October 25, 1986
My fellow Americans:
Last Wednesday, in a ceremony on the South Lawn of the White House, I signed into law the most sweeping reform of the tax code in our nation's history. That moment was a victory for fairness that will, I'm convinced, usher in a new era of growth and opportunity for America.
When this bill goes into effect, 80 percent of the American people will pay a top rate of only 15 percent or less in Federal income tax. No one will pay more than 28 percent of total income. A family of four living at the poverty level will have over $1,000 more in their pockets. In fact, millions of working poor will be dropped from the Federal income tax rolls altogether -- they won't have to pay a cent in Federal income tax. Now, that's what I call fair. As for families, at long last blessed relief. The standard deduction will increase sharply, and the personal exemption -- that's the amount of money you get to deduct for yourself and each one of your dependents -- will almost double, rising to $2,000 in 1989. I wasn't exaggerating when I said that this bill is at once the best antipoverty program, the best profamily measure, and the best jobs creation bill ever to come out of the U.S. Congress.
The day I signed this bill we also heard some extremely good news about the economy. Gross national product, the figure that measures our economy's growth, showed a strong upswing in the third quarter, coming in at 2.4 percent. Sales are up, with a sharp increase in durable goods purchases -- pointing to increased production and more jobs in the future. And U.S. exports of goods and services are up dramatically over last quarter. What does all this mean? Well, it tells us that our economy is solid and accelerating again. We're now enjoying one of the longest peacetime economic expansions in postwar history. We're seeing record numbers of new businesses being created and nearly 11.7 million jobs created in the last 46 months. Sure there are ups and downs, and some sectors of the economy are not yet sharing fully in the expansion. But the indications are that our economy is gathering momentum for even more growth, more job creation, a narrowing trade deficit, and continued low inflation in the months ahead. Add to this the progrowth, low rate taxes -- or tax rates, I should say, of the new tax bill and you've got an economy that's ready to climb. We're headed for a second leg upward, and I believe our 4-year-long recovery will one day be recorded as one of the most remarkable peacetime expansions in the 20th century. And we're going to keep the good times rolling until they extend to every single corner of our nation.
Contrast this with the economic mess we inherited 5\1/2\ years ago. It's not for nothing those are called the days of malaise. Inflation then had skyrocketed up to 13 percent. Now it's holding at an incredible 1.8 percent. The prime rate had shot up to 21\1/2\ percent. Today we've cut it by two-thirds. When we came into office the top tax rate was 70 percent, and the middle class was paying tax rates that once were levied only on the very rich. Worse, inflation gave you an automatic tax hike every year and Congress more of your money to spend, without their having to stand up and vote for a tax hike. Well, the first thing we did was cut your taxes and index them so that wouldn't happen again. And with tax reform, that top rate of 70 has been chopped to only 28 percent of total income.
All these achievements were hard fought, believe me. But it's a funny thing, some of the same people who fought us every step of the way when we tried to cut taxes and reform our tax code -- these same people are talking down the American economy. Well, in one sense, I have to say they're right. There is a cloud hanging over the American economy, and that's the possibility that the tax-and-spend mentality will return to Washington and take us back to those bad old days of sky-high taxes, double-digit inflation, and 21\1/2\ percent interest rates. Don't think it can't happen. There are still a lot of people in Washington who have that mentality, who want to raise your taxes back up to where they were in 1980. So, unless we keep our guard up, we could find ourselves in no time returning to the policies of tax and tax, spend and spend. And we'd wake up one morning to find that all we've worked so hard for, all our progress, gone with the wind.
Now, that's why I'm talking to you, the American people. Your hard work turned America around and set it firmly on the road of prosperity -- and the numbers released this week prove it. We've come so far. With your commitment, with your support, we can keep America growing, confident, and secure. We can -- and I know we will -- keep the doors of the opportunity society wide open and keep America's future one of hope and ever-growing possibilities.
Until next week, thanks for listening, and God bless you.
Note: The President spoke at 12:06 p.m. from the Oval Office at the White House.