Remarks About Federal Tax Reduction Legislation at a Meeting With Trade Association Representatives
July 27, 1981
Thank you, very much. And the gentleman accompanying me you will meet later, after my few minutes of remarks, our Secretary of the Treasury, Don Regan. I found out that if you go far enough back in Irish history, we're cousins. [Laughter] And I didn't know there was any nepotism involved, though, when I asked him to take this job. [Laughter]
Well, thank you for coming today. It gives us a chance to bring you up to date on the progress of our economic programs, and it also give us a chance to ask you for a little help. And it isn't the kind of help -- don't reach for your checkbooks -- this time we want blood. [Laughter] But we know that you're an interest group for free enterprise, and you know full well what is at stake as we struggle to put in place our program for economic recovery.
We've accomplished a great deal. The Congress is completing work on the largest budget cuts that body has ever considered in the history of this country. We've done much to reduce the burden of overregulation, and we're going to continue along that line. And someday, maybe, the blizzard of paperwork will just be a light snowstorm each year on Washington.
We're working closely with the Federal Reserve Board to maintain a slow and steady monetary growth. But the last and the most crucial item on our agenda for prosperity still lies ahead. We must cut taxes.
The day after tomorrow, the Members of the Congress will choose between the bipartisan tax cut called for in our program for recovery, a bill coauthored by a Republican and a Democrat, and a tax increase proposed by the House leadership. They don't call it that, but it is. And the choice will determine the future of our economy, of your business or organization, and of your family.
Now, I'm afraid that as the tax debates come down to the wire, so much has been said that some very simple differences have gotten lost. For example, the Speaker of the House boasts that the leadership bill gives a higher cut to working Americans. And that's true, if you're only planning on living for 2 more years. [Laughter]
Tonight on television, I'll be on at 8 o'clock tonight on television, talking about this tax program, and I'm going to have some charts pointing out that, yes, with their 2-year cut and our 3-year cut, theirs seems to be a deeper cut as we go down. But their line then starts steeply upward at the end of those 2 years; ours keeps on going down for the third year, and then levels off, because we're indexing the tax brackets to stop government's illicit profiteering on the basis of inflation.
And you know, of course, what bracket creep is. That's when inflation causes your salary to go up, the taxes go up as well. It's been estimated that a worker who was earning $10,000 in 1972, to keep even today, has to earn nearly $20,000 -- $19,850. That's to keep even with inflation, but that's before taxes. After taxes, he hasn't kept even at all. His taxes have gone up 33 percent.
A sad trick has been played on the working people of this country, and our bill will make that right. By indexing taxes for inflation, we make a permanent commitment.
Now, we want to cut taxes for tomorrow as well as today. For the majority leadership to talk about a tax cut at all is puzzling, because the taxes will go up by nearly 22 percent over the next 3 years and continue going up beyond that period, due to that bracket creep that I mentioned, plus the tax increases already built into the system, four more tax increases to take place in social security payroll tax between now and 1990 -- and not only will there be increases in the rate, they will also increase the amount of earnings against which that rate will apply.
Now, their 15-percent cut will still leave a sizable tax increase. We counter that 22-percent climb with a 25-percent cut, and then we stop that increase that I mentioned that will be on that graph tonight by stopping bracket creep.
But when the details of the debate are cleared away, let everyone remember this: The concepts at the heart of our first tax proposal, the first thing that we came out with, remain intact today. There had been compromises and changes made, and the compromises weren't in principle at all. Actually, it proved that more cooks were better than just one, because we found legitimate proposals made that could benefit the package although we stayed within the same rough figure as to amount.
Our bill cuts taxes across the board, for 3 years, as I said, and cuts them by the same percentage for everyone who pays them and has a 3-year guarantee to let the people know where they stand. The independent businessman, the farmer, the shopkeeper -- they will be able to look ahead for 3 years and see what their tax situation is going to be and thus be able to plan ahead.
Now, as you probably know, the bipartisan bill has business provisions such as the accelerated cost recovery system. And last week, we added incentives to further encourage investment in research and development. We've been lowest among all the industrial nations in that for a number of years. And our bill will almost eliminate estate taxes, ensuring that family farms and family-owned businesses will stay in the family and won't have to be sold to pay the tax.
The bipartisan proposal was designed to encourage small businesses that provide 80 percent of the new jobs that we must have. And, incidentally, in that estate tax, the thing that I'm happiest about of all is we do end that tax on a surviving spouse. There won't be any estate tax leveled when the inheritor is a husband or wife.
As you consider the two options, remember that the majority leadership in the House has given us five tax cuts in the last 10 years, and in these same 10 years, our taxes have gone up by more than $400 billion. Now, that's a kind of talent we don't possess. [Laughter] We do ask, ``When is a tax cut not a tax cut?'' And the answer is, ``When they wind up as a tax increase.'' And if we don't act now, they'll do it again.
Only a few months ago, remember, the same people who are presenting that alternative tax bill, the so-called committee bill, made fun of the idea of trying to cut taxes at all. The voters didn't think it was so funny, so before the month of January was out, they suddenly discovered that they, too, were for a tax cut -- just not for our tax cut. Of course, 3 years were out of the question, to see if you could plan for a tax cut 3 years ahead. But then in February, they discovered that, well, a 2-year tax cut might be practical. And now they say that's 2 years and maybe 3, if some economic standard is met 2 years from now, that if we've achieved that goal, then that would trigger the third year's tax cut.
Well, the bottom line is simply this: Ours is a permanent commitment, and theirs is not. And tonight I will be telling the people that their tax bill is so rigged, by the end of the second year, the deficit will be $7 billion or more bigger than it will be under our program, which will automatically ensure that they will never pull that trigger that would bring about the third year's tax cut.
We want to restore individual incentive; they do not. We offer a real tax cut, and they do not. And the choice is clear. For our country to have real chance at renewal, we must have economic recovery. And tonight, I'm going to appear, as I said, to discuss these taxes. But what I'm really going to be talking about is what I think is our plan to renew American prosperity. That was the mandate of the people last November, and I would like to have your help and be able to count on it to pass the kind of legislation needed to give that recovery a chance.
I think up on the Hill, there are a great many Representatives who want to know how you feel, who want to know how the folks back home feel in making their decision on behalf of the people.
And now, I'm going to turn this meeting over to Don Regan for further explanation in detail and for your questions that you might have on these tax programs, because I've got a meeting with a fellow that just came back from the Middle East, named Habib, and I think all of us are kind of interested in finding out a few things we need to know there, too.
So, if you will excuse me now, and may I present Don Regan, the Secretary of the Treasury.
Note: The President spoke at 11:43 a.m. in the East Room at the White House.