an individual on TV news suggest that our program was going to destroy America. Now, when someone makes that kind of charge, I have another question to ask: ``Where has he been for the last few years?'' And the answer to that in this particular case is, ``Right in Washington, D.C., in a responsible leader position in the Congress.''

Inflation rates didn't rise 18 percent because of our program. Nearly 8 million people didn't get thrown out of work because of anything that happened in these past 5 months. Twenty percent interest and 15-percent mortgage rates didn't begin on the morning of January 20th, 1981. Those who make such charges want to return to some of the old, discredited policies that set off America's high economic fever in the first place. If you're better off with the repeat of red ink every year, continued high taxes and higher taxes, and the monster government of the past, then oppose our program. But if you're ready to try something new, come with us. Send a powerful message to those people who live in the past and tell them, ``No more business as usual and no more repeat performances, because we're going to make America great again.''

You know, for those doom-criers to try and scare us -- and I know I've said this before -- but we survived, we the living Americans, a great depression that toppled governments; we came back from Pearl Harbor to win the greatest military victory in world history. Today's living Americans have fought harder, paid a higher price for freedom, and done more to advance the dignity of man than any people who ever lived. We have in my lifetime gone from the horse and buggy to putting a man on the Moon and bringing him safely home. Now, don't tell us that we can't be trusted with an increased share of our own earnings.

All over America people are yearning for the opportunity to produce once again, to save their money and have their savings mean something, to live without the constant pressures of higher and higher prices. They don't ask for much, just a chance to make a better life for themselves and their children. Some have accused me of fighting too hard for these reforms and for not wanting to compromise on key principles. Well, to some of those charges I plead guilty. But for too long, government has stood in the way by taking more of what our people earn no matter how hard they try to get ahead. Who can blame our people for fearing they're trapped inside an economy with no bright tomorrows, an economy that has lost its soul?

And that's why we have to revive the spirit of America, the American Revolution, the spirit of another revolution right here a few years ago, of Proposition 13. We're not demanding the impossible. You're just demanding, I think, some of the same opportunities the Founding Fathers risked their lives, property, and sacred honor for more than 200 years ago -- a commitment that if you work and save more tomorrow than you did today, your reward will be higher than it was today. More of every dollar's earnings will be yours to keep, more of your added wages, your added interest. And those are what we mean by incentives. Those are what will unlock the spirit and the energy of our people, to drive Americans to dream and dare to take greater risks for a greater good, unlock the spirit of a Fulton and a Ford and the Wright brothers and Lindberg and all of our astronauts.

We did it before, and we can do it again. We can solve the energy crisis and pioneer technological breakthroughs and rebuild our cities and, in the process, strengthen our families and create new jobs and a real hope for young Americans everywhere.

Yes, we can do all that and save the American dream, but only on one condition -- that we always remember we owe our progress to the unique form of government that allows us the freedom to choose our own destiny, a government that answers to ``We the people.'' And with your help, I think that we're going to do that in Washington.

I've never felt better in these last 5 months than I feel in this particular moment today. And for that, thank you, and God bless you.

Note: The President spoke at 1:14 p.m. in the Los Angeles Ballroom at the Century Plaza Hotel. Prior to the luncheon, the President attended a reception with members of the associations in the Sherman Oaks Room at the hotel.