Remarks at a White House Meeting With Members of the Business Council
February 19, 1986
Roger Smith, Ruben Mettler, and ladies and gentlemen, good afternoon and welcome to the White House. It's an honor to be able to greet you here today, and permit me to say, it's about time we managed to get together. When I found out you'd met with every President from Johnson to Carter, I had a feeling that the list had stopped kind of short. [Laughter] Before I say anything else, let me congratulate one of your members, someone who in recent days has lived up to the very highest ideals of corporate responsibility and grace under pressure. Jim Burke of Johnson & Johnson, you have our deepest admiration.
Now, tomorrow I'm going to Grenada to see firsthand how freedom is working down in that country. I know that some of you've been there and have seen the many incentives for opening a business in that free and independent society. Many incentives for American business now exist in Grenada and elsewhere in the region thanks to the Caribbean Basin Initiative. The climate has become brighter for American business in that region. It's encouraging to witness what can happen in an environment where free enterprise is allowed to flourish. And this is particularly significant when we know that lands close to Grenada do not have these same opportunities. Through innovative private sector initiatives, the Grenadian people will be better able to determine their future and to improve the quality of their life.
Now, I know you're eager to hear where we stand on Gramm-Rudman-Hollings. But in order to illuminate the battles of the moment, let me first review our record. As men and women steeped in the practice of business, you no doubt remember in detail what the economy was like when we took office: inflation in double digits, growth at a virtual standstill, interest rates soaring -- indeed, the month that we took office, interest rates lofted up to their highest level since the Civil War.
We came to Washington prepared to do combat to put the economy to rights. And we came armed with one crucial insight: A democratic government, indeed any government, is powerless to ordain economic growth or decree technological innovation. But this much a government can do: It can reward or punish specific economic activities. High tax rates represent punishment. Burdensome regulations represent punishment. But cutting taxes and eliminating needless regulations constitute rewards.
And you'll recall, for example, that one of our first acts upon taking office was to decontrol the price of oil. That action raised the price for oil received by domestic producers, which in turn set off efforts to produce still more oil. Geologists soon discovered new fields; and as a crucial byproduct of their search for oil, they also discovered new deposits of natural gas. And eventually energy prices fell, placing pressure on the OPEC cartel. The dramatic drop in the price of oil that we see today is in part a consequence of that simple act of decontrol. And while the new, lower oil prices will force some to make difficult adjustments, on balance they represent a tremendous economic boon. All America and virtually the entire Western World would now be able to divert resources from energy to other goods and services, cutting production costs throughout the world. To paraphrase Shakespeare -- should I risk this one? -- ``Oil's well that ends well.'' [Laughter] I ought to be ashamed of myself. [Laughter]
From the decontrol of oil we went on to apply powerful, new incentives to the entire economy, and we helped to hold down the cost of doing business by cutting the growth of government regulations. We supported a sound monetary policy, helping to bring to an end the constant uncertainty about monetary policy that had been caused, again, by erratic and imprudent uses of government power. And we cut taxes, providing business with investment incentives, spurring the accumulation of venture capital by cutting the top rate on capital gains from 28 to 20 percent, and enacting an across-the-board personal income tax rate cut of nearly 25 percent.
And the results: 38 months of economic growth so far; the creation of nearly 10 million new jobs -- 9.8 million to be exact -- and the highest proportion of our civilian population employed at any time in our history. New technologies are being produced in an endlessly rich profusion -- robotics, home computers, satellite communications. Basic industries have undergone a renaissance. Roger Smith and Phil Caldwell can tell you, for example, how the automobile industry has come back from the edge of the grave to a dazzling, new competitiveness and creativity. And it's been a long time since anybody looked down his nose and used the term Reaganomics. I knew it was succeeding the minute they stopped calling it that. [Laughter]
Well, this, then, is the record. Things used to be very much worse; now they're very much better. The key was getting government out of the way, and as we turn to the future that remains the key, still. I can never forget the many times that I've said, and still believe, that the nearest thing to eternal life that we'll ever see on this Earth is a government program. They stick around long after the need for them is gone. And we're trying to do something about that.
As we turn to the future -- this remains -- getting government out of the way remains the key still, as I say. And on tax reform, we intend to lower corporate rates and allow most individuals to keep more of their own earnings. Yes, it's likely that this might involve shifting some of the tax burden from individuals to corporations. But with our commitment to revenue neutrality, the question is how the current tax burden can best be distributed to promote economic growth. The answer, I'm convinced, involves economic incentives for all -- and especially lower marginal rates. And that's why for individuals we intend to cut the top individual rate all the way down to 35 percent -- half of what it was when we took office. Business will benefit in turn as these lower rates lead the economy to new prosperity. And let me assure you, as tax reform works its way through the Senate, we intend to make certain that it avoids increases in the cost of capital. Just as we had to do combat to cut taxes in our first term, the battle for second-term tax reform will be long and hard. I was going to ask if I could count on your help, and I'm just going to assume that I can.
And the other crucial challenge facing us now is the need to limit government spending. I say government spending, not the Federal deficit itself, and in doing so I choose my words purposefully. The more the Government spends, the more resources it takes from the private sector. And other things being equal, the fewer the resources available to the private sector, the higher will be the real rate of interest and, in turn, the lower the rate of economic growth. The price competitiveness of our goods on world markets will also suffer, as I'm sure Clayton Yeutter will mention. Whether the Government obtains its funds through taxation or borrowing is, at the most basic level of analysis, irrelevant.
Yes, an accountant looking at the books would say we could eliminate the deficit by raising taxes. But a tax hike would do nothing about the root problem of government expansion -- of government extending its deadening hand to more and more of the economic life of our nation. On the contrary, a tax hike would make the root problem worse and undermine the economic growth we've already worked so hard to achieve. My friends, I just have to believe that we've come too far to go back -- back to the old days of tax and spend. It's time to cut the Federal budget, not the family budget.
And now for Gramm-Rudman-Hollings. The law has its faults, but it represents the most serious effort in decades to come to grips with Federal spending. As you know, 2 weeks ago a three-judge panel of the U.S. District Court for the District of Columbia upheld the validity of Gramm-Rudman-Hollings but found the sequester mechanism of the law unconstitutional. Well, this decision does not invalidate Gramm-Rudman-Hollings nor does it diminish the determination of this administration or the responsibility of the Congress to meet the Gramm-Rudman-Hollings targets for deficit reduction. If the Supreme Court affirms this district court decision, there is a valid fallback provision already in the bill which would come into effect. And it would remain the duty of the Congress to legislate the $11.7 billion budget cut already agreed upon for the fiscal year 1986 sequestration.
Regardless of the outcome in the courts, I will go on until the day I leave this office to submit budgets that steadily reduce the Federal deficit. Indeed, the budget we submitted 2 weeks ago meets the Gramm-Rudman-Hollings targets all the way through 1991. It does so in a manner that preserves programs for the truly needy, it keeps our defenses strong, and it avoids any tax hike. It's a budget we intend to stand by, and I urge you to help us get it passed. Our administration and Congress made a promise to the American people. I think we should live up to it.
Think back to the 1950's and the early 1960's -- back to the limited government, reliable currencies, sound monetary policy, and economic growth they helped to promote. In many regards, we can take that period as a model. For we intend to achieve not just a burst of economic growth, but sustained and solid economic growth -- an era of good times and prosperity. That's going to be our target -- has been from the time we came here. New technologies are in place. The growth of past months has shown that the American people themselves are ready -- hard-working, innovative, filled with the kind of confidence and high hopes that our republic has justified in its citizens again and again. We need only reassert the best in our own tradition -- the primacy of private initiatives and the importance of limited government. And the battlefield is Washington, and isn't it worth the fight? I think it is.
You know, I've often likened some of the doings of government, no matter how well intentioned they are, as to the little town that wanted to raise its traffic signs from 5 feet high to 7 feet high, thinking it'd be more visible for the motorists coming along. And then the story has it that the Federal Government told them that they had a Federal program that would take care of that -- they'd lower the streets 2 feet. [Laughter]
Well, we're going to keep on trying to change things for you, and hope that you'll go along with us. Thank you all very much, and God bless you for being here.
Note: The President spoke at 3 p.m. in the East Room at the White House. In his remarks, the President referred to Roger Smith, vice chairman of the council and chairman of General Motors Corp.; Ruben Mettler, chairman of the council and chairman of TRW; James E. Burke, chairman of the board of Johnson & Johnson; and Philip Caldwell, former chairman of the Ford Motor Co. Clayton Yeutter, U.S. Trade Representative, also addressed the council.